**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**Form 10-K**

**(Mark One)**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe fiscal year ended December 31, 2006**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**For thetransition period from               to              .**

**CommissionFile Number: 000-51552**

**ATSCORPORATION**

(Exact name of Registrantas specified in its charter)

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

 

| **7915 Jones Branch Drive**               |   | ** ** |
|-------------------------------------------|--------|------------|
| **McLean,  Virginia**                     |   | **22102**  |
| (Address of  principal executive offices) |   | (zip code) |

 

**Registrant’s telephone number, including area code:**

**(703)506-0088**

Securities Registered Pursuant to Section 12(b) ofthe Act:

**NONE**

**Securities Registered Pursuant toSection 12(g) of the Act:**

|                                  | **Title  of Each Class** | ** ** |   | ** ** | **Name  of Exchange on Which Registered** | ** ** |
|----------------------------------|--------------------------|------------|--------|------------|-------------------------------------------|------------|
| Common Stock,  $0.0001 par value |                     | OTCBB      |

 

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

**Common Stock, $0.0001 par value**

**Warrants to purchase shares of Common Stock**

(Title Of Class)

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act. Yes o   No x

Indicate by check mark if the registrant is not requiredto file reports pursuant to Section 13 or Section 15(d) of theAct. Yes o   No x

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x   No o

Indicateby a check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

Large acceleratedfiler o      Accelerated filer x      Non-accelerated filer o

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes x   No o

As ofJune 30, 2006, the aggregate market value of the Registrant’s Common Stockheld by non-affiliates of the Registrant was $112,953,100 based on the closingsales price of the Registrant’s Common Stock on the OTC Bulletin Board on thatdate.

As of March 20, 2007, 18,533,158 shares of theRegistrant’s common stock, $0.0001 par value, were outstanding.

**DOCUMENTS INCORPORATED BY REFERENCE**

Part IIIincorporates information by reference from the definitive proxy statement forthe Annual Meeting of Stockholders expected to be held in June 2007.

 

----

**ATS CORPORATION**

**For the Fiscal YearEnded December 31, 2006**

**TABLEOF CONTENTS**

|                   | ** ** | ** **                                                                                                          | ** ** | **Page** | ** ** |
|-------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| **PART I**        |       |                                                                                                                |       |     |       |
| ITEM 1.           |       | Business                                                                                                            |       | 3        |       |
| ITEM  1A.         |       | Risk  Factors                                                                                                       |       | 10       |       |
| ITEM 1B.     |       | Unresolved Staff Comments                                                                                           |       | 22       |       |
| ITEM 2.           |       | Properties                                                                                                          |       | 22       |       |
| ITEM  3.          |       | Legal  Proceedings                                                                                                  |       | 22       |       |
| ITEM 4.           |       | Submission of Matters to a Vote of Security Holders                                                                 |       | 22       |       |
| **PART II**       |       |                                                                                                                |       |     |       |
| ITEM 5.           |       | Market for Registrant’s Common Equity, Related  Stockholder Matters and  Issuer Purchases of Equity Securities |       | 23       |       |
| ITEM  6.          |       | Selected  Financial Data                                                                                            |       | 25       |       |
| ITEM 7.           |       | Management’s Discussion and Analysis of Financial  Condition and  Results of Operation                         |       | 26       |       |
| ITEM 7A.          |       | Quantitative and Qualitative Disclosures about Market  Risk                                                         |       | 33       |       |
| ITEM 8.           |       | Financial Statements and Supplementary Data                                                                         |       | 33       |       |
| ITEM 9.           |       | Changes In and Disagreements with Accountants on  Accounting and  Financial Disclosure                              |       | 33       |       |
| ITEM 9A.          |       | Controls and Procedures                                                                                             |       | 33       |       |
| ITEM  9B.         |       | Other  Information                                                                                                  |       | 35       |       |
| **PART III** |       |                                                                                                                |       |     |       |
| ITEM 10.          |       | Directors, Executive Officers and Corporate Governance                                                              |       | 36       |       |
| ITEM 11.          |       | Executive Compensation                                                                                              |       | 36       |       |
| ITEM 12.          |       | Security Ownership of Certain Beneficial Owners and  Management and  Related Stockholder Matters                    |       | 36       |       |
| ITEM 13.          |       | Certain Relationships and Related Transactions, and  Director Independence                                          |       | 36       |       |
| ITEM 14.          |       | Principal Accounting Fees and Services                                                                              |       | 36       |       |
| **PART IV**       |       |                                                                                                                |       |     |       |
| ITEM 15.          |       | Exhibits, Financial Statement Schedules                                                                             |       | 37       |       |

 

2

----

**FORWARD-LOOKINGSTATEMENTS**

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

·       risksrelated to the government contracting industry, including possible changes ingovernment spending priorities;

·       risksrelated to our business, including our dependence on contracts with U.S.Federal Government agencies and departments and continued good relations, andbeing successful in competitive bidding, with those customers;

·       uncertaintiesas to whether revenues corresponding to our contract backlog will actually bereceived;

·       risksrelated to the implementation of our strategic plan, including the ability tomake acquisitions and the performance and future integration of acquiredbusinesses; and

·       otherrisks and uncertainties disclosed in our filings with the Securities andExchange Commission.

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

The terms “we” and “our” as used throughout thisAnnual Report on Form 10-K refer to ATS Corporation and itsconsolidated subsidiaries, unless otherwise indicated.

**Item 1.**                        *Business*

**INFORMATION ABOUTATS CORPORATION (“ATS”)**

**Our Business**

We were organized as a “blank check” company 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. Our principalexecutive offices are located at 7915 Jones Branch Drive, McLean, Virginia22102.

**Personnel**

***ATS has noemployees other than those of ATSI.***

3

----

**AvailableInformation**

***We maintain aninternet website at http://www.atsva.com. We make available our annual reportson Form 10-K, quarterly reports on Form 10-Q, current reports onForm 8-K and amendments to such reports filed or furnished pursuant toSection 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended,and other information related to us, free of charge, on this site as soon asreasonably practicable after we electronically file those documents with, orotherwise furnish them to, the Securities and Exchange Commission. Our internetwebsite and the information contained therein or connected thereto are notintended to be incorporated into this Annual Report on Form 10-K.***

**Recent Developments**

On January 16, 2007, we acquired all of theoutstanding capital stock of Advanced Technology Systems, Inc. and itssubsidiaries (“collectively, ATSI”), a provider of systems integration andapplication development to the U.S. government, for (a) $84.0 millionin cash, reduced by a working capital adjustment, the repayment of outstandingindebtedness of ATSI and an aggregate of $8.75 million of escrowed funds,and (b) 173,913 shares of common stock of ATS. It is possible that the formershareholders of ATSI could benefit from certain earnout opportunities ifcertain adjusted EBITDA thresholds are achieved and additionally if ATSI isawarded a contract for a U.S. Air Force information technology outsourcingproject in Hawaii. That contracting decision has been delayed on several occasions.As of the date of this Annual Report on Form 10-K we had not been advisedof a decision on that award. 

We funded the cash portion of the ATSI purchase pricewith the proceeds of our initial public offering. In connection with theacquisition of ATSI, holders of 2,906,355 shares of common stock who votedagainst the acquisition and protected their right to covert their shares of commonstock into $5.77 of cash per share. An aggregate of $16,769,668 was paid toconverting stockholders. These conversions were also funded with the proceedsof our initial public offering. Information about ATSI is included as anexhibit to this Annual Report on Form 10-K.

As previously announced on January 9, 2007, andafter the close of the ATSI acquisition, the Company repurchased 2,625,000shares of the Company’s common stock from the founders of the Company for approximately$2,888. The founders are Joel R. Jacks, Peter M. Schulte, Dr. Edward H. Bersoff,Arthur L. Money and FSAC Partners, LLC.

Following the completion of the acquisition, weannounced and implemented a common stock and warrant repurchase program. ThroughMarch 9, 2007, we utilized approximately $12.0 million of cash topurchase 2,399,400 shares of our common stock at an average price of $4.99 pershare including commissions.

The ATS Incentive Compensation Plan was approved bythe stockholders at the January 12, 2007 stockholder’s meeting. The planreserves 1.5 million shares of our common stock for issuance to our employeesand employees of our subsidiaries.

We entered into a temporary 90-day $9.0 million lineof credit with the Bank of America on February 1, 2007. The current linebears interest at the one-month LIBOR rate plus between 150-225 basis points perannum, depending on the outstanding balance on the line. The Company expectsthis temporary line to be replaced with permanent arrangements, perhapsinvolving both a revolving credit facility and a stand-by acquisition facility.No assurance can be provided that the Company will be able to put into placepermanent credit facilities, or the size and terms of such facilities.

As of the close ofbusiness on February 28, 2007, we acquired Reliable IntegrationServices, Inc. (“RISI”), a 37-employee network systems integrator servingU.S. government defense and civilian agencies for approximately $1.3 millionin cash, promissory notes and assumption of debt, plus $0.2 million in ATScorporation common stock.

4

----

Weentered into a warrant clarification agreement on March 14, 2007. Prior to thatdate we were required to record the warrant liability at each reporting date atits then estimated fair value, with any changes being recorded through ourstatement of operations as other income/expense. The warrants will continue tobe reported as a liability through March 14, 2007 when we clarified our warrantagreement so this treatment is no longer required.

OnMarch 19, 2007, we entered into an employment agreement with Dr. Edward H.Bersoff to join ATS as our Chairman, President and Chief Executive Officer. Hehas been serving in that capacity since January 16, 2007. The employmentagreement was filed as part of an 8-K on March 21, 2007.

**INFORMATION ABOUTATSI**

**Regulations**

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

As a government contractor, we are subject togovernment audits, inquiries and investigations. We have experienced minimalaudit adjustments in the past. The Defense Contract Audit Agency (“DCAA”) hascompleted its audit of ATSI contracts through the fiscal year endedOctober 31, 2004, and we are subject to adjustment on our performanceduring subsequent years.

**Overview**

ATSI provides systems integration and applicationdevelopment, information technology infrastructure management, and strategicinformation technology consulting services primarily to U.S. governmentagencies. As part of its complete systems life-cycle approach, ATSI offers itsclients an integrated full-service information technology infrastructureoutsourcing solution that allows an agency to focus on its core mission whilereducing costs and maintaining system uptime.

ATSI, founded in 1978, was incorporated under the lawsof the District of Columbia, and in 1994 began operating as a Virginiacorporation. ATSI originally focused on mainframe applications development andwas awarded one of its first prime contracts in 1981 from the Department ofHousing and Urban Development, or HUD, to develop the Computerized HomesUnderwriting Management System, a system for tracking and monitoring homemortgages. By 1985, as technology evolved, ATSI’s relationship with HUD evolvedas well, and ATSI was tasked to design and implement various Local AreaNetwork, or LAN, applications to meet the complex needs of the agency. ATSIexpanded its expertise into enterprise architecture and system implementationservices during its design of HUD’s multi-tiered extranet application, FHAConnection, which consists of several smaller subsystems with a diverse mix ofmulti-tiered architectures in a web-driven solution. Throughout the 1990’s,ATSI began to accelerate its business development efforts with other federalagencies in an effort to diversify its client concentration outside HUD andprovide additional avenues for growth. For example, ATSI cross-sold its HUDapplications development expertise to the Resolution Trust Corporation, or RTC,an agency created to manage the savings and loan crisis, to provide bothapplications development and database administration. As the savings and loancrisis was resolved, ATSI leveraged its past performance record at RTC to win acontract to develop the Federal Deposit Insurance Corporation’s first internetand intranet sites.

Although ATSI’s serviceofferings have evolved over time to incorporate new technologies, ATSI hasremained committed to:

·       systemsintegration and application development;

5

----

·       informationtechnology infrastructure management to support its clients’ program or systemobjectives through the design and implementation of customized solutions; and

·       strategicinformation technology consulting (business process redesign).

**Systems Integrationand Application Development**

ATSI has over 25 years of experience building andimplementing leading edge financial, administrative/tracking anddocument/records management systems for federal civilian agency and Departmentof Defense (“DoD”) clients. ATSI has designed, developed, and integrated over100 custom, enterprise-wide applications to assist clients with managing dataand systems resources. As a result of its development efforts, ATSI has built astrong understanding of its clients’ information technology infrastructures,favorably positioning it to identify opportunities for additional applicationdevelopment and systems upgrades.

To create the best solutions for clients, ATSIutilizes its expertise in the following areas:

***Softwaredevelopment***

ATSI offers a diverse portfolio of softwaredevelopment solutions that include:

·        requirementsanalysis;

·        commercialoff-the-shelf software, or COTS software, integration;

·        systemsimplementation;

·        legacysystems migration; and

·        customsoftware and application development.

ATSI’s full suite of software engineering capabilitiesfavorably position ATSI to meet its clients’ desire to engage contractors whocan evaluate the feasibility of COTS-based software solutions and, whennecessary, develop custom applications that modify those solutions to meetoverall system requirements. ATSI has built extensive knowledge of most of itsclients’ systems, allowing it to evaluate the feasibility of integratingCOTS-based software solutions with legacy systems. Additionally, ATS hasdeveloped numerous custom software solutions for clients requiring technicalspecifications that are more demanding than those offered by a COTS solution.

***Systems integration, installation, and migration***

ATSI performs comprehensive systems integration andinstallation services in support of its developed software systems, as well asnetwork and hardware upgrades using COTS technologies. ATSI’s professionalsanalyze a client’s existing information systems, applications and platforms anddesign a solution that sustains or extends system performance and availability.As part of its work in this area, ATSI leverages its past experience and deeptechnical expertise to evaluate competing solutions. ATSI then develops systemsbased on the cost and requirements of a client. Finally, ATSI integrates thesystem into existing enterprise architectures to create a seamless applicationfor clients. Many of ATSI’s software development projects involve a substantialdegree of legacy system integration and have served to further deepen ATSI’stechnical capabilities with legacy systems integration and migration.

***Web-based software implementations***

ATSI’s software and systems engineers have developedextensive experience designing web-based applications and database solutions.ATSI offers web-based solutions that include:

·        publickey infrastructure, or PKI;

·        virtualprivate network, or VPN;

6

----

·        singlesign-on;

·        performancemonitoring; and

·        clustering/loadbalancing and business-to-business, or B2B, applications.

ATSI develops web-enabled systems that allow agenciesto manage their intellectual capital by providing interactive web ties torobust database and mainframe architectures. Additionally, ATSI developsintranet portals allowing organizations to share information and communicateacross a LAN, Wide Area Network (“WAN”) or the Internet.

***Database design, administration, and integration***

ATSI combines broad experience in administeringdatabases with a focused attention to suggesting and implementing databaseapplications and solutions. ATSI is involved in all stages of the database managementlife cycle, including assessment of functional requirements, development ofdatabase requirements, and assistance in vendor selection. ATSI has expertisein highly-complex database design and optimization, data modeling, distributeddatabases, advanced architectures performance tuning, backup and recoveryplanning, application administration planning and operational administration.ATSI supports all phases of a database’s life cycle and typically acts as avendor-neutral advisor, allowing ATSI to offer its clients the databaseapplication that best addresses a system’s specific requirements. In addition,ATSI has designed and built custom database systems, using object-orientedanalysis and design techniques.

***Professional staffing services***

ATSI provides business and information technologystaffing services for nearly all of the technical and functional disciplines atfinancial institutions with specific focus on business/data analysts anddatabase professionals. ATSI’s professionals possess significant technical anddomain knowledge developed through years of working with many of the largestfinancial services firms. ATSI employs a dedicated recruiting staff to ensureATSI has a full staff of professionals ready to quickly meet clients’ needs. Ourprofessional staffing services to financial institutions include the following:

·        12EE/Javadevelopment;

·        client-serverC/C++ development;

·        systemsadministration;

·        mortgageindustry business analysis;

·        projectmanagement;

·        P&Cindustry business analysis;

·        Oracleand Sybase database administration; and

·        systemstesting.

**InformationTechnology Infrastructure Management**

ATSI provides a full range of outsourcedinfrastructure management support services. The primary components of ATSI’sinfrastructure management services are:

***Managed services and program management***

ATSI provides a suite of enterprise informationtechnology infrastructure support services that enable government clients tofocus on their core missions. ATSI’s information technology staff works withclients to help plan, deploy, manage, and maintain their entire informationtechnology infrastructure. ATSI’s systems and services are focused on ensuringthat clients’ enterprise solutions have the availability, reliability, performance,and support required for long-term success. ATSI also provides comprehensiveprogram management services to several federal agencies. These services 

7

----

range from theestablishment of program objectives to the application and tailoring of bestpractices, as well as providing on-site management to execute all phases of aprogram effectively. Program management often entails assisting the federalgovernment in the oversight activities with larger systems being developed bylarge system integration firms.

***Help desk functions and messaging/workflowadministration***

ATSI’s complete outsourced information technology andinfrastructure management solution includes the provision of network-essentialhelp desk functions. The ability to accurately identify, capture and reportnetwork problems is critical to ATSI’s ability to manage networks and recommendsystem upgrades. ATSI also defines, evaluates, designs, deploys and ultimatelymaintains and improves custom email systems that provide security, reliabilityand scalability for future growth. ATSI is currently working with multipleclients in the delivery of business workflow solutions and the correspondingdesign of electronic records management solutions.

***Security/risk management***

ATSI provides a full range of security and riskmanagement services that proactively ensure the safety of information, networksand systems.

***ATSI Hawaii***

ATSI Hawaii was formed to evaluate and pursue newbusiness opportunities in the Pacific Rim. This division is currently awaitinga contracting decision for a U.S. Air Force information technology outsourcingproject, or USAF ETS’s contract, in Hawaii, South Korea and other locations inthe Pacific that could have a contract value of more than $400.0 million overfive years. Management expects the USAF ETS Contract to be awarded during thefirst half of 2007 and it is not currently pursuing additional opportunitiesthrough ATSI Hawaii. If the USAF ETS Contract is not awarded to ATSI, it ispresently anticipated that ATSI Hawaii will be closed.

**StrategicInformation Technology Consulting (Business Process Redesign)**

ATSI has developed a comprehensive and sophisticatedstrategic information technology consulting practice to assist clients withredesigning their business processes. ATSI helps clients identify and implementchanges that can significantly improve performance, cost-effectiveness,quality, and client satisfaction. ATSI’s multi-disciplined consultants aretypically engaged by senior agency officials to assist with the development ofprograms and policies that support overall strategic organizational goals. ATSI’sstrategic information technology consulting offerings include:

***Strategic planning and data modeling***

ATSI’s strategic planning practice supports themodeling, simulation and prototyping of information technology and networksystems and solutions that help clients maximize their investments in thosesystems. As part of its efforts, ATSI engages in feasibility studies, strategicplanning, systems development consulting, quality assurance, projectmanagement, organizational assessment, system and transition planning andacquisition support for clients. ATSI also provides data modeling services thatallow clients to analyze how investments in software and systems architecture willimpact the overall system, database and network performance. ATSI uses its datamodeling capabilities to assist clients with operations research, systemanalysis, systems engineering, cost-benefit analyses and statistics onoperating performance.

***Cost/economic/business case analysis***

ATSI provides cost/economic and business case analysisto several civilian and DoD clients. ATSI’s approach to these engagements ismulti-dimensional, comparing not only the financial aspects 

8

----

of a system upgrade, butalso addressing building, restructuring, and investing in future systems andtechnology. As part of this process, ATSI also assists agencies with developingeffective performance metrics that directly link agency missions and strategicobjectives with their information technology infrastructure.

***Migration planning for technology upgrade***

ATSI provides software and systems migration planning.ATSI utilizes a collaborative approach to systems implementation, often workingwith clients to design systems requirements and select “best-of-breed”technologies to meet mission objectives. After identifying the propersolutions, ATSI works with clients to identify issues that may arise during asystems migration and map out migration and implementation schedules. ATSI alsofocuses on identifying potential issues impacting system uptime, connectivityand data availability. ATSI’s software and systems engineers then work with aclient to address ways to alleviate concerns and minimize the impact on dailyoperations.

***Benchmarking, performance measurement and changemanagement***

ATSI provides program management support for softwareapplications and networks through benchmarking, which encompasses thesystematic process of searching for best practices, innovative ideas, andoperating procedures that can be implemented across applications and networks.As part of this process, ATSI’s financial and functional experts design andconduct surveys to define current processes and assess possible improvements.ATSI surveys the budgeting and pricing processes and visits each of theend-users, assessing the compliance and reliability of data collected withcurrent financial management business processes. The results are used to revisethe program management plan and document the detailed functional requirementsnecessary for an enhanced budget planning and programming process.

***Business consulting***

ATSI provides business consulting services to a broadrange of clients through its team of highly-experienced subject matter experts.These experts provide financial institutions with business and technology bestpractices in matters relating to high volume transaction processing, financialaccounting, cash and securities clearance, and fixed income trading. As part ofits consulting services, ATSI’s professionals provide a full life-cycle ofsoftware development consulting services from business analysis, throughrequirements gathering, detailed design, development, testing and trainingsupport. These services are often performed in conjunction with the implementationof an entire solution or system redesign project. Additionally, ATSI providesproperty and casualty insurance companies with business and technologyconsulting services and solutions. These range from system selection andimplementation to business process analysis and redesign. ATSI offerscomprehensive project management and quality assurance services needed toensure a successful system implementation.

**Customers**

**ATSI’s diverse customer baseconsists primarily of U.S. government agencies. For the year ended October 31,2006, ATSI generated 50.0% of its revenue from federal civilian agencies, 19.5%from defense and homeland security agencies, 26.8% from commercial customers,including government sponsored enterprises, and 3.7% from state and localcustomers. ATSI’s largest clients in fiscal year 2006 were HUD and Fannie Mae,representing 22.2% and 19.2%, respectively, of its total revenue.**

9

----

**Competition**

The information technology services industry is alarge and highly competitive market. ATSI competes for contracts based on itsstrong client relationships, successful past performance record, significanttechnical expertise and specialized knowledge. ATSI often competes against boththe large defense contractors, as well as specialized information technologyconsulting and outsourcing firms. Many of these competitors are large, well-establishedcompanies that have broader geographic scope and greater financial and otherresources than ATSI. ATSI’s competitors include Lockheed Martin Corporation,Northrop Grumman Corporation, Science Applications International Corporation,IBM, Computer Sciences Corporation, Dynamics Research Corp., ManTechInternational Corporation, MTC Technologies, Inc., NCI Inc., ICFInternational, Inc., Stanley, Inc., CACI International, Inc.,SRA International, Inc., SI International, Inc., Accenture Ltd. andBearingPoint, Inc. We expect competition in the U.S. governmentinformation technology services sector to increase in the future.

**Employees**

At February 28, 2007, ATSI had 557 personnel,including 472 full-time employees and 46 part-time employees, as well as 39independent contractors. ATSI’s future success will depend significantly on itsability to attract, retain and motivate qualified personnel. ATSI is not aparty to any collective bargaining agreement and it has not experienced anystrikes or work stoppages. ATSI considers its relationship with its employeesto be satisfactory.

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

**Risks Associated with theAcquisition of ATSI and Follow-on Acquisitions**

***Certain of our key personnel who joined us as a resultof the acquisition of ATSI may be unfamiliar with the requirements of operatinga public company, which may adversely affect our operations, includingsignificantly reducing our revenues and net income, if any.***

Upon completion of the acquisition, our formerChairman and Chief Executive Officer, Joel R. Jacks, and our former President,Treasurer and Secretary, Peter M. Schulte, resigned as officers but remainmembers of our board of directors. Dr. Edward H. Bersoff became ourChairman, President and Chief Executive Officer and Stuart R. Lloydbecame our Executive Vice President and Chief Financial Officer. Leon C. Perrycontinues with ATSI as the Senior Vice President and Director of CorporateDevelopment. Dr. Bersoff and Mr. Lloyd each have significant publiccompany experience. The members of the management of ATSI who remain with us donot have such experience and are unfamiliar with the requirements of operatinga public company under U.S. securities laws, which could cause us to expendtime and resources helping them become familiar with such laws. This could beexpensive and time-consuming and could lead to various regulatory issues thatmay adversely affect our operations, including significantly reducing ourrevenues and net income, if any.

***Our stockholders are dependent on a single business.***

As a result of the acquisition, our stockholders are dependentupon the performance of ATSI and its business and other acquired businesses.ATSI will remain subject to a number of risks, including those that relategenerally to the federal services industry. See “Risks Related to Our Businessand Operations.”

10

----

***If the acquisition’sbenefits do not meet the expectations of financial or industry analysts, themarket price of our common stock may decline.***

Themarket price of our common stock may decline as a result of the acquisition if:

·       we do not achieve the perceived benefits of the acquisition as rapidlyas, or to the extent anticipated by, financial or industry analysts; or

·       the effect of the acquisition on our financial results is not consistentwith the expectations of financial or industry analysts.

Accordingly,investors may experience a loss as a result of a decreasing stock price.

***Members of our board ofdirectors may have conflicts of interest that could hinder our ability to makeacquisitions.***

One of our growthstrategies is to make selective acquisitions of complementary businesses. Twoof our directors, Messrs. Jacks and Schulte, are principals of CM EquityPartners, a sponsor of private equity funds. Some of these funds are focused oninvestments in, among other things, businesses in the federal services sector.Messrs. Jacks and Schulte also serve on the boards of a number of CMEquity Partners portfolio companies and, with Dr. Bersoff, are members ofthe board of directors of ICF International, Inc., a diversified federalservices business that plans to grow in part through acquisitions. It ispossible that CM Equity Partners and related funds and portfolio companies andICF International, Inc. could be interested in acquiring businesses thatwe would also be interested in, and that these relationships could hinder ourability to carry out our acquisition strategy.

***We may not have sufficientfinancial resources to carry out our acquisition strategy; we may need to useour stock to fund acquisitions to a greater extent that we originally intended.***

Following our acquisitionof ATSI in January 2007, we announced a common stock repurchase program. As aresult of that program, through March 9, 2007 we utilized approximately $12.0million of cash to purchase 2,399,400 shares of our common stock at an averageprice of $4.99 per share. These stock repurchases significantly reduced theamount of cash available to fund acquisitions. As a result, we may have toincur more debt, or issue more common stock or other equity securities, thanwould otherwise have been necessary in connection with acquisitions, and we maynot have sufficient financial resources to carry out our acquisition strategyto the extent we had initially planned.

***If third parties bring claims against us or if ATSIhas breached any of its representations, warranties or covenants set forth inthe stock purchase agreement governing the acquisition of ATSI, we may not beadequately indemnified for any losses arising therefrom.***

Although the stockpurchase agreement governing the acquisition of ATSI provides that the ATSIshareholders will indemnify us for losses arising from a breach of therepresentations, warranties and covenants by ATSI set forth in the stockpurchase agreement, such indemnification is limited, in general terms, to anaggregate amount of $8.95 million (with a deductible of $375,000). Inaddition, with some exceptions, the survival period for claims under the stockpurchase agreement is limited to the period ending April 30, 2008. We willbe prevented from seeking indemnification for most claims above the aggregatethreshold or arising after the applicable survival period.

**Risks Related to Our Business and Operations**

***The loss orimpairment of ATSI’s relationship with the U.S. government and its agenciescould adversely affect our business.***

ATSI derived approximately 96% of its total revenue infiscal 2006 from contracts with the U.S. government and government-sponsoredenterprises. We expect that U.S. government contracts will continue to be asignificant source of revenue for the foreseeable future. If ATSI or any of itspartners is 

11

----

suspended or prohibitedfrom contracting with the U.S. government generally or any agency or relatedentity, if ATSI’s reputation or relationship with government agencies is impaired,or if the U.S. government or any agency or related entity ceased doing businesswith them or significantly decreases the amount of business it does with them,our business, prospects, financial condition and operating results could besignificantly impaired.

***Changes by the U.S. government in its spendingpriorities may cause a reduction in the demand for the products or servicesthat we may ultimately offer, which could adversely affect our business.***

Changes in the U.S.government budgetary priorities could directly affect our financialperformance. Government expenditures tend to fluctuate based on a variety ofpolitical, economic and social factors. A significant decline in governmentexpenditures, or a shift of expenditures away from programs we support, or achange in U.S. government contracting policies causing its agencies to reducetheir expenditures under contracts, to exercise their right to terminatecontracts at any time without penalty, not to exercise options to renewcontracts or to delay or not enter into new contracts, could adversely affectour business, prospects, financial condition or operating results.

***We are required to comply with complex procurementlaws and regulations, and the cost of compliance with these laws andregulations and penalties and sanctions for any non-compliance could adverselyaffect our business.***

We are required to complywith laws and regulations relating to the administration and performance ofU.S. government contracts, which affect how we do business with our customersand impose added costs on our business. If a government review or investigationuncovers improper or illegal activities, we may be subject to civil andcriminal penalties and administrative sanctions, including termination ofcontracts, forfeiture of profits, suspension of payments, fines and suspensionor debarment from doing business with U.S. government agencies, any of whichcould materially adversely affect our business, prospects, financial conditionor operating results.

***The U.S. government may reform its procurement orother practices in a manner adverse to us.***

Because we derive asignificant portion of our revenues from contracts with the U.S. government orits agencies, we believe that the success and development of our business willdepend on its continued successful participation in federal contractingprograms. The U.S. government may reform its procurement practices or adopt newcontracting rules and regulations, including cost-accounting standards,that could be costly to satisfy or that could impair our ability to obtain newcontracts. It also could adopt new contracting methods to General ServicesAdministration, or GSA, or other government-wide contracts, or adopt newstandards for contract awards intended to achieve certain socio-economic or otherpolicy objectives, such as establishing new set-aside programs for small orminority-owned businesses. In addition, the U.S. government may facerestrictions from new legislation or regulations, as well as pressure fromgovernment employees and their unions, on the nature and amount of services theU.S. government may obtain from private contractors. These changes could impairour ability to obtain new contracts. Any new contracting methods could becostly or administratively difficult for us to implement and, as a result,could harm our operating results.

***Governmentcontracts are usually awarded through a competitive bidding process thatentails risks not present in other circumstances.***

Asignificant portion of our contracts and task orders with the U.S. governmentis awarded through a competitive bidding process. We expect that much of thebusiness we seek in the foreseeable future will continue to be awarded throughcompetitive bidding. Budgetary pressures and changes in the procurement processhave caused many government clients to increasingly purchase goods and servicesthrough indefinite delivery/indefinite quantity, or ID/IQ, contracts, GSAschedule contracts and other government-

12

----

wide acquisition contracts, or GWACs. These contracts,some of which are awarded to multiple contractors, have increased competitionand pricing pressure, requiring us to make sustained post-award efforts torealize revenue under each such contract. Competitive bidding presents a numberof risks, including without limitation:

·       theneed to bid on programs in advance of the completion of their design, which mayresult in unforeseen technological difficulties and cost overruns;

·       thesubstantial cost and managerial time and effort that we may spend to preparebids and proposals for contracts that may not be awarded to us;

·       theneed to estimate accurately the resources and cost structure that will berequired to service any contract we award; and

·       theexpense and delay that may arise if our or our partners’ competitors protest orchallenge contract awards made to us or our partners pursuant to competitivebidding, and the risk that any such protest or challenge could result in theresubmission of bids on modified specifications, or in the termination,reduction or modification of the awarded contract.

If we are unable toconsistently win new contract awards over any extended period, our business andprospects will be adversely affected, and that could cause our actual resultsto be adversely affected. In addition, upon the expiration of a contract, ifthe client requires further services of the type provided by the contract,there is frequently a competitive rebidding process. There can be no assurancethat we will win any particular bid, or that we will be able to replacebusiness lost upon expiration or completion of a contract, and the terminationor non-renewal of any of our significant contracts could cause our actualresults to be adversely affected.

***Restrictions on or other changes to the U.S.government’s use of service contracts may harm our operating results.***

We derive a significantamount of our revenue from service contracts with the U.S. government. The U.S.government may face restrictions from new legislation, regulations orgovernment union pressures, on the nature and amount of services the governmentmay obtain from private contractors. Any reduction in the government’s use ofprivate contractors to provide federal services would adversely impact ourbusiness.

***Our contracts with the U.S. government and itsagencies are subject to audits and cost adjustments.***

U.S. government agencies, including the DefenseContract Audit Agency, or the DCAA, routinely audit and investigate governmentcontracts and government contractors’ incurred costs, administrative processesand systems. These agencies review our performance on contracts, pricingpractices, cost structure and compliance with applicable laws, regulations andstandards. They also review our compliance with government regulations andpolicies and the adequacy of our internal control systems and policies,including our purchase, property, estimation, compensation and managementinformation systems. Any costs found to be improperly allocated to a specificcontract will not be reimbursed, and any such costs already reimbursed must berefunded. Moreover, if any of the administrative processes and systems are foundnot to comply with requirements, we may be subjected to increased governmentscrutiny and approval that could delay or otherwise adversely affect ourability to compete for or perform contracts. Therefore, an unfavorable outcome byan audit by the DCAA or another government agency could cause actual results tobe adversely affected and differ materially from those anticipated. If agovernment investigation uncovers improper or illegal activities, we may besubject to civil and criminal penalties and administrative sanctions, includingtermination of contracts, forfeitures of profits, suspension of payments, finesand suspension or debarment from doing business with the U.S. government. Inaddition, we could 

13

----

sufferserious reputational harm if allegations of impropriety were made against us.Each of these results could cause our actual results to be adversely affected.

***A portion of our business depends upon obtaining andmaintaining required security clearances, and our failure to do so could resultin termination of certain of our contracts or cause us to be unable to bid orrebid on certain contracts.***

Some U.S. government contracts require our employeesto maintain various levels of security clearances, and we may be required tomaintain certain facility security clearances complying with U.S. governmentrequirements.

Obtaining and maintaining security clearances for employeesinvolves a lengthy process, and it is difficult to identify, recruit and retainemployees who already hold security clearances. If our employees are unable toobtain or retain security clearances or if such employees who hold securityclearances terminate their employment with us, the customer whose work requirescleared employees could terminate the contract or decide not to renew it upon expiration.To the extent we are not able to engage employees with the required securityclearances for a particular contract, we may not be able to bid on or win newcontracts, or effectively re-bid on expiring contracts, which could adverselyaffect our business.

In addition, we expectthat some of the contracts on which we bid will require us to demonstrate ourability to obtain facility security clearances and perform work with employeeswho hold specified types of security clearances. A facility security clearanceis an administrative determination that a particular facility is eligible foraccess to classified information or an award of a classified contract. Acontractor or prospective contractor must meet certain eligibility requirementsbefore it can be processed for facility security clearance. Contracts may beawarded prior to the issuance of a facility security clearance, and in suchcases the contractor is processed for facility security clearance at theappropriate level and must meet the eligibility requirements for access toclassified information. Our ability to obtain and maintain facility securityclearances has a direct impact on our ability to compete for and perform U.S.government contracts, the performance of which require access to classifiedinformation. We do not expect potential acquisitions to endanger our facilityclearances. However, to the extent that any acquisition or merger contemplatedby us might adversely impact our eligibility for facility security clearance,the U.S. government could revoke our facility security clearance if we areunable to address adequately concerns regarding potential unauthorized accessto classified information.

***We may not receive the full amounts authorized underthe contracts included in our backlog, which could reduce our revenue in futureperiods.***

Our backlog consists offunded backlog, which is based on amounts actually obligated by a client forpayment of goods and services, and unfunded backlog, which is based uponmanagement’s estimate of the future potential of our existing contracts andtask orders, including options, to generate revenue. Our unfunded backlog maynot result in actual revenue in any particular period, or at all, which couldcause our actual results to differ materially from those anticipated.

***Without additional Congressional appropriations, someof the contracts included in our backlog will remain unfunded which couldsignificantly harm our prospects.***

Although many of our U.S.government contracts require performance over a period of years, Congress oftenappropriates funds for these contracts for only one year at a time. As aresult, our contracts typically are only partially funded at any point duringtheir term, and all or some of the work intended to be performed under thecontracts will remain unfunded pending subsequent Congressional appropriationsand the obligation of additional funds to the contract by the procuring agency.Nevertheless, we estimate our share of the contract values, including valuesbased on the assumed exercise of options relating to 

14

----

thesecontracts, in calculating the amount of our backlog. Because we may not receivethe full amount we expect under a contract, our estimate of our backlog may beinaccurate.

***Loss of our GSA contracts or GWACs would impair ourability to attract new business.***

We area prime contractor under several GSA contracts, Blanket Purchase Agreements,and GWAC schedule contracts. Our ability to continue to provide services underthese contracts will continue to be important to our business because of themultiple opportunities for new engagements each contract provides. If we wereto lose our position as prime contractor on one or more of these contracts, wecould lose substantial revenues and our operating results could be adverselyaffected. Our GSA contracts and other GWACs have an initial term of five ormore years, with multiple options exercisable at the government client’sdiscretion to extend the contract for one or more years. There can be noassurances that government clients will continue to exercise the optionsremaining on our current contracts, nor can we be assured that future clientswill exercise options on any contracts we may receive.

***U.S. governmentcontracts often contain provisions that are unfavorable, which could adverselyaffect our business.***

U.S. government contracts contain provisions and aresubject to laws and regulations that give the U.S. government rights andremedies not typically found in commercial contracts, including withoutlimitation, allowing the U.S. government to:

·       terminateexisting contracts for convenience, as well as for default;

·       establishlimitations on future services that can be offered to prospective clients basedon conflict of interest regulations;

·       reduceor modify contracts or subcontracts;

·       cancelmulti-year contracts and related orders if funds for contract performance forany subsequent year become unavailable;

·       declineto exercise an option to renew a multi-year contract;

·       claimintellectual property rights in products provided by us; and

·       suspend or bar us fromdoing business with the federal government or with a governmental agency.

***The markets we compete in are highly competitive, andmany of the companies we compete against have substantially greater resources.***

The markets in which weoperate include a large number of participants and are highly competitive. Manyof our competitors may compete more effectively than we can because they arelarger, better financed and better known companies than us. In order to staycompetitive in our industry, we must also keep pace with changing technologiesand client preferences. If we are unable to differentiate our services fromthose of our competitors, our revenue may be adversely affected. In addition,our competitors have established relationships among themselves or with thirdparties to increase their ability to address client needs. As a result, newcompetitors or alliances among competitors may emerge and compete moreeffectively than we can. There is also a significant industry trend towardsconsolidation, which may result in the emergence of companies who are betterable to compete against us. The results of these competitive pressures couldcause our business to be adversely affected.

15

----

***Our failure to attract and retain qualified employees,including our senior management team, may adversely affect our business.***

Our continued successdepends to a substantial degree on our ability to recruit and retain thetechnically skilled personnel we need to serve our clients effectively. Ourbusiness involves the development of tailored solutions for our clients, aprocess that relies heavily upon the expertise and services of employees.Accordingly, our employees are our most valuable resource. Competition forskilled personnel in the information technology services industry is intense,and technology service companies often experience high attrition among theirskilled employees. There is a shortage of people capable of filling thesepositions, and they are likely to remain a limited resource for the foreseeablefuture. Recruiting and training these personnel requires substantial resources.Our failure to attract and retain technical personnel could increase our costsof performing our contractual obligations, reduce our ability to efficientlysatisfy our clients’ needs, limit our ability to win new business and constrainour future growth.

***Our future debt will include covenants that restrictour activities and create the risk of defaults, which could impair the value ofour stock.***

We expect our debtfinancing arrangements to contain a number of significant covenants that, amongother things, restrict our ability to dispose of assets; incur additionalindebtedness; make capital expenditures; pay dividends; create liens on assets;enter into leases, investments and acquisitions; engage in mergers and consolidations;engage in certain transactions with affiliates; and otherwise restrictcorporate activities (including change of control and asset sale transactions).In addition, our financing arrangements require us to maintain specifiedfinancial ratios and comply with financial tests, some of which may become morerestrictive over time. The failure to fulfill the requirements of debtcovenants, if not cured through performance or an amendment of the financingarrangements, could have the consequences of a default described in the riskfactor below. There is no assurance that we will be able to fulfill our debtcovenants, maintain these ratios, or comply with these financial tests in thefuture, nor is there any assurance that we will not be in default under ourfinancial arrangements in the future.

***A default under our debt could lead to a bankruptcy orother financial restructuring that would significantly adversely affect thevalue of our stock.***

In the event of a default under our financingarrangements, the lenders could, among other things, (i) declare allamounts borrowed to be due and payable, together with accrued and unpaidinterest, (ii) terminate their commitments to make further loans, and (iii) proceedagainst the collateral securing the obligations owed to them. Our senior debt issecured by substantially all of our assets. Defaults under additionalindebtedness we incur in the future could have these and other effects. Anysuch default could have a significant adverse effect on the value of our stock.

A default under our debtcould lead to the bankruptcy, insolvency, financial restructuring orliquidation. In any such event, our stockholders would be entitled to shareratably in our assets available for distribution only after the payment in fullto the holders of all of our debt and other liabilities. There can be noassurance that, in any such bankruptcy, insolvency, financial restructuring orliquidation, stockholders would receive any distribution whatsoever.

***If we are unable to fundour capital expenditures, we may not be able to continue to develop newofferings and services***, which would have a material adverse effect on our business.

Inorder to fund our capital expenditures, we may be required to incur borrowings orraise capital through the sale of debt or equity securities. Our ability toaccess the capital markets for future offerings may be limited by our financialcondition at the time of any such offering, as well as by adverse market 

16

----

conditions resulting from, among other things,general economic conditions and contingencies and uncertainties that are beyondour control. Our failure to obtain the funds for necessary future capitalexpenditures would limit our ability to****develop newofferings and services and could have a material adverse effect on ourbusiness, results of operations and financial condition.

***Future acquisitions by uscould subject us to additional business, operating and industry risks, theimpact of which cannot presently be evaluated, and could adversely impact ourcapital structure.***

Weplan to pursue other acquisition opportunities in an effort to take advantageof the platform that ATSI constitutes. We are not limited to any particularindustry or type of business that we may acquire. Accordingly, there is nocurrent basis to evaluate the possible merits or risks of the particularbusiness or assets that we may acquire, or of the industry in which suchbusiness operates. In addition, the financing of any acquisition completed byus could adversely impact our capital structure as any such financing wouldlikely include the issuance of additional equity securities and/or theborrowing of additional funds.

***We may be unable to protect or enforce our intellectualproperty rights.***

The protection of ourtrade secrets, proprietary know-how, technological innovations, otherproprietary information and other intellectual property protections in the U.S.and other countries may be critical to our success. We may rely on acombination of copyright, trademark, trade secret laws and contractualrestrictions to protect any proprietary technology or other rights we may haveor acquire. Despite our efforts, we may not be able to prevent misappropriationof those proprietary rights or deter independent development of technologiesthat compete with us. Litigation may be necessary in the future to enforce ourintellectual property rights, to protect our trade secrets, or to determine thevalidity and scope of the proprietary rights of others. It is also possiblethat third parties may claim we have infringed their patent, trademark,copyright or other proprietary rights. Claims or litigation, with or withoutmerit, could result in substantial costs and diversions of resources, either ofwhich could have a material adverse effect on our competitive position andbusiness.

***We may be harmed by intellectual property infringementclaims.***

We may becomesubject to claims from our employees and third parties who assert thatintellectual property that we use in delivering services and business solutionsto our clients infringe upon intellectual property rights of such employees orthird parties. Our employees develop much of the intellectual property that weuse to provide our services and business solutions to our clients, but we alsolicense technology from other vendors. If our vendors, employees, or thirdparties assert claims that we or our clients are infringing on theirintellectual property, we could incur substantial costs to defend those claims.In addition, if any of these infringement claims is ultimately successful, wecould be required to:

·       ceaseselling and using products and services that incorporate the challengedintellectual property;

·       obtaina license or additional licenses from our vendors or other third parties; and

·       redesignour products and services that rely on the challenged intellectual property.

Any of these outcomescould further adversely affect our operating results.

***Our quarterly revenue,***operatingresults and profitability could be volatile.

Our quarterly revenue,operating results and profitability may fluctuate significantly andunpredictably in the future.

17

----

Factors which maycontribute to the volatility of quarterly revenue, operating results orprofitability include:

·       fluctuationsin revenue earned on contracts;

·       commencement,completion, and termination of contracts during any particular quarter;

·       variablepurchasing patterns under GSA Schedule contracts, and agency-specific ID/IQcontracts;

·       additionsand departures of key personnel;

·       changesin our staff utilization rates;

·       timingof significant costs, investments and/or receipt of incentive fees;

·       strategicdecisions by us and our competitors, such as acquisitions, divestitures,spin-offs, joint ventures, strategic investments, and changes in businessstrategy;

·       contractmix and the extent of use of subcontractors;

·       changesin policy and budgetary measures that adversely affect government contracts;and

·       anyseasonality of our business.

Therefore, period-to-period comparisons of ouroperating results may not be a good indicator of our future performance. Ourquarterly operating results may not meet the expectations of securitiesanalysts or investors, which in turn may have an adverse affect on the marketprice of our common stock.

Furthermore, reductions inrevenue in a particular quarter could lead to lower profitability in thatquarter because a relatively large amount of our expenses are fixed in theshort-term. We may incur significant operating expenses during the start-up andearly stages of large contracts and may not receive corresponding payments orrevenue in that same quarter. We may also incur significant or unanticipatedexpenses or both when contracts expire, are terminated, or are not renewed. Inaddition, payments due to us from government agencies and departments may bedelayed due to billing cycles, as a result of failures of governmental budgetsto gain Congressional and administration approval in a timely manner, and forother reasons.

***If subcontractors on our prime contracts are able tosecure positions as prime contractors, we may lose revenue.***

For each of the past several years, as the GSASchedule contracts have increasingly been used as contract vehicles, we havereceived substantial revenue from government clients relating to work performedby other firms acting as subcontractors to us. In some cases, companies thathave not held GSA Schedule contracts have approached us in our capacity as aprime contractor, seeking to perform services as our subcontractor for agovernment client. Some of the providers that are currently acting assubcontractors to us may in the future secure positions as prime contractorsupon renewal of a GSA Schedule contract. If one or more of our currentsubcontractors is awarded prime contractor status in the future, it couldreduce or eliminate our revenue for the work they were performing assubcontractors to us. Revenue derived from work performed by ATSI’ssubcontractors for fiscal years 2004, 2005 and 2006 represented 21%, 28% and 26%of our gross revenue, respectively.

If our subcontractors fail to perform their contractualobligations, our performance as a prime contractor and our ability to obtainfuture business could be materially and adversely impacted.

Our performance of government contracts may involvethe issuance of subcontracts to other companies upon which we rely to performall or a portion of the work. We are obligated to deliver to our clients. Afailure by one or more of our subcontractors to satisfactorily deliver on atimely basis the agreed-

18

----

upon supplies and/orperform the agreed-upon services may materially and adversely affect ourability to perform our obligations as a prime contractor.

In extreme cases, asubcontractor’s performance deficiency could result in the governmentterminating our contract for default. A default termination could expose us toliability for excess costs of reprocurement by the government and have amaterial adverse effect on our ability to compete for future contracts and taskorders.

***We***sometimes incur costs before a contractis executed or appropriately modified. To the extent a suitable contract ormodification is not later signed and these costs are not reimbursed, ourrevenues and profits will be reduced.

When circumstanceswarrant, we sometimes incur expenses and perform work without a signed contractor appropriate modification to an existing contract to cover such expenses orwork. When we do so, we are working “at-risk,” and there is a chance that thesubsequent contract or modification will not ensue, or if it does, that it willnot allow us to be paid for the expenses already incurred or work alreadyperformed or both. In such cases, we have generally been successful inobtaining the required contract or modification, but any failure to do so inthe future could adversely affect operating results.

***If we are unable to manage our growth, our businessmay be adversely affected.***

Sustaining our growth mayplace significant demands on our management, as well as on our administrative,operational and financial resources. If we sustain significant growth, we mustimprove our operational, financial and management information systems andexpand, motivate and manage our workforce. If we are unable to do so, or if newsystems that we implement to assist in managing any future growth do notproduce the expected benefits, our business, prospects, financial condition oroperating results could be adversely affected.

**Risks Related toOur Capital Structure and Our Warrants**

***Because we do not currently intend to pay dividends onour common stock, stockholders will benefit from an investment in our commonstock only if it appreciates in value.***

We have never declared norpaid any cash dividends on our common stock. We currently intend to retain allfuture earnings, if any, for use in the operations and expansion of our business.As a result, we do not anticipate paying cash dividends in the foreseeablefuture. Any future determination as to the declaration and payment of cashdividends will be at the discretion of our board of directors and will dependon factors our board of directors deems relevant, including, among others, ourresults of operations, financial condition and cash requirements, businessprospects, and the terms of our credit facilities and other financingarrangements. It is likely that the debt financing arrangements we put intoplace will prohibit us from declaring or paying dividends without the consentof our lenders. Accordingly, realization of a gain on stockholders’ investmentswill depend on the appreciation of the price of our common stock. There is noguarantee that our common stock will appreciate in value or even maintain theprice at which stockholders purchased their shares.

***The significant number of ouroutstanding warrants may place a ceiling on, or otherwise adversely affect, thevalue of our common stock.***

*We have outstanding warrants topurchase 42,000,000 shares of our common stock at an exercise price of $5.00per share, and 18,533,158 outstanding shares of common stock as of March 20,2007. Our warrants represent a very significant market overhang that may limitthe value of our common stock, at least in the near term and unless and untilwe can substantially grow our business. This situation may cause us to consideralternative means of reducing the warrant overhang. Certain of these meanscould dilute our outstanding common stock or otherwise adversely affect itsmarket value.*

19

----

***If certain stockholdersexercise their registration rights, it may have an adverse effect on the marketprice of our common stock.***

Ourinitial stockholders are entitled to demand that we register the resale oftheir shares of common stock in certain circumstances. If our initialstockholders exercise their registration rights with respect to all of theirshares of common stock purchased prior to our public offering, then there willbe an additional 2,625,000 shares of common stock eligible for trading in thepublic market. We have also granted registration rights to former shareholdersof ATSI, who received 173,913 shares of our common stock upon the closing ofthe ATSI acquisition. We also granted registration rights with respect to46,296 shares of common stock in connection with our March 1, 2007 acquisitionof RISI and may also do so in connection with future acquisitions. The presenceof this additional number of shares of common stock eligible for trading in thepublic market may have an adverse effect on the market price of our commonstock.

***If we are unable to maintain a current prospectusrelating to the common stock underlying our warrants, our warrants may beworthless.***

We will not be obligatedto issue shares of common stock upon the exercise of our warrants unless, atthe time a holder seeks to exercise such warrant, a prospectus relating to thecommon stock issuable upon exercise of the warrant is current and such commonstock has been registered or qualified or deemed to be exempt under thesecurities laws of the state of residence of the holder of the warrants. Underthe terms of the warrant agreement between Continental Stock Transfer &Trust Company, as warrant agent, and us, we have agreed to use our reasonablebest efforts to maintain a current prospectus relating to the common stockissuable upon exercise of our warrants until the expiration of our warrants.However, we cannot assure warrant holders that we will be able to do so. If theprospectus relating to the common stock issuable upon exercise of the warrantsis not current, or if the common stock is not qualified or exempt fromqualification in the jurisdictions in which the holders of the warrants reside,our warrants may not be exercisable before they expire. The warrant agreementis silent as to the consequences of such circumstances. Thus, our warrants maybe deprived of any value, the market for our warrants may be limited ornon-existent and the warrants may expire worthless.

***The warrant agreement governing our warrants permitsus to redeem the warrants and it is possible that we could redeem the warrantsat a time when a prospectus has not been current, resulting in the warrantholder receiving less than fair value of the warrant or the underlying commonstock.***

Under section 6 of thewarrant agreement governing our outstanding warrants, we have the right toredeem outstanding warrants, at any time prior to their expiration, at theprice of $0.01 per warrant, provided that the last sales price of our commonstock has been at least $8.50 per share on each of 20 trading days within any30 trading day period ending on the third business day prior to the date on whichnotice of redemption is given. Section 6 of the warrant agreement does notrequire, as a condition to giving notice of redemption, that we have in effect—duringeither the redemption measurement period or at the date of notice of redemption—acurrent prospectus relating to the common stock issuable upon exercise of ourwarrants. Thus, it is possible that we could issue a notice of redemption ofthe warrants following a time when holders of our warrants have been unable toexercise their warrants and thereafter immediately resell the underlying commonstock under a current prospectus. Under such circumstances, rather than faceredemption at a nominal price per warrant, warrant holders could be forced tosell the warrants or the underlying common stock for less than fair value.

***Our securities are quoted on the Over-the-CounterBulletin Board, which may limit the liquidity and price of our securities morethan if our securities were listed on the Nasdaq market.***

Our securities are quotedon the Over-the-Counter Bulletin Board, a NASD-sponsored and operatedinter-dealer automated quotation system for equity securities not included inthe Nasdaq market. 

20

----

Quotationof our securities on the Over-the-Counter Bulletin Board will limit theliquidity and price of our securities more than if our securities were quotedor listed on Nasdaq. Although we intend to apply for listing of our commonstock on Nasdaq, we cannot assure you that we will satisfy the applicablelisting requirements.

**Risks Associatedwith Limited Experience as a Public Company**

***ATSI has never operated as a public company.Fulfilling our obligations incident to being a public company followingacquiring ATSI will be expensive and time consuming.***

We have maintained limiteddisclosure controls and procedures and internal control over financialreporting as required under the federal securities laws with respect to ourlimited activities prior to the acquisition, but we have not been required tomaintain and establish such disclosure controls and procedures and internalcontrols as are required with respect to the business of ATSI following theacquisition. Under the Sarbanes-Oxley Act of 2002 and the related rules andregulations of the Securities and Exchange Commission, or SEC, as well as the rules ofNasdaq, we will need to implement additional internal and disclosure controlprocedures and corporate governance practices and adhere to a variety ofreporting requirements and complex accounting rules. Compliance with theseobligations will require significant management time, place significantadditional demands on our finance and accounting staff and on our financial,accounting and information systems, and increase our insurance, legal andfinancial compliance costs. We may also need to hire additional accounting andfinancial staff with appropriate public company experience and technicalaccounting knowledge.

***Section 404 of the Sarbanes-Oxley Act of 2002 requiresus to document and test our internal controls over financial reporting forfiscal 2006 and beyond and required an independent registered public accountingfirm to report on our assessment as to the effectiveness of these controls. Ourassessment, and that of our accounting firm, is that our internal controls overfinancial reporting need improvement. Failure to remedy these deficienciescould affect our future operations and our stock price.***

Section 404 of the Sarbanes-Oxley Act of 2002requires us to document and test the effectiveness of our internal controlsover financial reporting in accordance with an established internal controlframework and to report on our conclusion as to the effectiveness of ourinternal controls. It also required an independent registered public accountingfirm to test our internal controls over financial reporting and report on theeffectiveness of such controls for as of fiscal year ended December 31,2006. Our independent registered public accounting firm was also required to expressan opinion of our assessment. 

Through December 31, 2006and into January 2007 we had no operations, no full-time personnel and very fewpersonnel of any kind. Our activities from inception in late 2005 and into 2006were focused on completing our initial public offering, identifying acquisitioncandidates and then completing the acquisition of ATSI. Most of the proceeds ofour initial public offering were deposited and held in trust until thecompletion of the acquisition of ATSI. As a result of these factors, we hadneither the resources, nor the personnel, to have in place adequate internalcontrol. The material weaknesses in our internal control over financial reportingrelate primarily to our inability to segregate duties and lack of documentationof the policies and procedures. 

With the completion of theacquisition of ATSI in January 2007 we have additional personnel, access tofinancial and internal control systems, and actual operations. We plan toaddress the internal control deficiencies summarized above in this contextbeginning in the first quarter of 2007, with the goal of eliminating suchdeficiencies by the end of 2007. In addition, the acquisition of ATSI will requirethe development of more robust disclosure controls and procedures, which wealso expect to develop during 2007. 

21

----

We cannot be certain thatany remedial measures we take will ensure that we implement and maintainadequate internal controls over our financial processes and reporting in thefuture. Any failure to implement required new and improved controls, ordifficulties encountered in their implementation could harm our operatingresults or cause us to fail to meet our reporting obligations. If we are unableto conclude that we have effective internal controls over financial reporting,or if our independent auditors are unable to provide us with an unqualifiedreport regarding the effectiveness of our internal controls over financialreporting as of December 31, 2007 and in future periods, investors couldlose confidence in the reliability of our financial statements, which couldresult in a decrease in the value of our common stock. Failure to comply with Section 404could potentially subject us to sanctions or investigations by the SEC, Nasdaqor other regulatory authorities.

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

None.

**Item 2.**                        *Properties*

As of December 31, 2006,ATS operated out of a single facility located at 900 Third Avenue, 33rd Floor,New York, New York. Following our acquisition of ATSI in January 2007, we nowshare their headquarters which is located at 7915 Jones Branch Drive, inMcLean, Virginia, a suburb of Washington, D.C. ATSI’s headquarters is occupiedunder a lease for approximately 131,000 square feet, at a cost of approximately$2.8 million per year, which terminates on January 31, 2009. All corporatefunctions are located there, with approximately 41% of its full-time employeeslocated at its headquarters and other company offices and the other 59% locatedat client sites. ATSI also has facilities in Arlington, Virginia, Richmond,Virginia, Huntsville, Alabama, Dayton, Ohio, Sacramento, California, San Diego,California, and Honolulu, Hawaii. ATSI does not own any real property; all ofits offices are in leased premises.

**Item 3.**                        *Legal Proceedings*

From time to time we areinvolved in various legal matters and proceedings concerning matters arising inthe ordinary course of business. We currently believe that any ultimateliability arising out of these matters and proceedings will not have a materialadverse effect on our financial position, results of operations or cash flows.

**Item 4.**                        *Submission of Matters to a Vote of Security Holders*

No matters were submitted to a vote of securityholders during the fourth quarter of 2006.

22

----

**PART II**

**Item 5.**                        *Market for Registrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities*

**Market Information**

Thefollowing table sets forth, for the calendar quarter indicated, the quarterlyhigh and low bid information of the Company’s common stock as reported on theOTC Bulletin Board since our common stock began trading on December 5,2005. The quotations listed below reflect interdealer prices, without retailmarkup, markdown or commission, and may not necessarily represent actualtransactions.

| **Quarter Ended**   | ** ** | ** ** | ** ** | **Common Stock  (FDSA)** | ** ** | **Warrants  (FDSAW)** | ** ** | **Units  (FDSAU)** | ** ** |
|--------------------------|------------|------------|------------|-------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **               | ** ** | **High**   | ** ** | **Low**                       | ** ** | **High**              | ** ** | **Low**            | ** ** | **High** | ** ** | **Low** | ** ** |
| December 31,  2005  |       | $          | 5.34       |                          | $          | 5.25                  |       | $                  | 0.47       |   | $ | 0.32 |   | $ | 6.28 |   | $ | 5.90 |   |
| March 31,  2006     |       | $          | 5.83       |                          | $          | 5.32                  |       | $                  | 0.85       |   | $ | 0.47 |   | $ | 7.50 |   | $ | 6.28 |   |
| June 30,  2006      |       | $          | 5.75       |                          | $          | 5.37                  |       | $                  | 1.04       |   | $ | 0.45 |   | $ | 7.70 |   | $ | 6.40 |   |
| September 29,  2006 |       | $          | 5.47       |                          | $          | 5.35                  |       | $                  | 0.44       |   | $ | 0.28 |   | $ | 6.40 |   | $ | 6.01 |   |
| December 29, 2006   |       | $          | 5.63       |                          | $          | 5.45                  |       | $                  | 0.36       |   | $ | 0.26 |   | $ | 6.30 |   | $ | 6.00 |   |

 

The closing prices of the Company’s common stock,units and warrants on March 9, 2007 were $4.40, $5.00, and $0.495,respectively.

Effective January 30,2007, the Company’s trading symbols were changed to ATCT (common stock), ATCTU(units) and ATCTW (warrants) on the OTC Bulletin Board.

**Holders of CommonStock**

As of March 20, 2007,there were approximately 40 holders of record of our common stock.

**Dividend Policy**

We have never declared norpaid any cash dividends on our common stock. We currently intend to retain allfuture earnings, if any, for use in the operations and expansion of ourbusiness. As a result, we do not anticipate paying cash dividends in theforeseeable future. Any future determination as to the declaration and paymentof cash dividends will be at the discretion of our board of directors and willdepend on factors our board of directors deems relevant, including amongothers, our results of operations, financial condition and cash requirements,business prospects, and the terms of our credit facilities and other financingarrangements. It is likely that the debt financing arrangements we put intoplace in connection with the acquisition will prohibit us from declaring orpaying dividends without the consent of our lenders.

**Recent Sales ofUnregistered Securities**

None

**Purchases of EquitySecurities**

Noneduring the year ended December 31, 2006.

23

----

**Stock PerformanceGraph**

The following graphcompares the cumulative total stockholder return on our common stock from December 5,2005 (the first trading date of our common stock) through December 31,2006, with the cumulative total return on (i) the Russell 2000 stock indexand (ii) a Peer Group Index composed of other federal government serviceproviders with whom we compete:  CACIInternational, Inc., Dynamics Research Corp., ManTech International Corp.,MTC Technologies, Inc., NCI, Inc., SI International, Inc., SRAInternational, Inc. and Stanley, Inc. The comparison also assumesthat all dividends are reinvested and all returns are market-cap weighted. Thehistorical information set forth below is not necessarily indicative of future performance.

ASSUMES$100 INVESTED ON DEC. 5, 2005ASSUMES DIVIDEND REINVESTEDFISCAL YEAR ENDING DEC. 31, 2006

Thefollowing table shows the value of $100 invested on December 5, 2005 inATS Corporation, the Russell 2000 Index and our Peer Group.
|                          | ** ** | **FISCAL YEAR ENDING** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| **COMPANY/INDEX/MARKET** | ** ** | ** **                       | ** ** | **12/05/2005** | ** ** | **12/30/2005** | ** ** | **3/31/2006** | ** ** | **6/30/2006** | ** ** | **9/29/2006** | ** ** | **12/29/2006** | ** ** |
| ATS Corporation          |       |                             | $          | 100.00 |   |   |   | $ | 101.71 |   |   | $ | 109.52 |   | $ | 102.48 |   | $ | 104.19 |   |   | $ | 107.24 |   |   |
| Peer Group Index         |       |                             | 100.00     |   |   |   | 104.13 |   |   | 121.10 |   | 99.65 |   | 101.93 |   |   | 101.17 |   |   |
| Russell 2000 Index       |       |                             | 100.00     |   |   |   | 99.40 |   |   | 112.97 |   | 107.06 |   | 107.20 |   |   | 116.37 |   |   |
|                          |            |                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

24

----

**Item6.**                        *Selected Financial Data*

The following is a summary ofselected statement of income data and balance sheet data for each periodindicated.  The selected financial datafor the year ended December 31, 2006 and for the period from April 12,2005 (inception) to December 31, 2005 are derived from our auditedfinancial statements and related notes.

The selected financial datapresented below should be read in conjunction with our consolidated financialstatements and the notes to our consolidated financial statements and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”included in this Annual Report on Form 10-K.

**SELECTED FINANCIAL DATA**

**Income statement data**

| ** **                                                                                                                         | ** ** | ** **                            | ** ** | **For the  period from  April 12, 2005  (date of inception)** | ** ** | **For the  period from  April 12, 2005  (date of inception)** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                         | ** ** | **For the year ended** | ** ** | **through**                                                                                 | ** ** | **through**                                                                                 | ** ** |
| ** **                                                                                                                         | ** ** | **December 31, 2006**       | ** ** | **December 31, 2005**                                                             | ** ** | **December 31, 2006**                                                             | ** ** |
| Operating costs                                                                                                                    |       |                                  | $          | (1,167,701                                                                                  | )          |                                                                                        |       | $ | (133,161 | ) |   |   | $ | (1,300,862 | ) |   |
| Interest income                                                                                                                    |       |                                  | 5,551,779  |                                                                                        |       |                                                                                        | 819,167    |   |   |   | 6,370,946 |   |   |
| Gain (loss) on  warrant liability                                                                                                  |       |                                  | 5,880,000  |                                                                                        |       |                                                                                        | (5,460,000 | ) |   |   | 420,000 |   |   |
| Income (loss)  before provision for taxes                                                                                          |       |                                  | 10,264,078 |                                                                                        |       |                                                                                        | (4,773,994 | ) |   |   | 5,490,084 |   |   |
| (Provision)  benefit for income taxes—current                                                                                 |       |                                  | (2,428,018 | )                                                                                           |       |                                                                                        | (333,000   | ) |   |   | (2,761,018 | ) |   |
| —deferred                                                                                                                     |       |                                  | 443,340    |                                                                                        |       |                                                                                        | 18,915     |   |   |   | 462,255 |   |   |
| Net income (loss)                                                                                                                  |       |                                  | $          | 8,279,400                                                                                   |       |                                                                                        |       | $ | (5,088,079 | ) |   |   | $ | 3,191,321 |   |   |
| Interest income  attributable to common stock subject to possible conversion (net of taxes or  $561,204 and $64,000, respectively) |       |                                  | (604,756   | )                                                                                           |       |                                                                                        | (97,996    | ) |   |   |   |   |   |
| Net income (loss)  allocable to common stockholders not subject to possible conversion                                             |       |                                  | 7,674,644  |                                                                                        |       |                                                                                        | (5,186,075 | ) |   |   |   |   |   |
| Weighted average  number of shares outstanding—basic                                                                          |       |                                  | 26,250,000 |                                                                                        |       |                                                                                        | 10,599,810 |   |   |   |   |   |   |
| Net income (loss)  per share—basic                                                                                            |       |                                  | $          | 0.32                                                                                        |       |                                                                                        |       | $ | (0.48 | ) |   |   |   |   |   |
| Net income (loss)                                                                                                                  |       |                                  | $          | 8,279,400                                                                                   |       |                                                                                        |       | $ | (5,088,079 | ) |   |   |   |   |   |
| Gain on  derivative liabilities attributed to warrants                                                                             |       |                                  | 5,880,000  |                                                                                        |       |                                                                                        | —     |   |   |   |   |   |   |
| Adjusted net  income (loss)—for diluted earnings                                                                              |       |                                  | $          | 2,399,400                                                                                   |       |                                                                                        |       | $ | (5,088,079 | ) |   |   |   |   |   |
| Weighted average  shares outstanding                                                                                               |       |                                  | 26,250,000 |                                                                                        |       |                                                                                        | 10,599,810 |   |   |   |   |   |   |
| Shares from  assumed conversion of warrants                                                                                        |       |                                  | 3,887,477  |                                                                                        |       |                                                                                        | —     |   |   |   |   |   |   |
| Weighted average  number of shares outstanding—diluted                                                                        |       |                                  | 30,137,477 |                                                                                        |       |                                                                                        | 10,599,810 |   |   |   |   |   |   |
| Net income (loss)  per shares—diluted                                                                                         |       |                                  | $          | 0.08                                                                                        |       |                                                                                        |       | $ | (0.48 | ) |   |   |   |   |   |

**Balance sheet data**

| ** **                                                                                                                                        | ** ** | **December 31, 2006** | ** **   | **December 31, 2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|--------------|----------------------------|------------|
| Cash  and cash equivalents                                                                                                                        |       |                       | $            | 213,395                    |       |   |   | $ | 1,855,394 |   |   |
| Investments  held in trust (including interest receivable of $89,737 and $39,444,  respectively) and cash and cash equivalents held in trust fund |       |                       | 121,025,807  |                       |       |   | 117,990,384 |   |   |
| Other  Assets                                                                                                                                     |       |                       | 638,750      |                       |       |   | 106,751 |   |   |
| Deferred  acquisition costs                                                                                                                       |       |                       | 1,361,215    |                       |       |   | — |   |   |
| Total  Assets                                                                                                                                     |       |                       | $123,239,167 |                       |       |   | $ | 119,952,529 |   |   |
| Total  liabilities                                                                                                                                |       |                       | $            | 15,153,241                 |       |   |   | $ | 20,146,003 |   |   |
| Common  stock subject to possible redemption (including interest income)                                                                          |       |                       | 24,127,034   |                       |       |   | 23,522,278 |   |   |
| Total  stockholders’ equity                                                                                                                  |       |                       | 83,958,892   |                       |       |   | 76,284,248 |   |   |
| Total Liabilities and  Stockholders’ equity                                                                                                  |       |                       | $            | 123,239,167                |       |   |   | $ | 119,952,529 |   |   |

 

25

----

**Item 7.                        *Management’s Discussion and Analysis of Financial Condition and Resultsof Operation**.***

The following discussion and analysis of our financialcondition and results of operations should be read in conjunction with ourhistorical consolidated financial statements and related notes thereto toItem 8. “Financial Statements and Supplementary Data.”

We were organized as a “blank check” company under thelaws of the State of Delaware on April 12, 2005 and were formed for thepurpose of acquiring, through a merger, capital stock exchange, asset acquisition,stock purchase or other similar business combination, an operating business inthe federal services and defense industries. Our principal executive officesare located at 7915 Jones Branch Drive, McLean, Virginia 22102.

**Recent Developments**

On January 16, 2007, we acquired all of theoutstanding capital stock of ATSI, a provider of systems integration andapplication development to the U.S. government, for (a) $84.0 millionin cash, reduced by a working capital adjustment, the repayment of outstandingindebtedness of ATSI and an aggregate of $8.95 million of escrowed funds,and (b) 173,913 shares of our common stock. It is possible that the formershareholders of ATSI could benefit from certain earnout opportunities ifcertain adjusted EBITDA thresholds are achieved and additionally if ATSI is awardeda contract for a U.S. Air Force information technology outsourcing project in Hawaii.That contracting decision has been delayed on several occasions. As of the dateof this Annual Report on Form 10-K we had not been advised of a decisionon that award.

The audited consolidated balance sheets of ATSI as ofOctober 31, 2006 and 2005, and the related consolidated statements ofoperations, changes in stockholders’ equity, and cash flows for the years endedOctober 31, 2006, 2005 and 2004 are included as an exhibit to this AnnualReport on Form 10-K. During the year ended October 31, 2006. ATSIreported contract revenues of $112.3 million compared to$105.4 million in the prior year, operating income of $2.1 million comparedto $2.7 million in the prior year, and income from continuing operationsof $0.5 million compared to $1.8 million in the prior year.

We do not believe the historical results of ATSI,which was a closely-held private business, are indicative of future results.

We funded the cash portion of the ATSI purchase pricewith the proceeds of our initial public offering. In connection with theacquisition of ATSI, holders of 2,906,355 shares of common stock who votedagainst the acquisition and perfected their right to convert their shares ofcommon stock into $5.77 of cash per share. An aggregate of $16,769,668 was paidto converting stockholders. These conversions were also funded with theproceeds of our initial public offering. Following the completion of theacquisition, we announced and implemented a common stock repurchase program.Through March 9, 2007, we had utilized approximately $12.0 million ofcash to purchase 2,399,400 shares of our common stock at an average price of$4.99 per share including commissions.

As of the close of business on February 28, 2007, weacquired Reliable Integration Services, Inc. (“RISI”) a 37-employeenetwork systems integrator serving U.S. government defense and civilian agenciesfor approximately $1.3 million in cash, promissory notes and assumption ofdebt, plus $0.2 million in the Company’s common stock.

On January 9, 2007, we announced that after the closeof the ATSI acquisition, the Company would and did repurchase 2,625,000 sharesof the Company’s common stock from the founders of the Company forApproximately $2,888. 

Following the completion of the acquisition, weannounced and implemented a common stock and warrant repurchase program. ThroughMarch 9, 2007, we utilized approximately $12.0 million of cash to purchase2,399,400 shares of our common stock at an average price of $4.99 per shareincluding commissions.

26

----

The ATS Incentive Compensation Plan was approved bythe stockholders at the January 12, 2007 stockholder’s meeting. The planreserves 1.5 million shares of our common stock for issuance to our employeesand employees of our subsidiaries. We will be accounting for any grants ofthese shares in accordance with Statement of Financial Accounting Standard No.123 (revised 2004), “Shared-Based Payment,” (“SFAS No. 123R”) which requires that compensation costs related toshare-based payment transactions be recognized in financial statements. Theseawards will be measured at estimated fair value and included in operatingexpenses over the vesting period during which an employee provides service inexchange for the award.

We entered into a temporary 90-day $9.0 million lineof credit with the Bank of America on February 1, 2007. The line bears interestat the one-month LIBOR rate plus between 150-225 basis points pr annum,depending on the outstanding balance of the line.

We entered into a warrant clarification agreement onMarch 14, 2007. Prior to that date we were required to record the warrantliability at each reporting date at its then estimated fair value, with anychanges being recorded through our statement of operations as otherincome/expense. The warrants will continue to be reported as a liabilitythrough March 14, 2007 when we clarified our warrant agreement so thistreatment is no longer required. 

On March 19, 2007, we entered into an employmentagreement with Dr. Edward H. Bersoff to join ATS as our Chairman, President andChief Executive Officer. He has been serving in that capacity since January 16,2007. The employment agreement was filed as part of an 8-K on March 21,2007.

As of the close of business on March 9, 2007**,** we had cash on hand of approximately $2.3 million.

**Overview of 2006**

We neither engaged in any operations, generated anyrevenues nor incurred any debt or expenses during the period ended December 31,2006, other than in connection with our public offering and, thereafter,certain legal and other expenses related to pursuing acquisitions of targetbusinesses. Our entire activity since inception has been to prepare for andconsummate our initial public offering and to identify and investigate targetbusinesses for a business combination.

Ournet proceeds from the sale of our units, after deducting offering expenses ofapproximately $531,000 and underwriting discounts of $6,300,000, wereapproximately $119,169,000. Of this amount, $117,180,000 was placed in trustand the remaining $1,989,000 was not placed in trust. From inception throughDecember 31, 2006, we have incurred operating expenses of $1,300,862 asfollows:

| ** **                                                                                                                                           | ** ** | **Inception Through  December 31, 2005** | ** ** | **Year Ended  December 31, 2006** | ** ** | **Inception Through  December 31, 2006** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|
| Legal,  accounting, travel and other expenses attendant to the due diligence  investigations, structuring, and negotiating of a business combination |       |                                                    | $          | 10,535                                           |       |                                                    |       | $ | 666,274 |   |   |   | $ | 676,809 |   |   |
| Administrative  services and support  ($7,500 per month)                                                                                             |       |                                                    | 18,145     |                                             |       |                                                    | 90,000     |   |   |   | 108,145 |   |   |
| Expenses for  legal and accounting fees relating  to our SEC reporting obligations                                                                   |       |                                                    | 25,827     |                                             |       |                                                    | 149,075    |   |   |   | 174,902 |   |   |
| Franchise and  capital taxes                                                                                                                         |       |                                                    | 46,244     |                                             |       |                                                    | 120,237    |   |   |   | 166,481 |   |   |
| Director and  officer liability insurance premiums                                                                                                   |       |                                                    | 17,233     |                                             |       |                                                    | 85,000     |   |   |   | 102,233 |   |   |
| Miscellaneous  expenses                                                                                                                              |       |                                                    | 15,177     |                                             |       |                                                    | 57,115     |   |   |   | 72,292 |   |   |
| Total                                                                                                                                                |       |                                                    | $          | 133,161                                          |       |                                                    |       | $ | 1,167,701 |   |   |   | $ | 1,300,862 |   |   |

 

27

----

For the year ended December 31, 2006, we hadaccumulated $1,361,215 in deferred costs related to the acquisition of ATSIcompared to no deferred cost in the period from April 12, 2005 (date ofinception) through December 31, 2005. These charges will be capitalized in the first quarter 2007, when theacquisition was completed.

For the year ended December 31, 2006, and the periodfrom April 12, 2005 (date of inception) through December 31, 2005, we earned$5,551,779 and $819,197 of interest income, respectively.

Asdescribed below under “Accounting for Warrants and Derivative Instruments,” asa result of recording the change in the fair value of warrant liability, wereported a net loss of approximately $5.5 million on warrant liability for theperiod ended December 31, 2005, and a gain of approximately $5.9 millionon warrant liability for the year ended December 31, 2006. 

Our accounting for our outstanding warrants isdescribed below under “Critical Accounting Policies—Accounting for Warrants andDerivative Instruments.” As described there, until we entered into a warrantclarification agreement on March 14, 2007, we were required to record thewarrant liability at each reporting date at its then estimated fair value, withany changes being recorded through our statement of operations as otherincome/expense. The warrants will continue to be reported as a liability throughMarch 14, 2007 when we clarified our warrant agreement so this treatmentis no longer required.

On October 25, 2005, we used $154,000 of ourgeneral working capital to repay the notes payable to our initial stockholders,Messrs. Jacks and Schulte. The loans were repaid in full, withoutinterest, and cancelled.

On October 25, 2005 and 2006, we used $85,000 and$42,500, respectively of our general working capital to pay premiums associatedwith our directors and officers’ liability insurance, of which $25,267 of thisamount represents the prepaid portion for the cost of such insurance for 2007.

We have agreed to pay, through the date of ouracquisition of a target business, CM Equity Management, L.P., an affiliate of Messrs. Jacksand Schulte, $7,500 per month for office space and certain office andsecretarial services. The $7,500 per month is reimbursement for office spaceand the office and secretarial services provided to us by CM Equity Management,L.P., and not as compensation to Messrs. Jacks and Schulte. For the yearended December 31, 2006, and for the period April 12, 2003 (date ofinception) through December 31, 2005, we reimbursed the $90,000, and$18,145, respectively.

As of December 31, 2006, $121,025,807, includinginterest receivable of $89,737, was held in trust, and we had approximately$213,000 of the available funds remaining and available to us for ouractivities in connection with identifying and conducting due diligence of asuitable business combination, and for general corporate matters.

**Critical AccountingPolicies and Significant Estimates**

Our financial statements have been prepared inaccordance with accounting principles generally accepted in the United States ofAmerica. The preparation of these financial statements requires that managementmake estimates and assumptions that affect the amounts reported in thefinancial statements and the accompanying notes. Actual results could differsignificantly from those estimates.

We believe the following critical accounting policiesaffect the more significant estimates and judgments used in the preparation ofour financial statements.

*Cash and CashEquivalents.*

We consider all highly liquid investments withoriginal maturities of three months or less to be cash equivalents. We had cashdeposits in excess of the federally insured limits at December 31, 2006.

*Earnings per commonshare.*

Basic income per share is based on the weightedaverage number of common shares outstanding during the period. Diluted incomeper share reflects the potential dilution assuming common shares were 

28

----

issued upon the exerciseof outstanding in-the-money warrants and the proceeds thereof were used topurchase treasury shares at the average market price during the period.

*Use of estimates.*

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the amountsin the financial statements and accompanying notes. Actual results could differfrom those estimates.

*Fair value offinancial instruments.*

The carrying amounts of our financial assets,including cash and cash equivalents and short term investments, approximatefair value because of their short term maturities.

*Accounting forWarrants and Derivative Instruments.*

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

The agreement related to our warrants sold in ouroffering provides for us to register and maintain the registration of theshares underlying the warrants and does not specify a penalty in the absence ofour ability to deliver registered shares to holders upon exercise of thewarrants. Further, until recently clarified, the warrant agreement did not specifythat we cannot be obligated to net cash settle the instrument. Paragraph 14 ofEITF 00-19 states that if the contract allows the company to net-share orphysically settle the contract only by delivering registered shares, it isassumed that the company will be required to net-cash settle the contract, andas a result liability classification will be required. Paragraph 17 of EITF 00-19states that if the contract requires physical or net-share settlement bydelivery of registered shares and does not specify any circumstances underwhich net-cash settlement is permitted or required, and the contract does notspecify how the contract would be settled in the event that the company isunable to deliver registered shares, then net cash settlement is assumed if thecompany is unable to deliver registered shares (because it is unlikely thatnonperformance would be an acceptable alternative). Under EITF 00-19,registration of the common stock underlying the warrants is not within ourcontrol and, as a result, we were required to assume that we could be requiredto settle the securities on a net-cash basis, thereby necessitating thetreatment of the potential settlement obligation as a liability. The fair valueof these securities is presented on our balance sheet as “warrant liabilities,”and the unrealized changes in the values of these derivatives are shown in ourstatement of operations as “Gain (loss) on warrant liability.”

Fair values for traded securities and derivatives arebased on quoted market prices. Where market prices are not readily available,as in the case of our warrants as of the date of issuance, fair values aredetermined using methods requiring judgment and estimates. Utilizing suchmethods, the fair value of the warrant liability at October 20, 2005 (thedate of issuance) was determined to be $0.34 per warrant. At the date ofissuance, we allocated the unit price between the share of common stock and thewarrants issued based upon relative fair value determined, among other things,by reference to the underlying cash held in the trust fund. The warrantsincluded in the units sold in our initial public offering began to be publiclytraded on the Over the Counter Bulletin Board on December 5, 2005, andconsequently the fair value of the warrants is reflected as the market price ofa warrant at each period end. To the extent that the market prices of ourwarrants increase or decrease through the March 14, 2007 effective date ofour warrant 

29

----

clarification agreement,our derivative liabilities will also increase or decrease with a correspondingimpact on our statement of operations.

*Income Taxes.*

Deferred income taxes are provided for the differencesbetween the bases of assets and liabilities for financial reporting and incometax purposes. Deferred tax assets and liabilities are measured using tax ratesin effect for the year in which those temporary differences are expected to berecovered or settled. A valuation allowance is established when necessary toreduce deferred tax assets to the amount expected to be realized.

**Results of Operations**

The following table sets forth the results ofoperations for the year ended December 31, 2006 and the period endedDecember 31, 2005.

| ** **                                                                                                                        | ** ** | **For the year ended  December 31, 2006** | ** ** | **For the period from  April 12, 2005  (date of inception)  through  December 31, 2005** | ** ** | **For the  period from  April 12, 2005  (date of inception)  through  December 31, 2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|
| Operating costs                                                                                                                   |       |                                                               | $          | (1,167,701                                                                                                                            | )          |                                                                                                                              |       | $ | (133,161 | ) |   |   | $ | (1,300,862 | ) |   |
| Interest income                                                                                                                   |       |                                                               | 5,551,779  |                                                                                                                                  |       |                                                                                                                              | 819,167    |   |   |   | 6,370,946 |   |   |
| Gain (loss) on warrant liability                                                                                                  |       |                                                               | 5,880,000  |                                                                                                                                  |       |                                                                                                                              | (5,460,000 | ) |   |   | 420,000 |   |   |
| Income (loss) before provisions for taxes                                                                                         |       |                                                               | 10,264,078 |                                                                                                                                  |       |                                                                                                                              | (4,773,994 | ) |   |   | 5,490,084 |   |   |
| (Provision) benefit for income taxes—current                                                                                 |       |                                                               | (2,428,018 | )                                                                                                                                     |       |                                                                                                                              | (333,000   | ) |   |   | (2,761,018 | ) |   |
| —deferred                                                                                                                    |       |                                                               | 443,340    |                                                                                                                                  |       |                                                                                                                              | 18,915     |   |   |   | 462,255 |   |   |
| Net income (loss)                                                                                                                 |       |                                                               | $          | 8,279,400                                                                                                                             |       |                                                                                                                              |       | $ | (5,088,079 | ) |   |   | $ | 3,191,321 |   |   |
| Interest income attributable to common stock subject  to possible conversion (net of taxes or $561,204 and $64,000, respectively) |       |                                                               | (604,756   | )                                                                                                                                     |       |                                                                                                                              | (97,996    | ) |   |   |   |   |   |
| Net income (loss) allocable to common stockholders  not subject to possible conversion                                            |       |                                                               | 7,674,644  |                                                                                                                                  |       |                                                                                                                              | (5,186,075 | ) |   |   |   |   |   |
| Weighted average number of shares outstanding—basic                                                                          |       |                                                               | 26,250,000 |                                                                                                                                  |       |                                                                                                                              | 10,599,810 |   |   |   |   |   |   |
| Net income (loss) per share—basic                                                                                            |       |                                                               | $          | 0.32                                                                                                                                  |       |                                                                                                                              |       | $ | (0.48 | ) |   |   |   |   |   |
| Weighted average number of shares outstanding  exclusive of shares subject to possible redemption—basic                      |       |                                                               | 22,052,100 |                                                                                                                                  |       |                                                                                                                              | 9,530,382  |   |   |   |   |   |   |
| Net income (loss)  per share not subject to possible redemption— basic                                                       |       |                                                               | $          | 0.35                                                                                                                                  |       |                                                                                                                              |       | $ | (0.54 | ) |   |   |   |   |   |

 

**Operating expenses for the yearended December 31, 2006, and for the period from April 12, 2005 (date ofinception) through December 31, 2005, were $1,167,701 and $133,161, respectively.  These costs were  principally composed of legal, accountingexpenses and administrative costs related to due diligence in seekingacquisition candidates and SEC filings most of which took place in 2006.**

**For the year ended December 31,2006, and the period from April 12, 2005 (date of inception) through December31, 2005, we earned $5,551,779 and $819,197 of interest income, respectively.**

**Warrantgains and losses for the year ended December 31, 2006, and the period fromApril 12, 2005 (date of inception) through December 31, 2005, were a gain of$5,880,000 and a loss of $5,460,000, respectively.**

30

----

**Liquidity andCapital Resources**

We funded our operations in 2006 primarily through thefunds raised in our initial public offering. 

Net cash provided by operating activities was $2.7million for the year ended December 31, 2006. Cash provided by operatingactivities is primarily driven by net income, adjusted for working capitalchanges, which are principally changes in accrued expenses and fluctuations inwarrant liabilities.

Net cash used in investing activities was $4.3 millionfor 2006. During 2006, we had $2.9 million of net short-term investments and$1.4 million in deferred acquisition costs.

On January 16, 2007,we acquired all of the outstanding capital stock of ATSI, a provider of systemsintegration and application development to the U.S. government, for (a) $84 millionin cash, reduced by a working a capital adjustment, the repayment ofoutstanding indebtedness of ATSI and an aggregate of $8.95 million ofescrowed funds, and (b) 173,913 shares of our common stock. It is possiblethat the former shareholders of ATSI could benefit from certain earnoutopportunities if ATSI is awarded a contract for a U.S. Air Force informationtechnology outsourcing project in Hawaii. That contracting decision has beendelayed on several occasions. As of the date of this Annual Report onForm 10-K, we had not been advised of a decision on that award.

We funded the cash portion of the ATSI purchase pricewith the proceeds of our initial public offering. In connection with theacquisition of ATSI, holders of 2,906,355 shares of common stock who votedagainst the acquisition and perfected their right to convert their shares ofcommon stock into $5.77 of cash per share. An aggregate of $16,769,668 was paidto converting stockholders. These conversions were also funded with theproceeds of our initial public offering. Following the completion of theacquisition, we announced and implemented a common stock repurchase program.Through March 9, 2007, we utilized approximately $12.0 million ofcash to purchase 2,399,400 shares of common stock at an average price of $4.99per share.

ATS has a commitment to pay CRT Capital Group LLC a 2%fee of gross offering proceeds, or $2,520,000 upon the Company’s consummationof a Business Combination, which was paid in January 2007.

ATS has engaged CRT Capital Group LLC, theunderwriter, on a non-exclusive basis, as its agent for the solicitation of theexercise of the warrants. ATS has agreed to pay CRT Capital Group LLC acommission equal to 2% of the exercise price for each warrant exercised morethan one year from October 19, 2005 if the exercise was solicited by CRTCapital Group LLC.

Under an agreement entered into May 2006 an amended inSeptember 2006, an entity owned and controlled by Stuart R. Lloyd, who willbecome the Company’s Executive Vice President and Chief Financial Officer willreceive a payment of $100,000 plus $5,000 per week from October 1, 2006 throughthe closing date if the acquisition of ATSI is completed. ATS will alsoreimburse for out-of-pocket costs. The services being provided by this entityare performed by Mr. Lloyd and consist of consulting on financial andaccounting matters, including evaluation of ATSI’s operations, reviewingmonthly financial information, commenting o filings to be made with theSecurities and Exchange Commission, and assisting in the preparation for, andparticipation in, investor presentations and similar activities. This commitmentwas paid in the amount of $175,000 upon the consummation of the acquisition ofATSI in January 2007. 

Effective March 1, 2007, we acquired RISI, a37-employee network systems integrator serving U.S. government defense andcivilian agencies for approximately $1.3 million in cash, promissory notesand assumption of debt, plus $0.2 million in ATS common stock.

As of the close of business on March 20, 2007, wehad cash on hand of approximately $1.5 million.

31

----

We expect to fund our operations following theacquisition of ATSI through funds generated from operations, cash remainingfrom our initial public offering and the credit facilities described below. Weexpect to retain future earnings, if any, for use in the operations of thebusiness and at this time do not anticipate paying any cash dividends.

Although no decisions have been made as to the size,structure or number of future acquisitions, we expect that a significant portionof acquisition prices will be borrowed from commercial sources and, perhaps, insome cases, the owners of an acquisitions target. Depending on the nature andstructure of the target and its business, and the preferences of the owners ofthe target, it is possible that we would use common stock or other equitysecurities as part of the acquisition consideration. However, it is notpossible to predict future acquisition structures at this time.

Another factor that could affect our capital structureand resources is our concern about the effects of our substantial number ofwarrants outstanding. We have not made any decisions about what to do aboutthat factor, and we may take no steps in that regard, but we expect to evaluatefrom time to time alternatives for addressing that issue.

As of December 31,2006, we had no line of credit and no borrowings outstanding. EffectiveFebruary 1, 2007, we maintain a 90-day, $9 million line of creditwith Bank of America. The current line bears interest at the one-month LIBORrate plus between 150 and 225 basis points per annum, depending on theoutstanding balance on the line. We expect this temporary line to be replacedwith permanent arrangements, perhaps involving both a revolving credit facilityand a stand-by acquisition facility. No assurance can be provided that we willbe able to put into place permanent credit facilities, or the size and terms ofsuch facilities.

**Off-balance sheetarrangements**

None

**Effects ofinflation**

Since we had no operationsas of December 31, 2006, the effects of inflation did not have a materialimpact on our business through the period covered in this report.

**Recent AccountingPronouncements**

The Financial AccountingStandards Board (“FASB”) has issued interpretation No. 48, “Accounting forUncertainty in Income Taxes—An Interpretation of FASB Statement No. 109” (“FIN48”), regarding accounting for, and disclosure of, uncertain tax positions. FIN48 clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with FASB Statement No. 109,“Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. FIN 48 alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure, and transition. FIN 48 is effectivefor fiscal years beginning after December 15, 2006. We are currentlyevaluating the impact FIN 48 will have on its results of operations andfinancial position. The cumulative effect of applying the provisions of FIN 48,if any, will be reported as an adjustment to the opening balance of retainedearnings accumulated during the development stage on January 1, 2007.

**In September 2006, the FASB issuedSFAS No. 157, “Fair Value Measurements”. SFAS No. 157 defines fairvalue, establishes a framework for measuring fair value and expands disclosuresabout fair value measurements. SFAS No. 157 is effective for fiscal yearsbeginning after December 15, 2007. The adoption of SFAS No. 157 is effectiveJanuary 1, 2008 for the Company. We believe that the adoption of this statementwill not have a material effect on its financial condition, results ofoperations or cash flows.**

32

----

**In September 2006, the SEC issuedStaff Accounting Bulletin No. 108 (SAB 108), “Financial Statements—Consideringthe Effects of Prior Year Misstatements When Quantifying Misstatements inCurrent Year Financial Statements”. SAB 108 requires the use of the “rollover”and “iron curtain” approaches when attempting to quantify possiblemisstatements in the financial statements. If under either approach amisstatement is determined to have a material effect on the financialstatements, the financial statements must be adjusted. We adopted SAB 108 forthe fiscal year ended December 30, 2006. The adoption of this statement did nothave a material effect on its financial condition, results of operations orcash flow.**

**InFebruary 2007, the FASB issued Statement No. 159 (SFAS 159), *“The Fair Value Option for Financial Assets and Liabilities—Includingan amendment of FASB Statement No. 115”,* which permits entities tomeasure eligible items at fair value. For items where the fair value electionis made, we will be required to report unrealized gains or losses in earnings.SFAS 159 is effective for fiscal years beginning after November 15, 2007. Atthis time, we are assessing the impact the adoption of SFAS 159 will have onour financial statements.**

**Item 7A.**                Quantitativeand Qualitative Disclosures About Market Risk

Market risk is thesensitivity of income to changes in interest rates, foreign exchanges,commodity prices, equity prices, and other market-driven rates or prices. As ofDecember 31, 2006, we were not engaged in any substantive commercialbusiness. Accordingly, the risks associated with foreign exchange rates,commodity prices, and equity prices were not significant. The available fundswhich were not immediately required to pay our expenses were invested only inUnited States “government securities,” defined as any Treasury Bill issued bythe United States having a maturity of 180 days or less. Given our limitedrisk in our exposure to U.S. Treasury Bills, we did not view the interest raterisk to be significant. We do not enter into derivatives or other financialinstruments for trading or speculative purposes.

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

Reference is made to ourfinancial statements beginning on page F-1 of this report.

**Item 9.**                        *Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure*

Not applicable.

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

**Disclosure Controlsand Procedures**

We performed an assessment, as of December 31, 2006,of the effectiveness of the design and operation of our disclosure controls andprocedures. This assessment was done under the supervision and with theparticipation of management, including our principal executive officer andprincipal financial officer. Included as Exhibits 31.1 and .31.2 to this AnnualReport on Form 10-K are forms of “Certification” of our principal executiveofficer (our Chairman of the Board and Chief Executive Officer) an ourprincipal financial officer (our Chief Financial Officer). The forms ofCertification are required in accordance with Section 302 of the Sarbanes-OxleyAct of 2002. This section of the Annual Report on Form 10-K that you arecurrently reading is the information concerning the assessment referred to inthe Section 302 certifications and required by the rules and regulations of theSEC. You should read this information in conjunction with the Section 302certifications for a more complete understanding of the topics presented.

Disclosure controls andprocedures are designed with the objective of ensuring that informationrequired to be disclosed in the Company’s reports filed or submitted under theSecurities Exchange Act of 1934, such as this Annual Report on Form 10-K,is recorded, processed, summarized and reported within 

33

----

the timeperiods specified in the SEC’s rules and forms. Disclosure controls andprocedures are also designed with the objective of ensuring that suchinformation is accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, as appropriate, to allowtimely decisions regarding required disclosure.

**Management’s AnnualReport on Internal Control over Financial Reporting**

Management is responsible for establishing andmaintaining adequate internal control over financial reporting. Management isrequired to assess the effectiveness of our internal control over financialreporting as of the end of each fiscal year and report based on that assessmentwhether our internal control over financial reporting was effective. Internalcontrol over financial reporting is a process designed by, or under thesupervision of, our Chief Executive Officer and Chief Financial Officer, andeffected by our Board of Directors, our management and other personnel, toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements in accordance with generallyaccepted accounting principles and includes those policies and procedures that:

·       pertainto the maintenance of records that in reasonable detail accurately and fairlyreflect the transactions and dispositions of our assets; 

·       providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that our receipts and expenditures are being madeonly in accordance with authorizations of management or our Board of Directors;and 

·       providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of our assets that could have a materialadverse effect on our financial statements.

**Limitationson the Effectiveness of Controls**

**Becauseof the inherent limitations in all control systems, no assessment of controlscan provide absolute assurance that all control issues and instances of fraud,if any, within the company have been detected. These inherent limitationsinclude the realities that judgments in decision-making can be faulty, and thatbreakdowns can occur because of simple error or mistake. Additionally, controlscan be circumvented by the individual acts of some persons, by collusion of twoor more people, or by management’s override of the control. The design of anysystem of controls also is based in part upon certain assumptions about thelikelihood of future events, and there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions;over time, controls may become inadequate because of changed in conditions, orthe degree of compliance with the policies or procedures may deteriorate. Becauseof the inherent limitations in a cost-effective control system, misstatementsdue to error or fraud may occur and not be detected.**

**Assessment ofEffectiveness of Disclosure Controls Over Financial Reporting**

Our Management,including our Chief Executive Officer and Chief Financial Officer conducted anassessment of the effectiveness of our internal control over financialreporting as of December 31, 2006, based on the criteria set forth in theframework in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). We determined thatour internal control over financial reporting was ineffective because of thefollowing material weaknesses as described below:

1.      ThroughDecember 31, 2006, we had no operations, no full-time personnel and very fewpersonnel of any kind. Our activities from inception in late 2005 and into 2006focused on completing our initial public offering, identifying acquisitioncandidates and then completing the acquisition of 

34

----

ATSI. As a result of thesefactors, we had neither the resources, nor the personnel, to have in placeadequate internal control. The material weaknesses in our internal control overfinancial reporting relates primarily to our inability to segregate duties.

2.      Inaddition, we lacked documentation of the policies and procedures that were inplace.

Management, including our principal executive officerand our principal financial officer, do not expect that our disclosure controlsand procedures or our internal control over financial reporting will preventall errors and all fraud.****A controlsystem, no matter how well conceived and operated, can provide only reasonable,not absolute, assurance that the objectives of the control system are met.****Further, the design of a control system must reflect thefact that there are resource constraints, and the benefits of controls must beconsidered relative to their costs. 

Management’s assessment ofthe effectiveness of the Corporation’s internal control over financialreporting has been audited by Eisner LLP, an independent registered publicaccounting firm, as stated in their report which is included herein.

**Changes in InternalControl Over Financial Reporting**

Duringthe fourth quarter of 2006 there were no changes in our internal control over financialreporting that materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

With the completion of the acquisition of ATSI inJanuary 2007 we have additional personnel, access to financial and internalcontrol systems, and actual operations. We plan to address the internal controlweaknesses summarized above in this context beginning in the first quarter of2007, with the goal of eliminating such deficiencies by the end of 2007. Inaddition, the acquisition of ATSI will require the development of more robustdisclosure controls and procedures, which we also expect to develop during2007. 

**Item 9B.**               *Other Information*

None.

35

----

**PART III**

**Item 10.**                 *Directors, Executive Officers And Corporate Governance*

The information requiredby this item will be included in our Proxy Statement for the 2007 AnnualMeeting of Stockholders (the “2007 Proxy Statement”) and is incorporated hereinby reference.

**Item 11.**                 *Executive Compensation*

The information required inthis item will be included in the 2007 Proxy Statement and is incorporatedherein by reference.

**Item 12.**                 *Security Ownership Of Certain Beneficial Owners And Management AndRelated Stockholder Matters*

**SecuritiesAuthorized for Issuance under Equity Compensation Plans**

As of December 31, 2006, the Company had anIncentive Compensation Plan which reserved 1.5 million shares of theCompany’s common stock for issuance to employees and directors. The plan wasapproved by shareholders on January 12, 2007.

The information requiredin this item will be included in the 2007 Proxy Statement and is incorporatedherein by reference.

**Item 13.**                 *Certain Relationships And Related Transactions, and Director Independence*

The information requiredin this item will be included in the 2007 Proxy Statement and is incorporatedherein by reference.

**Item 14.**                 *Principal Accounting Fees And Services*

The information required in this item will be includedin the 2007 Proxy Statement and is incorporated herein by reference.

36

----

**PART IV**

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

(a)           **FinancialStatements and Financial Statement Schedules**

See Index toFinancial Statements Page F-1 included in Form 10-K.

(b)          **Exhibits**

Thefollowing exhibits are included with this report or incorporated herein byreference:
| Exhibit    | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                   |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                              | ** ** | ** ** |
| 3.1        |       | Amended  and Restated Certificate of Incorporation dated January 16, 2007  (incorporated by reference to Exhibit 3.1 to a Current Report on  Form 8-K filed January 19, 2007)                                                                                                                                                            |
| 3.2        |       | By-laws (incorporated by reference to  Exhibit 3.2 in our Annual Report on Form 10-K filed with the  Securities and Exchange Commission on March 31, 2006)                                                                                                                                                                                    |
| 4.1        |       | Specimen Unit Certificate (incorporated by reference  to Exhibit 4.1 in our Annual Report on Form 10-K filed  March 31, 2006)                                                                                                                                                                                                                 |
| 4.2        |       | Specimen Common Stock Certificate (incorporated by  reference to Exhibit 4.2 in our Annual Report on Form 10-K filed  March 31, 2006)                                                                                                                                                                                                         |
| 4.3        |       | Specimen Warrant Certificate (incorporated by  reference to Exhibit 4.3 in our Annual Report on Form 10-K filed  March 31, 2006)                                                                                                                                                                                                              |
| 4.4        |       | Warrant Agreement between Continental Stock Transfer  & Trust Company and the Company (incorporated by reference to  Exhibit 4.4 in our Annual Report on Form 10-K filed March 31,  2006)                                                                                                                                                 |
| 4.5        |       | Warrant Clarification Agreement between Continental  Stock Transfer & Trust Company and the Company (incorporated by reference  to Exhibit 4.1 to a Warrant Report on Form 8-K filed March 14,  2007)                                                                                                                                     |
| 10.1       |       | Stock Purchase Agreement dated April 19, 2006  among Federal Services Acquisition Corporation, Advanced Technology  Systems, Inc. and the shareholders of Advanced Technology  Systems, Inc. (included as Annex A to the Definitive Proxy Statement  (No. 000-51552) dated December 11, 2006 and incorporated by  reference herein) |
| 10.2       |       | First Amendment to Stock Purchase Agreement  (included as Annex A-1 to the Definitive Proxy Statement (No. 000-51552)  dated December 11, 2006 and incorporated by reference herein)                                                                                                                                                               |
| 10.3       |       | Second Amendment to Stock Purchase Agreement  (included as Annex A-2 to the Definitive Proxy Statement (No. 000-51552)  dated December 11, 2006 and incorporated by reference herein)                                                                                                                                                              |
| 10.4       |       | Third Amendment to Stock Purchase Agreement  (included as Annex A-3 to the Definitive Proxy Statement (No. 000-51552)  dated December 11, 2006 and incorporated by reference herein)                                                                                                                                                               |
| 10.5       |       | Balance Sheet Escrow Agreement among Federal  Services Acquisition Corporation, certain shareholders of Advanced Technology  Systems, Inc. and Branch Banking and Trust Company as Escrow Agent  (included as Annex B-1 to the Definitive Proxy Statement (No. 000-51552)  dated December 11, 2006 and incorporated by reference herein)      |
| 10.6       |       | General Indemnity Escrow Agreement among Federal  Services Acquisition Corporation, certain shareholders of Advanced Technology  Systems, Inc. and Branch Banking and Trust Company as Escrow Agent  (included as Annex B-2 to the Definitive Proxy Statement (No. 000-51552)  dated December 11, 2006 and incorporated by reference herein)  |

37

----

 
| 10.7  |   | Expense Escrow Agreement among Federal Services  Acquisition Corporation, certain shareholders of Advanced Technology  Systems, Inc. and Branch Banking and Trust Company as Escrow Agent  (included as Annex B-3 to the Definitive Proxy Statement (No. 000-51552)  dated December 11, 2006 and incorporated by reference herein)                                              |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.8  |   | Accounting Method Tax Escrow Agreement among Federal  Services Acquisition Corporation, certain shareholders of Advanced Technology  Systems, Inc. and Branch Banking and Trust Company as Escrow Agent (included  as Annex B-4 to the Definitive Proxy Statement (No. 000-51552)  dated December 11, 2006 and incorporated by reference herein)                                |
| 10.9  |   | Registration Rights Agreement among Federal Services  Acquisition Corporation and certain shareholders of Advanced Technology  Systems, Inc. (included as Annex C to the Definitive Proxy Statement  (No. 000-51552) dated December 11, 2006 and incorporated by  reference herein)                                                                                             |
| 10.10 |   | Federal Services Acquisition Corporation 2006  Omnibus Incentive Compensation Plan (included as Annex E to the Definitive  Proxy Statement (No. 000-51552) dated December 11, 2006 and  incorporated by reference herein)                                                                                                                                                            |
| 10.11 |   | Contract dated July 24, 2006, as modified  September 29, 2006, under which Advanced Technology Systems, Inc.  provides IT contractor support to mission areas under cognizance of the  Office of the Secretary of Defense (incorporated by reference to  Exhibit 10.11 on a Current Report on Form 8-K filed  January 19, 2007)                                  |
| 10.12 |   | Contract, as modified October 2006, between Advanced  Technology Systems, Inc. Public Safety Solutions Division and the  Metropolitan Nashville Police Department (MNPD) with respect to Advanced  Records Management System (ARMS) project (incorporated by reference to  Exhibit 10.12 on a Current Report on Form 8-K filed  January 19, 2007)                     |
| 10.13 |   | Lease dated June 22, 1998 under which Advanced  Technology Systems, Inc. leases the Registrant’s principal executive  offices, at 7915 Jones Branch Drive, McLean, VA 22102, from West*Group  Properties, LLC for a term expiring on January 31, 2009 (incorporated by  reference to Exhibit 10.13 on a Current Report on Form 8-K filed  January 19, 2007) |
| 10.14 |   | Employment Agreement with Dr. Edward H. Bersoff  dated March 19, 2007 (incorporated by reference to Exhibit 10.1 on a Current  Report on From 8-K filed March 21, 2007)                                                                                                                                                                                                                        |
| 10.15 |   | Restricted Share Award Agreement with Dr. Edward H.  Bersoff dated March 19, 2007 (incorporated by reference to Exhibit 10.2 on a  Current Report on Form 8-K filed March 21, 2007)                                                                                                                                                                                                       |
| 23.1  |   | Consent of Eisner LLP                                                                                                                                                                                                                                                                                                                                                                          |
| 23.2  |   | Consent of Grant Thornton LLP                                                                                                                                                                                                                                                                                                                                                                  |
| 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                                                                                                                                                                                                                                                                              |
| 99.1  |   | Consolidated Balance Sheets of Advanced Technology  Systems, Inc. and Subsidiaries as of October 31, 2006 and 2005 and the  related changes in Consolidated Statements of Operations, Changes in  Stockholders’ Equity and Cash Flows for each of the three years in the period  ended October 31, 2006, 2005 and 2004                                                          |

 

38

----

**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Actof 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized.
|                     |   | ATS CORPORATION |
|---------------------|--------|-----------------|
| March 26, 2007 |   | By:             |   | /s/ Dr. EDWARD H. BERSOFF |
|                |   |            |   | Dr. Edward H. Bersoff |
|                |   |            |   | Chairman, President and Chief Executive Officer |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.
|                                 | **Name** | ** **                                            | ** ** | ** **               | **Position** | ** ** | ** ** | ** ** | **Date** | ** ** |
|---------------------------------|----------|-------------------------------------------------------|------------|--------------------------|--------------|------------|------------|------------|----------|------------|
| /s/ Dr. EDWARD  H. BERSOFF |     | Chairman,  President and Chief Executive Officer      |       | March 26,  2007     |
| Dr. Edward  H. Bersoff     |     | (Principal Executive  Officer)                        |       |                     |
| /s/ STUART R.  LLOYD            |     | Executive Vice  President and Chief Financial Officer |       | March 26,  2007     |
| Stuart  R. Lloyd                |     |                                                  |       |                     |
| /s/ JOEL R.  JACKS              |     | Director                                              |       | March 26, 2007 |
| Joel  R. Jacks                  |     |                                                  |       |                     |
| /s/ JOSEPH A.  SAPONARO         |     | Director                                              |       | March 26,  2007     |
| Joseph  A. Saponaro             |     |                                                  |       |                     |
| /s/ PETER M.  SCHULTE           |     | Director                                              |       | March 26,  2007     |
| Peter  M. Schulte               |     |                                                  |       |                     |
| /s/ EDWARD J.  SMITH            |     | Director                                              |       | March 26,  2007     |
| Edward J. Smith                 |     |                                                  |       |                     |

 

39

----

**INDEXTO FINANCIAL STATEMENTS AND SCHEDULES**
| Contents                                                                                                                            | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| **FINANCIAL****STATEMENTS OF ATS CORPORATION**                                                                                      | ** ** | ** ** | ** ** |
| Report of Independent Registered Public Accounting  Firm                                                                            |       | F-2        |       |
| Report of Independent Registered Public Accounting  Firm on Internal Control over Financial Reporting      |       | F-3        |       |
| Balance Sheets                                                                                                                      |       | F-6        |       |
| Statements of Operations                                                                                                            |       | F-7        |       |
| Statements of Changes in Stockholders’ Equity                                                                                  |       | F-8        |       |
| Statements of Cash Flows                                                                                                            |       | F-9        |       |
| Notes to Financial Statements                                                                                                       |       | F-10       |       |

 

F-1

----

**Report ofIndependent Registered Public Accounting Firm**

To the Board of Directors and Stockholders ofATS Corporation

We have audited the accompanying balance sheets of ATSCorporation (formerly Federal Services Acquisition Corporation) (a developmentstage company) as of December 31, 2006 and 2005, and the relatedstatements of operations and the changes in stockholders’ equity and cash flowsfor the year ended December 31, 2006, and for the periods fromApril 12, 2005 (date of inception) through December 31, 2006 and2005. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of ATS Corporation as of December 31,2006 and 2005, and the results of its operations and its cash flows for theyear ended December 31, 2006 and for the periods from April 12, 2005(date of inception) through December 31, 2006 and 2005 in conformity withU.S. generally accepted accounting principles.

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of ATS Corporation’s internal control overfinancial reporting as of December 31, 2006, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizationsof the Treadway Commission (“COSO”), and our report dated March 20, 2007expressed an unqualified opinion on management’s assessment of theeffectiveness of the Company’s internal control over financial reporting, andan adverse opinion on the effectiveness of the Company’s internal control overfinancial reporting because of the existence of material weaknesses.

/s/ Eisner LLPNew York, New York

March 20, 2007

F-2

----

**Report ofIndependent Registered Public Accounting Firm**

To the Board ofDirectors and Shareholders of

ATS Corporation

We have audited management’s assessment, included inthe accompanying Management’s Annual Report on Internal Control Over FinancialReporting, that ATS Corporation (formerly Federal Services AcquisitionCorporation) (a development stage company) did not maintain effective internalcontrol over financial reporting as of December 31, 2006, because of theeffect of material weaknesses identified in management’s assessment based oncriteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (“COSO”). TheCompany’s management is responsible for maintaining effective internal controlover financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting. Our responsibility is to express anopinion on management’s assessment and an opinion on the effectiveness of theCompany’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. Acompany’s’ internal control over financial reporting includes those policiesand procedures that (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (ii) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that  controls may becomeinadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.

A material weakness is a control deficiency, orcombination of control deficiencies, that result in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. The following material weaknesseshave been identified and included in management’s assessment. As of December 31,2006, the Company had no operations and no full-time personnel. Therefore, theCompany had neither the resources nor personnel to have adequate segregation ofduties, and lacked documentation of the policies and procedures. Managementconcluded that internal controls over financial reporting were not effective.These control deficiencies resulted in more than a remote likelihood that amaterial misstatement of annual or interim financial statements would not beprevented or detected in the annual or interim financial statements. Thismaterial weakness was considered in determining the nature, timing, and extentof audit tests applied in our audit of the financial statements as of and forthe year ended December 31, 2006 and this report does not affect ourreport dated March 20, 2007 on those financial statements.

F-3

----

In our opinion, management’s assessment that ATSCorporation did not maintain effective internal control over financialreporting as of December 31, 2006, is fairly stated, in all material respects,based on the COSO criteria. Also, in our opinion, because of the effect of thematerial weaknesses described above on the achievement of the objectives of thecontrol criteria, ATS Corporation has not maintained effective internal controlover financial reporting as of December 31, 2006, based on criteriaestablished in Internal Control—Integrated Framework issued by COSO.

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the balance sheets of ATS Corporation as of December 31,2006 and 2005 and the related statements of operations, changes instockholders’ equity and cash flows for the year ended December 31, 2006and for the periods from April 12, 2005 (date of inception) through December 31,2006 and 2005 and our report dated March 20, 2007, expressed anunqualified opinion on those financial statements.

/s/Eisner LLP

New York, New York

March 20, 2007

F-4

----

**ATS CORPORATIONFINANCIAL STATEMENTS**

F-5

----

**ATS CORPORATION(a development stage company)**

**Balance Sheets**

| ** **                                                                                                                                                                    | ** ** | **December 31,  2006** | ** **  | **December 31,  2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                    | ** ** | ** **                  | ** **  | ** **                  | ** ** |
| Current assets:                                                                                                                                                               |       |                        |        |                        |       |
| Cash and cash  equivalents                                                                                                                                                    |       | $                           | 213,395     |                        | $          | 1,855,394 |   |
| Prepaid expenses                                                                                                                                                              |       | 136,006                     |        | 72,122                      |       |
| Total current assets                                                                                                                                                          |       | 349,401                     |        | 1,927,516                   |       |
| Short-term  investments held in trust account (including interest receivable of $89,737  and $39,444, respectively) (fair value $121,024,475 and $117,709,036,  respectively) |       | 121,024,475                 |        | 117,709,036                 |       |
| Cash and cash equivalents held in trust fund                                                                                                                                  |       | 1,332                       |        | 281,348                     |       |
| Deferred income  tax benefit                                                                                                                                                  |       | 502,744                     |        | 34,629                      |       |
| Deferred acquisition costs                                                                                                                                                    |       | 1,361,215                   |        | —                      |       |
| Total assets                                                                                                                                                                  |       | $                           | 123,239,167 |                        | $          | 119,952,529 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                | ** ** | ** **                  | ** **  | ** **                  | ** ** |
| Current  liabilities:                                                                                                                                                         |       |                        |        |                        |       |
| Accrued expenses                                                                                                                                                              |       | $                           | 942,146     |                        | $          | 34,289 |   |
| Income tax  payable—current                                                                                                                                              |       | 310,606                     |        | 356,000                     |       |
| Deferred income tax                                                                                                                                                           |       | 40,489                      |        | 15,714                      |       |
| Warrant liabilities                                                                                                                                                           |       | 13,860,000                  |        | 19,740,000                  |       |
| Total current  liabilities                                                                                                                                                    |       | 15,153,241                  |        | 20,146,003                  |       |
| Common Stock, subject to possible redemption 4,197,900  shares                                                                                                                |       | 23,424,282                  |        | 23,424,282                  |       |
| Interest income attributable to common stock subject  to possible redemption (net of taxes of $561,204 and $64,000, respectively)                                             |       | 702,752                     |        | 97,996                      |       |
| Total common stock, subject to possible redemption                                                                                                                            |       | 24,127,034                  |        | 23,522,278                  |       |
| COMMITMENTS AND  CONTINGENCIES (Note I)                                                                                                                                       |       |                        |        |                        |       |
| STOCKHOLDERS’  EQUITY:                                                                                                                                                   |       |                        |        |                        |       |
| Preferred stock—$.0001 par value; 1,000,000 shares  authorized; 0 issued and outstanding                                                                            |       |                        |        |                        |       |
| Common stock—$.0001 par  value, 100,000,000 shares authorized; 26,250,000 issued and outstanding  (which includes 4,197,900 shares subject to possible redemption)       |       | 2,625                       |        | 2,625                       |       |
| Additional paid-in  capital                                                                                                                                                   |       | 81,467,698                  |        | 81,467,698                  |       |
| Retained earnings  (deficit) accumulated during the development stage                                                                                                         |       | 2,488,569                   |        | (5,186,075                  | )          |
| Total stockholders’ equity                                                                                                                                               |       | 83,958,892                  |        | 76,284,248                  |       |
|                                                                                                                                                                          |       | $                           | 123,239,167 |                        | $          | 119,952,529 |   |

 

See notes to financial statements

F-6

----

**ATSCORPORATION(a development stage company)**

**Statements of Operations**

| ** **                                                     | ** ** | **For the   Year ended  December 30, 2006** | ** ** | **For the  period from  April 12, 2005  (date of inception)  through  December 31, 2005** | ** ** | **For the  period from  April 12, 2005  (date of inception)  through  December 31, 2006** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|
| Expenses:                                                      |       |                                                                 |       |                                                                                                                              |       |                                                                                                                              |       |   |   |   |   |   |   |
| Operating costs                                                |       |                                                                 | $          | 1,167,701                                                                                                                         |       |                                                                                                                              |       | $ | 133,161 |   |   |   | $ | 1,300,862 |   |   |
| Other income (loss):                                           |       |                                                                 |       |                                                                                                                              |       |                                                                                                                              |       |   |   |   |   |   |   |
| Bank interest                                                  |       |                                                                 | 39,221     |                                                                                                                              |       |                                                                                                                              | 8,783      |   |   |   | 48,004 |   |   |
| Interest on cash and short term investments held in  trust     |       |                                                                 | 5,512,558  |                                                                                                                              |       |                                                                                                                              | 810,384    |   |   |   | 6,322,942 |   |   |
| Gain (loss) on warrant liability                               |       |                                                                 | 5,880,000  |                                                                                                                              |       |                                                                                                                              | (5,460,000 | ) |   |   | 420,000 |   |   |
| Total other income (loss)                                      |       |                                                                 | 11,431,779 |                                                                                                                              |       |                                                                                                                              | (4,640,833 | ) |   |   | 6,790,946 |   |   |
| **Income  (loss) before (provision) benefit for income taxes** |       |                                                                 | 10,264,078 |                                                                                                                              |       |                                                                                                                              | (4,773,994 | ) |   |   | 5,490,084 |   |   |
| (Provision) benefit for  income taxes                          |       |                                                                 |       |                                                                                                                              |       |                                                                                                                              |       |   |   |   |   |   |   |
| Current                                                        |       |                                                                 | (2,428,018 | )                                                                                                                                 |       |                                                                                                                              | (333,000   | ) |   |   | (2,761,018 | ) |   |
| Deferred                                                       |       |                                                                 | 443,340    |                                                                                                                              |       |                                                                                                                              | 18,915     |   |   |   | 462,255 |   |   |
| **Net  income (loss)**                                         |       |                                                                 | $          | 8,279,400                                                                                                                         |       |                                                                                                                              |       | $ | (5,088,079 | ) |   |   | $ | 3,191,321 |   |   |
| Weighted average  number of shares outstanding—basic      |       |                                                                 | 26,250,000 |                                                                                                                              |       |                                                                                                                              | 10,599,810 |   |   |   |   |   |   |
| Net income (loss)  per share—basic                        |       |                                                                 | $          | 0.32                                                                                                                              |       |                                                                                                                              |       | $ | (0.48 | ) |   |   |   |   |   |
| Net income (loss)                                              |       |                                                                 | $          | 8,279,400                                                                                                                         |       |                                                                                                                              |       | $ | (5,088,079 | ) |   |   |   |   |   |
| Gain on  derivative liabilities attributed to   warrants       |       |                                                                 | 5,880,000  |                                                                                                                              |       |                                                                                                                              | —     |   |   |   |   |   |   |
| Adjusted net  income (loss)—for diluted earnings          |       |                                                                 | $          | 2,399,400                                                                                                                         |       |                                                                                                                              |       | $ | (5,088,079 | ) |   |   |   |   |   |
| Weighted average  shares outstanding                           |       |                                                                 | 26,250,000 |                                                                                                                              |       |                                                                                                                              | 10,599,810 |   |   |   |   |   |   |
| Shares from  assumed conversion of warrants                    |       |                                                                 | 3,887,477  |                                                                                                                              |       |                                                                                                                              | —     |   |   |   |   |   |   |
| Weighted average  number of shares outstanding—diluted    |       |                                                                 | 30,137,477 |                                                                                                                              |       |                                                                                                                              | 10,599,810 |   |   |   |   |   |   |
| Net income (loss) per  share—diluted                      |       |                                                                 | $          | 0.08                                                                                                                              |       |                                                                                                                              |       | $ | (0.48 | ) |   |   |   |   |   |

 

 

See notes to financial statements

F-7

----

**ATS CORPORATION**

**(adevelopment stage company)**

**Statements of Changes in Stockholders’ EquityFor the period from April 12, 2005 (date of inception) throughDecember 31, 2006**

| ** **                                                                                                                                                       | ** ** | **Common Stock** | ** ** | **Additional  Paid-In** | ** ** | **(Deficit)  Income  Accumulated  During the  Development** | ** ** | ** **  | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|------------------------------------------------------------------|------------|-------------|------------|
| ** **                                                                                                                                                       | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **Capital**                                                      | ** ** | **Stage**   | ** ** | **Total** | ** ** |
| **Balance—April 12, 2005  (date of inception)**                                                                                                        | ** ** | ** **            | ** ** |                    | ** ** | ** **                                                       |       | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Initial capital from founding stockholders                                                                                                                       |       | 5,250,000             |       |                    | $          | 525                                                              | ** ** |        | $          | 5,475 |   | $ | — |   | $ | 6,000 |   |
| Sale of 21,000,000 units (including 4,197,900 shares  of common stock subject to possible redemption), net of underwriters’  discount and offering expenses |       | 21,000,000            |       |                    | 2,100      | ** **                                                       |       | 119,166,505 |       | — |   | 119,168,605 |   |
| Reclassification of proceeds allocated to  warrants—derivatives liability                                                                                   |       | —                |       |                    | —     | ** **                                                       |       | (14,280,000 | )          | — |   | (14,280,000 | ) |
| Reclassification 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 (loss) for the period                                                                                                                                        |       | —                |       |                    | —     | ** **                                                       |       | —      |       | (5,088,079 | ) | (5,088,079 | ) |
| **Balance—December 31,  2005**                                                                                                                         |       | 26,250,000            |       |                    | 2,625      | ** **                                                       |       | 81,467,698  |       | (5,186,075 | ) | 76,284,248 |   |
| Accretion of trust fund relating to common stock  subject to possible redemption                                                                                 |       | —                |       |                    | —     | ** **                                                       |       | —      |       | (604,756 | ) | (604,756 | ) |
| Net income for the year                                                                                                                                          |       | —                |       |                    | —     | ** **                                                       |       | —      |       | 8,279,400 |   | 8,279,400 |   |
| **Balance—December 31, 2006**                                                                                                                          |       | 26,250,000            |       |                    | $          | 2,625                                                            | ** ** |        | $          | 81,467,698 |   | $ | 2,488,569 |   | $ | 83,958.892 |   |

 

 

See notes to financial statements

F-8

----

**ATS CORPORATION**

**(a development stage company)**

**Statements of Cash Flows**

| ** **                                                                         | ** ** | **For the Year  ended  December 31, 2006** | ** ** | **For the period  from April 12, 2005  (date of inception)  through  December 31, 2005** | ** **   | **For the period  from April 12, 2005  (date of inception)  through  December 31, 2006** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|--------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Cash flows from operating activities:**                                          | ** ** | ** **                                                     | ** ** |                                                                                                                                  | ** **   | ** **                                                                                                                            |       | ** ** |   |
| Net income (loss)                                                                  |       | $                                                              | 8,279,400  |                                                                                                                                  |         | $                                                                                                                                     | (5,088,079 | ) |   | $ | 3,191,321 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                                                           |       |                                                                                                                                  |         |                                                                                                                                  |       |   |   |
| Deferred income tax                                                                |       | (443,340                                                       | )          |                                                                                                                                  | (18,915      | )                                                                                                                                     |       | (462,255 | ) |
| (Gain) loss on warrant  liabilities                                                |       | (5,880,000                                                     | )          |                                                                                                                                  | 5,460,000    |                                                                                                                                  |       | 420,000 |   |
| Changes in:                                                                        |       |                                                           |       |                                                                                                                                  |         |                                                                                                                                  |       |   |   |
| Interest receivable                                                                |       | (50,293                                                        | )          |                                                                                                                                  | (39,444      | )                                                                                                                                     |       | (89,737 | ) |
| Prepaid expenses                                                                   |       | (63,884                                                        | )          |                                                                                                                                  | (72,122      | )                                                                                                                                     |       | (136,006 | ) |
| Accrued expenses                                                                   |       | 907,857                                                        |       |                                                                                                                                  | 34,289       |                                                                                                                                  |       | 942,146 |   |
| Income taxes  payable—current                                                 |       | (45,394                                                        | )          |                                                                                                                                  | 356,000      |                                                                                                                                  |       | 310,606 |   |
| Net cash provided by  operating activities                                         |       | 2,704,346                                                      |       |                                                                                                                                  | 631,729      |                                                                                                                                  |       | 3,336,075 |   |
| **Cash flows from investing activities:**                                          | ** ** | ** **                                                     | ** ** |                                                                                                                                  | ** **   | ** **                                                                                                                            |       | ** ** |   |
| Purchase of U.S.  government securities  held in trust fund                        |       | (1,198,478,053                                                 | )          |                                                                                                                                  | (234,848,658 | )                                                                                                                                     |       | (1,433,326,711) |   |
| Maturities of U.S.  government securities  held in trust fund                      |       | 1,195,212,907                                                  |       |                                                                                                                                  | 117,179,066  |                                                                                                                                  |       | 1,312,391,973 |   |
| Cash held in trust fund                                                            |       | 280,016                                                        |       |                                                                                                                                  | (281,348     | )                                                                                                                                     |       | (1,332 | ) |
| Deferred acquisition  costs                                                        |       | (1,361,215                                                     | )          |                                                                                                                                  | —       |                                                                                                                                  |       | (1,361,215 | ) |
| Net cash used in  investing activities                                             |       | (4,346,345                                                     | )          |                                                                                                                                  | (117,950,940 | )                                                                                                                                     |       | (122,297,285 | ) |
| **Cash flows from financing activities:**                                          | ** ** | ** **                                                     | ** ** |                                                                                                                                  | ** **   | ** **                                                                                                                            |       | ** ** |   |
| Proceeds from public  offering, net of expenses                                    |       | —                                                         |       |                                                                                                                                  | 119,168,605  |                                                                                                                                  |       | 119,168,605 |   |
| Proceeds from notes  payable to stockholders                                       |       | —                                                         |       |                                                                                                                                  | 154,000      |                                                                                                                                  |       | 154,000 |   |
| Repayment of notes to  stockholders                                                |       | —                                                         |       |                                                                                                                                  | (154,000     | )                                                                                                                                     |       | (154,000 | ) |
| Proceeds from sale of  common stock to founders                                    |       | —                                                         |       |                                                                                                                                  | 6,000        |                                                                                                                                  |       | 6,000 |   |
| Net cash provided by  financing activities                                         |       | —                                                         |       |                                                                                                                                  | 119,174,605  |                                                                                                                                  |       | 119,174,605 |   |
| **Net  (decrease) increase in cash and  cash equivalents**                         |       | (1,641,999                                                     | )          |                                                                                                                                  | 1,855,394    |                                                                                                                                  |       | 213,395 |   |
| Cash and cash  equivalents—beginning of period                                |       | 1,855,394                                                      |       |                                                                                                                                  | —       |                                                                                                                                  |       | — |   |
| Cash and cash  equivalents—end of period                                      |       | $                                                              | 213,395    |                                                                                                                                  |         | $                                                                                                                                     | 1,855,394  |   |   | $ | 213,395 |   |
| **Supplemental Disclosure of noncash activities:**                                 | ** ** | ** **                                                     | ** ** |                                                                                                                                  | ** **   | ** **                                                                                                                            |       | ** ** |   |
| Cash paid during the period for:                                                   |       |                                                           |       |                                                                                                                                  |         |                                                                                                                                  |       |   |   |
| Income taxes                                                                       |       | $                                                              | 2,483,385  |                                                                                                                                  |         | $                                                                                                                                     | —     |   |   | $ | 2,483,385 |   |
| Non-cash activities:                                                               |       |                                                           |       |                                                                                                                                  |         |                                                                                                                                  |       |   |   |
| Reclassification of  common stock subject to possible redemption                   |       | $                                                              | —     |                                                                                                                                  |         | $                                                                                                                                     | 23,424.282 |   |   | $ | 23,424,282 |   |
| Accretion of trust fund  relating to common stock subject to possible redemption   |       | 604,756                                                        |       |                                                                                                                                  | 97,996       |                                                                                                                                  |       | 702,752 |   |
| Warrant obligation in connection with sale of units  in offering                   |       | —                                                         |       |                                                                                                                                  | 14,280,000   |                                                                                                                                  |       | 14,280,000 |   |

 

See notes to financial statements

F-9

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements**

**NOTE A—ORGANIZATION AND BUSINESS OPERATIONS**

ATS Corporation (formerlyFederal Services Acquisition Corporation)(the “Company”) was incorporated inDelaware on April 12, 2005. The Company was formed to serve as a vehiclefor the acquisition of an operating business in the federal services anddefense industries through a merger, capital stock exchange, asset acquisition,stock purchase or other similar business combination. The Company has neitherengaged in any operations nor generated revenue to date. The Company isconsidered to be in the development stage and is subject to the risksassociated with activities of development stage companies. As described inNote L, in January 2007, the Company consummated a business combinationand acquired all of the outstanding common stock of Advanced TechnologySystems, Inc. (“ATSI”).

The registration statementfor the Company’s initial public offering (“Offering”) was declared effectiveon October 19, 2005. The Company consummated the offering on October 25,2005 and received net proceeds of $119,169,000. The Company’s management hasbroad discretion with respect to the specific application of the net proceedsof the Offering, although substantially all of the net proceeds of the Offeringare intended to be generally applied toward consummating a business combinationwith (or acquisition of) an operating business in the federal services anddefense industries (“Business Combination”). As of December 31, 2006, anamount of $121,025,807 including interest receivable of $89,737 of the netproceeds is being held in a trust account (“Trust Account”) and is invested inU.S. government securities, and cash or cash equivalents until the earlier of (i) theconsummation 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 Founders will beentitled to registration rights pursuant to an agreement signed as a part ofthe Offering. The holders of the majority of these shares are entitled to makeup to two demands that the Company register these shares. The holders of themajority of these shares can elect to exercise these registration rights at anytime after the date on which their shares of common stock are released fromescrow (see below). In addition, these stockholders have certain “piggy-back”registration rights on registration statements filed subsequent to such date. TheCompany will bear the expenses incurred in connection with the filing of any suchregistration statement.

Upon consummation of theOffering, the Founders have placed the shares they owned into an escrow account.These shares will not be transferable during the escrow period and will not bereleased from escrow until the earliest of:

·       three years following thedate of the Offering,

·       liquidation; or

·       the consummation of aliquidation, merger, stock exchange or other similar transaction which resultsin all of the stockholders having the right to exchange their shares of commonstock for cash, securities or other property subsequent to the Companyconsummating a business combination with a target business. (See Note L)

During the escrow period, the holders of these shareswill not be able to sell or transfer their securities except to their spousesand children or trusts established for their benefit, but will retain all otherrights as stockholders, including, without limitation, the right to vote theirshares of common stock and the right to receive cash dividends, if declared. Ifdividends are declared and payable in shares of common stock, such 

F-10

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements (Continued)**

**NOTE A—ORGANIZATION AND BUSINESSOPERATIONS (Continued)**

dividendswill also be placed in escrow. If the Company is unable to effect a businesscombination and liquidates, none of the Founders will receive any portion ofthe liquidation proceeds with respect to common stock owned by them.

**NOTEB—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

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

The Company considers allhighly liquid investments with original maturities of three months or less tobe cash equivalents. The Company had cash deposits in excess of the federallyinsured limits at December 31, 2006 and 2005.

**[2] Accounting for Warrants and Derivative Instruments:**

On October 25, 2005,the Company consummated its initial public offering of 21,000,000 units. Eachunit consists of one share of common stock and two redeemable common stockpurchase warrants. Each warrant entitles the holder to purchase from theCompany one share of its common stock at an exercise price of $5.00. Thewarrant agreement provides for the Company to register the shares underlyingthe warrants and is silent as to the penalty to be incurred in the absence ofthe Company’s ability to deliver registered shares to the warrant holders uponwarrant exercise.

Emerging Issues Task Force00-19, or EITF 00-19, *“Accounting for DerivativeFinancial Instruments Indexed to and Potentially Settled in, a Company’s OwnStock,”* provides criteria for determining whether freestandingcontracts that are settled in a company’s own stock, including common stockwarrants, should be designated as either an equity instrument, an asset or as aliability under SFAS No. 133. Under the provisions of EITF 00-19, acontract designated as an asset or a liability must be carried at fair value ona company’s balance sheet, with any changes in fair value recorded in a company’sresults of operations. A contract classified as an equity instrument isincluded within equity, and no fair value adjustments are required from periodto period. In accordance with EITF 00-19, the warrants to purchase commonstock included in the units sold in the Company’s initial public offering areseparately accounted for as liabilities.

The agreement related to the Company’s warrants providesfor the Company to register and maintain the registration of the sharesunderlying the warrants and does not specify a penalty in the absence of theCompany’s ability to deliver registered shares to holders upon exercise of thewarrants. Further, the warrant agreement does not specify that the Companycannot be obligated to net cash settle the instrument. Paragraph 14 of EITF 00-19states that if the contract allows the company to net-share or physicallysettle the contract only by delivering registered shares, it is assumed thatthe company will be required to net-cash settle the contract, and as a resultliability classification will be required. Paragraph 17 of EITF 00-19states that if the contract requires physical or net-share settlement bydelivery of registered shares and does not specify any circumstances underwhich net-cash settlement is permitted or required, and the contract does notspecify how the contract would be settled in the event that the company isunable to deliver registered shares, then net cash settlement is assumed if thecompany is unable to deliver registered shares (because it is unlikely thatnonperformance would be an acceptable alternative). Under EITF 00-19,registration of the common stock underlying the warrants is not within theCompany’s control and, as a result, the Company must assume that it could berequired to settle the securities on a net-cash basis, thereby necessitatingthe treatment of the potential settlement obligation as a liability. The fairvalue 

F-11

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements (Continued)**

**NOTE B—SUMMARY OF SIGNIFICANTACCOUNTING POLICIES (Continued)**

of thesesecurities is presented on the Company’s balance sheets as “warrantliabilities,” and the unrealized changes in the values of these derivatives areshown in the Company’s statements of operations as “Gain (loss) on warrantliability.”

Fair values for tradedsecurities and derivatives are based on quoted market prices. Where marketprices are not readily available, as in the case of the Company’s warrants asof the date of issuance, fair values are determined using methods requiringjudgment and estimates. Utilizing such methods, the fair value of the warrantliability at October 20, 2005 (the date of issuance) was determined to be$0.34 per warrant. At the date of issuance, the Company allocated the unitprice between the share of common stock and the warrants issued based uponrelative fair value determined, among other things, by reference to theunderlying cash held in the trust fund. The warrants included in the units soldin the Company’s initial public offering began to be publicly traded on theOver the Counter Bulletin Board on December 5, 2005, and consequently thefair value of the warrants is reflected as the market price of a warrant ateach reporting period. To the extent that the market prices of the Company’swarrants increase or decrease, the Company’s derivative liabilities will alsoincrease or decrease with a corresponding impact on its statements ofoperations.

**[3] Income (loss) per common share:**

Basic income/loss pershare is based on the weighted average number of common shares outstandingduring the period. The per share effects of potential common shares such aswarrants, aggregating 3,887,477 shares, have been included for the year ended December 31,2006. These potential shares have not been included in the period endedDecember 31, 2005, because the effect would be anti-dilutive.

F-12

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements (Continued)**

**NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

The following tablepresents pro forma income per share attributable to common stockholders subjectto possible conversion and not subject to possible conversion:

| ** **                                                                                                                                                      | ** ** | **Year ended  December 31, 2006** | ** ** | **Period ended  December 31, 2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------|------------|
| Net income (loss)                                                                                                                                               |       |                                             | $          | 8,279,400                                          |       |   |   | $ | (5,088,079 | ) |   |
| Interest income  attributable to common stock subject to  possible conversion                                                                                   |       |                                             | (604,756   | )                                                  |       |   | (97,996 | ) |   |
| Pro forma net  income (loss) attributable to common stockholders not subject to possible  conversion                                                            |       |                                             | $          | 7,674,644                                          |       |   |   | $ | (5,186,075 | ) |   |
| Pro forma  weighted average number of shares outstanding, excluding shares subject to  possible conversion—basic                                           |       |                                             | 22,052,100 |                                               |       |   | 9,530,382 |   |   |
| Pro forma net  income (loss) per share, excluding shares subject to  possible conversion—basic                                                             |       |                                             | $          | 0.35                                               |       |   |   | $ | (0.54 | ) |   |
| Net income (loss)                                                                                                                                               |       |                                             | $          | 8,279,400                                          |       |   |   | $ | (5,088,079 | ) |   |
| Interest income  attributable to common stock subject to  possible conversion (net of taxes of $561,204 and $64,000, respectively)                              |       |                                             | (604,756   | )                                                  |       |   | (97,996 | ) |   |
| Gain on  derivative liabilities attributed to warrants                                                                                                          |       |                                             | (5,880,000 | )                                                  |       |   | — |   |   |
| Pro forma net  income (loss) attributable to common stockholders not subject to possible  conversion less gain on derivative liabilities attributed to warrants |       |                                             | $          | 1,794,644                                          |       |   |   | $ | (5,186,075 | ) |   |
| Pro forma  weighted average number of shares outstanding  excluding shares subject to possible conversion—basic                                            |       |                                             | 22,052,100 |                                               |       |   | 9,530,382 |   |   |
| Shares from  assumed conversion on warrants                                                                                                                     |       |                                             | 3,887,477  |                                               |       |   | — |   |   |
| Pro forma weighted average number of shares  outstanding, excluding shares subject to possible conversion—diluted                                          |       |                                             | 25,939,577 |                                               |       |   | 9,530,382 |   |   |
| Pro forma net  income (loss) per share, excluding shares subject to  possible conversion—diluted                                                           |       |                                             | $          | 0.07                                               |       |   |   | $ | (0.54 | ) |   |

 

**[4] Use of estimates:**

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the amounts in the financial statements and accompanyingnotes. Actual results could differ from those estimates.

**[5] Fair value of financial instruments:**

The carrying amounts ofthe Company’s financial assets, including cash and cash equivalents and shortterm investments, approximate fair value because of their short termmaturities.

F-13

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements (Continued)**

**NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

**[6] 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.

**[7] New Accounting Pronouncement:**

The Financial AccountingStandards Board (“FASB”) has issued interpretation No. 48, “Accounting forUncertainty in Income Taxes—An Interpretation of FASB Statement No. 109” (“FIN48”), regarding accounting for, and disclosure of, uncertain tax positions. FIN48 clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with FASB Statement No. 109,“Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. FIN 48also provides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosure, and transition. FIN 48 iseffective for fiscal years beginning after December 15, 2006. The Companyis currently evaluating the impact FIN 48 will have on its results ofoperations and financial position. The cumulative effect of applying theprovisions of FIN 48, if any, will be reported as an adjustment to the openingbalance of retained earnings accumulated during the development stage on January 1,2007.

In September 2006, the FASB issued SFAS No. 157, “FairValue Measurements”. SFAS No. 157 defines fair value, establishes aframework for measuring fair value and expands disclosures about fair valuemeasurements. SFAS No. 157 is effective for fiscal years beginning after December15, 2007. The adoption of SFAS No. 157 is effective January 1, 2008 for theCompany. The Company believes that the adoption of this statement will not havea material effect on its financial condition, results of operations or cashflows.

In September 2006, the SEC issued Staff AccountingBulletin No. 108 (SAB 108), “Financial Statements—Considering the Effects ofPrior Year Misstatements When Quantifying Misstatements in Current YearFinancial Statements”. SAB 108 requires the use of the “rollover” and “iron curtain”approaches when attempting to quantify possible misstatements in the financialstatements. If under either approach a misstatement is determined to have amaterial effect on the financial statements, the financial statements must beadjusted. The Company adopted SAB 108 for the fiscal year ended December 30,2006. The adoption of this statement did not have a material effect on itsfinancial condition, results of operations or cash flow.

In February 2007, the FASB issued Statement No. 159(SFAS 159*), “The Fair Value Option for Financial Assets andLiabilities—Including an amendment of FASB Statement No. 115”,* whichpermits entities to measure eligible items at fair value. For items where thefair value election is made, the Company will be required to report unrealizedgains or losses in earnings. SFAS 159 is effective for fiscal years beginningafter November 15, 2007. At this time, the Company is assessing the impact theadoption of SFAS 159 will have on our financial statements.

F-14

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements (Continued)**

**NOTEC—INITIAL PUBLIC OFFERING**

On October 25, 2005,the Company sold 21,000,000 Units (“Units”). Each Unit consisted of one shareof the Company’s common stock, $.0001 par value, and two warrants (“Warrants”).Each Warrant entitles the holder to purchase from the Company one share ofcommon stock at an exercise price of $5.00. Each Warrant is exercisable on thelater of (a) the completion of a Business Combination or (b) October 19,2006 and expires October 19, 2009, or earlier upon redemption. TheWarrants are redeemable at a price of $.01 per Warrant upon 30 days’notice after the Warrants become exercisable, only in the event that the lastsale price of the common stock is at least $8.50 per share for any 20 tradingdays within a 30 trading day period ending on the third day prior to the dateon which notice of redemption is given.

In connection with theOffering, the Company paid CRT Capital Group LLC an underwriter’s discount of5% of the gross proceeds of the Offering.

**NOTE D—INVESTMENTSHELD IN TRUST**

The management of theCompany intends to hold until maturity the investments held in the TrustAccount, which consist principally of short-term Treasury Bills. These billsare purchased at a discount and the Company accretes interest income which isequivalent to the difference between the purchase price and the market price.

**NOTE E—INCOMETAXES**

Theprovision for income taxes and the deferred tax liability (benefit) for theyears ended December 31, 2006 and 2005, respectively, consisted of thefollowing:

| ** **                              | ** ** | **Year ending  December 31, 2006** | ** ** | **Period from inception (April 12, 2005)  through  December 31, 2005** | ** ** |
|-----------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| Current                                 |       |                                              |       |                                                                                  |       |   |   |   |   |
| Federal                                 |       |                                              | $          | 1,521,362                                                                             |       |   |   | $ | 206,000 |   |   |
| State and local                         |       |                                              | 906,656    |                                                                                  |       |   | 127,000 |   |   |
| Total current income tax                |       |                                              | $          | 2,428,018                                                                             |       |   |   | $ | 333,000 |   |   |
| Deferred tax provision  (benefit)       |       |                                              |       |                                                                                  |       |   |   |   |   |
| Federal                                 |       |                                              | $          | (280,149                                                                              | )          |   |   | $ | 34,629 |   |   |
| State and local                         |       |                                              | (163,191   | )                                                                                     |       |   | (15,714 | ) |   |
| Total deferred tax  provision (benefit) |       |                                              | $          | (443,340                                                                              | )          |   |   | $ | 18,915 |   |   |

 

Provisions have been made for deferred taxes based ondifferences between the tax basis of assets and liabilities using currentlyenacted rates and regulations.

F-15

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements (Continued)**

Deferredtax assets and liabilities at December 31, 2006 and December 31, 2005consisted of the following:

| ** **                                               | ** ** | **As of  December 31,  2006** | ** ** | **As of  December 31,  2005** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| Deferred tax  assets—start up costs                 |       |                                    | $          | 502,744                                 |       |   |   | $ | 34,629 |   |   |
| Deferred tax  liability—accrued interest receivable |       |                                    | (40,489    | )                                       |       |   | (15,714 | ) |   |
| Net deferred tax benefit                                 |       |                                    | $          | 462,255                                 |       |   |   | $ | 18,915 |   |   |

 

TheCompany has recorded a deferred tax asset. Realization is dependent onacquiring an operating company and the ability to use the deferred tax expensesto offset operating income. Although realization is not assured, managementbelieves it is more likely than not that all of the deferred tax will berealized through future taxable income.

F-16

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements (Continued)**

**NOTE E—INCOME TAXES(Continued)**

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

| ** **                                                       | ** ** | **For the Year ended  December 31, 2006** | ** ** | **For the  period from  April 12, 2005  (date of inception)  through  December 31, 2005** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|
| Federal statutory  rate                                          |       |                                                               | 34.0       | %                                                                                                                                 |       |   | (34.0 | )% |   |
| State and local  income taxes, net of federal income tax benefit |       |                                                               | 4.8        |                                                                                                                              |       |   | 1.7 |   |   |
| Non-deductible  gain (loss)                                      |       |                                                               | (19.5      | )                                                                                                                                 |       |   | 38.9 |   |   |
|                                                             |       |                                                               | 19.3       | %                                                                                                                                 |       |   | 6.6 | % |   |

 

**NOTE F—NOTESPAYABLE TO STOCKHOLDERS**

The Company issued two $77,000 non-interest bearingunsecured promissory notes to two of the Founders of the Company on April 18,2005. The notes were repaid in the accordance with their terms on October 25,2005 from the proceeds of the Offering.

**NOTE G—RELATEDPARTY TRANSACTION**

The Company has agreed to pay CM Equity Management,L.P., a company where certain of the Founders serve in executive capacities, anadministrative fee of $7,500 per month for office space and general andadministrative services from October 19, 2005 through the effective dateof the acquisition of a target business. For the year ended December 31,2006, and the periods ended December 31, 2005 and 2006, respectively, theamount paid or accrued to this entity was $90,000, $18,145 and $108,145,respectively.

**NOTE H—COMMITMENTS**

The Company has a commitment to pay to CRT CapitalGroup LLC a 2% fee of the gross offering proceeds, or $2,520,000, payable uponthe Company’s consummation of a Business Combination, which was paid in January2007.

The Company has engaged CRT Capital Group LLC, theunderwriter, on a non-exclusive basis, as its agent for the solicitation of theexercise of the warrants. The Company has agreed to pay CRT Capital Group LLC acommission equal to 2% of the exercise price for each warrant exercised morethan one year from October 19, 2005 if the exercise was solicited by CRTCapital Group LLC. At December 31, 2006, no amount was due to CRT CapitalGroup LLC since no warrants were exercised.

Under an agreement entered into May 2006 andamended in September 2006, an entity owned and controlled by Stuart R.Lloyd, who will become the Company’s Executive Vice President and ChiefFinancial Officer, will receive a payment of $100,000 plus $5,000 per week fromOctober 1, 2006 through the closing date if the acquisition of ATSI iscompleted. The Company will also reimburse for out-of-pocket costs. Theservices being provided by this entity are performed by Mr. Lloyd andconsist of consulting on financial and accounting matters, including evaluationof ATSI’s operations, reviewing monthly financial information, commenting onfilings to be made with the Securities and Exchange Commission, and assistingin the preparation for, and participation in, investor presentations andsimilar 

F-17

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements (Continued)**

activities. Thiscommitment in the amount of $175,000 was paid upon the consummation of theacquisition of ATSI in January 2007.

**NOTE I—COMMON STOCKRESERVED FOR ISSUANCE**

At December 31, 2006,42,000,000 shares of common stock were reserved for issuance upon exercise ofredeemable warrants.

**NOTE J—FOUNDERS**

One or more of theFounders agreed with the Company that during the 40 trading day periodbeginning 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. As of December 31, 2006, 3,699,528 warrantshave been purchased by the Founders.

**NOTE K—DEFERREDACQUISITION COSTS**

As of December 31,2006, the Company had accumulated $1,361,215 in deferred costs related to theproposed acquisition of ATSI. These chargeswill be capitalized in the first quarter of 2007 when the acquisition was consummated.

**NOTE L—SUBSEQUENT EVENTS**

(1) On January 16, 2007the Company acquired all of the outstanding capital stock of AdvancedTechnology Systems, Inc. and its subsidiaries (collectively, “ATSI”), a providerof systems integration and application development to the U.S. government, for approximately$84.0 million in cash, reduced by a working capital adjustment, the repaymentof outstanding indebtedness of ATSI and an aggregate of 173,913 shares ofcommon stock of the Company. It is possible that the former shareholders ofATSI could benefit from certain earnout opportunities if certain adjustedEBITDA thresholds are achieved and additionally if ATSI is awarded a contractfor a U.S Air Force information technology outsourcing project in Hawaii. Thatcontracting decision has been delayed on several occasions. The Company fundedthe cash portion of the ATSI purchase price with the proceeds of its initialpublic offering. In connection with the acquisition of ATSI, holders of2,906,355 shares of common stock who voted against the acquisition andperfected their right to convert their shares of common stock into $5.77 ofcash per share. An aggregate of $16,769,668 was paid to convertingshareholders. These conversions were also funded with the proceeds of the Company’sinitial public offering.

F-18

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements (Continued)**

**NOTE L—SUBSEQUENT EVENTS(Continued)**

**UNAUDITED PRO FORMACONDENSED COMBINED FINANCIAL STATEMENTS**

(2) The following unaudited pro forma condensedcombined balance sheet combines our historical balance sheet and that of ATSI asof December 31, 2006 and October 31, 2006, respectively, givingeffect to the transactions described in the stock purchase agreement as if theyhad occurred on December 31, 2006. The unaudited pro forma condensedcombined statement of operations combine our historical statement ofoperations for the year ended December 31, 2006, and the historicalstatement of operations of ATS for its year ended October 31, 2006 givingeffect to the acquisition as if it had occurred as of the beginning of thefiscal year.

The transaction was approved by the ATS stockholderson January 12, 2007, and closed on January 16, 2007. The pro forma financialstatements reflect the redemption of 2,906,355 shares of common stock bystockholders who elected to redeem their shares for cash upon the acquisitionof ATSI.

Under the purchase method of accounting, thepreliminary purchase price has been allocated to the net tangible andintangible assets acquired and liabilities assumed, based upon preliminaryestimates, which assume that historical cost approximates fair value of theassets and liabilities of ATSI. As such management estimates that a substantialportion of the excess purchase price will be allocated to non-amortizableintangible assets. These estimates are subject to change upon the finalizationof the valuation of certain assets and liabilities and may be adjusted inaccordance with the provisions of Statement of Financial Accounting Standard(“SFAS”) No. 141, *Business Combinations*.

The pro forma adjustmentsare preliminary, and the unaudited pro forma information is not necessarilyindicative of the financial position or results of operations that may haveactually occurred had the acquisition taken place on the dates noted, or ourfuture financial position or operating results.

F-19

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements (Continued)**

**NOTE L—SUBSEQUENT EVENTS (Continued)**

**Unaudited Pro FormaCondensed Combined Balance Sheet(in thousands)**

| ** **                                       | ** **   | **Combined  Pro Forma** | ** ** |
|--------------------------------------------------|--------------|------------------------------|------------|
| ***Assets***                                     | *** *** | ** **                   | ** ** |
| Current Assets                                   |         | ** **                   | ** ** |
| Cash                                             |         | $                            | 22,161     | ** ** |
| Accounts receivable, net                         |         | 20,495                       | ** ** |
| Other current assets                             |         | 2,485                        | ** ** |
| Total Current  Assets                            |         | 45,141                       | ** ** |
| Property and  Equipment, net                     |         | 1,353                        | ** ** |
| Goodwill, net                                    |         | 65,812                       | ** ** |
| Intangible  Assets, net                          |         | 17,000                       | ** ** |
| Other Assets                                     |         | 2,037                        | ** ** |
| Total Assets                                     |         | $                            | 131,343    | ** ** |
| ***Liabilities and Stockholders’  Equity*** | *** *** | ** **                   | ** ** |
| Current  Liabilities                             |         | ** **                   | ** ** |
| Accounts payable                                 |         | $                            | 8,862      | ** ** |
| Accrued payroll and related taxes                |         | 5,923                        | ** ** |
| Other current liabilities                        |         | 1,233                        | ** ** |
| Warrant liabilities                              |         | 13,860                       | ** ** |
| Total Current  Liabilities                       |         | 29,878                       | ** ** |
| Long Term Liabilities                            |         | 9,087                        | ** ** |
| Total Liabilities                                |         | 38,965                       | ** ** |
| Commitments and  Contingencies                   |         | —                       | ** ** |
| Stockholders’ Equity                        |         | ** **                   | ** ** |
| Preferred stock                                  |         | —                       | ** ** |
| Common stock                                     |         | 3                            | ** ** |
| Additional paid-in capital                       |         | 89,671                       | ** ** |
| Retained earnings                                |         | 2,704                        | ** ** |
| Total  Stockholders’ Equity                 |         | 92,378                       | ** ** |
| Total Liabilities and  Stockholders’ Equity |         | $                            | 131,343    | ** ** |

 

F-20

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements (Continued)**

 

**NOTEL—SUBSEQUENT EVENTS (Continued)**

**UnauditedPro Forma Condensed Combined Statement of Operations and Per Share Data(In thousands, except per share amounts)**

| ** **                                             | ** ** | **Fiscal 2006** | ** ** |
|--------------------------------------------------------|------------|----------------------|------------|
| ** **                                             | ** ** | **Combined**         | ** ** |
| ** **                                             | ** ** | **Pro Forma**   | ** ** |
| Contract Revenue                                       |       | $                    | 112,254    |   |
| Direct Costs                                           |       | 72,471               |       |
| Gross Margin                                           |       | 39,783               |       |
| Operating Expenses                                     |       | 42,561               |       |
| Operating Loss                                         |       | (2,778               | )          |
| Other (Expense) Income:                                |       |                 |       |
| Interest income  (expense), net                        |       | 5,554                |       |
| Other income                                           |       | 62                   |       |
| Gain on warrant  liabilities                           |       | 5,880                |       |
| Income from Continuing  Operations Before Income Taxes |       | 8,718                |       |
| Income Tax Expense                                     |       | 1,982                |       |
| Income From Continuing  Operations                     |       | $                    | 6,736      |   |
| Earnings Per Share                                     |       |                 |       |
| —Basic                                            |       | $                    | 0.29       |   |
| —Diluted                                          |       | $                    | 0.25       |   |
| Weighted Avg Shares  Outstanding                       |       |                 |       |
| —Basic                                            |       | 23,517,558           |       |
| —Diluted                                          |       | 27,405,035           |       |

 

F-21

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements (Continued)**

**NOTES TO UNAUDITEDPRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS**

**NOTEL—SUBSEQUENT EVENTS (Continued)**

| ** ** |   | Calculation of purchase price (in thousands):                                                        |   |    |   |
|------------|--------|------------------------------------------------------------------------------------------------------|--------|---------|--------|
| ** ** |   | Cash                                                                                                 |   | $       | 80,248 |   |
| ** ** |   | Common stock  (173,913 shares valued on the date of the purchase agreement April 19, 2006) |   | 1,000   |   |
| ** ** |   | ATS transaction  costs—to be capitalized                                                        |   | 2,839   |   |
| ** ** |   | ATS deferred  acquisition costs                                                                      |   | 1,361   |   |
| ** ** |   | Total purchase  price                                                                                |   | $       | 85,448 |   |
| ** ** |   | Purchase price allocation:                                                                           |   |    |   |
| ** ** |   | Current assets                                                                                       |   | $       | 23,562 |   |
| ** ** |   | Property and  equipment                                                                              |   | 1,353   |   |
| ** ** |   | Intangible assets                                                                                    |   | 17,000  |   |
| ** ** |   | Goodwill                                                                                             |   | 65,812  |   |
| ** ** |   | Other assets                                                                                         |   | 1,533   |   |
| ** ** |   | Total assets  acquired                                                                               |   | 109,260 |   |
| ** ** |   | Current  liabilities                                                                                 |   | 14,725  |   |
| ** ** |   | Long-term  liabilities                                                                               |   | 2,522   |   |
| ** ** |   | Deferred tax  liability from acquisition intangibles                                                 |   | 6,565   |   |
| ** ** |   | Total liabilities  assumed                                                                           |   | 23,812  |   |
| ** ** |   | Net assets acquired                                                                                  |   | $       | 85,448 |   |

 

The above table summarizesthe estimated fair values of the assets acquired and liabilities assumed at thedate of the acquisition. The fair value of the assets acquired and liabilitiesassumed has been based on preliminary estimates and may be revised whenremaining aspects of the purchase price allocation have been finalized by anindependent valuation following the closing of the acquisition of ATSI. We estimate that the transaction will result in $65.8 million of goodwill. The$17.0 million of acquired customer-related intangible assets, which we believeare closely-related assets that include customer contracts, backlog, andnon-contractual customer relationships (including trade name recognition), willbe amortized based on estimated cash flows and the estimated economic benefitof the assets. The preliminary estimated value and the weighted-averageamortization period of each of the components of the customer-relatedintangible assets are as follows:

| **Asset**                                                                  | ** ** | **Estimated Value  (in millions)** | ** ** | **Weighted-Average  Amortization Period** | ** ** |
|----------------------------------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------|------------|
| Customer  contracts                                                        |       |                                         | $          | 10.0                                           |       |   |   | 6 years |   |   |
| Backlog                                                                    |       |                                         | 6.0        |                                           |       |   | 3.5 years |   |   |
| Non-contractual  customer relationships (including trade name recognition) |       |                                         | 1.0        |                                           |       |   | 3 years |   |   |
| Total/Average                                                              |       |                                         | $          | 17.0                                           |       |   |   | 5 years |   |   |

 

F-22

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements (Continued)**

**NOTE L—SUBSEQUENT EVENTS (Continued)**

The value assigned to eachof the intangible asset categories was determined by taking into accountATSI-specific data as to estimated cash flows and the estimated life of thecustomer-related assets, considering factors such as the following:

| Asset                                                    | ** ** | ** **                                                                                                                          | ** ** | **Factors  Considered** |
|----------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|
| Customer contracts                                       |       | Length of contracts and relationship history;  contract values and estimated continuation of these contracts beyond current  levels |
| Backlog                                                  |       | Length of existing contracts and related values                                                                                     |
| Non-contractual customer relationships (including  trade |       |                                                                                                                                |
| name recognition)                                        |       | Length of time ATSI has been in business; tenure of  customer                                                                       |
|                                                     |       | relationships and  revenue history                                                                                                  |

 

It is possible that thefinal purchase price allocation may vary materially from our estimates.

(3) In January 2007, theCompany repurchased 2,625,000 shares of the Company’s common stock from  the founders of the Company for $2,888, afterthe acquisition of ATSI.

(4) Following the consummation of the acquisition ofATSI, the Company announced and implemented a common stock and warrantrepurchase program.  Through March 9,2007, the Company utilized approximately $12.0 million of cash to purchase2,399,400 shares of common stock at an average price of $4.99per shareincluding commissions.

(5) The Company entered into a temporary 90-day $9.0million line of credit with the Bank of America on February 1, 2007. The linebears interest at the one-month LIBOR rate plus between 150-225 basis pointsper annum, depending on the outstanding balance on the line.

(6) As of the close ofbusiness on February 28, 2007, the Company acquired Reliable IntegrationServices, Inc. (“RISI”), a 37-employee network systems integrator serving U.S.government defense and civilian agencies for approximately $1.3 million incash, promissory notes and assumption of debt, plus $0.2 million in theCompany’s common stock.

(7) On January 12, 2007, the stockholders’ of ATSapproved the Company’s Incentive Compensation plan. The plan reserves 1.5million shares of our common stock for issuance to our employees and employeesof our subsidiaries.

(8) The Company entered into a warrant clarificationagreement on March 14, 2007. Prior to that date the Company was required torecord the warrant liability at each reporting date at its then estimated fairvalue, with any changes being recorded through its statement of operations as otherincome/expense. The warrants will continue to be reported as a liabilitythrough March 14, 2007 when the Company clarified its warrant agreement so thistreatment is no longer required.

(9) On March 19, 2007, the Company entered into anemployment agreement with Dr. Edward H. Bersoff to join ATS as itsChairman, President and Chief Executive Officer. He has been serving in that capacitysince January 16, 2007. The employment agreement was filed as part of an 8-K onMarch 21, 2007.

F-23

----

**ATS CORPORATION**

**(a development stage company)**

**Notes to Financial Statements (Continued)**

**NOTE M—SUMMARIZED QUARTERLYFINANCIAL INFORMATION (UNAUDITED)**

Summarized quarterlyfinancial information for fiscal year 2006 and from inception toDecember 31, 2005 are as follows:

| ** **                                                    | ** ** | **March 30,  2006** | ** **  | **June 30,  2006** | ** ** | **September 30,  2006** | ** ** | **December 31,  2006** | ** ** |
|---------------------------------------------------------------|------------|--------------------------|-------------|-------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Operating expenses                                            |       | $                        | 610,197     |                    | $          | 283,424                      |       | $                           | 102,400    |   | $ | 171,680 |   |
| Other income                                                  |       | 1,189,712                |        | 1,394,201               |       | 1,448,763                    |       | 1,519,103                   |       |
| Gain (loss) on warrant  liability                             |       | (10,920,000              | )           | 11,760,000              |       | 4,200,000                    |       | 840,000                     |       |
| Provision for income  taxes                                   |       | 263,560                  |        | 501,181                 |       | 607,947                      |       | 611,990                     |       |
| Net income (loss)                                             |       | (10,604,045              | )           | 12,369,596              |       | 4,938,416                    |       | 1,575,433                   |       |
| Weighted average number  of shares outstanding—basic     |       | 26,250,000               |        | 26,250,000              |       | 26,250,000                   |       | 26,250,000                  |       |
| Net income (loss) per  share—basic                       |       | $                        | (0.40       | )                       | $          | 0.47                         |       | $                           | 0.19       |   | $ | 0.06 |   |
| Net income                                                    |       | $                        | (10,604,045 | )                       | $          | 12,369,596                   |       | $                           | 4,938,416  |   | $ | 1,575,433 |   |
| Gain (loss) on  derivative liabilities attributed to warrants |       | —                   |        | 11,760,000              |       | 4,200,000                    |       | 840,000                     |       |
| Adjusted net income  (loss)—for diluted earnings         |       | $                        | (10,604,045 | )                       | $          | 609,596                      |       | $                           | 738,416    |   | $ | 735,433 |   |
| Weighted average shares  outstanding                          |       | 26,250,000               |        | 26,250,000              |       | 26,250,000                   |       | 26,250,000                  |       |
| Shares from assumed  conversion of warrants                   |       | —                   |        | 4,298,025               |       | 3,111,111                    |       | 4,025,316                   |       |
| Weighted average number  of shares outstanding—diluted   |       | 26,250,000               |        | 30,548,025              |       | 29,361,111                   |       | 30,275,316                  |       |
| Net income per share  (loss)—diluted                     |       | $                        | (0.40       | )                       | $          | 0.02                         |       | $                           | 0.03       |   | $ | 0.02 |   |

 

| ** **                                                            | ** ** | **Inception  through  March 31,  2005** | ** ** | **June 30,  2005** | ** ** | **September 30,  2005** | ** ** | **December 31,  2005** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------------|------------|-------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Operating  expenses                                                   |       | $                                            | —     |                    | $          | 1,000                        |       | $                           | —     |   | $ | 132,161 |   |
| Other income                                                          |       | —                                       |       | 44                      |       | 48                           |       | 819,075                     |       |
| Loss on warrant  liability                                            |       | —                                       |       | —                  |       | —                       |       | (5,460,000                  | )          |
| Provision for  income taxes                                           |       | —                                       |       | —                  |       | —                       |       | 314,085                     |       |
| Net income (loss)                                                     |       | —                                       |       | (956                    | )          | 48                           |       | (5,087,171                  | )          |
| Weighted average  number of shares outstanding—basic and diluted |       | —                                       |       | 5,250,000               |       | 5,250,000                    |       | 20,543,478                  |       |
| Net income (loss)  per share—basic and diluted                   |       | $                                            | —     |                    | $          | 0.00                         |       | $                           | 0.00       |   | $ | (0.25 | ) |

 

F-24

----