UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K





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




For
the Fiscal Year Ended December 31, 2010




Commission
File Number: 000-51552




ATS
CORPORATION


(Exact
Name of Registrant As Specified in Its Charter)





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





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




(571)
766-2400




(Registrant’s
Telephone Number, Including Area Code)




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




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





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




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




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




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




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




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




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





Large
      accelerated filer o
            
            Accelerated
      filer o
            
            Non-accelerated
      filer o
            
            Smaller
      reporting company x




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




As of
June 30, 2010, the aggregate market value of the registrant’s Common Stock held
by non-affiliates of the registrant was $16.6 million, based on the closing
sales price of the registrant’s Common Stock on the NYSE AMEX LLC on that
date.




As of
February 11, 2011, 22,794,175 shares of the registrant’s common stock, $0.0001
par value, were outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE





None.







ATS
CORPORATION


For
the Fiscal Year Ended December 31, 2010




TABLE
OF CONTENTS





PagePART
      IItem
      1.
                Business
                
                
                1Item
      1A.
                Risk
      Factors
                
                
                9Item
      1B.
                Unresolved
      Staff Comments
                
                
                20Item
      2.
                Properties
                
                
                20Item
      3.
                Legal
      Proceedings
                
                
                20Item
      4.
                (Removed
      and Reserved)
                
                
                20PART
      IIItem
      5.
                Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                
                
                21Item
      6.
                Selected
      Financial Data
                
                
                24Item
      7.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                
                
                26Item
      8.
                Financial
      Statements and Supplementary Data
                
                
                34Item
      9.
                Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                
                
                34Item
      9A.
                Controls
      and Procedures
                
                
                34PART
      IIIItem
      10.
                Directors,
      Executive Officers and Corporate Governance
                
                
                36Item
      11.
                Executive
      Compensation
                
                
                43Item
      12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                
                
                60Item
      13.
                Certain
      Relationships and Related Transactions, and Director
      Independence
                
                
                63Item
      14.
                Principal
      Accountant Fees and Services
                
                
                63PART
      IVItem
      15.
                Exhibits
      and Financial Statement Schedules
                
                
                64


i




FORWARD-LOOKING
STATEMENTS




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





•
            uncertainties
      arising from the Company’s intent to evaluate strategic
      alternatives;





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





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





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





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





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





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





The terms
“we,” “our” and the Company as used throughout this Annual Report on Form 10-K
refer to ATS Corporation and its consolidated subsidiary, Advanced Technology
Systems, Inc. (“ATSI”), unless otherwise indicated.


ii





Item
1. Business





INFORMATION
ABOUT ATS CORPORATION





ATS
Corporation (the “Company”) was incorporated in Delaware on April 12, 2005. The
Company was formed to serve as a vehicle for the acquisition of operating
businesses in the federal services and defense industries through a merger,
capital stock exchange, asset acquisition, stock purchase or other similar
business combinations.





On
January 15, 2007, the Company began operations by consummating a business
combination and acquiring all of the outstanding capital stock of Advanced
Technology Systems, Inc. and its subsidiary, ATSI, a provider of systems
integration and application development to the U.S. government. The Company
concluded three additional acquisition transactions in 2007 and integrated all
four companies into one operational unit.





The
Company is an information technology and professional services firm providing
information technology solutions and professional services to its clients,
primarily the U.S. government.





Available
Information





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





Regulation





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





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





Overview





ATSI
provides software and systems development, systems integration, information
sharing and assurance, information technology (“IT”) infrastructure and
outsourcing, and IT and business consulting services primarily to U.S.
government agencies. ATSI offers our clients a comprehensive systems life-cycle
approach that allows our customers to focus on their crucial endeavors while
reducing costs and providing enhanced mission critical services.





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




1




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





Recent
Update





On
January 7, 2011, the Company announced that its Board of Directors had begun a
process to evaluate strategic alternatives for the Company. There can be no
assurance that the review of strategic alternatives will result in ATSC pursuing
any particular transaction, or, if it pursues any such transaction, that it will
be completed.





SERVICE
OFFERINGS AND DOMAIN EXPERTISE





ATSI’s
service offerings have evolved over time to incorporate new technologies and
integrate acquired businesses and currently include the following:





Software
and Systems Development





ATSI
designs, develops and delivers custom software systems and applications and
integrates commercial off the shelf (“COTS”) solutions by applying industry
standard best practices, agile development methodologies, and state-of-the-art
software tools. ATSI has over 30 years experience building and implementing
leading edge systems that serve the mission critical and support function needs
of our federal civilian agency and Department of Defense customers. ATSI
provides valued expertise to our customers including full life cycle
requirements and configuration management, service-oriented architecture and
system modeling and design, application development, legacy migration and
modernization, database architecture and implementation, system and software
operations and maintenance, Independent Verification and Validation
(“IV&V”), multi-platform deployment, and information security Certification
and Accreditation (“C&A”) support.





Systems
Integration





ATSI
performs comprehensive systems integration and installation services in support
of its developed software systems, and also provides network and hardware
upgrades using COTS technologies. ATSI professionals analyze existing client
information systems, applications and platforms, and design service-oriented
solutions that sustain or extend system performance and availability. ATSI
leverages its past experience and technical expertise to evaluate competing
solutions, and develops systems based on cost and requirements management. ATSI
also integrates applications into federally approved enterprise architectures to
create seamless solutions.





Information
Sharing and Assurance





ATSI
develops and deploys complex information sharing systems, connecting
organizations at all levels of government and giving secure, immediate access to
information and communications. ATSI delivers customized applications using open
standards approaches and methodologies. These solutions use service-oriented
architectures, customer reference architectures, web services, National
Information Exchange Models and FIPS 140-2 standards for wireless access to
allow agencies to communicate with other agencies. ATSI has specific experience
and expertise in dealing with intergovernmental systems, classified and
sensitive data, managing integrated regional information sharing, global
positioning systems, and remote portable real-time data access.





ATSI also
provides a broad range of risk management services that proactively ensure the
security of information, networks and systems. ATSI provides C&A support to
achieve and maintain accreditation of information systems. ATSI ensures all
relevant information assurance policies and procedures are reflected throughout
system documentation, performs security awareness training, provides full
intrusion monitoring, and executes updates to system security documentation. By
providing the appropriate tools, ATSI enables organizations to develop,
implement and maintain effective risk mitigation strategies.


2





IT
Infrastructure and Outsourcing





ATSI
provides a full range of infrastructure management services from small email or
web server administration contracts to larger, completely outsourced managed
services. ATSI offers creative solutions to operational issues such as help desk
operations, Service Level Agreement (“SLA”) management, proactive server
monitoring and response, and server virtualization/consolidation. The
methodology leverages the Information Technology Infrastructure Library (“ITIL”)
framework, ensuring efficient and comprehensive infrastructure support.
Specialized services include managed services, hosting, service/help desk
administration, continuity of operations (“COOP”)/disaster recovery (“DR”),
messaging/workflow administration, technology assessments, network operations,
server administration, desktop architecture support, IT audit and assessment,
virtualization, video teleconferencing, risk assessment and management, and
information security.





IT
and Business Consulting





ATSI
provides a wide range of IT and business consulting services that help
government agencies, large financial services firms and property and casualty
insurance companies achieve their critical mission objectives. ATSI also
provides IT and business staffing services for nearly all the technical and
functional disciplines at financial institutions with specific focus on
business/data analysts and database professionals. Combining deep domain
expertise, technical excellence and management capabilities, ATSI professionals
work in close partnership with customers to help their organizations align IT
strategies to meet their business objectives.




Based on
industry best practices, ATSI performs modeling, simulation and prototyping of
IT and network systems and solutions that maximize investment portfolios. We
provide requirements management, use case consulting, test driven design, and
agile development practices. Our experts also provide a broad portfolio of
system selection and implementation services, including business process
analysis and redesign, quality assurance services, and organizational
assessments. Working to address our customers’ business management objectives,
ATSI professionals perform program management planning and analysis, security
reviews and audits, feasibility studies, strategic planning, quality assurance
assessments, transition planning and acquisition and training
support.





DOMAIN
EXPERTISE





Over the
years, ATSI has gained significant domain experience and expertise involving
many mission critical support functions, including:





Case
Management Systems





ATSI
designs, builds, integrates, and implements case management systems that (i)
manage a portfolio of business cases or case files; (ii) operate securely as
appropriate to each business case or case file; (iii) integrate with distributed
systems and services, both internal and external to the customer organization;
(iv) accept data from diverse sources in a wide variety of formats; (v)
integrate with government-wide services such as E-Authentication or Pay.gov;
(vi) receive and process image data and/or E-signatures; and (vii) implement
complex business rules in a readily modifiable manner and in accordance with
statutory and regulatory requirements.





Federal
Financial Systems




ATSI
designs, develops and deploys web-based, interactive financial systems that
provide end-to-end electronic financial business process support for various
functions, including: resource planning; funds distribution; electronic billing
notification, collections and reporting; collections processing; budget
planning, execution and reporting; property accounting; general ledger
accounting; cost accounting; accounts receivable / accounts payable; and travel
management.




Supply
Chain Management Systems





ATSI
designs, plans, executes, controls and monitors supply chain initiatives that
manage all movement and storage of subsistence items from point of origin to
consumption. Through its role as a supply chain management system developer,
ATSI provides a single point of contact to manage the wholesale supply chain of
subsistence items and enables efficient and uninterrupted logistical support for
numerous government and commercial locations worldwide. Associated web-enabled
applications provide central processing connectivity for each component system.
Our supply chain management systems expertise includes such functionalities as
Electronic Data Interchange (“EDI”), standardized data, order processing,
verification, reconciliation, and notification alerts.


3





Border
and Port Security





ATSI
provides information sharing services and performs research, development,
testing and evaluation (“RDT&E”) of technologies that support federal
government border and port security initiatives. Our technology evaluations help
the government determine various technologies’ utility and effectiveness in
detecting, tracking, classifying, and responding to threats along our nation’s
borders and ports. In addition, ATSI information sharing services help expand
the situational awareness of government agents.





Health
Information Systems





ATSI
provides successful claims processing systems modernization services, for health
information systems, as well as full life cycle support, from requirements
through deployment and training. For military medical information systems, ATSI
enables access to users worldwide, including those at sea, and facilitates
effective retrieval of clinical and business data by streamlining various user
interfaces, business processes and content management approaches.




Commercial
Insurance and Financial Systems





ATSI
provides a broad range of technology integration and management consulting
services to the commercial insurance industry, including software and vendor
selection, project/program management, business improvement analysis and
methodology services, implementation support, IT strategic planning, business
intelligence and data management.





Customers
and Contract Types





The
following schedule presents the breakdown of revenue by customer type for the
years ended December 31, 2010 and 2009.





Year
                        Ended
                        December 31, 2010
                      
                      
                      Year
                        Ended
                        December 31, 2009Federal
      civilian agencies
                      
                      $
                      55,329,000
                      
                      
                      
                      47.4
                      %
                      
                      $
                      55,636,000
                      
                      
                      
                      46.9
                      %Defense
      and homeland security
                      
                      
                      31,687,000
                      
                      
                      
                      27.2
                      %
                      
                      
                      37,407,000
                      
                      
                      
                      31.5
                      %Government-sponsored
      (Fannie Mae)
                      
                      
                      15,457,000
                      
                      
                      
                      13.3
                      %
                      
                      
                      11,665,000
                      
                      
                      
                      9.8
                      %Commercial
                      
                      
                      12,301,000
                      
                      
                      
                      10.5
                      %
                      
                      
                      10,823,000
                      
                      
                      
                      9.2
                      %State
      & local government
                      
                      
                      1,892,000
                      
                      
                      
                      1.6
                      %
                      
                      
                      3,128,000
                      
                      
                      
                      2.6
                      %Totals
                      
                      $
                      116,666,000
                      
                      
                      
                      100.0
                      %
                      
                      $
                      118,659,000
                      
                      
                      
                      100.0
                      %





During
2010, ATSI’s largest revenue customers were HUD, the Federal National Mortgage
Association (“Fannie Mae”), the Pension Benefit Guaranty Corporation (“PBGC”),
the Defense Technology Security Administration (“DTSA”), and the Defense
Logistics Agency (“DLA”). In 2009, HUD, Fannie Mae, PBGC, DTSA and DLA also
represented the largest revenue percentages. While our five largest customers
represented 55.8% revenue in 2010 and 51.8% of revenue in 2009, the relationship
with each of these customers is comprised of a number of independent contracts
with varying dates of completion.





Year
                      Ended
                      December 31, 2010
                    
                    
                    Year
                      Ended
                      December 31, 2009HUD
                    
                    $
                    22,318,000
                    
                    
                    
                    19.1
                    %
                    
                    $
                    22,912,000
                    
                    
                    
                    19.3
                    %Fannie
      Mae
                    
                    
                    15,457,000
                    
                    
                    
                    13.2
                    %
                    
                    
                    11,633,000
                    
                    
                    
                    9.8
                    %PBGC
                    
                    
                    11,699,000
                    
                    
                    
                    10.0
                    %
                    
                    
                    9,376,000
                    
                    
                    
                    7.9
                    %DTSA
                    
                    
                    8,125,000
                    
                    
                    
                    7.0
                    %
                    
                    
                    9,085,000
                    
                    
                    
                    7.7
                    %DLA
                    
                    
                    7,622,000
                    
                    
                    
                    6.5
                    %
                    
                    
                    8,381,000
                    
                    
                    
                    7.1
                    %


4





We derive
substantially all of our revenue from providing professional and technical
services. We generate this revenue from contracts with various payment
arrangements, including time-and-materials contracts, fixed-price contracts, and
cost-plus-fixed-fee contracts, as explained below. The following table
summarizes our historical contract mix, measured as a percentage of total
revenue, for the periods indicated:




Year
      Ended
                        December 31, 2010
                      
                      
                      Year
      Ended
                        December 31, 2009Time-and-materials
                      
                      $
                      75,383,000
                      
                      
                      
                      64.6
                      %
                      
                      $
                      83,191,000
                      
                      
                      
                      70.1
                      %Fixed-price
                      
                      
                      40,895,000
                      
                      
                      
                      35.1
                      %
                      
                      
                      35,458,000
                      
                      
                      
                      29.9
                      %Cost-plus-fixed-fee
                      
                      
                      388,000
                      
                      
                      
                      0.3
                      %
                      
                      
                      10,000
                      
                      
                      
                      0.0Totals
                      
                      $
                      116,666,000
                      
                      
                      
                      100.0
                      %
                      
                      $
                      118,659,000
                      
                      
                      
                      100.0
                      %





The
Company recognizes revenue when persuasive evidence of an arrangement exists,
services have been rendered or goods delivered, the contract price is fixed or
determinable, and collectability is reasonably assured. The Company’s revenue
historically is derived from primarily three different types of contractual
arrangements: time-and-materials contracts, fixed-price contracts and, to a
significantly lesser extent, cost-plus-fixed-fee contracts. Revenue on
time-and-material contracts is recognized based on the actual hours performed at
the contracted billable rates for services provided, plus materials’ cost for
products delivered to the customer, and travel and other direct costs. Revenue
on fixed-price contracts is recognized ratably over the period of performance or
on percentage-of-completion depending on the nature of services to be provided
under the contract which are either maintenance and support services based or
require some level of customization. For contracts that involve software design,
customization, or integration, revenue is recognized on the
percentage-of-completion method using costs incurred in relation to total
estimated project costs. Provisions for anticipated contract losses are
recognized at the time they become known.   Revenue on cost-plus-fixed-fee
contracts is recognized to the extent of costs incurred, plus an estimate of the
applicable fees earned. Fixed fees under cost-plus-fixed-fee contracts are
recorded as earned in proportion to the allowable costs incurred in performance
of the contract. For cost-plus-fixed-fee contracts that include performance
based fee incentives, the Company recognizes the relevant portion of the
expected fee to be awarded by the customer at the time such fee can be
reasonably estimated, based on factors such as the Company’s prior award
experience and communications with the customer regarding
performance.





We
derived some of our revenue from contracts for which we were the prime
contractor and some of our revenue as subcontractors to other prime contractors
as follows:





Year Ended December 31,2010
                        
                        
                        2009Prime
                        
                        
                        79.5
                        %
                        
                        
                        74.9
                        %Sub
                        
                        
                        20.5
                        %
                        
                        
                        25.1
                        %Total
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %





Our most
significant expense is direct costs, which consist primarily of project
personnel salaries and benefits, and direct expenses incurred to complete
projects. The number of professional and technical personnel assigned to a
project will vary according to the size, complexity, duration, and demands of
the project. As of December 31, 2010, 421 of our 495 total personnel worked on
our contracts.





General
and administrative expenses consist primarily of costs associated with our
executive management, finance and administrative groups, human resources, sales
and marketing personnel, and costs associated with marketing and bidding on
future projects, unassigned professional and technical personnel, personnel
training, occupancy costs, travel and all other branch and corporate
costs.





Other
income consists primarily of interest income earned on our cash and cash
equivalents.


5





Contract
Backlog





Total
backlog at December 31, 2010 was approximately $236 million. Total backlog
includes both funded backlog (firm orders for which funding is contractually
obligated by the customer) and unfunded backlog (firm orders for which funding
is not contractually obligated by the customer). Unfunded backlog excludes
unexercised contract options and unfunded indefinite delivery indefinite
quantity (IDIQ) orders. The following table summarizes our contract backlog at
December 31, 2010 and December 31, 2009, respectively:





December 30,
                        2010
                      
                      
                      December 31,
                        2009Backlog:Funded
                      
                      $
                      36,666,667
                      
                      
                      $
                      60,980,400Unfunded
                      
                      
                      199,466,494
                      
                      
                      
                      105,821,100Total
      backlog
                      
                      $
                      236,133,161
                      
                      
                      $
                      166,801,500





Our
backlog includes orders under contracts that in some cases extend for several
years, with the latest expiring in 2017. The most significant awards during the
year ended December 31, 2010 were successful re-competitions with a Department
of Defense agency valued at $27.5 million, HUD awards valued at an aggregate
$25.7 million, a subcontract supporting a civilian agency valued at $23.0
million, the Nuclear Regulatory Commission valued at $21.4 million, the
Department of Homeland Security valued at $19.5 million, , DLA valued at $13.7
million, and the National Cancer Institute valued at $13.3 million. An IDIQ
contract was awarded in November 2010 by the US Army (Army Recruitment &
Retention program). Since this is unexercised and unfunded, no value has been
included in the backlog at December 31, 2010.




We cannot
guarantee that we will recognize any revenue from our backlog. The federal
government has the prerogative to cancel any contract or delivery order at any
time. Most of our contracts and delivery orders have cancellation terms that
would permit us to recover all or a portion of our incurred costs and potential
fees in such cases. Backlog varies considerably from time to time as current
contracts or delivery orders are executed and new contracts or delivery orders
under existing contacts are won. Our estimate of the portion of the backlog as
of December 31, 2010 from which we expect to recognize revenue during fiscal
year 2011 is likely to change because the receipt and timing of any revenue is
subject to various contingencies, many of which are beyond our
control.





Subcontractors





When we
act as a prime contractor, we derive revenue primarily through our own direct
labor services, but also through the efforts of our subcontractors. As part of
the contract bidding process, we may enter into teaming agreements with
subcontractors to enhance our ability to bid on large, complex engagements or
more completely address a particular client’s requirements. Teaming agreements
and subcontracting relationships are useful because they permit us to compete
more effectively on a wider range of projects as a prime contractor. In
addition, we may engage a subcontractor to perform a discrete task on a project,
or a subcontractor may approach us because of our position as a prime
contractor. When we are a prime contractor on an engagement, we are ultimately
responsible for the overall engagement, as well as the performance of our
subcontractors. Revenue derived from work performed by subcontractors
represented approximately 37% of our revenue for both fiscal years 2010 and
2009. No single subcontractor performed work that accounted for more than 5% of
our revenue during either the 2010 or the 2009 fiscal years.





Competition





The
information technology services industry is a large and highly competitive
market. ATSI competes for contracts based on its strong client relationships,
successful past performance record, significant technical expertise and
specialized knowledge. ATSI often competes against both the large defense
contractors and specialized information technology consulting and outsourcing
firms. Many of these competitors are large, well-established companies that have
broader geographic scope and greater financial and other resources than ATSI.
ATSI’s competitors include Lockheed Martin Corporation, Northrop Grumman
Corporation, Science Applications International Corporation (“SAIC”), IBM,
Computer Sciences Corporation, Dynamics Research Corporation, ManTech
International Corporation, NCI Inc., CACI International, Inc., SRA
International, Inc., and Accenture Ltd. We expect competition in the U.S.
government information technology services sector to increase in the
future.


6




Employees





At
February 11, 2011, ATSI had 494 personnel, including 460 full-time employees and
34 part-time employees. ATSI’s future success will depend significantly on its
ability to attract, retain and motivate qualified personnel. ATSI is not a party
to any collective bargaining agreement and has not experienced any strikes or
work stoppages. ATSI considers its relationship with its employees to be
satisfactory.





INFORMATION
ABOUT ATS CORPORATION (“ATSC”)





Our
Business





Organizational
Structure





ATS
Corporation (“ATSC”) has one subsidiary, Advanced Technology Systems, Inc.
(“ATSI”) under the holding company ATSC. The consolidated financial statements
include the accounts of ATSC and ATSI (collectively, the
“Company”).





Line
of Credit





On June
1, 2010, the Company, as Borrower, entered into an amended and restated credit
agreement related to its previous credit facility with Bank of America, N.A., as
Administrative Agent, and other various lender parties (the “Amended Credit
Agreement”).  The Amended Credit Agreement provides for a base credit limit
of $30 million with the capability to increase the aggregate commitment amount
of the facility an additional $25 million, assuming no event of default exists
as defined in the agreement. This effectively increases the maximum availability
under the credit facility from $50 million to $55 million. The term of the
credit facility has been extended an additional three years with a maturity in
June 2013.  Borrowings under the facility are subject to compliance with
covenants including an asset coverage ratio, leverage ratio, and a fixed charge
ratio. Borrowings bear interest at rates based on 30-day LIBOR plus applicable
margins based on a leverage ratio as determined quarterly.  The Amended
Credit Agreement adjusted the applicable margins charged on the outstanding
borrowings from a range of 2.0% to 3.5% to a range of 2.0% to 3.0% based on the
leverage ratio. The fee for the unused portion of the facility ranges from .25%
to .35% based on the leverage ratio compared to the previous rates of .20% to
..375%. The covenants for the minimum fixed charge coverage ratio were adjusted
slightly from 1.3:1 to 1.5:1 while the other financial covenants remained the
same. The Amended Credit Agreement provides a basket for stock repurchase not to
exceed $3.0 million in any period of twelve consecutive months, and total
consideration for acquisitions in any twelve-month period greater than $20
million will require lender approval. As of December 31, 2010, the facility’s
outstanding debt balance was $14.4 million. The Company had an interest rate
swap agreement in place to hedge its exposure on its variable rate debt. The
effective rate on the variable rate debt, taking into consideration the swap
agreement, was 8.64% for the year ended December 31, 2010. The swap was
terminated on September 30, 2010. Without the swap, the effective interest rate
for the fourth quarter of 2010 was 3.88%. The maximum availability under the
facility at December 31, 2010 was $21.2 million, of which the Company has $14.4
million outstanding.





The
Company was in compliance with its loan covenant agreements as of December 31,
2010.





Employment
Agreements





On March
1, 2010, Mr. Sidney E. Fuchs, the Company’s Chief Operating Officer, entered
into a three-year employment agreement (the “Fuchs Agreement”) with the Company
effective April 5, 2010. The terms of the Fuchs Agreement provided for (i) a
base salary of $375,000, (ii) an annual performance bonus of up to 75% of base
salary at target performance, (iii) a $50,000 signing bonus with $25,000 paid on
April 5, 2010 and $25,000 paid six months from the start date, (iv) a grant of
60,000 shares of restricted stock on April 5, 2010 with 10,000 shares vesting on
April 5, 2011, 15,000 shares vesting on April 5, 2012, and 35,000 shares vesting
on April 5, 2013, (v) a 40,000 stock option grant with an exercise price at the
Company closing stock price on April 5, 2010, vesting over four years, with
5,000 options vesting each on the first and second anniversary, 10,000 options
vesting on the third anniversary and 20,000 vesting on the fourth anniversary,
and (vi) health, life and disability insurance consistent with that of other
Company executives. The Fuchs Agreement also provided for severance throughout
the Fuchs Agreement’s term. During the first six months of employment, either
Mr. Fuchs or the Company could terminate the Fuchs Agreement for any reason and
in such case Mr. Fuchs would be paid six months of his base salary. Thereafter,
the Fuchs Agreement provided for a severance for termination “without cause” or
for “good reason” and a severance payment based on eighteen months of his base
salary. In the event of a “change in control” and his employment terminated
“without cause” or for “good reason,” the Fuchs Agreement provided for a
severance payment based on 18 months of base salary.


7





On
October 19, 2010, the Company announced that the Board of Directors had elected
Mr. Fuchs as the President and Chief Executive Officer of the Company, to
replace Dr. Bersoff, effective January 1, 2011, as well as appointed him as a
Director of the Board, effective October 19, 2010.




On
December 15, 2010, Dr. Bersoff entered into a chairman agreement (the "Bersoff
Agreement") with the Company effective January 1, 2011 pursuant to which he
would serve as the Company's Non-Executive Chairman of the Board of Directors
until the later of June 30, 2012 or the Company's 2012 annual stockholders'
meeting (or any earlier change in control of the Company). The terms of the
Bersoff Agreement provide for (i) monthly payments of $13,333.33, paid
quarterly, (ii) eligibility to receive future equity award grants comparable to
other members of the Board, and (iii) health insurance consistent with that of
Company executives through the termination date. The Bersoff Agreement also
provides for a post termination eighteen-month non-solicitation and
non-competition term. A copy of the Bersoff Agreement between Dr. Bersoff and
the Company was publicly filed as an attachment to the Company’s Form 8-K on
December 16, 2010.





On
January 3, 2011, Mr. Fuchs announced his resignation from the positions of
President and Chief Executive Officer of the Company, as well as the Board of
Directors, effective January 31, 2011. On January 5, 2011, Mr. Fuchs entered
into an agreement (the "Amended Agreement") effective January 31, 2011, with the
Company to amend his Employment Agreement dated March 1, 2010. The terms of the
Amended Agreement provide for (i) eighteen months of severance based on an
annual salary of $405,000 paid via a $202,500 payment six months and one day
after the effective date and the remaining twelve months of severance paid in
twelve monthly installments, commencing on the date that is seven months after
the effective date, (ii) accelerated vesting of 60,000 shares of restricted
stock and 40,000 options on the effective date, (iii) health insurance
consistent with that of Company executives for a period of eighteen months after
the effective date, and (iv) a six month non-competition period and a two-year
non-solicitation period. A copy of the agreement between Mr. Fuchs and the
Company was publicly filed as an attachment to the Company’s Form 8-K on January
7, 2011.





On
January 7, 2011, the Company announced that Ms. Pamela Little, its Executive
Vice President and Chief Financial Officer, and Mr. John Hassoun, a Senior Vice
President, would become Co-Chief Executive Officers of the Company, effective
February 1, 2011, with Ms. Little having primary responsibility for financial
and administrative aspects of the Company’s affairs, and Mr. Hassoun having
primary responsibility for operational matters.


8





Item
1A. Risk Factors





Set
forth below are risks that we believe are material to investors who purchase or
own our common stock. You should consider carefully the following risks,
together with the other information contained in and incorporated by reference
in this Annual Report on Form 10-K.





Risks
Related to Our Strategic Alternative Evaluation and Potential
Transaction





On
January 7, 2011, the Company announced that its Board of Directors had begun a
process to evaluate strategic alternatives for the Company. There can be no
assurance that the review of strategic alternatives will result in the Company
pursuing any particular transaction, or, if it pursues any such transaction,
that it will be completed.





Also on
January 7, 2011, the Company announced that Ms. Pamela Little, its Executive
Vice President and Chief Financial Officer, and Mr. John Hassoun, a Senior Vice
President, would become Co-Chief Executive Officers, effective February 1, 2011,
with Ms. Little having primary responsibility for financial and administrative
aspects of the Company’s affairs and Mr. Hassoun having primary responsibility
for operational matters.





The
announcement of our strategic alternative evaluation could adversely affect our
business, financial results and operations.





The
announcement of our strategic alternative evaluation, as well as our recent
senior management transitions, could cause disruptions in, and create
uncertainty surrounding, our business, including affecting our relationships
with our customers, vendors and employees, which could have an adverse effect on
our business, financial results and operations. In particular, we could lose
important personnel as a result of the departure of employees who decide to
pursue other opportunities in light of our announcement. We could potentially
lose customers or suppliers, or contracts could be delayed or decreased. In
addition, we have diverted, and will continue to divert, significant management
resources in an effort to evaluate such strategic alternatives, which could
adversely affect our business and results of operations.





Risks
Related to Our Business and Operations





The
loss or impairment of ATSI’s relationship with the U.S. government and its
agencies could adversely affect our business.





ATSI
derived approximately 74% and 81% of its total revenue in fiscal years 2010 and
2009, respectively, from contracts with the U.S. government and 87% and 91% of
its total revenue for fiscal years 2010 and 2009, respectively, when
government-sponsored enterprises are included. We expect that U.S. government
contracts will continue to be a significant source of revenue for the
foreseeable future. If ATSI or any of its partners is suspended or prohibited
from contracting with the U.S. government generally or any agency or related
entity, if ATSI’s reputation or relationship with government agencies is
impaired, or if the U.S. government or any agency or related entity ceased doing
business with them or significantly decreases the amount of business it does
with them, our business, prospects, financial condition and operating results
could be significantly impaired.





Changes
by the U.S. government in its spending priorities may cause a reduction in the
demand for the products or services that we may ultimately offer, which could
adversely affect our business.





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





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





Because
we derive a significant portion of our revenue from contracts with the U.S.
government or its agencies, we believe that the success and development of our
business will depend on its continued successful participation in federal
contracting programs. The U.S. government may reform its procurement practices
or adopt new contracting rules and regulations, including cost accounting
standards, that could be costly to satisfy or that could impair our ability to
obtain new contracts. It also could adopt new contracting methods to General
Services Administration, or GSA, or other government-wide contracts, or adopt
new standards for contract awards intended to achieve certain socio-economic or
other policy objectives, such as establishing new set-aside programs for small
or minority-owned businesses. In addition, the U.S. government may face
restrictions from new legislation or regulations, as well as pressure from
government employees and their unions, on the
nature and amount of services the U.S. government may obtain from private
contractors. These changes could impair our ability to obtain new contracts. Any
new contracting methods could be costly or administratively difficult for us to
implement and, as a result, could harm our operating results.




9





Government
contracts are usually awarded through a competitive bidding process that entails
risks not present in other circumstances.





A
significant portion of our contracts and task orders with the U.S. government is
awarded through a competitive bidding process. We expect that much of the
business we seek in the foreseeable future will continue to be awarded through
competitive bidding. Budgetary pressures and changes in the procurement process
have caused many government clients to increasingly purchase goods and services
through indefinite delivery/indefinite quantity, or ID/IQ, contracts, GSA
schedule contracts and other government-wide acquisition contracts, or GWACs.
These contracts, some of which are awarded to multiple contractors, have
increased competition and pricing pressure, requiring us to make sustained
post-award efforts to realize revenue under each such contract. Competitive
bidding presents a number of risks, including without limitation:





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





•
            the substantial cost and
      managerial time and effort that we may spend to prepare bids and proposals
      for contracts that may not be awarded to
  us;





•
            the need to estimate accurately
      the resources and cost structure that will be required to service any
      contract we award; and





•
            the expense and delay that may
      arise if our or our teaming partners’ competitors protest or challenge
      contract awards made to us or our teaming partners pursuant to competitive
      bidding, and the risk that any such protest or challenge could result in
      the resubmission of bids on modified specifications, or in the
      termination, reduction or modification of the awarded
      contract.





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





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





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





Our
contracts with the U.S. government and its agencies are subject to audits and
cost adjustments.





U.S.
government agencies, including the Defense Contract Audit Agency, or the DCAA,
routinely audit and investigate government contracts and government contractors’
incurred costs, administrative processes and systems. These agencies review our
performance on contracts, pricing practices, cost structure and compliance with
applicable laws, regulations and standards. They also review our compliance with
government regulations and policies and the adequacy of our internal control
systems and policies, including our purchase, property, estimation, compensation
and management information systems. Any costs found to be improperly allocated
to a specific contract will not be reimbursed, and any such costs already
reimbursed must be refunded. Moreover, if any of the administrative processes
and systems are found not to comply with requirements, we may be subjected to
increased government scrutiny and approval that could delay or otherwise
adversely affect our ability to compete for or perform contracts. Therefore, an
unfavorable outcome by an audit by the DCAA or another government agency could
cause actual results to be adversely affected and differ materially from those
anticipated. If a government investigation uncovers improper or illegal
activities, we may be subject to civil and criminal penalties and administrative
sanctions, including termination of contracts, forfeitures of profits,
suspension of payments, fines and suspension or debarment from doing business
with the U.S. government. In addition, we could suffer serious reputational harm
if allegations of impropriety were made against us. Each of these results could
cause our actual results to be adversely affected.


10





A
portion of our business depends upon obtaining and maintaining required security
clearances, and our failure to do so could result in termination of certain of
our contracts or cause us to be unable to bid or rebid on certain
contracts.





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





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





In
addition, we expect that some of the contracts on which we bid will require us
to demonstrate our ability to obtain facility security clearances and perform
work with employees who hold specified types of security clearances. A facility
security clearance is an administrative determination that a particular facility
is eligible for access to classified information or an award of a classified
contract. A contractor or prospective contractor must meet certain eligibility
requirements before it can be processed for facility security clearance.
Contracts may be awarded prior to the issuance of a facility security clearance,
and in such cases the contractor is processed for facility security clearance at
the appropriate level and must meet the eligibility requirements for access to
classified information. Our ability to obtain and maintain facility security
clearances has a direct impact on our ability to compete for and perform U.S.
government contracts, the performance of which requires access to classified
information. We do not expect potential acquisitions to endanger our facility
clearances. However, to the extent that any acquisition or merger contemplated
by us might adversely impact our eligibility for facility security clearance,
the U.S. government could revoke our facility security clearance if we are
unable to address adequately concerns regarding potential unauthorized access to
classified information.





We
may not receive the full amounts authorized under the contracts included in our
backlog, which could reduce our revenue in future periods.





Our
backlog consists of funded backlog, which is based on amounts actually obligated
by a client for payment of goods and services, and unfunded backlog, which is
based upon management’s estimate of the future potential of our existing
contracts and task orders, including options, to generate revenue. Our unfunded
backlog may not result in actual revenue in any particular period, or at all,
which could cause our actual results to differ materially from those
anticipated.





Without
additional Congressional appropriations, some of the contracts included in our
backlog will remain unfunded, which could significantly harm our
prospects.





Although
many of our U.S. government contracts require performance over a period of
years, Congress often appropriates funds for these contracts one year at a time.
As a result, our contracts typically are only partially funded at any point
during their term, and all or some of the work intended to be performed under
the contracts will remain unfunded pending subsequent Congressional
appropriations and the obligation of additional funds to the contract by the
procuring agency. Nevertheless, we estimate our share of the contract values,
including values based on the assumed exercise of options relating to these
contracts, in calculating the amount of our backlog. Because we may not receive
the full amount we expect under a contract, our estimate of our backlog may be
inaccurate.





Loss
of our GSA contracts or GWACs could impair our ability to attract new
business.





We are a
prime contractor under several GSA contracts, blanket purchase agreements, and
GWAC schedule contracts. Our ability to continue to provide services under these
contracts will continue to be important to our business because of the multiple
opportunities for new engagements each contract provides. If we were to lose our
position as prime contractor on one or more of these contracts, we could lose
substantial revenue and our operating results could be adversely affected. Our
GSA contracts and other GWACs have an initial term of five or more years, with
multiple options exercisable at the government client’s discretion to extend the
contract for one or more years. There can be no assurances that government
clients will continue to exercise the options remaining on our current
contracts, nor can we be assured that future clients will exercise options on
any contracts we may receive.


11





We
are required to comply with complex procurement laws and regulations, and the
cost of compliance with these laws and regulations, as well as penalties and
sanctions for any non-compliance could adversely affect our
business.





We are
required to comply with laws and regulations relating to the administration and
performance of U.S. government contracts, which affect how we do business with
our customers and impose added costs on our business. If a government review or
investigation uncovers improper or illegal activities, we may be subject to
civil and criminal penalties and administrative sanctions, including termination
of contracts, forfeiture of profits, suspension of payments, fines and
suspension or debarment from doing business with U.S. government agencies, any
of which could materially adversely affect our business, prospects, financial
condition or operating results.





U.S.
government contracts often contain provisions that are unfavorable, which could
adversely affect our business.





U.S.
government contracts contain provisions and are subject to laws and regulations
that give the U.S. government rights and remedies not typically found in
commercial contracts, including, without limitation, allowing the U.S.
government to:





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





•
            establish limitations on future
      services that can be offered to prospective clients based on conflict of
      interest regulations;





•
            reduce or modify contracts or
      subcontracts;





•
            cancel multi-year contracts and
      related orders if funds for contract performance for any subsequent year
      become unavailable;





•
            decline to exercise an option to
      renew a multi-year contract;





•
            claim intellectual property
      rights in products provided by us;
and





•
            suspend or bar us from doing
      business with the federal government or with a governmental
      agency.





If a
government client terminates one of our contracts for convenience, we may
recover only our incurred or committed costs, settlement expenses, and profit on
work completed prior to the termination. If a federal government client were to
unexpectedly terminate, cancel, or decline to exercise an option to renew with
respect to one or more of our significant contracts or suspend or debar us from
doing business with government agencies, our revenue and operating results could
be materially harmed.





Our
failure to comply with complex procurement laws and regulations could cause us
to lose business and subject us to a variety of penalties.





We must
comply with laws and regulations relating to the formation, administration, and
performance of federal government contracts, which affect how we do business
with our government clients and may impose added costs on our business. Among
the most significant regulations are:





•
            the Federal Acquisition
      Regulation, and agency regulations analogous or supplemental to the
      Federal Acquisition Regulation, which comprehensively regulate the
      formation, administration, and performance of government contracts,
      including provisions relating to the avoidance of conflicts of interest
      and intra-organizational conflicts of
  interest;





•
            the Truth in Negotiations Act,
      which requires certification and disclosure of all cost and pricing data
      in connection with some contract
  negotiations;





•
            the Contractor Business Ethics
      Compliance Program and Disclosure Requirements, which requires contractors
      to disclose credible evidence of certain crimes, violations of civil False
      Claims Act (“FCA”), or a significant
  overpayment;





•
            the Procurement Integrity Act,
      which requires evaluation of ethical conflicts surrounding procurement
      activity and establishing certain employment restrictions for individuals
      who participate in the procurement
  process;


12





•
            the Cost Accounting Standards,
      which impose accounting requirements that govern our right to
      reimbursement under some cost-based government
      contracts;





•
            laws, regulations, and executive
      orders restricting the use and dissemination of information classified for
      national security purposes and the exportation of specified products,
      technologies, and technical
data;





•
            laws surrounding lobbying
      activities a corporation may engage in and operation of a Political Action
      Committee established to support corporate interests;
      and





•
            compliance with antitrust
      laws.





If a
government review or investigation uncovers improper or illegal activities, we
may be subject to civil and criminal penalties and administrative sanctions,
including termination of contracts, forfeiture of profits, harm to our
reputation, suspension of payments, fines, and suspension or debarment from
doing business with federal government agencies. The government may in the
future reform its procurement practices or adopt new contracting rules and
regulations, including cost accounting standards, that could be costly to
satisfy or that could impair our ability to obtain new contracts. Any failure to
comply with applicable laws and regulations could result in contract
termination, price or fee reductions, or suspension or debarment from
contracting with the federal government, each of which could lead to a material
reduction in our revenue.





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





The
markets in which we operate include a large number of participants and are
highly competitive. Many of our competitors may compete more effectively than we
can because they are larger, better financed and better known companies than us.
In order to stay competitive in our industry, we must also keep pace with
changing technologies and client preferences. If we are unable to differentiate
our services from those of our competitors, our revenue may be adversely
affected. In addition, our competitors have established relationships among
themselves or with third parties to increase their ability to address client
needs. As a result, new competitors or alliances among competitors may emerge
and compete more effectively than we can. There is also a significant industry
trend towards consolidation, which may result in the emergence of companies that
are better able to compete against us. The results of these competitive
pressures could cause our business to be adversely affected.





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





Our
continued success depends to a substantial degree on our ability to recruit and
retain the technically skilled personnel we need to serve our clients
effectively. Our business involves the development of tailored solutions for our
clients, a process that relies heavily upon the expertise and services of
employees. Accordingly, our employees are our most valuable resource.
Competition for skilled personnel in the information technology services
industry is intense, and technology service companies often experience high
attrition among their skilled employees. There is a shortage of people capable
of filling these positions, and they are likely to remain a limited resource for
the foreseeable future. Recruiting and training these personnel requires
substantial resources. Our failure to attract and retain technical personnel
could increase our costs of performing our contractual obligations, reduce our
ability to efficiently satisfy our clients’ needs, limit our ability to win new
business and constrain our future growth.





In
addition to attracting and retaining qualified technical personnel, we believe
that our success will depend on the continued employment of our senior
management and its ability to generate new business and execute projects
successfully. Due to a variety of reasons, we have had a high turnover rate in
our Chief Executive Officer position in recent months. Currently, Ms. Little,
our Chief Financial Officer, is also serving as Co-Chief Executive Officer with
Mr. Hassoun, a former Senior Vice President. Our senior management team is very
important to our business because personal reputations and individual business
relationships are a critical element of obtaining and maintaining client
engagements in our industry, particularly with agencies performing classified
operations. The loss of any of our senior executives, particularly Ms. Little
and Mr. Hassoun, who have served our Company in prior capacities and recently
taken on additional responsibilities at a critical time for the Company, could
cause us to lose client relationships or new business opportunities, which could
cause actual results to differ materially and adversely from those
anticipated.


13





If
we are unable to fund our capital expenditures, we may not be able to continue
to develop new offerings and services, which could have a material adverse
effect on our business.





In order
to fund our capital expenditures, we may be required to incur borrowings or
raise capital through the sale of debt or equity securities. Our ability to
access the capital markets for future offerings may be limited by our financial
condition at the time of any such offering, as well as by adverse market
conditions resulting from, among other things, general economic conditions and
contingencies and uncertainties that are beyond our control. Our failure to
obtain the funds for necessary future capital expenditures would limit our
ability to develop new offerings and services and could have a material adverse
effect on our business, results of operations and financial
condition.





Our
employees may engage in misconduct or other improper activities, which could
harm our business.





We are
exposed to the risk that employee fraud or other misconduct could occur.
Misconduct by employees could include intentional failures to comply with
federal government procurement regulations, engaging in unauthorized activities,
seeking reimbursement for improper expenses or falsifying time records. Employee
misconduct could also involve the improper use of our clients’ sensitive or
classified information, which could result in regulatory sanctions against us
and serious harm to our reputation. It is not always possible to deter employee
misconduct, and the precautions we take to prevent and detect this activity may
not be effective in controlling unknown or unmanaged risks or losses, which
could harm our business.





We
may be unable to protect or enforce our intellectual property
rights.





The
protection of our trade secrets, proprietary know-how, technological
innovations, other proprietary information and other intellectual property
protections in the U.S. and other countries may be critical to our success. We
may rely on a combination of copyright, trademark, trade secret laws and
contractual restrictions to protect any proprietary technology or other rights
we may have or acquire. Despite our efforts, we may not be able to prevent
misappropriation of those proprietary rights or deter independent development of
technologies that compete with us. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, or to
determine the validity and scope of the proprietary rights of others. It is also
possible that third parties may claim we have infringed their patent, trademark,
copyright or other proprietary rights. Claims or litigation, with or without
merit, could result in substantial costs and diversions of resources, either of
which could have a material adverse effect on our competitive position and
business.





We
may be harmed by intellectual property infringement claims.





We may
become subject to claims from our employees and third parties who assert that
intellectual property we use in delivering services and business solutions to
our clients infringe upon intellectual property rights of such employees or
third parties. Our employees develop much of the intellectual property that we
use to provide our services and business solutions to our clients, but we also
license technology from other vendors. All of our employees with access to
proprietary information execute nondisclosure agreements with the Company. If
our vendors, employees, or third parties assert claims that we or our clients
are infringing on their intellectual property, we could incur substantial costs
to defend those claims. In addition, if any of these infringement claims is
ultimately successful, we could be required to:





•
            cease selling and using products
      and services that incorporate the challenged intellectual
      property;





•
            obtain a license or additional
      licenses from our vendors or other third parties;
    and





•
            redesign our products and
      services that rely on the challenged intellectual
      property.





Any of
these outcomes could further adversely affect our operating
results.


14





Our
quarterly revenue, operating results and profitability could be
volatile.





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





Factors
which may contribute to the volatility of quarterly revenue, operating results
or profitability include:





•
            fluctuations in revenue earned on
      contracts;





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





•
            variable purchasing patterns
      under GSA Schedule contracts, and agency-specific ID/IQ
      contracts;





•
            additions and departures of key
      personnel;





•
            changes in our staff utilization
      rates;





•
            timing of significant costs,
      investments and/or receipt of incentive
  fees;





•
            strategic decisions by us and our
      competitors, such as our recent decision and announcement to evaluate
      strategic alternatives, or acquisitions, divestitures, spin-offs, joint
      ventures, strategic investments, and changes in business
      strategy;





•
            contract mix and the extent of
      use of subcontractors;





•
            changes in policy and budgetary
      measures that adversely affect government contracts;
      and





•
            any seasonality of our
      business.





Therefore,
period-to-period comparisons of our operating results may not be a good
indicator of our future performance. Our quarterly operating results may not
meet the expectations of securities analysts or investors, which in turn may
have an adverse affect on the market price of our common stock.





Furthermore,
reductions in revenue in a particular quarter could lead to lower profitability
in that quarter because a relatively large amount of our expenses are fixed in
the short-term. We may incur significant operating expenses during the start-up
and early stages of large contracts and may not receive corresponding payments
or revenue in that same quarter. We may also incur significant or unanticipated
expenses or both when contracts expire, are terminated, or are not renewed. In
addition, payments due to us from government agencies and departments may be
delayed due to billing cycles, as a result of failures of governmental budgets
to gain Congressional and administration approval in a timely manner, and for
other reasons.





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





For each
of the past several years, as the GSA Schedule contracts have increasingly been
used as contract vehicles, we have received substantial revenue from government
clients relating to work performed by other firms acting as subcontractors to
us. In some cases, companies that have not held GSA Schedule contracts have
approached us in our capacity as a prime contractor, seeking to perform services
as our subcontractor for a government client. Some of the providers that are
currently acting as subcontractors to us may in the future secure positions as
prime contractors upon renewal of a GSA Schedule contract. If one or more of our
current subcontractors is awarded prime contractor status in the future, it
could reduce or eliminate our revenue for the work they were performing as
subcontractors to us. Revenue derived from work performed by ATSI’s
subcontractors for both fiscal years 2010 and 2009 represented 37% of our GSA
Schedule gross revenue.





If our
subcontractors fail to perform their contractual obligations, our performance as
a prime contractor and our ability to obtain future business could be materially
and adversely impacted.


15





Our
performance of government contracts may involve the issuance of subcontracts to
other companies upon which we rely to perform all or a portion of the work. We
are obligated to deliver to our clients. A failure by one or more of our
subcontractors to satisfactorily deliver on a timely basis the agreed-upon
supplies and/or perform the agreed-upon services may materially and adversely
affect our ability to perform our obligations as a prime
contractor.





In
extreme cases, a subcontractor’s performance deficiency could result in the
government terminating our contract for default. A default termination could
expose us to liability for excess costs of reprocurement by the government and
have a material adverse effect on our ability to compete for future contracts
and task orders.





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





When
circumstances warrant, we sometimes incur expenses and perform work without a
signed contract or appropriate modification to an existing contract to cover
such expenses or work. When we do so, we are working “at-risk,” and there is a
chance that the subsequent contract or modification will not ensue, or if it
does, that it will not allow us to be paid for the expenses already incurred or
work already performed or both.





In such
cases, we have generally been successful in obtaining the required contract or
modification, but any failure to do so in the future could adversely affect
operating results.





We
may lose money or incur financial penalties if we agree to provide services
under a performance-based contract arrangement.





Under
certain performance-based contract arrangements, we are paid only to the extent
our customer actually realizes savings or achieves some other performance-based
improvements that result from our services. In addition, we may also incur
certain penalties. Performance-based contracts could impose substantial costs
and risks, including:





•
            the need to accurately understand
      and estimate in advance the improved performance that might result from
      our services;





•
            the lack of experience both we
      and our primary customers have in using this type of contract arrangement;
      and





•
            the requirement that we incur
      significant expenses with no guarantee of recovering these expenses or
      realizing a profit in the
future.





Even if
we successfully execute a performance-based contract, our interim operating
results and cash flows may be negatively affected by the fact that we may be
required to incur significant up-front expenses prior to realizing any related
revenue.





If
we are unable to manage our growth, our business may be adversely
affected.





Executing
our growth strategy may place significant demands on our management, as well as
on our administrative, operational and financial resources. If we sustain
significant growth, we must improve our operational, financial and management
information systems and expand, motivate and manage our workforce. If we are
unable to do so, or if new systems that we implement to assist in managing any
future growth do not produce the expected benefits, our business, prospects,
financial condition or operating results could be adversely
affected.


16





Risks
Associated with Our Acquisitions





We
may not be successful in identifying acquisition candidates and, if we undertake
acquisitions, they could be expensive, increase our costs or liabilities, or
disrupt our business. Additionally, if we are unable to successfully integrate
companies we acquire, our revenue and operating results may be
impaired.





One of
our strategies is to augment our organic growth through acquisitions. In
addition to our acquisition of ATSI, we have completed three acquisitions of
complementary companies in the last four years. We may not be able to identify
suitable acquisition candidates at prices that we consider appropriate or to
finance acquisitions on terms that are satisfactory to us. Acquisitions of
businesses or other material operations may require additional debt or equity
financing, resulting in leverage or dilution of ownership. Additionally,
negotiations of potential acquisitions and the integration of acquired business
operations could disrupt our business by diverting management attention away
from day-to-day operations and we may not be able to successfully integrate the
companies we acquire. We also may not realize cost efficiencies or synergies
that we anticipated when selecting our acquisition candidates. Acquired
companies may have liabilities or adverse operating issues that we fail to
discover through due diligence. Any costs, liabilities, or disruptions
associated with future acquisitions could harm our operating results. In
addition, following the integration of acquired companies, we may experience
increased attrition, including but not limited to, key employees of acquired
companies, which could reduce our future revenue.





As
a result of our acquisitions, we have substantial amounts of goodwill and
intangible assets, and changes in future business conditions could cause these
assets to become impaired, requiring substantial write-downs that would
adversely affect our financial results.





Our
acquisitions involved purchase prices well in excess of net tangible asset
values, resulting in the creation of a significant amount of goodwill and other
intangible assets. As of December 31, 2010, goodwill and purchased intangibles
accounted for approximately $55 million and $4 million, or approximately 63% and
5%, respectively, of our total assets. We will consider acquiring businesses if
and when opportunities arise, further increasing these amounts. To the extent
that we determine that such an asset has been impaired, we will write down its
carrying value on our balance sheet and book an impairment charge in our
statement of operations.





The
Company evaluates goodwill for impairment at least annually or more frequently
depending on specific events or when evidence of potential impairment exists.
The annual impairment test is based on several factors requiring judgment.
Principally, a significant decrease in expected revenue from customers, or
contract backlog or increases in operating expenses could have a significant
impact on our operating results and cash flow, as well as our stock price,
indicating a potential impairment of recorded goodwill. If economic conditions
should deteriorate in the future, causing further decline to the business, then
additional impairments could occur. ATSI will continue to monitor the
recoverability of the carrying value of its goodwill and other long-lived
assets. See Critical Accounting Policies and Significant Estimates in Part II,
Item 7.





We
amortize finite lived intangible assets over their estimated useful lives, and
also review them for impairment. If, as a result of acquisitions or otherwise,
the amount of intangible assets being amortized increases or decreases, so will
our amortization charges in future periods.





Businesses
that we acquire may have greater-than-expected liabilities for which we become
responsible.





Businesses
we acquire may have liabilities or adverse operating issues, or both, that we
fail to discover through due diligence or the extent of which we underestimate
prior to the acquisition.  For example, to the extent that any
business we acquire or any prior owners, employees, or agents of any acquired
businesses or properties:  (i) failed to comply with or otherwise
violated applicable laws, rules, or regulations; (ii) failed to fulfill or
disclose their obligations, contractual or otherwise, to applicable government
authorities, their customers, suppliers, or others; or (iii) incurred
environmental, tax, or other liabilities, we, as the successor owner, may be
financially responsible for these violations and failures and may suffer harm to
our reputation and otherwise be adversely affected.  An acquired
business may have problems with internal controls over financial reporting,
which could be difficult for us to discover during our due diligence process and
could in turn lead us to have significant deficiencies or material weaknesses in
our own internal controls over financial reporting.  These and any
other costs, liabilities, and disruptions associated with any of our past
acquisitions and any future acquisitions could harm our operating
results.


17





If
the benefits of our various acquisitions do not meet the expectations of
financial or industry analysts, the market price of our common stock may
decline.





The
market price of our common stock may decline as a result of our acquisitions
if:




•
            we do not achieve the perceived
      benefits of the acquisitions as rapidly as, or to the extent anticipated
      by, financial or industry analysts;
or





•
            the effect of the acquisitions on
      our financial results is not consistent with the expectations of financial
      or industry analysts.





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





Members
of our board of directors may have conflicts of interest that could hinder our
ability to make acquisitions.





One of
our growth strategies is to make selective acquisitions of complementary
businesses. Two of our directors, Messrs. Jacks and Schulte, are principals of
CM Equity Partners, a sponsor of private equity funds. Some of these funds are
focused on investments in, among other things, businesses in the federal
services sector. Messrs. Jacks and Schulte also serve on the boards of a number
of CM Equity Partners portfolio companies and, with Dr. Bersoff, are members of
the board of directors of ICF International, Inc., a diversified federal
services business that grows in part through acquisitions. It is possible that
CM Equity Partners and related funds and portfolio companies and ICF
International, Inc. could be interested in acquiring businesses that we would
also be interested in, and these relationships could hinder our ability to carry
out our acquisition strategy.





If
third parties bring claims against us or if any of the entities we have acquired
have breached any of their representations, warranties or covenants set forth in
the acquisition agreement for each respective transaction, we may not be
adequately indemnified for any losses that arise.





Although
the stock purchase and merger agreements governing our acquisitions generally
provide that the selling party will indemnify us for losses arising from a
breach of the representations, warranties and covenants by the selling party set
forth in the stock purchase or merger agreement, such indemnification is
limited, in general terms, to aggregate monetary amounts with deductibles. In
addition, with some exceptions, the survival period for claims under the stock
purchase and merger agreements are limited to specific periods of time. We will
be prevented from seeking indemnification for most claims above the aggregate
threshold or arising after the applicable survival period.





Risks
Related to Our Capital Structure





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





We have
never declared nor paid any cash dividends on our common stock. We currently
intend to retain all future earnings, if any, for use in the operations and
expansion of our business. As a result, we do not anticipate paying cash
dividends in the foreseeable future. Any future determination as to the
declaration and payment of cash dividends will be at the discretion of our board
of directors and will depend on factors our board of directors deems relevant,
including, among others, our results of operations, financial condition and cash
requirements, business prospects, and the terms of our credit facilities and
other financing arrangements. It is likely that the debt financing arrangements
we put into place will prohibit us from declaring or paying dividends without
the consent of our lenders. Accordingly, realization of a gain on stockholders’
investments will depend on the appreciation of the price of our common stock.
There is no guarantee that our common stock will appreciate in value or even
maintain the price at which stockholders purchased their shares.





Our
debt includes covenants that restrict our activities and create the risk of
defaults, which could impair the value of our stock.





Our debt
financing arrangements contain a number of significant covenants that, among
other things, restrict our ability to dispose of assets; incur additional
indebtedness; make capital expenditures; pay dividends; create liens on assets;
enter into leases, investments and acquisitions; engage in mergers and
consolidations; engage in certain transactions with affiliates; and otherwise
restrict corporate activities (including change of control and asset sale
transactions). In addition, our financing arrangements require us to maintain
specified financial ratios and comply with financial tests, some of which may
become more restrictive over time. The failure to fulfill the requirements of
debt covenants, if not cured through performance or an amendment of the
financing arrangements, could have the consequences of a default described in
the risk factor below. There is no assurance that we will be able to fulfill our
debt covenants, maintain these ratios, or comply with these financial tests in
the future, nor is there any assurance that we will not be in default under our
financial arrangements in the future.


18





A
default under our debt could lead to a bankruptcy or other financial
restructuring that would significantly adversely affect the value of our
stock.





In the
event of a default under our financing arrangements, the lenders could, among
other things, (i) declare all amounts borrowed to be due and payable, together
with accrued and unpaid interest, (ii) terminate their commitments to make
further loans, and (iii) proceed against the collateral securing the obligations
owed to them. Our senior debt is secured by substantially all of our assets.
Defaults under additional indebtedness we incur in the future could have these
and other effects. Any such default could have a significant adverse effect on
the value of our stock.





A default
under our debt could lead to our bankruptcy, insolvency, financial restructuring
or liquidation. In any such event, our stockholders would be entitled to share
ratably in our assets available for distribution only after the payment in full
to the holders of all of our debt and other liabilities. There can be no
assurance that, in any such bankruptcy, insolvency, financial restructuring or
liquidation, stockholders would receive any distribution
whatsoever.





Risks
Associated with Sarbanes-Oxley Act Compliance





Section
404 of the Sarbanes-Oxley Act of 2002 requires us to document and test the
effectiveness of our internal controls over financial reporting in accordance
with an established Committee of Sponsoring Organizations of the Treadway
Commission internal control framework and to report on our conclusion as to the
effectiveness of our internal controls.





Although
we believe the existing controls over financial reporting are designed and
operating effectively, we cannot be certain that we will be able to maintain
adequate internal controls over our financial processes and reporting in the
future. Any failure to implement required new and improved controls, or
difficulties encountered in their implementation could harm our operating
results or cause us to fail to meet our reporting obligations.


19





Item
1B. Unresolved Staff Comments





None.





Item
2. Properties





Our
headquarters is currently located at 7925 Jones Branch Drive in McLean,
Virginia, a suburb of Washington, D.C. Our headquarters’ lease is for 58,082
square feet, which terminates on May 31, 2018. All corporate functions are at
this location, with approximately 30.1% of our full-time employees located at
our headquarters and other company offices and the other 69.9% located at client
sites. The base rent of the property is currently $139,843 per month, subject to
an increase of 2.5% on each anniversary date of the commencement of the lease.
The term lease is for ten years, commencing on June 1, 2008, with a right to
extend the term for two renewal terms of five years each and an option to cancel
the lease without penalty after seven years.





We also
have facilities in Groton, Connecticut; Columbia, South Carolina; Huntsville,
Alabama; and Kansas City, Missouri. ATSI does not own any real property; all of
its offices are in leased premises.  The Company believes that its
facilities are suitable for the Company’s operations and generally provide
sufficient capacity to meet the Company’s needs.





Item
3. Legal Proceedings





From time
to time, we are involved in various legal matters and proceedings concerning
matters arising in the ordinary course of business. We currently believe that
any ultimate liability arising out of these matters and proceedings will not
have a material adverse effect on our financial position, results of operations
or cash flows.





We were a
defendant in Maximus, Inc. vs. Advanced Technology Systems, Inc., in the
Connecticut Superior Court, Complex Litigation Docket. The lawsuit regarded
breach of contract and other claims related to a subcontract between Maximus and
ATSI associated with a prime contract between Maximus and the State of
Connecticut. The case was filed in August 2007. On April 6, 2010, a settlement
agreement was signed between Maximus and the Company. In accordance with the
terms of the settlement, ATSC paid Maximus $1.5 million in return for a full
release. The Company had fully accrued the $1.5 million settlement liability as
of December 31, 2009.





Based on
the claims asserted in the Maximus lawsuit, we made an indemnification demand
against the former principal owners of ATSI under the stock purchase agreement
governing the transaction in which the Company (then Federal Services
Acquisition Corporation) acquired ATSI. This indemnification demand of $1.25
million was paid in August 2010.




Item 4. (Removed and
Reserved)


20





PART
II





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





Market
Information





The
following table sets forth, for the calendar quarter indicated, the quarterly
high and low bid information of the Company’s common stock in 2009 and 2010. Our
common stock began trading on December 5, 2005. The quotations listed below
reflect interdealer prices, without retail markup, markdown or commission, and
may not necessarily represent actual transactions. All outstanding warrants
expired on October 19, 2009 and no warrants were traded during the period from
September 1, 2009 to October 19, 2009. Units, which consisted of one share and
two warrants, are no longer traded. Our stock was reported on the OTC Bulletin
Board under the ticker symbol “ATCT” until it began trading on the AMEX Exchange
on January 5, 2010 using the ticker symbol ATSC.




Common Stock
                          (ATSC)2010
                        
                        High
                        
                        
                        LowFirst
      Quarter
                        
                        $
                        3.37
                        
                        
                        $
                        2.15Second
      Quarter
                        
                        $
                        3.10
                        
                        
                        $
                        2.45Third
      Quarter
                        
                        $
                        3.08
                        
                        
                        $
                        2.27Fourth
      Quarter
                        
                        $
                        3.15
                        
                        
                        $
                        2.56




Common Stock
                        (ATCT)
                      
                      
                      Warrants
                        (ATCTW)
                      
                      
                      Units
                        (ATCTU)2009
                      
                      High
                      
                      
                      Low
                      
                      
                      High
                      
                      
                      Low
                      
                      
                      High
                      
                      
                      LowFirst
      Quarter
                      
                      $
                      1.45
                      
                      
                      $
                      1.30
                      
                      
                      $
                      0.01
                      
                      
                      $
                      0.01
                      
                      
                      $
                      2.50
                      
                      
                      $
                      2.50Second
      Quarter
                      
                      $
                      2.09
                      
                      
                      $
                      1.10
                      
                      
                      $
                      0.01
                      
                      
                      $
                      0.01
                      
                      
                      $
                      2.50
                      
                      
                      $
                      2.50Third
      Quarter
                      
                      $
                      2.29
                      
                      
                      $
                      1.96
                      
                      
                      $
                      0.01
                      
                      
                      $
                      0.01
                      
                      
                      $
                      2.50
                      
                      
                      $
                      2.50Fourth
      Quarter
                      
                      $
                      2.50
                      
                      
                      $
                      2.20
                      
                      
                      $NA
                      
                      
                      $NA
                      
                      
                      $
                      2.50
                      
                      
                      $
                      2.50





The
closing price of the Company’s common stock on February 11, 2011 was
$3.71.





Holders
of Common Stock





As of
February 11, 2011, there were approximately 249 record holders of our common
stock. The number of shareholders of record is not representative of the number
of beneficial stockholders due to the fact that many shares are held by
depositories, brokers, or nominees.





Dividend
Policy





We have
never declared nor paid any cash dividends on our common stock. We currently
intend to retain all future earnings, if any, for use in the operations and
expansion of our business. As a result, we do not anticipate paying cash
dividends in the foreseeable future. Any future determination as to the
declaration and payment of cash dividends will be at the discretion of our board
of directors and will depend on factors our board of directors deems relevant,
including among others, our results of operations, financial condition and cash
requirements, business prospects, and the terms of our credit facilities and
other financing arrangements. It is likely that the debt financing arrangements
we put into place in connection with our acquisitions will prohibit us from
declaring or paying dividends without the consent of our
lenders.


21





Issuance
of Unregistered Securities





All
unregistered shares issued during the fiscal years 2010 and 2009 were issued in
connection with Board of Directors’ fees.





Method
                                                    
                                                    
                                                    Date
                                                    
                                                    Number of
                                                      Shares Issued
                                                    
                                                    Value of
                                                      Shares Issued
                                                    
                                                    Securities ExemptionBoard
      of Directors’ Fees
                                                    
                                                    
                                                    05/07/2009
                                                    
                                                    59,332
                                                    
                                                    $
                                                    88,998
                                                    
                                                    Section
      4(2) of the Securities ActBoard
      of Directors’ Fees
                                                    
                                                    
                                                    06/01/2009
                                                    
                                                    14,142
                                                    
                                                    
                                                    24,749
                                                    
                                                    Section
      4(2) of the Securities ActTotal
      Shares Issued during the year ended December 31, 2009
                                                    
                                                    
                                                    
                                                    
                                                    73,474
                                                    
                                                    $
                                                    113,747
                                                    
                                                    Section
      4(2) of the Securities Act2010
      Activity
                                                    
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    -Total
      Shares Issued during the two-year period ended December 31,
      2010
                                                    
                                                    
                                                    
                                                    
                                                    73,474
                                                    
                                                    $
                                                    113,747
                                                    
                                                    Section
      4(2) of the Securities
Act





Purchases
of Equity Securities





On
February 12, 2009, the Board of Directors approved a repurchase program
authorizing the Company to purchase up to 2.0 million shares of Company common
stock for not more than $3 million, in the open market from time to time over a
twelve-month period. On August 10, 2009, the Board of Directors extended the
repurchase program for an additional two years. The timing of the share
repurchases under the program is at the discretion of the Company and will
depend on a variety of factors, including market conditions and bank approvals
and may be suspended or discontinued at any time. Common stock acquired through
the repurchase program will be held by the Company as treasury shares and may be
used for general corporate purposes, including re-issuances in connection with
acquisitions, employee stock option exercises or other employee stock
plans.




ATSC
repurchased approximately 403,000 shares of common stock for approximately
$937,000 during 2009 and 152,000 shares of common stock for approximately
$455,000 in 2010 as part of the repurchase program. The Company currently has
approximately 22.8 million shares outstanding.


22





Stock
Performance Graph





The
following graph compares the cumulative total stockholder return on our common
stock from December 5, 2005 (the first trading date of our common stock) through
December 31, 2010, with the cumulative total return on (i) the Russell 2000
stock index and (ii) a Peer Group Index composed of other federal government
service providers with whom we compete: CACI International, Inc., Dynamics
Research Corp., ManTech International Corp., NCI, Inc., and SRA International,
Inc. The comparison also assumes that all dividends are reinvested. The
historical information set forth below is not necessarily indicative of future
performance.











Assumes
$100 Invested on Dec. 5, 2005


Assumes
Dividend Reinvested


Fiscal
Year Ended Dec. 31, 2010





12/31/05
                      
                      
                      12/31/06
                      
                      
                      12/31/07
                      
                      
                      12/31/08
                      
                      
                      12/31/09
                      
                      
                      12/31/10ATSC
                      
                      $
                      100.75
                      
                      
                      $
                      106.23
                      
                      
                      $
                      67.92
                      
                      
                      $
                      19.81
                      
                      
                      $
                      46.79
                      
                      
                      $
                      51.89Peer
      Group Index
                      
                      $
                      106.01
                      
                      
                      $
                      105.78
                      
                      
                      $
                      128.16
                      
                      
                      $
                      147.14
                      
                      
                      $
                      135.59
                      
                      
                      $
                      120.63Russell
      2000 Index
                      
                      $
                      98.06
                      
                      
                      $
                      114.72
                      
                      
                      $
                      111.57
                      
                      
                      $
                      72.75
                      
                      
                      $
                      91.09
                      
                      
                      $
                      114.14


23





Item
6. Selected Financial Data





The
following is a summary of selected statement of income data and balance sheet
data for each period indicated. The selected financial data is derived from our
audited financial statements and related notes. As previously discussed, the
Company was founded in April 2005 as a vehicle for the acquisition of operating
businesses in the federal services and defense industries. The Company had no
operations until its acquisition of ATSI in January 2007.




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





Income
Statement Data





For the Year
                      Ended
                      December 31,
                      2010
                    
                    
                    For the Year
                      Ended
                      December 31,
                      2009
                    
                    
                    For the Year
                      Ended
                      December 31,
                      2008
                    
                    
                    For the Year
                      Ended
                      December 31,
                      2007Revenue
                    
                    $
                    116,666,234
                    
                    
                    $
                    118,658,939
                    
                    
                    $
                    131,548,557
                    
                    
                    $
                    106,887,039Operating
      cost
                    
                    
                    (106,204,174
                    )
                    
                    
                    (109,052,344
                    )
                    
                    
                    (125,848,663
                    )
                    
                    
                    (105,813,129
                    )Impairment
      expense
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (56,772,541
                    )
                    
                    
                    —Net
      income (loss)
                    
                    $
                    7,101,174
                    
                    
                    $
                    3,127,843
                    
                    
                    $
                    (49,828,415
                    )
                    
                    $
                    (6,553,729
                    )Weighted
      average shares outstanding
                    
                    
                    22,535,493
                    
                    
                    
                    22,669,066
                    
                    
                    
                    21,231,654
                    
                    
                    
                    18,848,722Net
      income (loss) per share – basic
                    
                    $
                    0.32
                    
                    
                    $
                    0.14
                    
                    
                    $
                    (2.35
                    )
                    
                    $
                    (0.35
                    )Weighted-average
      shares and equivalent shares outstanding
                    
                    
                    22,690,774
                    
                    
                    
                    22,766,840
                    
                    
                    
                    21,231,654
                    
                    
                    
                    18,848,722Net
      income (loss) per share – diluted
                    
                    $
                    0.31
                    
                    
                    $
                    0.14
                    
                    
                    $
                    (2.35
                    )
                    
                    $
                    (0.35
                    )





Balance
Sheet Data





December 31,
                      2010
                    
                    
                    December 31,
                      2009
                    
                    
                    December 31,
                      2008
                    
                    
                    December
      31,
                      2007Total
      assets
                    
                    $
                    87,830,007
                    
                    
                    $
                    93,269,674
                    
                    
                    $
                    106,369,553
                    
                    
                    $
                    169,024,091Total
      long-term debt
                    
                    
                    14,400,000
                    
                    
                    
                    —
                    
                    
                    
                    34,493,303
                    
                    
                    
                    46,692,036Total
      liabilities
                    
                    
                    29,648,575
                    
                    
                    
                    43,479,683
                    
                    
                    
                    60,458,097
                    
                    
                    
                    73,688,777Net
      working capital
                    
                    
                    11,455,538
                    
                    
                    
                    (13,577,416
                    )
                    
                    
                    10,676,737
                    
                    
                    
                    16,702,478Stockholders’
      equity
                    
                    
                    58,181,432
                    
                    
                    
                    49,789,991
                    
                    
                    
                    45,911,456
                    
                    
                    
                    95,335,314


24





Non-GAAP
Financial Measures – EBITDA





In
evaluating our operating performance, management uses certain non-GAAP financial
measures to supplement the consolidated financial statements prepared under U.S.
GAAP. More specifically, we use the following non-U.S. GAAP financial measure:
earnings before interest, taxes, depreciation, and amortization (“EBITDA”).
EBITDA is a non-U.S. GAAP measure which we define as U.S. GAAP net income plus
interest expense, income taxes, and depreciation and amortization.  We have
provided EBITDA because we believe it is comparable to similar measures of
financial performance in comparable companies and may be of assistance to
investors in evaluating companies on a consistent basis, as well as enhancing an
understanding of our operating results.  EBITDA is not a recognized term
under U.S. GAAP and does not purport to be an alternative to net income as a
measure of operating performance or the cash flows from operating activities as
a measure of liquidity.





During
the year ended December 31, 2010, we recorded other income of approximately $0.5
million associated with the adjustment of seller notes related to the
acquisition of Number Six Software (NSS) and to $1.0 million for settlement of
the indemnification claim with the ATSI founders. Adjusted EBITDA for the year
ended December 31, 2009 included the Company’s settlement of the Maximus
litigation and severance related to the departure of the COO George Troendle.
Adjusting EBITDA for these items is presented below:




December 31,
                          2010
                        
                        December 31,
                          2009Net
      income (loss)
                        
                        $
                        7,101,174
                        
                        
                        $
                        3,127,843Adjustments:Depreciation
                        
                        
                        547,882
                        
                        
                        
                        836,133Amortization
      of intangibles
                        
                        
                        1,992,328
                        
                        
                        
                        2,201,888Interest
                        
                        
                        1,157,477
                        
                        
                        
                        2,859,462Taxes
                        
                        
                        3,666,741
                        
                        
                        
                        2,180,727EBITDA
                        
                        $
                        14,465,602
                        
                        
                        $
                        11,206,053Severance
                        
                        
                        —
                        
                        
                        
                        383,211Net
      settlements
                        
                        
                        (1,322,776
                        )
                        
                        
                        1,500,000Adjusted
      EBITDA
                        
                        $
                        13,142,826
                        
                        
                        $
                        13,089,264


25





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





You
should read the following discussion and analysis in conjunction with our
financial statements and the related notes included elsewhere in this Form 10-K.
This discussion and analysis contains forward-looking statements that involve
risks, uncertainties, and assumptions. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including, but not limited to, those set forth under “Risk
Factors” and elsewhere in this Form 10-K.





About
This Management’s Discussion and Analysis





The
discussion and analysis that follows is organized to:





•
            provide an overview of our
      business;





•
            explain the year-over-year trends
      in our results of
operations;





•
            describe our liquidity and
      capital resources; and





•
            explain our critical accounting
      policies and describe certain line items of our statements of
      operations.





Readers
who are not familiar with our company or the financial statements of federal
government information technology services providers should closely review the
“Operations Overview” and the “Critical Accounting Policies and Significant
Estimates” sections appearing within this discussion and analysis. These
sections provide background information that may help readers in understanding
and analyzing our financial information.





Recent
Updates





On
January 7, 2011, the Company announced that its Board of Directors had begun a
process to evaluate strategic alternatives for the Company. There can be no
assurance that the review of strategic alternatives will result in the Company
pursuing any particular transaction, or, if it pursues any such transaction,
that it will be completed.





Also on
January 7, 2011, the Company announced that Ms. Pamela Little, its Executive
Vice President and Chief Financial Officer, and Mr. John Hassoun, a Senior Vice
President, would become Co-Chief Executive Officers, effective February 1, 2011,
with Ms. Little having primary responsibility for financial and administrative
aspects of the Company’s affairs and Mr. Hassoun having primary responsibility
for operational matters.





2010
Overview





During
2010, the Company continued to refine its market position amid the opportunities
provided by the acquisitions made in 2007, and streamlined its processes and
operations. The following significant events occurred during 2010:




·
            While revenue decreased by 1.7%,
      income from operations increased to $10.5 million, or 9.0% of
      revenue.





·
            The Company generated $6.4
      million in operating cash
flows.





·
            The Company received settlements
      on claims with the previous owners of ATSI in the amount of $1.2 million
      for indemnification related to the ATSI acquisition and $0.5 million from
      the previous owners of NSS related to the net working capital purchase
      price adjustment.





·
            Cost savings associated with
      labor utilization improvements, together with process improvements in
      administrative areas, resulted in labor cost savings of $1.4
      million.





·
            Long term debt of $6.3 million
      was paid down, utilizing the $6.4 million positive operating cash
      flows.


26





Operations
Overview





We work
with the federal government under two primary contract types: time-and-materials
and fixed-price contracts. Most of our revenue is generated based on services
provided either by our employees or subcontractors. To a lesser degree, the
revenue we earn includes reimbursable travel and other items to support the
project. Thus, once we win new business, the key to delivering the revenue is
through hiring new employees to meet customer requirements, retaining our
employees, and ensuring that we deploy them on direct-billable jobs. Therefore,
we closely monitor hiring success, attrition trends, and direct labor
utilization. Since we earn higher profits from the labor services that our
employees provide compared with subcontracted efforts and other reimbursable
items, we seek to optimize our labor content on the contracts we
win.





Direct
costs includes labor, or the salaries and wages of our employees, plus fringe
benefits; the costs of subcontracted labor and outside consultants; third-party
materials; and other direct costs such as travel incurred to support contract
efforts. Since we earn higher profits on our own labor services, we expect the
ratio of cost of services to revenue to decline when our labor services mix
increases relative to subcontracted labor or third-party materials. Conversely,
as subcontracted labor or third-party materials purchases for customers increase
relative to our own labor services, we expect the ratio of cost of services to
revenue to increase. As we continue to bid and win larger contracts, our own
labor services component could decrease. Typically, the larger contracts are
broader in scope and require more diverse capabilities, thus resulting in more
subcontracted labor. In addition, we can face hiring challenges in staffing
larger contracts. While these factors could lead to a higher ratio of cost of
services to revenue, the economics of these larger jobs are nonetheless
generally favorable because they increase income, broaden our revenue base, and
have a favorable return on invested capital.





Depreciation
and amortization expenses are affected by the level of our annual capital
expenditures and the amount of identified intangible assets related to
acquisitions. We do not presently foresee significant changes in our capital
expenditure requirements. As we continue to make selected strategic
acquisitions, the amortization of identified intangible assets may increase as a
percentage of our revenue. We evaluate our intangible assets for impairment
annually. During 2010 and 2009, there was no impairment to intangible
assets.





Our
operating income, or revenue minus direct costs, selling, general and
administrative expenses, and depreciation and amortization, and thus our
operating margin, or the ratio of operating income to revenue, is driven by the
mix and execution on our contracts, how we manage our costs, and the
amortization charges resulting from acquisitions.





Our cash
position is driven primarily by the level of cash flows from operations, capital
expenditures, and borrowings or payment on our credit facility.





Contract
Backlog





Future
growth is dependent upon the strength of our target markets, our ability to
identify opportunities, and our ability to successfully bid and win new
contracts. The following table summarizes our contract backlog at the end of the
2010 and 2009 years: (in thousands)





Year Ended December 31,2010
                        
                        
                        2009Backlog:Funded
                        
                        $
                        36,667
                        
                        
                        $
                        60,980Unfunded
                        
                        
                        199,466
                        
                        
                        
                        105,822Total
      backlog
                        
                        $
                        236,133
                        
                        
                        $
                        166,802





Our total
backlog of approximately $236 million as of December 31, 2010 represented a 42%
increase over the fiscal year 2009 backlog, which was approximately $167 million
as of December 31, 2009. The most significant awards during the year ended
December 31, 2010 were successful re-competitions with a Department of Defense
agency valued at $27.5 million, HUD awards valued at an aggregate $25.7 million,
a subcontract supporting a civilian agency valued at $23.0 million, the Nuclear
Regulatory Commission valued at $21.4 million, the Department of Homeland
Security valued at $19.5 million, DLA valued at $13.7 million, and the National
Cancer Institute valued at $13.3 million.We currently estimate that
30% of our current backlog will be recognized as revenue in 2011. An IDIQ
contract was awarded in November 2010 by the US Army (Army Recruitment &
Retention program). Since this is unexercised and unfunded, no value has been
included in the backlog at December 31, 2010.


27





Contract
Mix





Contract
profit margins are generally affected by the type of contract. We can typically
earn higher profits on fixed-price and time-and-materials contracts than
cost-reimbursable contracts. Thus, an important part of growing our operating
income is to increase the amount of services delivered under fixed-price and
time-and-materials contracts. We had one cost-reimbursable task order that began
in 2010. The following table summarizes our historical contract mix, measured as
a percentage of total revenue, for the periods indicated:





Year Ended
                              December 31,
                              2010
                            
                            
                            Year Ended
                              December 31,
                              2009Time-and-materials
                            
                            
                            64.6
                            %
                            
                            
                            68.0
                            %Fixed-price
                            
                            
                            35.1
                            %
                            
                            
                            32.0
                            %Cost-plus-fixed-fee
                            
                            
                            0.3
                            %
                            
                            
                            —
                            %Totals
                            
                            
                            100.0
                            %
                            
                            
                            100.0
                            %





Critical
Accounting Policies and Significant Estimates





Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires that management make estimates and assumptions
that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ significantly from those
estimates.





We
believe the following critical accounting policies affect the more significant
estimates and judgments used in the preparation of our financial
statements.





Revenue
Recognition





The
Company recognizes revenue when persuasive evidence of an arrangement exists,
services have been rendered or goods delivered, the contract price is fixed or
determinable, and collectability is reasonably assured. The Company’s revenue
historically is derived from primarily three different types of contractual
arrangements: time-and-materials contracts, fixed-price contracts and, to a
lesser extent, cost-plus-fee contracts. Revenue on time-and-material contracts
is recognized based on the actual hours performed at the contracted billable
rates for services provided, plus materials’ cost for products delivered to the
customer, and costs incurred on behalf of the customer. Revenue on fixed-price
contracts is recognized ratably over the period of performance or on
percentage-of-completion depending on the nature of services to be provided
under the contract. Revenue on cost-plus-fee contracts is recognized to the
extent of costs incurred, plus an estimate of the applicable fees earned. Fixed
fees under cost-plus-fee contracts are recorded as earned in proportion to the
allowable costs incurred in performance of the contract. For cost-plus-fee
contracts that include performance based fee incentives, the Company recognizes
the relevant portion of the expected fee to be awarded by the customer at the
time such fee can be reasonably estimated, based on factors such as the
Company’s prior award experience and communications with the customer regarding
performance. We did not have any cost-plus-fee contracts in 2009, but we have
one for 2010.





The
Company’s fixed price contracts are either maintenance and support services
based or require some level of customization. Revenue is recognized ratably over
the contract period for maintenance and support contracts. In accordance with
Accounting Standards Codification (“ASC”) 985-605-25, “Revenue Recognition -
Software” (ASC 985-605-25), for contracts that involve software design,
customization, or integration, management applies contract accounting pursuant
to the provisions of ASC 985-605-35, “Revenue Recognition – Construction and
Production-type Contracts” (ASC 985-605-35 ). Revenue for such arrangements is
recognized on the percentage-of-completion method using costs incurred in
relation to total estimated project costs.





Contract
costs include labor, material, subcontracting costs, and allocated allowable
selling, general and administrative costs. Revenue recognition requires judgment
in estimating the revenue and associated costs, assessing risk in performance,
and evaluating technical issues. The Company may estimate award fees and
incentive fees or penalties in recognizing revenue based on anticipated awards
or when there is sufficient information to determine.


28





On
federal government contracts, the Company allocates costs to contracts
consistent with the federal procurement regulations. The direct and selling,
general and administrative costs associated with these contracts are subject to
government audit by DCAA. Management does not anticipate any material adjustment
to the consolidated financial statements in subsequent periods for audits not
yet performed. The incurred cost audits have been completed through the fiscal
year ended October 31, 2005.




Contract
revenue recognition inherently involves estimation. Examples of estimates
include the contemplated level of effort to accomplish the tasks under the
contract, the costs of the effort, and an ongoing assessment of the Company’s
progress toward completing the contract. From time to time, as part of its
standard management process, facts develop that require the Company to revise
its estimated total contract costs. To the extent that a revised estimate
affects contract profit or revenue previously recognized, the Company records
the cumulative effect of the revision in the period in which the revision
becomes known. The full amount of an anticipated loss on any type of contract is
recognized in the period in which it becomes probable and can be reasonably
estimated. Under certain circumstances, the Company may elect to work at-risk
prior to receiving an executed contract document. The Company has a formal
procedure for authorizing any such at risk work to be incurred. Revenue
associated with such work is recognized only when it can be reliably estimated
and realization is probable.





Goodwill
and Other Purchased Intangible Assets





Goodwill
represents the excess of purchase price over fair value of net assets of
businesses acquired. Other purchased intangible assets include the fair value of
items such as customer contracts, backlog and customer relationships. ASC Topic
350, “Intangibles, Goodwill and Other” (ASC 350) (formerly Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(“SFAS 142”)), establishes financial accounting and reporting for acquired
goodwill and other intangible assets. Goodwill and intangible assets acquired in
a purchase business combination and determined to have an indefinite useful life
are not amortized, but rather tested for impairment on an annual basis or at an
interim date in the event of a triggering event. Purchased intangible assets
with a definite useful life are amortized on a straight-line basis over their
estimated useful lives.





The
Company evaluates goodwill for impairment annually in the third fiscal quarter
or more frequently depending on specific events or when evidence of potential
impairment exists.  For purposes of this testing, management concluded that
there is only one reporting unit. The Company’s testing approach utilizes a fair
value approach to determine the value of the reporting unit for comparison to
the corresponding carrying value. If the carrying value exceeds the estimated
fair value of the business, an impairment would be required to be reported. The
annual impairment test is based on several factors requiring judgment.
Principally, a significant decrease in general market conditions impacting the
price of our common stock may indicate potential impairment of recorded
goodwill.





The
Company performed its 2010 annual impairment test during the third quarter in
connection with the preparation of its September 30, 2010 interim financial
statements. Management determined that a fair value market approach based upon
the price of our common stock, represented Level 2 data pursuant to ASC Topic
820-25 Fair Value Measurements and Disclosures (“ASC 820-25”) and was considered
the most appropriate valuation methodology to use in our analysis as it reflects
ATSC’s business characteristics and forward earnings potential. Based on
management’s analysis, we concluded that the estimated fair value of the Company
significantly exceeded its book value as of the valuation date. As a result of
this analysis, management concluded that goodwill was not impaired.





Long-Lived
Assets (Excluding Goodwill)





The
Company reviews long-lived assets for impairment. If circumstances indicate the
carrying value of the asset may not be fully recoverable, a loss is recognized
at the time impairment exists and a permanent reduction in the carrying value of
the asset is recorded. The Company did not record an impairment charge in 2009
or 2010.


29





Income
Taxes





Deferred
income taxes are provided for the differences between the basis of assets and
liabilities for financial reporting and income tax purposes. Deferred tax assets
and liabilities are measured using tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled. A valuation
allowance is established when necessary to reduce deferred tax assets to the
amount expected to be realized.





We make
certain estimates and judgments in determining income tax expense for financial
statement purposes. These estimates and judgments occur in the calculation of
certain tax assets and liabilities, which principally arise from differences in
the timing of recognition of revenue and expense for tax and financial statement
purposes. We also evaluate the likelihood of recoverability of deferred tax
assets, and adjust any valuation allowances accordingly. Considerations with
respect to the recoverability of deferred tax assets include the period of
expiration of the tax asset, planned use of the tax asset, and historical and
projected taxable income, as well as tax liabilities for the tax jurisdiction to
which the tax asset relates. Valuation allowances are evaluated periodically and
will be subject to change in each future reporting period as a result of changes
in one or more of these factors. The Company accounts for uncertain tax
positions under ASC Topic 740-10, Income Taxes (“ASC Topic 740-10”). ASC Topic
740-10 prescribes a more-likely-than-not threshold of financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. This interpretation also provides guidance on de-recognition of
income tax assets and liabilities, classification of current and deferred tax
assets and liabilities, accounting for interest and penalties associated with
tax positions, accounting for income taxes in interim periods and income tax
disclosures. As of December 31, 2010, the Company did not have any material
gross unrecognized tax benefits or liabilities.


30





Results
of Operations





The
following table sets forth the results of operations as a percent of revenue for
the years ended December 31, 2010 and December 31, 2009.





Year to Year Change2010
                                              
                                              
                                              2009
                                              
                                              
                                              2010
                                              
                                              
                                              2009
                                              
                                              
                                              2009 to 2010Dollars
                                              
                                              
                                              Percent of
                                                Revenue
                                              
                                              
                                              Change in
                                                Dollars
                                              
                                              
                                              Percentage
                                                ChangeStatement
      of income:Revenue
                                              
                                              $
                                              116,666,234
                                              
                                              
                                              $
                                              118,658,939
                                              
                                              
                                              
                                              100.0
                                              %
                                              
                                              
                                              100.0
                                              %
                                              
                                              $
                                              (1,992,705
                                              )
                                              
                                              
                                              (1.7
                                              )%Operating
      costs and expensesDirect
      costs
                                              
                                              
                                              81,059,072
                                              
                                              
                                              
                                              80,349,485
                                              
                                              
                                              
                                              69.5
                                              %
                                              
                                              
                                              67.7
                                              %
                                              
                                              
                                              709,587
                                              
                                              
                                              
                                              0.9
                                              %Selling,
      general and administrative expenses
                                              
                                              
                                              22,604,892
                                              
                                              
                                              
                                              25,664,838
                                              
                                              
                                              
                                              19.4
                                              %
                                              
                                              
                                              21.6
                                              %
                                              
                                              
                                              (3,059,946
                                              )
                                              
                                              
                                              (11.9
                                              )%Depreciation
      and amortization
                                              
                                              
                                              2,540,210
                                              
                                              
                                              
                                              3,038,021
                                              
                                              
                                              
                                              2.2
                                              %
                                              
                                              
                                              2.6
                                              %
                                              
                                              
                                              (497,811
                                              )
                                              
                                              
                                              (16.4
                                              )%Total
      operating costs and expenses
                                              
                                              
                                              106,204,174
                                              
                                              
                                              
                                              109,052,344
                                              
                                              
                                              
                                              91.0
                                              %
                                              
                                              
                                              91.9
                                              %
                                              
                                              
                                              (2,848,170
                                              )
                                              
                                              
                                              (2.6
                                              )%Operating
      income
                                              
                                              
                                              10,462,060
                                              
                                              
                                              
                                              9,606,595
                                              
                                              
                                              
                                              9.0
                                              %
                                              
                                              
                                              8.1
                                              %
                                              
                                              
                                              855,465
                                              
                                              
                                              
                                              8.9
                                              %Other
      income (expense)Interest
      expense, net
                                              
                                              
                                              (1,157,477
                                              )
                                              
                                              
                                              (2,859,462
                                              )
                                              
                                              
                                              (1.0
                                              )%
                                              
                                              
                                              (2.4
                                              )%
                                              
                                              
                                              1,701,985
                                              
                                              
                                              
                                              (59.5
                                              )%Other
      income(expense)
                                              
                                              
                                              1,463,332
                                              
                                              
                                              
                                              (1,438,563
                                              )
                                              
                                              
                                              1.3
                                              %
                                              
                                              
                                              (1.2
                                              )%
                                              
                                              
                                              2,901,895
                                              
                                              
                                              NAIncome
      before income taxes
                                              
                                              
                                              10,767,915
                                              
                                              
                                              
                                              5,308,570
                                              
                                              
                                              
                                              9.2
                                              %
                                              
                                              
                                              4.5
                                              %
                                              
                                              
                                              5,459,345
                                              
                                              
                                              
                                              102.8
                                              %Income
      tax expense
                                              
                                              
                                              3,666,741
                                              
                                              
                                              
                                              2,180,727
                                              
                                              
                                              
                                              3.1
                                              %
                                              
                                              
                                              1.8
                                              %
                                              
                                              
                                              1,486,014
                                              
                                              
                                              
                                              68.1
                                              %Net
      income
                                              
                                              $
                                              7,101,174
                                              
                                              
                                              $
                                              3,127,843
                                              
                                              
                                              
                                              6.1
                                              %
                                              
                                              
                                              2.6
                                              %
                                              
                                              $
                                              3,973,331
                                              
                                              
                                              
                                              127.0
                                              %





Comparison
of the year ended December 31, 2010 to the year ended December 31,
2009





Revenue.   The
Company’s revenue decreased 1.7% to $116.7 million in the year ended December
31, 2010, compared to $118.7 million in the year ended December 31, 2009. This
$2.0 million decrease in revenue is primarily attributable to decreases in the
DOD market of $5.7 million and the state and local market of $1.2 million,
partially offset by an increase in the government sponsored enterprise market of
$3.8 million.





Of the
$5.7 million decrease in DOD revenue from 2009 to 2010, $2.5 million was
associated with work at Headquarters Air Force, $1.4 million was associated with
work at the U.S. Coast Guard, $0.9 million was associated with work at DTSA and
$0.8 million was associated with work at DLA. In general these decreases were
attributed to scope reductions with DTSA and DLA customer, in-sourcing at the
Air Force Headquarters and the effects of transitioning from a prime contractor
to a subcontractor role on a Coast Guard contract.




The state
and local revenue decreased $1.2 million primarily due to two large development
contracts nearing completion.





The above
revenue decreases were offset by the $3.8 million or a 32.5% increase at Fannie
Mae, a government sponsored enterprise.




Direct Costs.   The
Company had $81.1 million in direct costs in the year ended December 31, 2010,
compared to $80.3 million in direct costs in the year ended December 31, 2009.
This 1% increase is directly attributable to a 1% increase in direct labor costs
in the year ended December 31, 2010. Cost of living and merit increases of
approximately $1.9 million were partially offset by reduced direct labor
attributable to lower revenue in 2010.




31




Selling, General and Administrative
Expenses.   For the year ended December 31, 2010, the Company
had $22.6 million of selling, general and administrative expenses, compared to
$25.7 million for the year ended December 31, 2009. The decrease of $3.1 million
is the full year result of
cost saving initiatives put in place in 2009.  Labor utilization
improvement efforts, together with process improvements in administrative areas
resulted in indirect labor and the associated fringe benefits decreasing by $1.4
million to $13.8 million from $15.2 million.  In addition, facilities
costs decreased by $0.6 million to $1.7 million in 2010 compared to $2.3 million
in 2009 as a result of consolidating operations in a new headquarters
facility.  Finally, legal fees decreased by $0.5 million to $0.4
million in 2010 compared to $0.9 million in 2009 as a result of resolving the
arbitration surrounding the net working capital claim with the former owners of
ATSI and settling the Maximus litigation.




Depreciation.
& Amortization of
Intangible Assets.   Depreciation and amortization expense
decreased $0.5 million for the year ended December 31, 2010 to $2.5 million
compared to $3.0 million in 2009. This was due to a decrease in depreciation
expense of $0.3 million to $0.5 million in 2010 compared to $0.8 million in 2009
attributable to a portion of the Company fixed assets becoming fully depreciated
in late 2009 and early 2010. Amortization expense for the year ended December
31, 2010 was $2.0 million compared to $2.2 million in 2009. The reduction is
attributable to the lower carrying value of intangible assets, and thus the
lower amortization expense as a result of the impairment charge recognized in
September 2009.





Interest (Expense) Income.
  Interest expense decreased by $1.7 million to $1.2 million in the
year ended December 31, 2010, compared to interest expense of $2.9 million for
the year ended December 31, 2009. This decrease was primarily a result of the
$6.8 million pay down of debt, resulting in $14.4 million at December 31, 2010
from $21.2 million at December 31, 2009. In addition, the Company received $0.3
million in interest income as part of the indemnification settlement with the
founders (see Note 19, Commitments and Contingencies, of the Financial
Statements).





Other (Expense) Income. For
the year ended December 31, 2010, the Company recognized other income of $1.5
million. This represents the amounts received for the settlement of two legal
claims. A claim was settled with the former owners of Number Six Software (see
Note 19, Commitments and Contingencies, of the Financial Statements) for $0.5
million. The second claim, an indemnification claim, was settled with the former
owners of ATSI for $1.0 million plus $0.3 million in interest as discussed
above.




Income Before Income Taxes.
   Income before taxes was 9.2% of revenue for the year ended December
31, 2010.  Income before taxes was 4.5% of revenue for the year ended
December 31, 2009.  This improvement was primarily driven by the
improvements in selling, general and administrative expenses and reduced costs
associated with the amortization of intangible assets.





Provision for Income Taxes.
  The provision for income tax was an expense of $3.7 million for the
year ended December 31, 2010 and $2.2 million for the year ended December 31,
2009. The effective income tax rates in fiscal years 2010 and 2009 were 34.0%
and 41.1%, respectively. The difference in the tax rates is attributable to the
$1.5 million non-taxable settlements in 2010. Excluding these settlements
results in a comparable tax rate of 39.4% in 2010.





Financial
Condition, Liquidity and Capital Resources





Financial Condition.
  Total assets decreased $5.5 million to $87.8 million as of December
31, 2010 compared to $93.3 million as of December 31, 2009, due to a $2.0
million reduction of intangibles related to the routine amortization of this
asset; a $1.7 million reduction in the current deferred tax asset which were
utilized to reduce current taxes payable and a decrease in receivables of $1.2
million as a result of lower revenue in 2010 compared to 2009.




Our total
liabilities decreased $13.9 million to $29.6 million as of December 31, 2010
from $43.5 million as of December 31, 2009. The decrease was due primarily to
decreases in our debt of $6.8 million to $14.4 million in 2010 compared to $21.2
million in 2009, which we were able to pay down over the course of 2010 in
connection with our strong operating cash flow as discussed in more detail
below. Accrued expenses decreased by $4.0 million to $2.4 million in 2010
compared to $6.4 million in 2009. This decrease was primarily related to the
termination of the interest rate swap agreement with Bank of America, reducing
the fair value of the interest rate swap from $1.4 million at December 31, 2009
to $0 at December 31, 2010 and the settlement of the Maximus litigation for $1.5
million.




Liquidity and Capital
Resources.   Our primary liquidity needs are to finance the
costs of operations, acquire capital assets and to engage in a strategic
alternative evaluation, as well as possibly selective strategic acquisitions. We
expect to meet our short-term requirements through funds generated from
operations and from our credit facility with Bank of America and Citizens Bank,
which was initially signed in June 2007 and renewed in June 2010. As part of the
agreement, we are required to meet certain financial covenants which are tested
every quarter. As of December 31, 2010, we were in compliance with all
covenants. Our cash requirements to fund any strategic alternative or
acquisitions will be funded by cash generated from operations in addition to the
credit facility. This credit facility expires in June 2013. As of December 31,
2010 we had $14.4 million outstanding on the credit facility, and availability
to borrow an additional $6.8 million based upon our borrowing base at such
date.


32




Net cash
provided by operating activities was $6.4 million for the year ended December
31, 2010, while net cash provided by operating activities for December 31, 2009
was $12.9 million. Cash provided by operating activities is primarily driven by
operating income adjusted for working capital changes, which were principally
changes in accounts receivable, income taxes receivable and accrued expenses.
The $6.0 million difference from the prior year is attributable to the
collection of aged receivables in 2009 of $6.7 million.





Net cash
used in investing activities was $0.0 million for the year ended December 31,
2010, primarily due to the lease of copiers that were accounted for as capital
leases. During the twelve months ended December 31, 2009, net cash provided by
investing activities was $3.7 million, primarily related to the $3.8 million
settlement for the net working capital purchase price adjustment with the former
owners of ATSI.





Net cash
used in financing activities was $6.5 million for the year ended December 31,
2010 compared to $16.7 million for the year ended December 31, 2009. This $10.2
million difference is attributable to the collection of aged receivables in 2009
of $6.7 million and the $3.8 million settlement of net working capital purchase
price adjustment, also in 2009. During the twelve months ended December 31,
2010, we used $2.0 million to pay down notes payable associated with our
acquisitions and $4.3 million to pay down our line of credit.





We expect
to retain future earnings, if any, for use in the operation of our business,
possible strategic alternative, and/or expansion of our business and do not
anticipate paying any cash dividends in the foreseeable future.





As of the
close of business on February 11, 2011, we had cash on hand of approximately
$328,776. Our available balance on our credit facility as of February 11, 2011
is approximately $7.3 million.





Although
we believe that funds generated by operations and available under our credit
facility will be sufficient to fund our operations and possible strategic
alternative, additional capital, in the form of additional senior credit, other
debt, or equity, may be necessary to finance a significant
acquisition.





Seasonality





In
general, our business is not seasonal. Historically we have experienced a slight
reduction in revenue during the fourth quarter as a result of holiday and leave
taken by our employees.





Off-Balance
Sheet Arrangements





As of
December 31, 2010, we did not have any off-balance sheet
arrangements.




Contractual
Obligations





The
following table summarizes our contractual obligations as of December 31, 2010
that require us to make future cash payments. For contractual obligations, we
included payments that we have an unconditional obligation to make.





(In Thousands)Total
                      
                      
                      Less than
                        One Year
                      
                      
                      One to
                        Three Years
                      
                      
                      Three to
                        Five Years
                      
                      
                      More than
                        Five YearsMinimum
      payments on capital leases
                      
                      $
                      242
                      
                      
                      $
                      88
                      
                      
                      $
                      154
                      
                      
                      $
                      —
                      
                      
                      $
                      —Operating
      leases
                      
                      
                      13,807
                      
                      
                      
                      1,822
                      
                      
                      
                      3,540
                      
                      
                      
                      3,713
                      
                      
                      
                      4,732Credit
      facility
                      
                      
                      14,400
                      
                      
                      
                      —
                      
                      
                      
                      14,400
                      
                      
                      
                      —
                      
                      
                      
                      —Total
                      
                      $
                      28,449
                      
                      
                      $
                      1,910
                      
                      
                      $
                      18,094
                      
                      
                      $
                      3,713
                      
                      
                      $
                      4,732





Effects
of Inflation





We
generally have been able to price our contracts in a manner to accommodate the
rates of inflation experienced in recent years. Under our time and materials
contracts, labor rates are usually adjusted annually by predetermined escalation
factors. Our cost reimbursable contracts automatically adjust for changes in
cost. Under our fixed-price contracts, we include a predetermined escalation
factor. Generally, we have not been adversely affected by
inflation.


33





Recent
Accounting Pronouncements





In April
2010, the FASB issued ASU 2010-17, Revenue Recognition – Milestone Method (Topic
605). ASU 2010-17 provides guidance on applying the milestone method of revenue
recognition in arrangements with research and development activities. The
Company does not expect this ASU to have a material impact on its revenue
recognition for our fiscal year beginning January 1, 2011.





Item
8. Financial Statements and Supplementary Data





Reference
is made to our financial statements beginning on page F-1 of this Annual Report
on Form 10-K.





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





We had no
disagreements with our accountants on accounting principles or financial
statement disclosures.





Item
9A. Controls and Procedures





Disclosure
Controls and Procedures





As of
December 31, 2010, under the supervision and with the participation of our
management, including our Co-Chief Executive Officers and our Chief Financial
Officer, we evaluated the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation,
our Co-Chief Executive Officers and our Chief Financial Officer concluded that
our disclosure controls and procedures as defined by Rule 13a-15(e) of the
Exchange Act were effective as of the end of the period covered by this report.
However, in evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.





Disclosure
controls and procedures are designed with the objective of ensuring that
information required to be disclosed in our reports filed or submitted under the
Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures are also designed with the objective
of ensuring that such information is accumulated and communicated to our
management, including our Co-Chief Executive Officers and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.





Management’s
Annual Report on Internal Control Over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. Management is required to assess the effectiveness of our
internal control over financial reporting as of the end of each fiscal year and
report based on that assessment whether our internal control over financial
reporting was effective. Internal control over financial reporting is a process
designed by, or under the supervision of, our Co-Chief Executive Officers and
Chief Financial Officer, our management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with generally accepted
accounting principles and includes those policies and procedures
that:





·   pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets;





·   provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of management or our Board of Directors;
and





·   provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material adverse
effect on our financial statements.





Our Board
of Director’s assumes an oversight role in the review of internal control
requirements.


34





Limitations
on the Effectiveness of Controls





Because
of the inherent limitations in all control systems, no assessment of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management’s override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.





Assessment
of Effectiveness of Disclosure Controls Over Financial Reporting





Our
management, including our Co-Chief Executive Officers and Chief Financial
Officer, conducted an assessment of the effectiveness of our internal control
over financial reporting as of December 31, 2010, based on the criteria set
forth in the framework in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Our management
determined that our internal control over financial reporting was effective as
of December 31, 2010.





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




Changes
in Internal Control Over Financial Reporting





During
the fiscal year ended December 31, 2010, there were no changes in our internal
control over financial reporting that materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.





Item
9B. Other Information





None.


35


PART
III





Item
10. Directors, Executive Officers and Corporate Governance





The
Board of Directors




The
Company conducts business through meetings of its Board of Directors and through
activities of its committees. Our current Board of Directors consists of seven
members and is approved for up to nine members, divided into three classes with
two members in Class I and III and three members in Class II, as shown in the
below table. Our directors are generally elected to serve three-year terms, so
that the term of office of one class of directors expires at each annual
meeting. Such class designations are to ensure that our classes contain a
balanced number of directors in each. Below is a summary of our current Board of
Directors, including their class, year elected and committee
participation.





Class
              
              Year
                Elected
              
              Audit
                Committee
              
              Compensation
                Committee
              
              Nominating
      and
                Governance
                CommitteeNon-Employee
      Directors:Dr.
      Edward H. Bersoff (1)
              
              
              I
              
              
              
              2005Kevin
      S. Flannery
              
              
              I
              
              
              
              2009
              
              
              
              
              
              
              
              X
              
              
              
              XJoel
      R. Jacks (2)
              
              
              II
              
              
              
              2005
              
              
              
              X
              
              
              
              X
              *Dr.
      Anita K. Jones (3)
              
              
              III
              
              
              
              2010
              
              
              
              
              
              
              
              XPeter
      M. Schulte (4)
              
              
              III
              
              
              
              2005
              
              
              
              
              
              
              
              X
              
              
              
              X
              *Edward
      J. Smith
              
              
              II
              
              
              
              2006
              
              
              
              X
              *
              
              
              
              
              
              
              XJames
      R. Swartwout(3)
              
              
              II
              
              
              
              2010
              
              
              
              X
              
              
              
              
              
              
              
              X







*
            Denotes
      Chairperson.





(1)
            Dr. Bersoff served as our Vice
      Chairman from April 2005 through January 2007 when he became our Chairman,
      President, and Chief Executive Officer. As of January 1, 2011 he serves as
      Chairman and is no longer a Company
  employee.




(2)
            Mr. Jacks served as our Chairman
      and Chief Executive Officer from April 2005 until January
      2007.




(3)
            Dr. Jones and Mr. Swartwout have
      served as directors since May
2010.




(4)
            Mr. Schulte served as our
      President and Secretary from April 2005 until January
      2007.


Based on
the NYSE Amex independence requirements, the Company must have a majority of its
directors as independent directors and have at least three independent members
of the Audit Committee. The Company is in compliance with these
requirements.


Board
Leadership Structure





The Board
does not have a policy on whether or not the roles of the Chairman of the Board
and Chief Executive Officer should be separate and, if separate, whether the
Chairman of the Board should be selected from the non-employee directors or be a
Company employee. The Board believes that it should be free to make a choice
from time to time in any manner that is in the best interests of the Company and
its stockholders. While we have historically combined the roles of chairman and
chief executive officer, as of January 1, 2011 the roles were separated when Dr.
Bersoff retired from the role of the Company’s Chief Executive Officer, yet
continues to serve in his role as Chairman of the Board. Ms. Little and Mr.
Hassoun currently serve as the Company’s Co-Chief Executive
Officers.




Our
independent directors and management have different perspectives and roles in
strategy development. The Company’s independent directors bring experience,
oversight and expertise from outside the Company and industry. One of the key
responsibilities of the Board is to develop strategic direction and hold
management accountable for the execution of strategy once it is developed. The
Co-Chief Executive Officers, who do not serve as Company directors, bring
Company-specific experience and expertise in their discussions with the Board
and Dr. Bersoff, as the Company’s former Chief Executive Officer, also shares a
management perspective specific to the Company from that
experience.


36





Meeting
Attendance





Our Board
of Directors has four regularly scheduled meetings per year, and special
meetings are called as the need arises. These meetings are usually held in our
headquarters in McLean, Virginia. The Board met five times in 2010. Directors
are expected to attend board meetings, our annual stockholders’ meeting, and the
meetings of the committees on which they serve. In addition to participation at
Board and committee meetings, our directors discharge their responsibilities
throughout the year through personal meetings and other communications,
including considerable telephone contact with our Chairman and our Co-Chief
Executive Officers and others regarding matters of interest and concern to the
Company.





All of
our directors attended the annual meeting of stockholders held on May 18,
2010. During 2010, each
director attended at least 75% of the total meetings of the Board of Directors
and those committees on which he or she serves, with the exception of Mr.
Tomarchio who resigned effective June 22, 2010, Mr. Saponaro who resigned
effective August 25, 2010 and Mr. Swartwout and Dr. Jones who were elected to
the Board on May 18, 2010.





Risk
Management





Our
business is subject to various types of risk, including competitive,
technological, legal, personal, financial and many others. Our Board is charged
with, among other things, overseeing our risk management processes implemented
by management and ensuring that necessary steps are taken to foster a culture of
risk-adjusted decision-making throughout our organization. Each of our directors
other than Dr. Bersoff is independent and the Board believes that this
independence provides effective oversight of management. The Board has an active
role, as a whole, and also at the committee level, in overseeing management of
the Company’s risks. The Board regularly reviews information regarding the
Company’s credit, liquidity and operations, as well as the risks associated with
each. The Company’s Compensation Committee is responsible for overseeing the
management of risks related to the Company’s executive compensation plans and
arrangements. The Nominating and Governance Committee is responsible for
managing risks associated with the independence of the Board of Directors and
potential conflicts of interest. The Audit Committee oversees management of
financial risks. While the three committees are responsible for evaluating
certain risks and overseeing the management of such risks, the entire Board of
Directors is regularly informed through committee reports about such
risks.





Board
Committees





The Board
has a Nominating and Governance Committee, Audit Committee, and Compensation
Committee each composed entirely of independent directors. Each committee has a
charter that can be found in the “Investor
Relations — Corporate Governance” portion of our website (www.atsc.com).





Nominating
and Governance Committee




The Board
established a Nominating and Governance Committee on May 18, 2010. It is
currently composed of Messrs. Schulte, Smith, Flannery, and Swartwout. Mr.
Schulte is the committee chairperson. Each member of the Nominating and
Governance Committeequalifies as a
“non-employee director” under Rule 16b-3 promulgated under the Securities
Exchange Act of 1934 and an “outside director” under Section 162(m) of the
Internal Revenue Code.





The
primary purpose of this committee is to identify individuals qualified to become
directors, recommend to the Board of Directors the candidates for election by
stockholders or appointment by the Board of Directors to fill a vacancy,
recommend to the Board of Directors the composition and chairs of Board of
Directors committees, develop and recommend to the Board of Directors guidelines
for effective corporate governance, and lead an annual review of the performance
of the Board of Directors and each of its committees. We expect the Nominating
and Governance Committee to meet at least once per year. The Committee did not
formally meet during 2010; however, governance issues were discussed at full
Board meetings. The first meeting of the Committee was held onFebruary 16,
2011.


37




The
Nominating and Governance Committee’s primary functions include:


•
            actively seek individuals
      qualified to become members of the Board consistent with criteria approved
      by the Board;





•
            from time to time recommend
      candidates for election by the Board to fill vacancies on the Board or on
      any committee of the Board;





•
            subject to the Bylaws of the
      Company and applicable law, recommend to the Board the number of directors
      that shall constitute the whole Board and administer the process
      concerning stockholder nominations for
  directors;





•
            identify individuals qualified to
      become Board members, and recommend to the Board director nominees for
      approval by stockholders at an annual meeting of stockholders or special
      meeting of stockholders;





•
            annually
      assess the experience, qualifications, attributes and/or skills that led
      the Committee to determine that each Board member or nominee should
      continue to serve, or be nominated to serve, as a director of the
      Company;





•
            annually
      evaluate the board leadership structure to ensure that it is the most
      appropriate for the Company at the time, including (i) whether the
      principal executive officer and board chair positions are combined or
      separated and why, and (ii) whether and why the Company has a lead
      independent director and the specific role he or she
  plays;





•
            recommend to the Board the
      establishment, charter, membership and leadership of the various
      committees of the Board;





•
            consider and advise the Board on
      other matters relating to the affairs or governance of the
      Board;





•
            annually review and recommend to
      the Board for approval the Company’s Code of Ethics and management’s plan
      for determining compliance with the Code of
  Ethics;





•
            inquire of senior management as
      to known or potential instances of non-compliance with applicable laws,
      regulatory policies and the Company’s Code of Ethics as they relate to the
      functions and responsibilities of the Committee;
  and





•
            develop an annual evaluation
      process for the Board, its committees and individual directors and ensure
      the execution of such annual
evaluation.




Audit
Committee.  The Board has a separately designated standing
Audit Committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act, as amended. It is currently composed of Messrs. Smith,
Swartwout, and Jacks. Mr. Smith is the committee chairperson. Mr. Tomarchio
served on the Committee from June 1, 2009 until his resignation from the Board
effective June 22, 2010. Mr. Swartwout joined the committee in September 2010
upon the resignation of Mr. Saponaro, effective August 25, 2010. The committee
met four times during 2010. The Board has determined that each Audit Committee
member is financially literate and has determined that Mr. Smith is an “audit
committee financial expert” as defined under SEC rules and regulations. The
Board has also determined that each member of the Audit Committee is
“independent” as defined by Rule 10A-3 under the Securities Exchange Act of 1934
and as such term is defined by the NYSE Listed Company Manual. We expect our
Audit Committee to meet at least four times a year.




The Audit
Committee’s primary functions include:





•
            to appoint our independent
      registered public accounting
firm;





•
            to review and evaluate the
      independent auditor’s qualifications, performance, and
      independence;





•
            to review the financial reports
      and related financial information provided by the Company to governmental
      agencies and the general
public;





•
            to review the Company’s system of
      internal and disclosure controls and the effectiveness of its control
      structure;





•
            to review the Company’s
      accounting, internal and external auditing and financial reporting
      processes;





•
            to review, evaluate and approve
      in advance any non-audit services the independent auditor may perform for
      the Company and disclose such approved non-auditor services in periodic
      reports to stockholders;





•
            to inquire of senior management
      of known or potential instances of non-compliance with applicable laws,
      regulatory policies, and the Company’s Code of Ethics as they relate to
      the functions and responsibilities of the
  Committee;





•
            to be informed by Company’s
      counsel of material litigation in which the Company is involved or in
      which management believes involvement of the Company is reasonably likely;
      and


38





•
            to review the Company’s policies
      regarding risk assessment and risk
  management.





The Audit
Committee also reviews other matters with respect to our accounting, auditing
and financial reporting practices and procedures as it may find appropriate or
may be brought to its attention. All of the non-audit services provided by the
independent auditor were pre-approved by the Audit Committee in accordance with
its pre-approval procedures.




Compensation
Committee.  The Compensation Committee is currently composed of
Messrs. Flannery, Jacks, Schulte, and Dr. Jones. Mr. Jacks is the committee
chairperson. The committee met seven times during 2010. Mr. Saponaro served on
the Compensation Committee as chairman until August 25, 2010, when he resigned
from the Board.




The
Compensation Committee provides assistance to the Board in fulfilling its
responsibilities relating to management, organization, performance, compensation
and succession. The Compensation Committee’s primary functions
include:





•
            to consider and authorize the
      compensation philosophy for the Company’s
  personnel;





•
            to review and evaluate the chief
      executive officer’s performance in light of corporate goals and
      objectives, or other subjective or objective criteria as determined by the
      Committee;





•
            to review and evaluate the
      performance of senior management other than the chief executive officer in
      light of corporate goals and objectives, or other subjective and objective
      criteria as determined by the
committee;





•
            to annually review and approve
      the perquisites for the Company’s executive
    officers;





•
            to approve all material elements
      of the compensation of the Company’s executive
      officers;





•
            to consider and make
      recommendations to the Board on matters relating to the organization and
      succession of the chief executive officer and other senior
      management;





•
            to review and discuss with
      management the Compensation Discussion and Analysis required by applicable
      SEC rules to be included in the Company’s Annual Report on Form 10-K or
      proxy statement;





•
            to review the administration of
      incentive compensation plans, deferred compensation plans, executive
      retirement plans, and equity-based
plans;





•
            to research, evaluate and
      establish director compensation;
and





•
            to annually evaluate the
      performance and function of the Compensation Committee and report to the
      Board the results of such
evaluation.





See
“Compensation Discussion and
Analysis” for more information regarding the role of the Compensation
Committee, management and compensation consultants in determining and/or
recommending the amount or form of executive compensation. We expect the
Compensation Committee to meet at least twice per year. Each member of the
Compensation Committee qualifies as a “non-employee director” under Rule 16b-3
promulgated under the Securities Exchange Act of 1934 and an “outside director”
under Section 162(m) of the Internal Revenue Code.





Identification
of Directors





Set forth
below is biographical and other information about the directors, including
information concerning the particular experience, qualifications, attributes and
skills that led the Nominating and Governance Committee and the Board to
determine that each should serve as a Director.





Directors
Whose Terms of Office Expire in 2012—Class I Directors





Dr. Edward H.
Bersoff,age 68, serves as our Chairman of the Board of Directors. He
served as President and Chief Executive Officer of the Company and its
wholly-owned subsidiary from January 15, 2007 to December 31, 2010. He has
served as a director of the Company since April 2005 and as Vice Chairman from
April 2005 through January 2007 when he became Chairman and President. Dr.
Bersoff was the chairman and founder of Greenwich Associates, a business
advisory firm located in Northern Virginia formed in 2003. From November 2002 to
June 2003, he was managing director of Quarterdeck Investment Partners, LLC, an
investment banking firm, and chairman of Re-route Corporation, a company that
offers email forwarding and address correction services. From February 1982
until November 2001, Dr. Bersoff was chairman, president and chief executive
officer of BTG, Inc., a publicly-traded information technology firm he founded
in 1982. Under Dr. Bersoff’s leadership, BTG, Inc. completed six acquisitions in
the federal services industry. In November 2001, BTG, Inc. was acquired by The
Titan Corporation, an NYSE listed company (“Titan”). Dr. Bersoff served as a
director of Titan from February 2002 until August 2005 when Titan was sold to
L-3 Corporation. Dr. Bersoff serves on the board of ICF International, Inc.
(NASDAQ: ICFI), a management, technology and
policy consulting firm in the areas of defense, homeland security, energy,
environment, social programs, and transportation serving the Department of
Defense, U.S. Department of Homeland Security, U.S. civil agencies and the
commercial sector and a number of private companies. He served on the board of
EFJ, Inc., (NASDAQ:EFJI) a manufacturer of wireless communications products and
systems primarily for public service and government customers from 1999 to 2010.
Dr. Bersoff holds A.B., M.S. and Ph.D. degrees in mathematics from New York
University and is a graduate of the Harvard Business School’s Owner/President
Management Program. Dr. Bersoff is a Trustee of Holy Cross Hospital in Silver
Spring, Maryland.




39




Dr.
Bersoff’s over 30 years’ of experience in the federal services industry and the
contacts that he has established within such industry local to our Company are
vital to guiding our Board. Further, Dr. Bersoff has experience leading public
companies within our industry as president and chief executive officer, both of
BTG and also the Company itself for four years, making him uniquely qualified to
appreciate both the Board and management perspectives.





Kevin S.
Flannery, age 66, has served as a director of the Company since June
2009. Mr. Flannery has over 40 years of experience in both operational and
financial management roles in a variety of industries. He is currently the
president and chief executive officer of Whelan Financial Corporation, a company
he founded in 1993 that specializes in financial management and consulting. He
was formerly the chairman and chief executive officer of several companies,
including RoweCom, Inc., a provider of service and e-commerce solutions for
purchasing and managing print and e-content knowledge resources; Telespectrum
Worldwide, a telemarketing and consumer service company; and Rehrig United Inc.,
a manufacturing company. He serves as a director of Luxfer Holdings PLC, a
manufacturer of high performance engineering materials; FPM Heat Treating LLC, a
leading provider of heat treatment processes; and Energy XXI a Bermuda based oil
and gas company. From 2005 to 2007, he served as a director of Seitel, Inc. and
from 2007 to 2009 he served as a director of Daystar Technologies, Inc. Mr.
Flannery began his career at Goldman Sachs & Co. and was a senior managing
director of Bear Stearns & Co.





Mr.
Flannery’s 40 years of experience in both operational and management roles in a
variety of industries provides insight into the Company’s operational and
financial challenges and opportunities and his capital markets experience has
also been invaluable to the Board’s discussion of the Company’s capital
needs.





Directors
Whose Terms Expire in 2013—Class II Directors





Joel R.
Jacks, age 63, has served as a director of the Company since April 2005
and served as our Chairman and Chief Executive Officer from April 2005 until
January 2007. Mr. Jacks has over 30 years of experience in private equity
investing, mergers and acquisitions and managing and operating companies in a
wide variety of industries. Mr. Jacks is a Managing Partner, and was a founder
of CM Equity Partners. From 1992 to 1996, Mr. Jacks co-founded and managed Carl
Marks Consulting Group, LLC. Mr. Jacks has served as a director of ICF
International, Inc. (NASDAQ: ICFI) since 1999. Mr. Jacks sits on certain private
company boards related to his investment activities, including Echo Bridge
Entertainment, LLC, RGS Associates, Inc., Frontier Global Investment Services,
Ltd., Xebec Global Corporation, and Preferred Systems Solutions, Inc. Mr. Jacks
received a Bachelor of Commerce degree from the University of Cape Town and an
M.B.A. from the Wharton School, University of Pennsylvania.





Mr. Jacks
has extensive knowledge of accounting and capital market issues from his private
equity experience and has been invaluable to Board discussions on capital
market, liquidity and accounting matters for the Company. He has also invested
in numerous companies in our industry and brings the perspective of someone who
understands our business.





Edward J.
Smith, age 62, has served as a director of the Company since May 2006.
Mr. Smith is president of Barnegat Bay Capital Inc., which he founded as a
consulting and investment banking firm in 2001. He is a member of the Board
Advisory Services faculty of the National Association of Corporate Directors.
From 2007 to 2010, Mr. Smith was a director and member of the audit committee of
Cognex Corporation (NASDAQ: CGNX), a leading supplier of machine vision systems.
He is also a member of the board of directors of the New Jersey Chapter of the
National Association of Corporate Directors and of a private software company
serving the consumer electronics industry. Mr. Smith taught a corporate
governance course at Yale University in 2006 and 2007. From 2004 to 2007, Mr.
Smith was a director of Global Imaging Systems (“Global”) and member of the
audit and nomination and governance committees and chairman of the strategic
planning committee. Global was sold to Xerox in 2007 for $1.5 billion. From 2003
to 2006, he was a director of Fargo Electronics (“Fargo”), chairman of the
compensation committee and a member of the audit and acquisitions committees.
Fargo was sold to Assa Abloy of Sweden in 2006 for $325 million. Prior to 2001,
Mr. Smith was an investment banker focusing primarily on mid-cap and technology
companies at four major securities firms. Mr. Smith received a B.A. from Yale
University and a M.B.A. from Harvard Business School.





Mr. Smith
has extensive knowledge of the accounting and capital markets issues we face, as
well as corporate governance topics and provides valuable insights to our
Board’s discussions of the Company’s capital needs, liquidity, accounting, and
governance matters.


40





James R.
Swartwout, age 65, has served as a director of the Company since May
2010. Since 2008, Mr. Swartwout has served as an independent consultant for
several organizations. From 2006 to 2008, he was co-chief executive officer and
board member of Habasit Holding (“Habasit”), the U.S. subsidiary of Habasit AG,
the leading global suppler of precision conveyor belts. Following Habasit’s 2006
acquisition of Summa Industries (“Summa”), a publicly traded manufacturer of
diversified plastic products for industrial and commercial markets, he managed
the integration of Summa. He served as chairman, chief executive officer and
chief financial officer of Summa Industries from 1988 to 2006. Prior to Summa,
Mr. Swartwout served in several executive roles in various manufacturing firms.
He is currently a director of Sparton Corporation (NSYE: SPA), a diversified
electronics company and supplier of sophisticated electronic assemblies to the
U.S. Navy and U.S. Coast Guard, where he has served as a member of the executive
committee and compensation committee since 2008. He was also a director for
Advanced Materials Group from 2001 to 2004. Earlier in his career, he served as
a Commissioned Officer in the U.S. Navy. Mr. Swartwout received a B.S. in
Industrial Engineering from Lafayette College and an M.B.A. from the University
of Southern California.





Mr.
Swartwout’s significant operational experience as an executive provides valuable
insight on operational challenges and opportunities we face and his prior
experience as a commissioned officer in the U.S. Navy will further provide an
understanding of the government market where we conduct the majority of our
business.





Directors
Whose Terms of Office Expire in 2011—Class III Directors





Anita K.
Jones, age 69, has served as a director of the Company since May 2010.
Dr. Jones is a University Professor Emerita at the University of Virginia's
School of Engineering and Applied Science, where she has taught since 1988. From
1993 to 1997, Dr. Jones served as Director of Defense Research and Engineering
in the U.S. Department of Defense, where she was responsible for the management
of the department's science and technology programs. Dr. Jones is currently a
senior fellow of the Defense Science Board, a member of the National Academy of
Engineering, and a trustee of InQTel. Since 1998, she has been a director of
Science Applications International Corporation (NYSE: SAI). Dr. Jones was also a
founder and vice president of Tartan Laboratories, a trustee of the MITRE
Corporation, and she served as vice-chair of the National Science Board, the
governing board of the U.S. National Science Foundation. Dr. Jones received her
A.B from Rice University in mathematics, her M.A in literature from the
University of Texas and a Ph.D. in computer science from Carnegie Mellon
University.





Dr.
Jones’ experience as both a professor of engineering and computer science and
her senior advisory roles to a number of government organizations provides a
perspective to Board discussions from someone who understands the nature of
services we provide and familiarity with the government market where we conduct
the majority of our business.





Peter M.
Schulte, age 53, has served as a director of the Company since April
2005. Mr. Schulte served as our President and Secretary from April 2005 until
January 2007. Mr. Schulte currently is a Managing Partner, and was a founder of
the private equity firm CM Equity Partners, which invests in established middle
market companies and manages private equity funds and investments. Mr. Schulte
has served as a director of ICF International, Inc. (NASDAQ: ICFI) since 1999.
Mr. Schulte sits on certain private company boards related to his investment
activities, including Preferred Systems Solutions, Inc.; Frontier Global
Investment Services, Ltd.; Xebec Global Corporation; and RGS Associates, Inc.
Mr. Schulte received a B.A. in Government from Harvard College and a Masters in
Public and Private Management from the Yale School of Management.





Mr.
Schulte has extensive knowledge of capital market issues from his private equity
experience and has been invaluable to Board discussions on capital market and
liquidity needs for the Company. He has also invested in numerous companies in
our industry and brings the perspective of someone who understands our
business.





Current
Executive Officers of the Company





The
following table includes information with respect to all of our executive
officers as of February 11, 2011. All executive officers serve at the pleasure
of our Board of Directors.





Name
              
              Age
              
              TitlePamela
      A. Little
              
              57
              
              Co-
      Chief Executive Officer and Chief Financial OfficerJohn
      A. Hassoun
              
              50
              
              Co-
      Chief Executive Officer


41




Pamela A.
Little serves as a Co-Chief Executive Officer and our Chief Financial
Officer. Ms. Little served as our Executive Vice President and Chief Financial
Officer from May 22, 2007 to January 31, 2011. Ms. Little served as our Vice
President of Finance from May 4, 2007 to May 22, 2007. Prior to joining the
Company, Ms. Little served as the vice president and chief financial officer of
Athena Innovative Solutions, Inc. since 2005. In her 25-year career, Ms. Little
has experience in companies ranging from privately held to start-up high
technology firms to large, publicly-traded, multi-national professional services
and government contracting firms. Ms. Little serves on the boards of Sandy
Spring Bancorp, Inc. (NASDAQ: SASR) and Sandy Spring Bank, its wholly-owned
subsidiary. Ms. Little holds an M.B.A. from Loyola College and a B.A. from the
University of Maryland. She serves on the Board of the Professional Services
Council and is a member of the National Association of Corporate Directors. She
is also a member of the Board of Advisors of the Macklin Business Institute at
Montgomery College and from 2005 to 2008 served as an adjunct professor at
Montgomery College.





John A. Hassounserves as a Co-Chief Executive Officer. He served as the Company’s Senior
Vice President of Federal Programs from September 1, 2010 to January 31,
2011.   In 2009 and 2010, prior to joining the Company, he served
as the Chief Executive Officer of Global Integrated Security, an international
integrated security and defense provider company.  From 2006 to 2009,
he served in several positions, including Chief Executive Officer of Olive
Group, an international provider of integrated risk mitigation
solutions.  Before Olive Group, Mr. Hassoun held steadily increasing
executive leadership roles with Veridian Corporation and General Dynamics,
including General Manager of Engineering Development and Integration Services
where he managed over $500 million in yearly revenue, Director of
Operations, and Director of Business Development.  He has a
distinguished record of nearly 20 years of corporate experience in leading and
managing operations, strategy and business development in high growth government
information technology businesses.   He began his career with the
U.S. Air Force where he served as Program Manager.   He holds a
Master of Arts in Human Factors and a Bachelor of Science degree in Psychology
from Wright State University. He has authored over 20 technical reports and
research papers on topics involving advanced technology, and serves on the
Industrial Advisory Board for the Virginia Commonwealth University School of
Engineering. Over the past five years, he has served on the boards for several
private U.S. and international companies.





Code
of Conduct





The
Company has adopted a Code of Conduct that is designed to promote the highest
standards of ethical conduct by the Company’s directors, executive officers and
employees. The Code of Conduct requires that the Company’s directors, executive
officers and employees avoid conflicts of interest, comply with all laws and
other legal requirements, conduct business in an honest and ethical manner and
otherwise act with integrity and in the Company’s best interest. Under the terms
of the Code of Conduct, directors, executive officers and employees are required
to report any conduct that they believe in good faith to be an actual or
apparent violation of the Code of Conduct.





Our Code
of Conduct applies to all of our employees, including our Co-Chief Executive
Officers and Chief Financial Officer. The Code of Conduct and all committee
charters are posted under the caption “Investor Relations — ATSC
Code of Conduct” and “— Corporate Governance,”
respectively, on our website ( www.atsc.com ). A copy of any
of these documents is available in print free of charge to any stockholder who
requests a copy by writing to ATS Corporation, c/o Joann O’Connell, Corporate
Secretary, at 7925 Jones Branch Drive, McLean, Virginia 22102. Further, the
Company will disclose on its website at www.atsc.com , to the extent
and in the manner permitted by Item 5.05 of Form 8-K the nature of any amendment
to this Code of Conduct (other than technical, administrative, or other
non-substantive amendments), our approval of any material departure from a
provision of this Code of Conduct, and our failure to take action within a
reasonable period of time regarding any material departure from a provision of
this Code of Conduct that has been made known to any of our executive
officers.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s executive
officers, directors, and persons who own more than 10% of a registered class of
equity securities to file reports of ownership and changes in ownership with the
SEC. Officers, directors and greater than 10% stockholders are required by SEC
regulations to furnish us with copies of all Section 16(a) reports they
file.





Based
solely upon our review of copies of the reports we received and written
representations provided to us from the individuals required to file the
reports, we believe that each of our executive officers and directors has
complied with applicable reporting requirements for transactions in our common
stock during the year ended December 31, 2010. Osmium Special Situations
Fund, Ltd. filed four late Forms 4 related to eleven transactions and Lampe,
Conway, and Co., LLC filed one late Form 4 related to one
transaction.


42





Item
11. Executive Compensation





Compensation
Discussion and Analysis





Overview
of Compensation Program





The
Compensation Committee (for purposes of this analysis, the “Committee”) has
responsibility for establishing, implementing and monitoring adherence to the
Company’s compensation philosophy. The Committee operates under the mandate of a
formal charter that establishes the framework for the fulfillment of the
Committee’s responsibilities. The Committee reviews the charter at least
annually to ensure that the scope of the charter is consistent with the
Committee’s expected role. The Committee strives to ensure that the total
compensation paid to our executives is fair, reasonable and competitive.
Generally, the types of compensation and benefits provided to the executive
team, including the executive officers, are similar to those provided to other
key employees.





The
Company’s executive compensation program is designed to attract, motivate and
retain talented executives enabling the Company to produce superior results and
maximize return to stockholders. Our pay-for-performance philosophy focuses
executives’ efforts on delivering short-term and long-term financial successes
for our stockholders without encouraging excessive risk taking. The Committee,
which consists entirely of independent Board members, controls the executive
compensation program for our named executive officers, as well as determines the
compensation philosophy for several other members of our senior management
team.





Compensation
Philosophy and Objectives





We
operate in a competitive, dynamic and specialized industry that presents growth
opportunities for companies with the most competitive employees. We believe that
in order to compete effectively in this industry, we must attract and retain
highly qualified executive officers who possess special talents, credentials and
experience. As a result, we have established a compensation philosophy with the
following objectives:





•
            Reward
      Performance and Contribution to Our Business While Discouraging Excessive
      Risk Taking.Programs should be designed to reward extraordinary
      performance with strong compensation without creating excessive risk;
      likewise, where individual performance falls short of expectations and/or
      Company performance lags behind the peer group performance, the programs
      should deliver lower
payouts.





•
            Pay-for-Performance
      and Retention Must Be Balanced.   To attract and retain a
      highly skilled work force, we must remain competitive with the pay of our
      peer companies who compete with us for
talent.





•
            Compensation
      Should Be Aligned With Stockholder Interests.Key personnel should
      have a substantial proportion of their compensation in the form of equity
      participation to better align their individual financial interests with
      those of our stockholders.





•
            The
      Relationship Between Overall Company Goals and Each Individual’s Personal
      Goals Should Be Clear.Employees should be able to
      easily understand how their efforts can affect their pay, both directly
      through individual performance and indirectly through contributing to the
      business unit and the Company’s achievement of its strategic and
      operational goals.





•
            The
      Compensation and Benefit Programs Should Be Designed Similarly Across the
      Organization.Such
      programs should include only those perquisites necessary to attract and
      retain executives and/or improve the executive’s ability to safely and
      effectively carry out his or her
  responsibilities.




Implementing
Our Objectives





The
process by which the Committee makes specific decisions related to executive
compensation includes consideration of the following:





•
            The Company’s compensation
      philosophy and objectives.





•
            The Company’s financial
      performance in terms of the attainment of both short-term and long-term
      goals and objectives.





•
            The competitiveness of our
      executive compensation program relative to our defined peers and
      competitive labor market, as discussed below under “Use of Market
      Data.”





•
            Review of each of our executive’s
      total compensation mix.





•
            Review of each of our executive’s
      individual performance, experience and
    contributions.





•
            Our ability to attract, retain,
      motivate and develop highly-qualified
  executives.


43





Use of Market
Data.   In order to establish compensation for our named
executive officers, we periodically collect peer competitive data for base
salary, annual bonus and long-term stock-based incentives. This competitive data
includes public companies in the same industry and relevant executive labor
market data, plus additional reputable market survey data to validate the peer
group benchmarks. In particular, the Committee has historically reviewed survey
information from sources such as Mercer, the Human Resource Association of the
National Capital Area and Washington Technical Personnel Forum for those
positions comparable to the ones at our Company. In addition, we consider the
compensation practices of our peer group, comprised of publicly traded,
U.S.-based professional services companies of comparable size that serve the
government sector. This peer group, which is periodically reviewed and updated
by the Committee, consists of companies against which the Committee believes the
Company competes for talent.





The
companies that we consider to comprise our current compensation peer group
include:





Dynamics Research Corp.
              Global Defense Technology
              And Systems, Inc
            
            KEYW Corporation
              Kratos Defense and
              Security Solutions, Inc.
            
            Paradigm Holdings, Inc.
              Tyler Technologies, Inc.
              VSE CorporationNCI,
      Inc.





The data
from these surveys and other related sources provide the primary external view
of the market for review by the committee in establishing compensation for our
named executive officers. For individual compensation decisions, the market and
peer group information is used together with an internal view of longer-term
potential and individual performance relative to other executives. For the
senior level executives, the Committee also takes into account long-term
retention objectives, recognizing that their skills and experience are highly
sought after by our competitors.





For 2011,
the Committee reviewed compensation data from the peer group. The goal for
executive compensation is to continue to target the 25th to 50th percentile of
our peer group for total target direct compensation.





Role
of the Compensation Committee, Management and Consultants in the Executive
Compensation Process





Role of
Compensation Committee.   The Committee reviews all
compensation components for the Company’s named executive officers and other
executive officers, including base salary, annual incentives and long-term
equity incentives. In addition to reviewing competitive market values, the
Committee also examines the total compensation mix, pay-for-performance
relationship, and how all elements, in the aggregate, comprise the executive’s
total compensation package. The Committee reviews our policies and practices
with a focus on incentive programs to ensure that they do not encourage
excessive risk taking. The Committee also has the ability to use its discretion
when administering the payouts under the incentive plans to adjust (up or down)
for extraordinary events to ensure that the objectives align with the
stockholders’ best interests. The Committee concluded that the compensation
program does not encourage excessive risk taking for the following
reasons:





•
            The program pays for performance
      against financial targets that are challenging to motivate high
      achievement with a focus on long-term financial success and prudent risk
      management.





•
            The incentive plan includes a
      profit metric to promote disciplined progress towards financial goals and
      backlog goals that promote long-term revenue
  growth.





•
            Qualitative factors beyond the
      financial metrics are an important consideration in the determination of
      individual executive compensation payments. How our executives achieve
      their financial results and demonstrate leadership consistent with our
      values are important elements to individual compensation
      decisions.





The
Committee meets in executive session to evaluate the performance of our named
executive officers, determine their annual bonuses for the prior fiscal year,
establish their annual performance objectives for the current fiscal year, set
their base salaries for the next fiscal year, and consider and approve any
grants of equity compensation. In connection therewith, the Committee regularly
reviews and updates as necessary general structural parameters for its executive
management members by position. Such structural parameters are initially
suggested by our Chief Executive Officer(s). The Committee establishes,
maintains and updates structural parameters encompassing all management
positions of the Company, and not just those of the named executive
officers.


44




Although
many compensation decisions are made in the first and fourth quarters of the
year, our compensation planning process neither begins nor ends with any
particular Committee meeting. Compensation decisions are designed to promote our
fundamental business objectives and strategy. Evaluation of management
performance and consideration of the business environment are year-round
processes.





Role of
Management and Consultants in Compensation Decisions.   We may
utilize the services of outside advisors and consultants, including legal
advisors, throughout the year as they relate to executive compensation. In 2010,
the Committee opted not to rely on the services of such advisors and
consultants, with the exception of legal advisors. However, the Committee may
have direct access to advisors for issues related to executive compensation and
benefits if it desires in the future.





For
individual compensation decisions, the market and peer group information is used
together with an internal view of longer-term potential and individual
performance relative to other executives. For senior level executives, the
Committee also takes into account long-term retention objectives, recognizing
that their skills and experience are highly sought after by our
competitors.





For each named executive officer other
than the Chief Executive Officer(s), the Committee receives individual
recommendations from the Chief Executive Officer(s). The Chief Executive
Officer(s) discusses his or her evaluation of the named executive officers
(other than himself or herself) with the Committee and recommends compensation
levels for such officers. In preparing such recommendations, the Chief Executive
Officer(s) assesses the performance of each named executive officer based upon
his or her day-to-day interactions with such person throughout the year. The
Chief Executive Officer(s) discusses any retention concerns at this time as
well. The Committee takes
the Chief Executive Officer(s)’ recommendations into account, along with
competitive market data and Company performance, when setting compensation
levels. The Committee may request one or more other members of senior management
to be present at Committee meetings where executive compensation and Company or
individual performance are discussed and evaluated. Executives are free to
provide insight, suggestions or recommendations regarding executive
compensation. However, only independent Committee members are allowed to vote on
decisions regarding executive compensation.





The
Committee meets with the Chief Executive Officer(s) to discuss his or her own
performance and compensation package, but ultimately decisions regarding his or
her compensation are made solely based upon the Committee’s deliberations, as
well as any input from consultants and advisors, as requested. The Chief
Executive Officer(s) recuses himself or herself and is not present during the
deliberation process of his or her own compensation. As the Company has recently
implemented a Co-Chief Executive Officer approach, the Committee anticipates
that the compensation and performance of each may vary from the other, and the
Committee will meet with each individually to discuss his or her
performance.





Compensation
Structure and Elements





The
Company’s executive compensation program consists of the following:





•
            Base
    salary;





•
            Annual incentive
      bonuses;





•
            Long-term
      incentives;





•
            Health and related
      benefits;





•
            Retirement
      benefits;





•
            Other post-employment
      benefits;





•
            Severance;
    and





•
            Limited
      perquisites.




The
Committee allocates compensation among these elements to provide the appropriate
mix of:





•
            Short-term incentives and
      long-term incentives;





•
            Cash compensation and equity
      compensation; and





•
            Current compensation and
      retirement and other
benefits.


45





Named Executive
Officers





For
fiscal year 2010, our named executive officers included Dr. Edward Bersoff, our
Chief Executive Officer, Ms. Pamela Little, our Chief Financial Officer, and Mr.
Sidney Fuchs, who was appointed our Chief Operating Officer effective April 5,
2010. On January 1, 2011, Mr. Fuchs became our Chief Executive Officer upon the
retirement of Dr. Bersoff. The Company announced on January 7, 2011 that Mr.
Fuchs would leave the Company effective January 31, 2011 and Ms. Little and Mr.
John Hassoun would serve as Co-Chief Executive Officers effective February 1,
2011. Ms. Little also continues to serve in the role of Chief
Financial Officer.





Base
Salary.   The purpose of base salary is to provide competitive
and fair base compensation that recognizes the executives’ role,
responsibilities, experience and performance. Early in each year, as well as at
the time of a promotion or other change in responsibilities, the Committee
reviews and sets each executive’s pay to reflect individual experience,
expertise, performance and contribution in the role. In addition, the Committee
also considers the internal relationship of executives, the impact changes in
salary have on other programs (most notably incentive compensation) in making
adjustments, the level of pay compared to peer group pay levels for similar
positions and the general structural parameters for executive compensation that
the Committee has established for the year. We seek to fix executive officer
base compensation at a level we believe enables us to hire and retain
individuals in a competitive environment, and also to reward satisfactory
individual performance and contribution to our overall business goals. The
effective date of salary increases typically is January 1 of each
year.





For
fiscal year 2010, the base salary for our Chief Executive Officer was $425,000,
the Chief Financial Officer base salary was $360,000, and the Chief Operating
Officer base salary was $375,000. The 2010 survey data and analysis indicated
that at the 50th percentile of the 2010 peer group data (comprised of CACI
International, Dynamics Research Corporation, ManTech International Corporation
NCI, Inc., SRA International, Inc. and Stanley, Inc.) the peer group’s base
annual salary for the position of President and CEO was approximately $590,000,
with a bonus of approximately 100% of base salary and at the 25th percentile,
the base annual salary was approximately $460,000, with a bonus of approximately
90% of base salary. At the 50th percentile, the peer group’s base annual salary
for the position of Chief Financial Officer was approximately $318,000, with a
bonus of approximately 82% of base salary and at the 25th percentile, the base
annual salary was approximately $293,000, with a bonus of approximately 75%
of base salary. At the 50th percentile, the peer group’s base annual salary for
the position of Chief Operating Officer was approximately $348,000, with a bonus
of approximately 83% of base salary and at the 25th percentile, the base annual
salary was approximately $333,000, with a bonus of approximately 79% of
base salary. For the 2011 review of base compensation, the Committee considered
the role, responsibilities, performance and experience of the executive
officers, as well as the 2010 peer group data for salary to adjust the base
salaries from the prior fiscal year levels.




After
careful evaluation of the relevant factors described above, the Committee made
adjustments to the base salaries of the named executive officers. The Committee
is satisfied that each named executive officer’s salary is reasonable and
appropriate based on each such executive’s responsibilities and
performance.




The base
salaries paid to our named executive officers for fiscal year 2010, and the
amounts decided upon for 2011, are shown below:





Name
      and Principal Position
                
                Fiscal
      2010
                  Salary
                
                Fiscal
      2011
                  Salary
                
                Annual
      % ChangeEdward
      H. Bersoff
                  Chief Executive Officer Ending on December 31, 2010(1)
                
                $
                425,000
                
                
                $
                N/A
                
                
                
                —Pamela
      A. Little
                  Co-Chief
      Executive Officer Beginning February 1,
      2011(1)
                  Chief
      Financial Officer
                
                $
                360,000
                
                
                $
                370,000
                
                
                
                2.3
                %Sidney
      E. Fuchs
                  Chief
      Executive Officer From
      January 1, 2011 toJanuary 31,
      2011
                  Chief Operating Officer From April 5, 2010 to January
      1, 2011(1)
                
                $
                375,000
                
                
                $
                405,000
                
                
                
                8.0
                %John
      A. Hassoun
                  Co-Chief Executive Officer Beginning February 1,
      2011(1)
                
                
                —
                
                
                $
                285,000
                
                
                
                —





(1)
            Mr.
      Sidney Fuchs served in the role of Chief Operating Officer effective April
      5, 2010 through December 31, 2010 when he assumed the role of Chief
      Executive Officer upon the departure of Dr. Edward Bersoff effective
      January 1, 2011. Mr. Fuchs’ employment terminated with us on January 31,
      2011. Ms. Pamela Little and Mr. John Hassoun currently serve as Co-Chief
      Executive Officers, effective February 1, 2011. Ms. Little also continues
      to serve as the Chief Financial
Officer.


46





Annual Incentive
Bonus.   The purpose of annual incentive bonuses is to motivate
and reward the achievement of specific Company, department and individual goals
that support the Company’s strategic plan. Annual incentive bonuses are not
fixed compensation, must be re-earned and are at-risk based on actual
performance. Incentives focus on short-term financial, strategic and individual
performance.





We
believe these annual cash incentive awards provide our named executive officers
with an incentive to excel at their individual job function and area of
expertise in a manner that contributes to the overall Company-wide performance,
and to further align the financial interests of our named executive officers
with those of our stockholders.





The table
below shows the Company performance targets established by the Committee for
2010 compared to the actual 2010 results.





Objective
                                
                                Weight
                                
                                
                                Threshold
      $ at 50%
                                
                                
                                Base
      $ at 75%
                                
                                
                                Target
      $ at 100%
                                
                                
                                Maximum
      $ at 120%
                                
                                
                                2010
      ResultsRevenue
                                
                                
                                30
                                %
                                
                                $
                                123.0
      million
                                
                                
                                $
                                126.0
      million
                                
                                
                                $
                                128.5 million
                                
                                
                                $
                                >131
      million
                                
                                
                                $
                                116.7
      millionEBITDA
                                
                                
                                30
                                %
                                
                                $
                                11.0
      million
                                
                                
                                $
                                12.0
      million
                                
                                
                                $
                                13.5
      million
                                
                                
                                $
                                > 15.0
      million
                                
                                
                                $
                                13.1
      million
                                (1)Backlog
                                
                                
                                20
                                %
                                
                                $
                                225.0
      million
                                
                                
                                $
                                235.0
      million
                                
                                
                                $
                                245.0
      million
                                
                                
                                $
                                255.0
      million
                                
                                
                                $
                                235.4
      millionOtherBacklog
                                
                                
                                20
                                %
                                
                                $
                                25.0
      million
                                
                                
                                $
                                32.0
      million
                                
                                
                                $
                                45.0
      million
                                
                                
                                $
                                > 15.0
      million
                                
                                
                                $
                                0.8
      million




Absolute
EBITDA threshold of $11 million.





(1)
            The
      2010 actual EBITDA results of $14.5 million was adjusted to $13.1 million
      for purposes of calculating the incentive bonus to exclude the
      extraordinary income related to the settlements associated with the
      acquisitions in 2007, net of legal
expenses.




The
Committee selected these performance measures to align the annual incentive plan
with the Company’s 2010 goals and objectives as established by management and
the Board of Directors. In 2010, the bonus target for Dr. Bersoff was 100% of
his base 2010 compensation, increased from 75% in 2009. The bonus target for Ms.
Little was 60% of her 2010 base compensation and for Mr. Fuchs the target bonus
was 75% of his base compensation prorated from his date of
employment.





The
Committee’s established bonus targets for each executive were based on job
responsibilities, internal comparisons and peer group data. In addition, the
Committee provides executives with the opportunity to be rewarded based upon
performance goals which will vary based on the executive’s position. There is a
band around each target bonus, representing the actual bonus amount that can be
earned by each executive based on achievement of objectives. For Dr. Bersoff,
his available bonus band, based upon a 100% target, ranged from 50% to 120% of
his base compensation, Ms. Little’s bonus band, based upon a 60% target, ranged
from 30% to 72% of her base compensation, and Mr. Fuchs’ bonus band, based upon
a 75% target, ranged from 37.5% to 90% of his base compensation. As an
additional component, for executives who managed company business units, the
success of each business unit was a significant element (50%) of those
executives’ bonus opportunities. The award percentages listed in the table below
are of base compensation.





2010
Compensation Targets





Name
                  
                  Threshold
                    Award
      %
                  
                  
                  Threshold
                    Award
      $
                  
                  
                  Base
                    Award
      %
                  
                  
                  Base
                    Award
      $
                  
                  
                  Target
                    Award
      %
                  
                  
                  Target
                    Award
      $
                  
                  
                  Maximum
                    Award
      %
                  
                  
                  Maximum
                    Award
      $Edward
      H. Bersoff
                    Chief
      Executive Officer
                  
                  
                  50
                  %
                  
                  $
                  212,500
                  
                  
                  
                  75
                  %
      $
                  
                  
                  318,750
                  
                  
                  
                  100
                  %
                  
                  $
                  425,000
                  
                  
                  
                  120
                  %
                  
                  $
                  510,000Pamela
      A. Little
                    Chief
      Financial Officer
                  
                  
                  30
                  %
                  
                  $
                  108,000
                  
                  
                  
                  45
                  %
      $
                  
                  
                  162,000
                  
                  
                  
                  60
                  %
                  
                  $
                  216,000
                  
                  
                  
                  72
                  %
                  
                  $
                  259,200Sidney
      E. Fuchs
                    Chief
      Operating Officer
                    Beginning
      04/5/10
                  
                  
                  37.5
                  %
                  
                  $
                  105,469
                  
                  
                  
                  56.25
                  %
      $
                  
                  
                  158,203
                  
                  
                  
                  75
                  %
                  
                  $
                  210,938
                  
                  
                  
                  90
                  %
                  
                  $
                  253,125




47




As each
of our named executive officers interact with all of our business units, the
performance measures are intended to encourage them to attend to the entire
business of the Company and make decisions for the benefit of the entire
Company. Thus, a significant portion of the
determination of whether the performance targets are met and relevant target
bonuses paid hinges upon the overall Company’s financial goals related to
earnings, revenues, backlog, strategic goals related to acquisitions and
technology initiatives and operational goals related to expense management and
people development. The Committee evaluated these performance targets, in
addition to the named executive officer’s individual performance objectives, in
the determination of the 2010 bonus amounts. The Committee intends for the
executives to create bonus programs for additional key employees that are
aligned with compatible objectives.





The
Company exceeded its 2010 threshold and base EBITDA and backlog objectives set
out at the beginning of the year. However, the Company did not achieve its 2010
revenue or other backlog objectives for the year. The Committee evaluated the
Company’s performance and eachexecutive’s individual
performance as evaluated against their goals established at the beginning of the
year to determine the final bonus amount for each named executive
officer.





Dr.
Edward Bersoff





The
Committee awarded Dr. Bersoff a bonus of $159,375 based on the Company’s
performance in the achievement of its Annual Incentive Bonus metrics. The
Committee evaluated Dr. Bersoff’s performance against each component of the plan
and calculated the payout related to each metric. The Company exceeded the
EBITDA metric resulting in the maximum award of $95,625. The Company exceeded
the backlog component at the threshold and base levels resulting in the maximum
award of $63,750. There was no credit given towards the achievement of the
revenue goal or the new business backlog goal as the Company fell short of
achieving these objectives.




Pamela
A. Little





The
Committee awarded Ms. Little a bonus of $81,000 based on the Company’s
performance in the achievement of its Annual Incentive Bonus metrics. The
Committee evaluated Ms. Little’s performance against each component of the plan
and calculated the payout related to each metric. The Company exceeded the
EBITDA metric resulting in the maximum award of $48,600. The Company exceeded
the backlog component at the threshold and base levels resulting in the maximum
award of $32,400. There was no credit given towards the achievement of the
revenue goal or the new business backlog goal as the Company fell short of
achieving these objectives.




Sidney Fuchs





The
Committee awarded Mr. Fuchs a bonus of $79,102 based on the Company’s
performance in the achievement of its Annual Incentive Bonus metrics. The
Committee evaluated Mr. Fuchs’ performance against each component of the plan
and calculated the payout related to each metric. The bonus calculation for Mr.
Fuchs was prorated to reflect his hire date of April 5, 2010. The Company
exceeded the EBITDA metric resulting in the maximum award of $47,461. The
Company exceeded the backlog component at the threshold and base levels
resulting in the maximum award of $31,641. There was no credit given towards the
achievement of the revenue goal or the new business backlog goal as the Company
fell short of achieving these objectives.




2011 Annual
Incentive Bonus.For 2011, the Committee
set Ms. Little and Mr. Hassoun’s target bonus at 75% of base compensation. Since
many of the factors relevant to determining bonuses are at the discretion of the
Committee, the likelihood of the named executive officers achieving their full
bonus potential in future years cannot be predicted.





Long-Term Equity
Incentive Compensation.   The Company’s equity incentive plan
is designed to encourage participants to focus on long-term Company performance
and provide an opportunity for executive officers and certain designated key
employees to increase their stake in the Company through stock options and/or
restricted stock grants or similar vehicles.




The plan
is designed to:





•
            enhance the link between the
      creation of stockholder value and long-term executive incentive
      compensation;





•
            provide an opportunity for
      increased equity ownership by executives;
  and





•
            maintain competitive levels of
      total compensation.





Equity
awards vary among participants based on their positions within the Company,
their individual contributions, the value added to the organization, and
internal equity. In evaluating awards, we consider current value, expected value
at grant and the ownership percentage associated with the award to draw
comparison amongst the recipients and make market comparisons to similarly
situated executives in peer group companies. Because these equity awards are
generally intended to help motivate our executive officers to stay with the
Company and continue to build stockholder value, the Committee generally does
not consider an executive’s current stock or option holdings in making
additional awards, except to the extent that the Committee determines that
additional equity awards would further motivate the individual to remain
with us for a longer period of time. Our primary focus is to retain executives
in light of prevailing competitive conditions and to motivate executives in ways
that support stockholder value.




48




In 2010,
the Committee used both restricted stock awards and options as its primary
vehicles for equity incentive compensation for our named executive officers, and
options alone as its primary vehicle for equity incentive compensation for other
members of our management team. Specifically, the Committee decided upon an
annual award of 25,000 restricted shares to Dr. Bersoff and an annual award of
75,000 restricted shares to Ms. Little. The effective date of the annual awards
was January 4, 2010. Mr. Fuchs was awarded 60,000 restricted shares and
40,000 stock options upon his employment on April 5, 2010. The Committee
approved an award of 50,000 stock options effective September 1, 2010 to
Mr. Hassoun upon his employment as the Senior Vice President of Federal
Programs. As a general matter, the Committee’s process is independent of
material non-public information, including with respect to the determination of
grant dates or the stock option exercise prices. See the discussion
below under “ — Grants of Plan
Based Awards in 2010.”





In 2011,
the Committee awarded 40,000 restricted shares to Ms. Little and 30,000 stock
options to Mr. Hassoun. The effective date of these annual awards was January 3,
2011. The Committee awarded 15,000 stock options to a member of the senior
management team and also awarded 7,500 stock options each for two other members
of its management team, also with an effective date of January 3,
2011.





Options
are awarded at the closing price of the Company’s common stock on the date of
the grant. The Committee has never granted options with an exercise price that
is less than the closing price of the Company’s common stock on the grant date,
nor has it granted options which are priced on a date other than the grant
date.





Retirement and
Other Benefits.   Our officers participate in the same employee
benefit programs as other employees. These programs include tax-qualified
retirement plans, health insurance, life insurance, disability insurance and
short-term disability. We currently have two tax-qualified retirement plans, our
401(k) savings plan and our ATS Corporation 2007 Employee Stock Purchase Plan,
which are both discussed below.




401(k)
Savings Plan





Our
senior executives, along with our entire staff, are eligible to participate in
the Advanced Technology Systems, Inc. Retirement Plan, a tax-qualified
profit-sharing plan under Section 401(k) of the Internal Revenue Code of 1986,
as amended (the “401(k) Plan”). The 401(k) Plan was originally established on
April 1, 1985 prior to our acquisition of ATSI. Our 401(k) Plan is managed by T.
Rowe Price Retirement Plan Services. Under the terms of the 401(k) Plan,
eligible employees may elect to contribute up to 100% of their eligible
compensation as salary deferral contributions to the 401(k) Plan, subject to
statutory limits. We make matching contributions each pay period equal to 50% of
an employee’s contributions up to the first 6% of the employee’s compensation.
We do not make matching contributions for employee contributions in excess of 6%
of the employee’s compensation.




Employee
Stock Purchase Plan




Our
senior executives are eligible to participate in the Company’s Employee Stock
Purchase Plan (the “ESPP”), which became effective on October 1, 2007. Under the
ESPP, there were initially 150,000 shares authorized, with a maximum
allocation in any four-month period beginning February 1, June 1, and October 1
to be limited to 50,000 shares, plus an annual increase (and proportional
four-month period maximum limitation increase) to be added on the first day of
each of the Company’s fiscal years beginning in 2009, equal to the lesser of (i)
100,000 shares, (ii) 1% of the outstanding shares on such date, or (iii) a
lesser amount determined by the Board of Directors. Our Board of Directors
approved an increase of 100,000 shares to the ESPP for each of fiscal year 2009
on February 11, 2009, for fiscal 2010 on December 9, 2009, and for fiscal year
2011 on December 8, 2010.





The ESPP
has three four-month periods, commencing on each February 1, June 1, and October
1 (the “Offering Period”). Employees participating in the ESPP may purchase a
share of Company stock at the close of an offering period at the lower of (i)
95% of the fair market value of a share on the last trading day of the Offering
Period or (ii) 95% of the fair market value of a share on the first day of the
offering period. An employee’s right to purchase stock under the ESPP may not
accrue at a rate which exceeds $25,000 per calendar year of the fair market
value of the Company’s common stock.





Perquisites





Our
executive perquisites generally involve minimal expenses. The perquisites our
individual executives receive consist of business club and travel memberships.
Our total incremental cost for perquisites for each executive officer was less
than $10,000 in 2010. Our Audit Committee reviews our executive officer expenses
on a quarterly basis.


49





Severance
Benefits





We have
entered into employment agreements with Ms. Little and Mr. Hassoun that include
severance benefits. We believe these agreements, which provide severance
protection upon a change in control, serve to promote stability and continuity
among senior executives. The terms of these agreements and information regarding
applicable payments under such agreements are provided under “ — Potential Payments Upon
Termination or Change in Control — Little Employment
Agreement,” and “—Hassoun Employment
Agreement.”





The
Company was previously a party to an employment agreement with Dr. Bersoff while
he served as our President and Chief Executive Officer which expired on December
31, 2010. Dr. Bersoff is currently only subject to a Chairman Agreement with the
Company, effective January 1, 2011, which does not provide for severance, only
(i) monthly payments of $13,333.33 paid quarterly, (ii) eligibility to receive
future equity award grants comparable to other members of the Board, and (iii)
health insurance consistent with that of Company executives through the
termination date. The Chairman Agreement terminates on the later of June 30,
2012 or the Company’s 2012 annual stockholders’ meeting (or any earlier change
in control of the Company).





Effective
January 31, 2011, Sidney Fuchs left the Company’s employ. Pursuant to the terms
of his employment agreement effective April 5, 2010 and as amended on January 5,
2011, Mr. Fuchs will receive payments totaling $607,500, representing eighteen
months’ base salary and eligibility to continue health benefits for a period of
eighteen months. Following the termination date, Mr. Fuchs will also receive his
bonus for fiscal 2010 under our Annual Incentive Bonus Plan in an amount
determined to be $79,102. Furthermore, 60,000 unvested restricted shares held by
Mr. Fuchs vested and 40,000 unvested stock options held by Mr. Fuchs vested,
totaling 100,000 shares. Mr. Fuchs’ employment agreement also included a six
month non-competition period and a two-year non-solicitation
obligation.




Tax
and Accounting Implications





In
consultation with our legal and accounting advisors, we plan to evaluate the tax
and accounting treatment of each of our compensation programs at the time of
adoption and on an annual basis to ensure that we understand the financial
impact of our program. Our analysis will include a detailed review of recently
adopted and pending changes in tax and accounting requirements. As part of our
review, we will consider modifications and/or alternatives to existing programs
to take advantage of favorable changes in the tax or accounting environment or
to avoid adverse consequences.





Deductibility of
Executive Compensation.   Section 162(m) of the Internal
Revenue Code generally disallows a tax deduction to publicly-held companies for
compensation in excess of $1.0 million in any taxable year paid to a named
executive officer.





However,
compensation in excess of $1.0 million is deductible if it meets the criteria
for being “performance based” within the meaning of Section 162(m). Our stock
option awards satisfy the conditions for being “performance based” under Section
162(m). Time-based restricted stock awards and bonuses paid under our 2010
annual bonus plan do not currently satisfy the Section 162(m) “performance
based” conditions.





We
generally endeavor to award compensation in a manner that satisfies the
conditions for tax deductibility. However, we will not necessarily limit
executive compensation to amounts deductible under Section 162(m), but rather
intend to maintain the flexibility to structure our compensation programs so as
to best promote our interests and the interests of our
stockholders.


50





Summary
Compensation Table





The
following information is furnished beginning on January 1, 2008, for all
individuals serving as principal executive officers in 2010. There are no other
named executive officers of the Company who meet the definition of “executive
officer” under applicable securities regulations.




Name and Principal Position
                                
                                Year
                                
                                Salary
                                  ($) (1)
                                
                                
                                Bonus
                                  ($) (2)
                                
                                
                                Stock
                                  Awards
                                  ($) (3)
                                
                                
                                Option
                                  Awards
                                  ($) (3)
                                
                                
                                All Other
                                  Compensation
                                  ($) (4)
                                
                                
                                Total
                                  ($)Edward
      H. Bersoff
                                
                                2010
                                
                                $
                                425,000
                                
                                
                                $
                                159,375
                                
                                
                                $
                                61,250
                                
                                
                                $
                                —
                                
                                
                                $
                                25,538
                                
                                
                                $
                                671,163Chief
      Executive Officer
                                
                                2009
                                
                                
                                360,000
                                
                                
                                
                                200,000
                                
                                
                                
                                42,000
                                
                                
                                
                                —
                                
                                
                                
                                23,199
                                
                                
                                
                                625,1992008
                                
                                
                                350,000
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                20,953
                                
                                
                                
                                370,953Pamela
      A. Little
                                
                                2010
                                
                                $
                                360,000
                                
                                
                                $
                                106,000
                                
                                
                                $
                                183,750
                                
                                
                                $
                                —
                                
                                
                                $
                                17,470
                                
                                
                                $
                                667,220Chief
      Financial Officer
                                
                                2009
                                
                                
                                310,000
                                
                                
                                
                                140,000
                                
                                
                                
                                58,800
                                
                                
                                
                                95,235
                                
                                
                                
                                12,982
                                
                                
                                
                                617,6172008
                                
                                
                                300,000
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                12,291
                                
                                
                                
                                312,291Sidney
      E. Fuchs
                                  Chief
      OperatingOfficer
      Beginning4/5/10
                                
                                2010
                                
                                $
                                278,409
                                
                                
                                $
                                129,102
                                
                                
                                $
                                174,000
                                
                                
                                $
                                79,600
                                
                                
                                $
                                18,756
                                
                                
                                $
                                679,867


(1)
            Mr. Fuchs’ 2010 salary reflects
      that he began his employment on April 5,
    2010.


(2)
            Includes $25,000 bonus award to
      Ms. Little for recognition of performance outside of the 2010 Incentive
      Bonus Plan.  Includes $50,000 paid to Mr. Fuchs as a sign on
      bonus per his employment agreement dated March 1,
      2010.


(3)
            The Company has recognized
      stock-based compensation based on the value of the stock-based awards on
      the award date.


(4)
            Details of the
      amounts reported in the“All Other
      Compensation”column for 2010 are
      provided in the table below. The aggregate perquisite amount for each
      executive officer was less than
  $10,000.





Dr.
      Bersoff
                              
                              
                              Ms.
      Little
                              
                              
                              Mr.
      FuchsEmployer
      Contributions to 401(k) Plan
                              
                              $
                              6,606
                              
                              
                              $
                              7,350
                              
                              
                              $
                              6,600Health
      Insurance Premiums
                              
                              
                              14,344
                              
                              
                              
                              9,364
                              
                              
                              
                              9,562Life
      Insurance and Disability Premiums
                              
                              
                              613
                              
                              
                              
                              756
                              
                              
                              
                              504Perquisites
      (a)
                              
                              
                              3,975
                              
                              
                              
                              —
                              
                              
                              
                              2,090







(a)
            Dr. Bersoff’s and Mr. Fuchs’
      perquisites consisted of business
    memberships.




Grants
of Plan-Based Awards in 2010





Effective
January 4, 2010, we entered into a restricted stock award agreement with each of
Dr. Bersoff and Ms. Little. Under these agreements, pursuant to our 2006 Omnibus
Incentive Compensation Plan, we granted (i) 25,000 restricted shares to Dr.
Bersoff, of which 10,000 shares vest on January 4, 2011 and 15,000 shares vest
on January 4, 2012, subject to acceleration following a change of control; and
(ii) 75,000 restricted shares to Ms. Little, of which 10,000 shares vest on
January 4, 2011, 15,000 shares vest on January 4, 2012, and 50,000 shares vest
on January 4, 2013, subject to acceleration following a change of
control.





Effective
April 5, 2010, we entered into a restricted stock award agreement and an option
award agreement with Mr. Fuchs.  Under these agreements, pursuant to
our 2006 Omnibus Incentive Compensation Plan, we granted 60,000 restricted
shares of common stock and 40,000 option shares at an exercise price of
$2.90.  Upon Mr. Fuchs’ resignation on January 31, 2011, both his
60,000 unvested restricted shares vested and his 40,000 unvested stock options
vested, totaling 100,000 shares.


51





Effective
September 1, 2010, Mr. Hassoun received an option grant of 50,000 shares at an
exercise price of $2.80 pursuant to our 2006 Omnibus Incentive
Compensation.  The grant of options will vest equally over a period of
four years beginning on September 1, 2011. These grants of options are
subject to acceleration following a change in control.





Dr.
Bersoff, Ms. Little and Mr. Fuchs generally will have all the rights and
privileges of a stockholder with respect to the restricted stock, including the
right to receive dividends and to vote.




Name
                                                                      
                                                                      Grant
                                                                        Date
                                                                      
                                                                      All Other Stock
                                                                        Awards:
                                                                        Number of
                                                                        Shares of Stock
                                                                        or Units
                                                                        (#) (1)
                                                                      
                                                                      
                                                                      All Other
                                                                        Option Awards:
                                                                        Number of
                                                                        Securities
                                                                        Underlying
                                                                        Options
                                                                      
                                                                      
                                                                      Exercise or
                                                                        Base Price of
                                                                        Option Awards
                                                                        ($/share)
                                                                      
                                                                      
                                                                      Grant Date Fair
                                                                        Value of Stock
                                                                        and Option
                                                                        Awards ($)Dr.
      Edward H. Bersoff,
                                                                      
                                                                      1/4/2010
                                                                      
                                                                      
                                                                      25,000
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      $
                                                                      61,250
                                                                      (1)Chief
      Executive OfficerPamela
      A. Little,
                                                                      
                                                                      1/4/2010
                                                                      
                                                                      
                                                                      75,000
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      183,750
                                                                      (1)Chief
      Financial Officer; Co-Chief Executive Officer effective
      2/1/2011
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      —Sidney
      E. Fuchs,
                                                                      
                                                                      4/5/2010
                                                                      
                                                                      
                                                                      60,000
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      174,000
                                                                      (2)Chief
      Operating Officer
                                                                      
                                                                      4/5/2010
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      40,000
                                                                      
                                                                      
                                                                      $
                                                                      2.90
                                                                      
                                                                      
                                                                      
                                                                      79,600John
      A. Hassoun
                                                                        Co-Chief
      Executive Officer effective 2/1/2011
                                                                      
                                                                      9/1/2010
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      50,000
                                                                      
                                                                      
                                                                      $
                                                                      2.80
                                                                      
                                                                      
                                                                      
                                                                      86,250








(1)
            Computed in accordance with FAS
      123(R) and therefore represents the market value of the shares on the date
      of grant, based upon the Company’s closing stock price of
      $2.45.


(2)
            Computed in accordance with FAS
      123(R) and therefore represents the market value of the shares on the date
      of grant, based upon the Company’s closing stock price of
      $2.90.




Effective
January 3, 2011, we entered into a restricted stock award agreement with Ms.
Little. Under the agreement and pursuant to our 2006 Omnibus Incentive
Compensation Plan, we granted 40,000 restricted shares.  This grant of
restricted shares will vest equally over a period of three years beginning on
January 3, 2012 and the two award date anniversaries thereafter, subject to
acceleration following a change in control.  Ms. Little generally will
have all the rights and privileges of a stockholder with respect to the
restricted stock, including the right to receive dividends and to
vote.  Additionally, effective January 3, 2011, pursuant to our 2006
Omnibus Incentive Compensation Plan, Mr. Hassoun was granted 30,000 options,
vesting equally over a four year period beginning January 3, 2012 subject to
acceleration following a change in control.


52




Outstanding
Equity Awards at 2010 Fiscal Year End





The
following table provides information concerning restricted stock awards that
have not vested for each named executive officer outstanding as of December 31,
2010, and does not take into account the restricted stock grants awarded in 2011
(as such grants were not made as of the most recently completed fiscal
year).





Option Awards
                                                
                                                Stock AwardsName/Date of Award
                                                
                                                Number of
                                                  Securities
                                                  Underlying
                                                  the
                                                  Unexercised
                                                  Options
                                                  Exercisable
                                                
                                                
                                                Number of
                                                  Securities
                                                  Underlying
                                                  the
                                                  Unexercised
                                                  Options
                                                  Unexercisable
                                                
                                                
                                                Option
                                                  Exercise
                                                  Price
                                                
                                                Option
                                                  Expiration
                                                  Date
                                                
                                                Number of
                                                  Shares or
                                                  Units of
                                                  Stock that
                                                  have not Vested
                                                  (#)
                                                
                                                
                                                Market Value
                                                  of Shares or
                                                  Units of Stock
                                                  that have
                                                  not Vested
                                                  ($) (1)Dr.
      Edward H. BersoffMarch
      19, 2007 (2)
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                30,000
                                                
                                                
                                                $
                                                82,500January
      2, 2009 (3)
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                20,000
                                                
                                                
                                                
                                                55,500January
      4, 2010 (4)
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                25,000
                                                
                                                
                                                
                                                68,750Total
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                75,000
                                                
                                                
                                                
                                                206,750Pamela
      A. LittleMay
      4, 2007 (5)
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                12,500
                                                
                                                
                                                
                                                34,375January
      2, 2009 (6)
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                28,000
                                                
                                                
                                                
                                                77,000May
      5, 2009 (7)
                                                
                                                
                                                —
                                                
                                                
                                                
                                                100,000
                                                
                                                
                                                $
                                                1.50
                                                
                                                5/5/2019January
      4, 2010 (8)
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                75,000
                                                
                                                
                                                $
                                                206,250Total
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                115,500
                                                
                                                
                                                
                                                317,625Sidney
      E. FuchsApril
      5, 2010 (9)
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                60,000
                                                
                                                
                                                $
                                                165,000April
      5, 2010 (10)
                                                
                                                
                                                
                                                
                                                
                                                
                                                40,000
                                                
                                                
                                                $
                                                2.90
                                                
                                                4/5/2020Total
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                60,000
                                                
                                                
                                                
                                                165,000




(1)
            Based
      upon the Company’s closing stock price of $2.75 on December 31,
      2010.


(2)
            Stock awards granted pursuant to
      the ATS Corporation 2006 Omnibus Incentive Compensation Plan vesting in
      five equal annual installments commencing on December 31,
      2007.


(3)
            Stock awards granted pursuant to
      the ATS Corporation 2006 Omnibus Incentive Compensation Plan vesting in
      three equal annual installments commencing on January 2,
      2010.


(4)
            Stock
      awards granted pursuant to the ATS Corporation 2006 Omnibus Incentive
      Compensation Plan of which 10,000 shares vest on January 4, 2011 and
      15,000 vest on January 4, 2012.


(5)
            Stock awards granted pursuant to
      the ATS Corporation 2006 Omnibus Incentive Compensation Plan, with 10,000
      shares vested immediately on the May 4, 2007 grant date and the remaining
      50,000 shares vesting in four equal annual installments commencing on May
      4, 2008.


(6)
            Stock awards granted pursuant to
      the ATS Corporation 2006 Omnibus Incentive Compensation Plan vesting in
      three equal annual installments commencing on January 2,
      2010.


(7)
            Option award granted pursuant to
      the ATS Corporation 2006 Omnibus Incentive Compensation Plan vesting in
      four equal installments commencing on May 5,
      2010.


(8)
            Stock awards granted pursuant to
      the ATS Corporation 2006 Omnibus Incentive Compensation Plan of which
      10,000 shares vest on January 4, 2011, 15,000 shares vest on January 4,
      2012, and 50,000 shares vest on January 4,
    2013.


(9)
            Stock awards granted pursuant to
      the ATS Corporation 2006 Omnibus Incentive Compensation Plan vesting in
      three equal annual installments commencing on April 5, 2011. All of Mr.
      Fuchs’ unvested shares vested pursuant to his employment agreement
      effective March 1, 2010 and as amended on January 3, 2011 triggered by the
      termination of his employment effective January 31,
      2011.


(10)
            Option award granted pursuant to
      the ATS Corporation 2006 Omnibus Incentive Compensation Plan vesting in
      four equal annual installments commencing on April 5, 2011. All of Mr.
      Fuchs’ unvested shares vested pursuant to his employment agreement
      effective March 1, 2010 and as amended January 3, 2011 triggered by the
      termination of his employment effective January 31,
      2011.


53





Stock
Vested in Fiscal Year 2010





The
following table provides information concerning the vesting of restricted stock
awards for each named executive officer, on an aggregate basis, during 2010.
There were no stock option exercises by our named executive officers during
2010.




Restricted Stock AwardsName
                  
                  Number of
                    Shares
                    Acquired
                    on Vesting
                    (#)
                  
                  
                  Value
                    Realized on
                    Vesting
                    ($) (1)Dr.
      Edward H. Bersoff
                  
                  
                  10,000
                  
                  
                  $
                  24,800
                  (1)20,000
                  
                  
                  $
                  56,800
                  (2)30,000
                  
                  
                  $
                  82,500
                  (3)Pamela
      A. Little
                  
                  
                  14,000
                  
                  
                  $
                  34,720
                  (4)12,500
                  
                  
                  $
                  36,625
                  (5)20,000
                  
                  
                  $
                  56,800
                  (6)




(1)
            Based upon 10,000 shares at a
      closing price of $2.48 on January 2,
  2010.


(2)
            Based
      upon 20,000 shares at a closing price of $2.84 on December 17,
      2010.


(3)
            Based
      upon 30,000 shares at a closing price of $2.75 on December 31,
      2010.


(4)
            Based
      upon 14,000 shares at a closing price of $2.48 on January 2,
      2010.


(5)
            Based
      upon 12,500 shares at a closing price of $2.93 on May 4,
    2010.


(6)
            Based
      upon 20,000 shares at a closing price of $2.84 on December 17,
      2010.





Potential
Payments Upon Termination or Change in Control





The
Company is currently a party to employment agreements with each of Ms. Little,
dated February 3, 2008, and Mr. Hassoun, dated September 2, 2010, as discussed
below under “Little Employment
Agreement” and “Hassoun Employment Agreement,”each of which provide for
certain payments to each named executive officer if his or her employment were
terminated following a change in control, as outlined below.  Mr.
Fuchs’ employment agreement terminated effective January 31, 2011, and his
severance is outlined below accordingly.  Dr. Bersoff’s prior
employment agreement terminated effective December 31, 2010, and he did not
receive severance since he is continuing as the Company’s Chairman and as such
is not discussed below.  The summaries below assume that the
termination and/or change in control occurred on December 31, 2010 and the
relevant stock price is the closing market price for our common stock on
December 31, 2010, which was $2.75 per share.




Little
Employment Agreement





General





We
entered into an employment agreement with Ms. Little on February 3, 2008 (the
“Little Agreement”). The Little Agreement provides that Ms. Little will serve in
the position of Executive Vice President and Chief Financial Officer for an
initial five-year term, and at the conclusion of such initial term shall renew
automatically for successive one-year terms subject to the right of either party
to terminate upon 30 days’ prior written notice to the other party. Ms. Little
will receive a base salary of $300,000 per year, as adjusted from time to time
with the approval of the Committee.  The Little Agreement has not been
amended to date to account for Ms. Little’s recently acquired role as Co-Chief
Executive Officer effective February 1, 2011.





Incentive
Compensation





Ms.
Little shall be entitled to performance-based incentive compensation in an
amount up to 60% of her base compensation, as adjusted from time to time with
the approval of the Committee. Such incentive compensation payable for each year
shall be contingent on and based on corporate and individual performance
criteria agreed to between Ms. Little and the Committee, and as thereafter
modified from time to time.


54





Fringe
Benefits





Ms.
Little is entitled to such fringe benefits as are generally made available by
the Company to executive personnel, including, but not limited to, health
insurance.





Termination





The
Little Agreement provides for termination by the Company, with or without
“cause,” as defined in the Little Agreement, at any time, upon 30 days’ written
notice. Similarly, the Little Agreement provides for termination by Ms. Little
with or without “good reason,” as defined in the Little Agreement, at any time,
upon 30 days’ notice. If the Company chooses to terminate Ms. Little’s
employment without cause or Ms. Little terminates her employment for good
reason, then Ms. Little would be entitled to receive the following: (i) a
severance benefit equal to her current base compensation for a period of 12
months if the termination takes place during the first three years of her
initial term, or a severance benefit equal to her current base compensation for
a period of nine months if the termination takes place after the first three
years of the initial term; and (ii) an amount equal to 50% of the incentive
compensation targets, if any, applicable during the first calendar year ending
during the severance period. All unvested restricted stock, stock options and
any other equity-based compensation arrangements shall vest, and all stock
options and other equity-based compensation arrangements that must be exercised
shall be exercisable in accordance with the award agreements. In the event that
either the Company terminates Ms. Little for cause or Ms. Little terminates her
employment without good reason, then she would only receive the following: (i)
any unpaid base compensation through the date of termination; and (ii) any
unpaid incentive compensation earned but not yet paid through the date of
termination.  All unvested stock options and any other equity-based
compensation arrangements shall be terminated and all vested stock options shall
be exercisable in accordance with the award agreements.





Change
in Control





All
unvested restricted stock, stock options and any other equity-based compensation
arrangements shall vest in full on the date of a “change in control,” as defined
in the Little Agreement. If either the Company terminates Ms. Little without
cause or Ms. Little terminates her employment for good reason within 12 months
after a change in control, then Ms. Little shall be entitled to the same
severance package that she would receive if terminated without cause or for good
reason (as discussed above), except that she would receive 100% of the incentive
compensation targets (rather than 50%).





Payments
Due Upon Termination/Change in Control on December 31, 2010





Salary Continuation
                    
                    
                    Bonus Payment
                    
                    
                    Unvested AwardsPamela
      LittleWithout
      Cause Termination
                    
                    $
                    360,000
                    
                    
                    $
                    108,000
                    
                    
                    $
                    442,625Change
      in Control
                    
                    $
                    360,000
                    
                    
                    $
                    216,000
                    
                    
                    $
                    442,625





Hassoun
Employment Agreement





General





We
entered into an employment agreement with Mr. Hassoun on September 2, 2010 (the
“Hassoun Agreement”). The Hassoun Agreement provides that Mr. Hassoun will serve
in the position of Senior Vice President for a three-year term subject to the
right of either party to terminate upon 30 days’ prior written notice to the
other party. Mr. Hassoun will receive a base salary of $275,000 per year, as
adjusted from time to time with the approval of the Committee.  The
Hassoun Agreement has not been amended to date to account for Mr. Hassoun’s
recently acquired role as Co-Chief Executive Officer effective February 1,
2011.





Incentive
Compensation





In
addition, Mr. Hassoun shall be entitled to participate in our performance-based
incentive compensation program as in effect from time to time for the officers
and senior managers.


55




Fringe
Benefits





Mr.
Hassoun is entitled to such fringe benefits as are generally made available by
the Company to executive personnel, including, but not limited to, health
insurance.





Termination





The Hassoun Agreement provides for
termination by the Company, with or without “cause,” as defined in the Hassoun
Agreement, at any time, upon 30 days’ written notice. Similarly, the Hassoun
Agreement provides for termination by Mr. Hassoun with or without “good reason,”
as defined in the Hassoun Agreement, at any time, upon 30 days’ notice. If the
Company chooses to terminate Mr. Hassoun’s employment without cause or Mr.
Hassoun terminates his employment for good reason, then Mr. Hassoun would be
entitled to receive the following: (i) a severance benefit equal to his current
base compensation for a period of 11 months if the termination takes place
during the first year of employment, or (ii) a severance benefit equal to his
current base compensation for a period of eight months if the termination takes
place after the first twelve months of the term.  All unvested stock
options and any other equity-based compensation arrangements shall be terminated
and all vested stock options shall be exercisable in accordance with the award
agreements.  In
the event that either the Company terminates Mr. Hassoun for cause or Mr.
Hassoun terminates his employment without good reason, then he would only
receive the following: (i) any unpaid base compensation through the date of
termination; and (ii) any unpaid incentive compensation earned but not yet paid
through the date of termination. All unvested stock options and any other
equity-based compensation arrangements shall be terminated and all vested stock
options shall be exercisable in accordance with the award
agreements.





Change
in Control





All
unvested restricted stock, stock options and any other equity-based compensation
arrangements shall vest in full on the date of a “change in control,” as defined
in the Hassoun Agreement. If either the Company terminates Mr. Hassoun without
cause or Mr. Hassoun terminates his employment for good reason within 12 months
after a change in control, then Mr. Hassoun shall be entitled to the same
severance package equal to one year base salary that he would receive if
terminated without cause or for good reason.





Payments
Due Upon Termination/Change in Control on December 31, 2010





Salary Continuation
                  
                  
                  Bonus Payment
                  
                  
                  Welfare Benefits
                  
                  
                  Unvested AwardsJohn
      HassounWithout
      Cause Termination
                  
                  $
                  275,000
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Change
      in Control
                  
                  $
                  275,000
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -





Fuchs
Employment Agreement





We
entered into a three-year employment agreement (the “Fuchs Agreement”) with Mr.
Fuchs on March 1, 2010, effective April 5, 2010.  The terms of the
Fuchs Agreement provided for (i) a base salary of $375,000, (ii) an annual
performance bonus of up to 75% of base salary at target performance, (iii) a
$50,000 signing bonus with $25,000 paid on April 5, 2010 and $25,000 paid six
months from the start date, (iv) a grant of 60,000 shares of restricted stock on
April 5, 2010 with 10,000 shares vesting on April 5, 2011, 15,000 shares vesting
on April 5, 2012, and 35,000 shares vesting on April 5, 2013, (v) a 40,000 stock
option grant with an exercise price at the Company closing stock price on April
5, 2010, vesting over four years, with 5,000 options vesting each on the first
and second anniversary, 10,000 options vesting on the third anniversary and
20,000 vesting on the fourth anniversary, and (vi) health, life and disability
insurance consistent with that of other Company executives. The Fuchs Agreement
also provided for severance throughout the Fuchs Agreement’s term. During the
first six months of employment, either Mr. Fuchs or the Company could terminate
the Fuchs Agreement for any reason and in such case Mr. Fuchs would have been
paid six months of his base salary. Thereafter, the Fuchs Agreement provided for
a severance for termination “without cause” or for “good reason” and the
severance payment would be based on eighteen months of his base salary. In the
event of a “change in control” and Mr. Fuchs’ employment is terminated “without
cause” or for “good reason,” the Fuchs Agreement provided for a severance
payment based on eighteen months of base salary.


56




Effective
January 31, 2011, Sidney Fuchs resigned from the Company and the Board of
Directors.  Pursuant to the terms of the Fuchs Agreement, Mr. Fuchs
will receive (i) eighteen months of severance based on an annual salary of
$405,000 paid in an amount of a $202,500 payment six months and one day after
the effective date and the remaining twelve months of severance paid in twelve
monthly installments, commencing on the date that is seven months after the
effective date, (ii) accelerated vesting of 60,000 shares of restricted stock
and 40,000 options on the effective date, (iii) health insurance consistent with
that of Company executives for a period of eighteen months after the effective
date, and (iv) a six month non-competition period and a two-year
non-solicitation period.   Following the termination date, Mr.
Fuchs was also eligible to receive a bonus for fiscal 2010 under our Annual
Incentive Bonus Plan in an amount determined to be $79,102.





Compensation
Risks





We
believe that our compensation policies and practices for our employees do not
encourage excessive or inappropriate risk. Furthermore, the Compensation
Committee believes that the mix and design of the elements of executive
compensation with equity-based long-term incentives that are tied to shareholder
returns, process for determining compensation utilizing market comparisons, and
the Company’s governance and control mechanics deter undue risk
taking.





Compensation
Committee Interlocks and Insider Participation





Messrs.
Flannery, Jacks, Schulte, and Dr. Jones were members of the Compensation
Committee for the year ended December 31, 2010. None of our directors serving on
our Compensation Committee during 2010 was an officer or employee of the Company
or had any relationship with us that required applicable disclosure under Item
404 of Regulation S-K. Mr. Saponaro served as a Chairman of the Compensation
Committee from August 18, 2008 to August 25, 2010.  Upon the
resignation of Mr. Saponaro, Mr. Jacks became Chairman of the Compensation
Committee. Neither Mr. Saponaro nor Mr. Jacks was an officer or employee of the
Company. None of our executive officers served as a member of the Board of
Directors or compensation committee of another entity that has one or more
executive officers serving as a member of our Board of Directors or Compensation
Committee.


57




DIRECTOR
COMPENSATION


Summary
of Director Compensation





The
annual fee for services of a non-employee director of the Company was $24,000
during 2010. In addition, members of the Audit Committee (Messrs. Jacks,
Saponaro, and Tomarchio) received $4,000 for their service on that Committee and
Mr. Smith received $8,000 for his service as Chairperson of the Audit Committee.
Mr. Swartwout received $2,500 for his service on the Audit Committee beginning
September 2010.  Members of the Compensation Committee (Messrs.
Flannery and Schulte and Dr. Jones) received $3,000 for their service on that
Committee and Mr. Saponaro received $6,000 for his service as Chairperson of the
Compensation Committee through August 2010.  Mr. Jacks received $3,750
for his service as Chairperson of the Compensation Committee upon Mr. Saponaro’s
resignation in August 2010.  Members of the Nominating and
Governance Committee (Messrs. Flannery, Smith and Swartwout) received
$3,000 for their service on that Committee and Mr. Schulte received $6,000 for
his service as Chairperson of the Nominating and Governance
Committee.  Mr. Tomarchio received $24,000 in lieu of the 2010 annual
grant of restricted shares.





All
non-employee directors are entitled to reimbursement of expenses for attending
each meeting of the Board and each committee meeting.





2010
Director Compensation Table





The
following table provides the compensation received by individuals who served as
non-employee directors of the Company during the 2010 fiscal year. There have
been no option awards issued, nor any change in pension value or nonqualified
deferred compensation earnings to report in relation to the non-employee
directors of the Company.





Name
                          
                          Fees Earned
                            or Paid in
                            Cash
                            ($)(1)
                          
                          
                          Stock
                            Awards
                            ($) (2)
                          
                          
                          All Other
                            Compensation
                            ($) (3)
                          
                          
                          Total
                            ($)Joel
      R. Jacks (4)
                          
                          $
                          31,750
                          
                          
                          $
                          23,998
                          
                          
                          $
                          4,270
                          
                          
                          $
                          60,018Kevin
      Flannery
                          
                          
                          30,000
                          
                          
                          
                          23,998
                          
                          
                          
                          2,223
                          
                          
                          
                          56,221Dr.
      Anita K. Jones
                          
                          
                          27,000
                          
                          
                          
                          23,998
                          
                          
                          
                          2,469
                          
                          
                          
                          53,467Joseph
      A. Saponaro
                          
                          
                          34,000
                          
                          
                          
                          23,998
                          
                          
                          
                          —
                          
                          
                          
                          57,998Peter
      M. Schulte
                          
                          
                          33,000
                          
                          
                          
                          23,998
                          
                          
                          
                          2,273
                          
                          
                          
                          59,271Edward
      J. Smith
                          
                          
                          35,000
                          
                          
                          
                          23,998
                          
                          
                          
                          6,463
                          
                          
                          
                          65,461James
      R. Swartwout (5)
                          
                          
                          29,500
                          
                          
                          
                          23,998
                          
                          
                          
                          3,460
                          
                          
                          
                          56,958Jack
      Tomarchio
                          
                          
                          52,000
                          
                          
                          
                          –
                          
                          
                          
                          1,579
                          
                          
                          
                          53,579







(1)
            Messrs.
      Jacks, Saponaro and Schulte, and Dr. Jones elected to convert $28,000,
      $34,000, $33,000 and $8,100, respectively, of their annual cash
      compensation into shares of our common
stock.


(2)
              The Company has
      recognized stock-based compensation based on the value of the stock-based
      awards on the award date.  Each director, with the exception of
      Mr. Tomarchio, was awarded a restricted stock grant of 8,275 shares on May
      18, 2010 that vest in full on May 1, 2011.  Restricted stock
      awards outstanding as of December 31, 2010 for each director were as
      follows:  27,337 for Mr. Jacks; 41,189 for Mr. Flannery; 8,275
      for Dr. Jones and Mr. Swartwout; 27,337for Mr. Schulte; and 40,489 for
      Mr. Smith.  In accordance with the forfeiture provisions of our
      plan, Mr. Tomarchio forfeited 53,075 unvested shares upon his
      departure.  Upon the departure of Mr. Saponaro, 20,136 shares of
      restricted stock vested and 20,353 unvested shares were
      forfeited.




(3)
            Consists of travel
      expenses.




(4)
            Mr. Jacks was appointed as
      Chairman of the Compensation Committee in August 2010, and as such, his
      compensation for the year has been prorated to reflect the actual time
      served in this role.




(5)
            Mr. Swartwout was appointed to
      the Audit Committee in September 2010, and as such, his compensation for
      the year has been prorated to reflect the actual time served in this
      role.


58




Board and
Committee Fees.   Our non-employee directors each received
annual retainers of $24,000, payable annually in the second quarter of our
fiscal year, covering up to four regular Board meetings, one annual meeting and
a reasonable number of special Board meetings. Additional retainers, if any, for
additional meetings will be determined by the Board of Directors or the
Compensation Committee. The chair of the Audit Committee receives $8,000
annually, and each other Audit Committee member receives $4,000 annually,
payable in the second quarter of our fiscal year, as compensation for services
as Audit Committee chair and committee member, respectively. The chair of the
Compensation Committee receives $6,000 annually, and each other Compensation
Committee member receives $3,000 annually, payable in the second quarter of our
fiscal year, as compensation for services as Compensation Committee chair and
committee member, respectively. The chair of the Nominating and Governance
Committee receives $6,000 annually, and each other Nominating and Governance
Committee member receives $3,000 annually, payable in the second quarter of our
fiscal year, as compensation for services as Nominating and Governance Committee
chair and committee member, respectively.





Our
directors have the option to receive their board and committee fees in the form
of cash or shares of Company stock.





Restricted Stock
Grants.   Up until 2009, non-employee members of the Board,
upon first being elected to the Board, received an initial grant of restricted
shares of common stock with a fair market value equal to three times the annual
cash retainer amount, or $72,000. These initial grants of restricted stock vest
equally over a period of five years, subject to acceleration upon events such as
a change of control. Commencing with their second year of service, non-employee
directors received annual grants of restricted stock with a fair market value
equal to the annual cash retainer amount of $24,000.





Effective
in 2010, the Board approved a change to reduce the initial grant of restricted
shares equal to three times the annual cash retainer to a value equal to the
annual cash retainer of $24,000. Each director with the exception of Mr.
Tomarchio who received cash in lieu of the stock grant, received a restricted
stock grant of 8,275 shares based on a stock price of $2.90 on May 18, 2010 that
vests on May 1, 2011.





Board
members are encouraged to own shares of common stock and may elect to convert
their annual cash compensation into our common stock at the fair market value of
our common stock on the payment date.





Our
policies for the compensation of directors are reviewed annually by our
Compensation Committee, and any changes in those policies will be approved by
the entire Board.





Stock
Ownership of Board Members





For
information on the beneficial ownership of securities of the Company by
directors and executive officers, see “Security Ownership of Directors,
Executive Officers, and Certain Beneficial Owners” in Item 12.





COMPENSATION
COMMITTEE REPORT





The
Compensation Committee has reviewed and discussed with management the
Compensation Discussion and Analysis included in this Annual Report on Form 10-K
for the fiscal year ended December 31, 2010. Based on this review and
discussion, the Compensation Committee recommended to the Board of Directors
that such Compensation Discussion and Analysis be included in the Annual Report
on Form 10-K for the fiscal year ended December 31, 2010.  See “CompensationDiscussion and
Analysis.”




Compensation
Committee of the Board of Directors of ATS Corporation




Joel R.
Jacks, Chairperson


Kevin S.
Flannery


Dr. Anita
K. Jones


Peter M.
Schulte


59




Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters




The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of February 11, 2011, by:





•
            each person, or group of
      affiliated persons, known to us to beneficially own more than 5% of the
      outstanding shares of our common
stock;





•
            each of our
      directors;





•
            each of our executive officers;
      and





•
            all of our directors and
      executive officers as a
group.




The
percentages shown in the following table are based on 22,794,175 shares of
common stock outstanding as of February 11, 2011. Beneficial ownership is
determined in accordance with the rules of the SEC, and includes voting and
investment power with respect to shares. The number of shares beneficially owned
by a person includes shares subject to options held by that person that were
exercisable as of February 11, 2011 or within 60 days of that date. The shares
issuable under those options are treated as if they were outstanding for
computing the percentage ownership of the person holding those options but are
not treated as if they were outstanding for the purposes of computing the
percentage ownership of any other person. Unless otherwise indicated below, to
our knowledge, all persons named in the table have sole voting and investment
power with respect to their shares of common stock, except to the extent
authority is shared by spouses under applicable law.





Unless
otherwise indicated, the address of each person owning more than 5% of the
outstanding shares of common stock is c/o ATS Corporation, 7925 Jones Branch
Drive, McLean, Virginia 22102. The following table sets forth the number of
shares of our common stock beneficially owned by the indicated parties. The
table is based on information we received from directors, executive officers,
and filings made with the SEC.




Shares Beneficially OwnedBeneficial Owner
                    
                    Number
                    
                    
                    PercentageBeneficial
      Owners Holding More Than 5%Osmium
      Special Situations Fund Ltd. (1)
                    
                    
                    4,759,780
                    
                    
                    
                    20.88
                    %Lampe,
      Conway and Co., LLC (2)
                    
                    
                    4,739,315
                    
                    
                    
                    20.79Carl
      Marks & Co. Inc. (3)
                    
                    
                    3,305,295
                    
                    
                    
                    14.50David
      P. Cohen (4)
                    
                    
                    2,035,387
                    
                    
                    
                    8.93Directors
      and Executive OfficersJoel
      R. Jacks (5)
                    
                    
                    1,394,528
                    
                    
                    
                    6.12Peter
      M. Schulte (6)
                    
                    
                    1,298,154
                    
                    
                    
                    5.70Dr.
      Edward H. Bersoff (7)
                    
                    
                    950,000
                    
                    
                    
                    4.17Pamela
      A. Little (8)
                    
                    
                    347,646
                    
                    
                    
                    1.52Edward
      J. Smith (9)
                    
                    
                    83,122
                    
                    
                    
                    *Kevin
      S. Flannery (10)
                    
                    
                    67,659
                    
                    
                    
                    *James
      R. Swartwout (11)
                    
                    
                    11,275
                    
                    
                    
                    *Dr.
      Anita K. Jones (12)
                    
                    
                    11,068
                    
                    
                    
                    *John
      A. Hassoun (13)
                    
                    
                    0
                    
                    
                    
                    *All
      current directors, nominees and current executive officers as a group(9
      persons)
                    
                    
                    4,163,452
                    
                    
                    
                    18.27
                    %




60





*
            Represents
      beneficial ownership of less than
1%.




(1)
            Based
      on information contained in a Form 4 filed with the SEC on November 9,
      2010. The business address is Canon’s Court, 22 Victoria Street, Hamilton
      D0 HM11, Bermuda.


(2)
            Based
      on information contained in a Form 4 filed with the SEC on December 15,
      2010.  Lampe, Conway & Co., LLC is the investment manager of
      LC Capital Master Fund, Ltd., which shares voting and dispositive power
      for 4,408,315 of the total shares. Both Steven G. Lampe and Richard F.
      Conway, managing members of Lampe, Conway & Co., share voting and
      dispositive power over the total 4,739,315 shares.  The business
      address is 680 Fifth Avenue, 12 th
      Floor, New York, New York
10019-5429.


(3)
            Based on
      information contained in a Schedule 13D/A filed with the SEC on December
      14, 2010. Carl Marks & Co., Inc. has sole voting and dispositive power
      of 500,002 of the total shares and shares voting and dispositive power for
      2,805,293 of the total shares. Carl Marks & Co., Inc. is the
      investment manager of the following entities collectively referred to as
      the Non-CMCO Reporting Persons, BIC Partners, Andrew M. Boas, Mark L.
      Claster, Carol A. Boas, Katherine Boas Trust of 2001, Benjamin W. Boas
      Grantor 2006 Trust, Esther E. Boas Trust, Hallie Boas Trust of 2007,
      Rebecca Boas Trust of 2008, Jessie Rachel Boas Trust of 2008, Samual
      Robert Boas Trust of 2008, Daniel C. Claster Grantor Trust, Matthew L.
      Claster Trust of 2004, Bari Claster Trust, Carolyn G. Marks, Linda Katz,
      Constance A. Marks, and Nancy A. Marks, owning a total of 2,805,293
      shares. Carl Marks & Co., Inc. shares voting and dispositive power for
      all of the shares owned by the Non-CMCO Reporting Persons. The business
      address is 900 Third Avenue, 33rdFloor, New York, New York
      10022.


(4)
            Based on information contained in
      a Schedule 13G/A filed with the SEC on February 11, 2009. Of the total
      beneficial ownership amount of 2,035,387 shares, 842,966 are held by
      Athena Capital Management, Inc. and 1,192,421 shares are held by Minerva
      Group, LP. The business address of Mr. Cohen is 50 Monument Road, Suite
      201, Bala Cynwyd, Pennsylvania
  19004.


(5)
            Includes 34,709 restricted shares
      under the terms of the 2006 Omnibus Incentive Compensation Plan (of which
      7,372 have already vested, and 2,086 vest on each May 7 through May 7,
      2013; 3,200 vests on each May 5 through May 5, 2014; and 8,275 vest on May
      1, 2011).


(6)
            Includes 34,709 restricted shares
      under the terms of the 2006 Omnibus Incentive Compensation Plan (of which
      7,372 have already vested, and 2,086 vest on each May 7 through May 7,
      2013; 3,200 vest on each May 5 through May 5, 2014; and 8,275 vest on May
      1, 2011).


(7)
            Includes 265,000 restricted
      shares under the terms of the 2006 Omnibus Incentive Compensation Plan (of
      which 210,000 have already vested, 30,000 vest on December 31, 2011;
      10,000 vest on January 2, 2012; and 15,000 vest on January 4,
      2012).


(8)
            Includes
      277,000 restricted shares under the terms of the 2006 Omnibus Incentive
      Compensation Plan (of which 145,500 have already vested, 12,500 vest on
      May 4, 2011; 14,000 vest on January 2, 2012; 15,000 vest on January 4,
      2012; 50,000 vest on January 4, 2013; and 13,333 vest on each January 3,
      through January 3, 2014, commencing on January 3, 2012). The total amount
      also includes 45,646 shares purchased per the terms of the Company’s 2007
      Employee Stock Purchase Plan and 25,000 shares Ms. Little has the right to
      acquire beneficial ownership pursuant to the exercise of an option within
      60 days of the date of this table. Ms. Little was granted 100,000 options
      on May 5, 2009, vesting over a four-year period in 25,000
      increments.


(9)
            Includes 67,586 restricted shares
      under the terms of the 2006 Omnibus Incentive Compensation Plan (of which
      27,097 have already vested, and 6,575 vest on each March 29 through March
      29, 2012; 2,086 vest on each May 7 through May 7, 2013; 3,200 vest on each
      May 5 through May 5, 2014; and 8,275 vest on May 1,
      2011).


(10)
            Includes
      49,417 restricted shares under the terms of the 2006 Omnibus Incentive
      Compensation Plan (of which 8,228 have already vested, and 8,228 vest on
      each June 1, through June 1, 2014; and 8,275 vest on May 1,
      2011).


(11)
            Includes
      8,275 restricted shares under the terms of the 2006 Omnibus Incentive
      Compensation Plan (of which all 8,275 will vest on May 1,
      2011).




(12)
            Includes 8,275 restricted shares
      under the terms of the 2006 Omnibus Incentive Compensation Plan (of which
      all 8,275 will vest on May 1,
  2011).


(13)
            Mr.
      Hassoun was granted 50,000 options on September 1, 2010 and 30,000 options
      on January 3, 2011, each vesting over a four year period in 12,500 and
      7,500 increments, respectively;  however, he does not have the
      right to acquire beneficial ownership pursuant to the exercise of any of
      these options within 60 days of the date of this
  table.


61





Equity
Compensation Plan Information





The
following table provides a summary of the Company’s two equity plans as of
December 31, 2010, both approved by the stockholders.





Name of Plan
                                                    
                                                    Number
                                                      of Shares
                                                      Approved
                                                    
                                                    Shares Issued
                                                      from Vested
                                                      Restricted
                                                      Stock,
                                                      Employee
                                                      Bonus (1) , Board
                                                      Compensation (2)
                                                      and ESPP
                                                    
                                                    Shares
                                                      Issued
                                                      From
                                                      Exercised
                                                      Options
                                                    
                                                    Shares to Be
                                                      Issued Upon
                                                      Vesting of
                                                      Restricted
                                                      Stock
                                                    
                                                    Shares to Be
                                                      Issued Upon
                                                      Exercise of
                                                      Outstanding
                                                      Stock
                                                      Options
                                                    
                                                    Weighted-
                                                      Average
                                                      Exercise
                                                      Price of
                                                      Outstanding
                                                      Options
                                                    
                                                    Number of
                                                      Securities
                                                      Remaining
                                                      Available for
                                                      Future
                                                      Issuance Under
                                                      Equity
                                                      Compensation
                                                      PlansEquity
      Compensation PlansApproved
      by Security Holders:2006
      Omnibus Incentive StockCompensation
      Plan
                                                    
                                                    2,000,000
                                                    
                                                    579,839
                                                    
                                                    12,750
                                                    
                                                    433,402
                                                    
                                                    579,250
                                                    
                                                    $2.96
                                                    
                                                    394,7592007
      Employee StockPurchase Plan (3)
                                                    
                                                    450,000
                                                    
                                                    347,104
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    102,896Total
                                                    
                                                    2,450,000
                                                    
                                                    926,943
                                                    
                                                    12,750
                                                    
                                                    433,402
                                                    
                                                    579,250
                                                    
                                                    
                                                    
                                                    497,655





(1)
            In December 2007, the Company
      issued 15,500 Company shares to employees from the 2006 Omnibus Incentive
      Compensation Plan as an equity-based bonus. The 579,839 share amount
      includes such 15,500 shares.


(2)
            As
      of May 18, 2010, the Board approved the issuance of common shares for
      board compensation received in lieu of cash from the 2006 Omnibus
      Incentive Compensation Plan.  In May of 2010, 35,551 shares were
      issued to board members for compensation in lieu of cash.  The
      579,839 share amount includes such 35,551
  shares.


(3)
            As of December 8, 2010, the board
      approved an additional 100,000 shares for the ESPP beginning in fiscal
      year 2011, per the terms of the evergreen provision for that
      plan.


62




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




Director
Independence





The Board
has affirmatively determined that all directors with the exception of Dr.
Bersoff are independent directors in accordance with the rules of the SEC and
New York Stock Exchange (“NYSE”) Amex director independence requirements. The
Nominating and Governance Committee annually reviews the independence of each
board nominee, conducts a periodic review of the independence of the other
members of the board committees and reports its findings to the full board. Each
board committee member qualifies as a non-employee director within the meaning
of Rule 16b-3 under the Exchange Act.





For a
director to be considered independent, the board must determine that the
director does not have any direct or indirect material relationships (including
vendor, supplier, consulting, legal, banking, accounting, charitable and family
relationship) with us, other than as a director and a stockholder. NYSE Amex
listing standards set forth certain circumstances in which a director may not be
deemed independent, including certain relationships that exist at the time of
the determination or during the prior three years. Under these NYSE Amex listing
standards, Dr. Bersoff is not independent because he was an employee of the
Company until December 31, 2010.





Certain
Relationships and Transactions With Related Persons





The
Company does not have a comprehensive written policy for the review, approval or
ratification of certain transactions. We review all transactions between us and
any of our officers and directors. Our Code of Conduct, which applies to all
directors, officers and employees, emphasizes the importance of avoiding
situations or transactions in which personal interests interfere with the best
interests of us or our stockholders. The Board reviews any transaction with a
director to determine, on a case-by-case basis, whether a conflict of interest
exists. The Board ensures that all directors voting on such a matter have no
interest in the matter and discuss the transaction with counsel as necessary.
The Board has delegated the task of discussing, reviewing and approving
transactions between us and any of our officers to the Compensation
Committee.




Item
14. Principal Accountant Fees and Services




The
independent registered public accounting firm of the Company during the fiscal
years ended December 31, 2010 and 2009 was Grant Thornton LLP.  All of
Grant Thornton’s fees were approved in advance by the Audit Committee of the
Board of Directors. The following table sets forth the fees incurred for
services provided by Grant Thornton for the fiscal years ended December 31, 2010
and 2009, respectively.




2010
                    
                    
                    2009Audit
      fees
                    
                    $
                    334,395
                    
                    
                    $
                    321,886Audit-related
      fees
                    
                    
                    16,040
                    
                    
                    
                    25,875Tax
      fees
                    
                    
                    31,500
                    
                    
                    
                    30,000Total
                    
                    $
                    381,935
                    
                    
                    $
                    377,761




The
following is a description of the services related to the above fees. The Audit
Committee has considered whether Grant Thornton’s provision of non-audit
services is compatible with maintaining its independence.





Audit Fees.  These
are for professional services rendered by Grant Thornton for the audit of our
annual consolidated financial statements and the reviews of consolidated
financial statements included in our quarterly reports on Form
10-Q.





Audit-Related
Fees.  These are for assurance and related services rendered by
Grant Thornton that are reasonably related to the performance of the audit or
the reviews of our consolidated financial statements that are not included as
audit fees. These services include consultations concerning financial accounting
and reporting standards.





Tax Fees.  These
are for professional services rendered by Grant Thornton with respect to tax
compliance, tax advice, and tax planning. These services include the
preparations and review of tax returns and consulting on tax planning
matters.





All Other
Fees.  These are for services rendered by Grant Thornton that
do not meet the above category descriptions.


63




PART
IV




Item
15. Exhibits and Financial Statement Schedules





(a)
            Documents filed as part of
      this Report





(1)
            Financial
      Statements





(A)
            Report of Independent Registered
      Public Accounting Firm





(B)
            Consolidated Statements of
      Operations for the fiscal years ended December 31, 2010 and
      2009





(C)
            Consolidated Balance Sheets as of
      December 31, 2010 and 2009





(D)
            Consolidated Statements of Cash
      Flows for the fiscal years ended December 31, 2010 and
      2009





(E)
            Consolidated Statements of
      Shareholders’ Equity for the fiscal years ended December 31, 2010 and
      2009





(F)
            Notes to Consolidated Financial
      Statements





(2)
            Supplementary Financial
      Data




Schedule
II — Valuation and Qualifying Accounts for the fiscal years ended
December 31, 2010 and 2009.




(b)
            Exhibits




The
following exhibits are included with this report or incorporated herein by
reference:





Exhibit
                    Number
                  
                  Description2.1
                  
                  Stock
      Purchase Agreement dated April 19, 2006 among Federal Services Acquisition
      Corporation, Advanced Technology Systems, Inc. and the shareholders of
      Advanced Technology Systems, Inc. (“ATSI”) (included as Annex A to the
      Definitive Proxy Statement (No. 000-51552) dated December 11, 2006 and
      incorporated by reference herein)2.2
                  
                  First
      Amendment to ATSI Stock Purchase Agreement (included as Annex A-1 to the
      Definitive Proxy Statement (No. 000-51552) dated December 11, 2006 and
      incorporated by reference herein)2.3
                  
                  Second
      Amendment to ATSI Stock Purchase Agreement (included as Annex A-2 to the
      Definitive Proxy Statement (No. 000-51552) dated December 11, 2006 and
      incorporated by reference herein)2.4
                  
                  Third
      Amendment to ATSI Stock Purchase Agreement (included as Annex A-3 to the
      Definitive Proxy Statement (No. 000-51552) dated December 11, 2006 and
      incorporated by reference herein)2.5
                  
                  Stock
      Purchase Agreement dated as of August 24, 2007 by and among ATS
      Corporation, Potomac Management Group, Inc. and the Shareholders of
      Potomac Management Group, Inc. (incorporated by reference to Exhibit 2.1
      to a Current Report on Form 8-K filed on September 7,
  2007)2.6
                  
                  Agreement
      and Plan of Merger and Reorganization, dated as of October 12, 2007 by and
      among ATS Corporation, ATS NSS Acquisition, Inc., Number Six Software,
      Inc., and the Principal Stockholders of Number Six Software, Inc.
      (incorporated by reference to Exhibit 2.1 to a Current Report on Form 8-K
      filed on October 16, 2007)3.1
                  
                  Second
      Amended and Restated Certificate of Incorporation dated January 16, 2007
      (incorporated by reference to Exhibit 3.1 to a Current Report on Form 8-K
      filed January 19, 2007)3.2
                  
                  Amended
      Bylaws (incorporated by reference to Exhibit 3.1 to a Current Report on
      Form 8-K filed May 6, 2009)4.1
                  
                  Specimen
      Common Stock Certificate (incorporated by reference to Exhibit 4.2 to the
      Registration Statement on Form S-1, as amended, initially filed on May 4,
      2005)10.1
                  
                  Credit
      Agreement with Bank of America dated June 4, 2007 (incorporated by
      reference to Exhibit 10.1 on a Form 8-K filed June 8,
  2007)


64




10.2
              
              Amendment
      No. 1 to Credit Agreement with Bank of America dated June 29, 2007
      (incorporated by reference to Exhibit 10.1 for the Quarterly Report on
      Form 10-Q filed November 8, 2007)10.3
              
              Amendment
      No. 2 to Credit Agreement with Bank of America dated November 9, 2007
      (incorporated by reference to Exhibit 10.1 to a Current Report on Form 8-K
      filed November 13, 2007)10.4
              
              Amendment
      No. 3 to Credit Agreement with Bank of America dated May 9, 2009
      (incorporated by reference to Exhibit 10.1 for the Quarterly Report on
      Form 10-Q filed May 12, 2009)10.5
              
              Amended
      and Restated Credit Agreement with Bank of America, N.A. dated June 1,
      2010 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on
      June 4, 2010)10.6
              
              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)10.7
              
              Registration
      Rights Agreement among ATS Corporation and the Principal Stockholders of
      Number Six Software, Inc. dated November 9, 2007 (incorporated by
      reference to Exhibit 10.10 for Form 10-K filed March 17,
    2008)10.8
              
              ATS
      Corporation 2006 Omnibus Incentive Compensation Plan, as amended
      (incorporated by reference to Appendix A to the Definitive Proxy Statement
      filed March 24, 2009)10.9
              
              ATS
      Corporation 2007 Employee Stock Purchase Plan (incorporated by reference
      to Exhibit 99.2 to Form S-8 filed September 14, 2007)10.10
              
              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)10.11
              
              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)*10.12
              
              Restricted
      Share Award Agreement with Dr. Edward H. Bersoff dated January 4,
      2010*10.13
              
              Restricted
      Share Award Agreement with Pamela A. Little dated January 4,
      201010.14
              
              Employment
      Agreement with Pamela A. Little dated February 3, 2008 (incorporated by
      reference to Exhibit 10.1 on a Current Report on Form 8-K filed February
      6, 2008)10.15
              
              Employment
      Agreement with George Troendle dated August 7, 2008 (incorporated by
      reference to Exhibit 10.2 to our Form 10-Q filed on November 7,
      2008)*10.16
              
              Employment
      Agreement with John Hassoun dated September 2, 2010.10.17
              
              Employment
      Agreement with Sidney E. Fuchs, dated March 1, 2010 (incorporated by
      reference to Exhibit 10.1 to our Form 10-Q filed April 28,
      2010)10.18
              
              Agreement
      with Sidney E. Fuchs dated January 5, 2011 (incorporated by reference to
      Exhibit 10.1 to our Form 8-K filed on January 7, 2011)10.19
              
              Non-Executive
      Chairman Agreement with Dr. Edward H. Bersoff, dated December 15, 2010
      (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on
      December 16, 2010)10.20
              
              Deed
      of Lease between West*Group Properties, LLC and ATS Corporation, dated
      February 11, 2008, for the property located at 7925 Jones Branch Drive,
      McLean, Virginia 22102 (incorporated by reference to Exhibit 10.1 on a
      Current Report on Form 8-K filed February 14, 2008)*10.21
              
              Form
      of Director Restricted Share Award
Agreement




Exhibit
                    Number
                  
                  Description*23.1
                  
                  Consent
      of Grant Thornton LLP regarding ATS Corporation financial statements for
      the years ended December 31, 2009 and December 31, 2010*31.1
                  
                  Certification
      of Principal Executive Officers 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 Officers pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002*32.2
                  
                  Certification
      of Principal Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002





*
     Filed herewith.


65





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Board of
Directors and Shareholders


ATS
Corporation





We have
audited the accompanying consolidated balance sheets of ATS Corporation (a
Delaware corporation) and subsidiary as of December 31, 2010 and 2009, and the
related consolidated statements of income, comprehensive income, shareholders’
equity, and cash flows for each of the two years in the period ended December
31, 2010.Our
audits of the basic financial statements included the financial statement
schedule listed in the index appearing under Item 15 (a)(2). These financial
statements and financial statement schedule are the responsibility of the
Company's management.Our responsibility is
to express an opinion on these financial statements and financial statement
schedule based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.The Company is not
required to have, nor were we engaged to perform an audit of its internal
control over financial reporting.Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.Accordingly, we express
no such opinion.An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.We believe that our
audits provide a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of ATS Corporation and
subsidiary as of December 31, 2010 and 2009, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
2010 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.





/S/ Grant
Thornton LLP





McLean,
Virginia


February
17, 2011


66





ATS
CORPORATION




CONSOLIDATED
STATEMENTS OF INCOME





Year Ended December 31,2010
                              
                              
                              2009Revenue
                              
                              $
                              116,666,234
                              
                              
                              $
                              118,658,939Operating
      costs and expensesDirect
      costs
                              
                              
                              81,059,072
                              
                              
                              
                              80,349,485Selling,
      general and administrative expenses
                              
                              
                              22,604,892
                              
                              
                              
                              25,664,838Depreciation
      and amortization
                              
                              
                              2,540,210
                              
                              
                              
                              3,038,021Total
      operating costs and expenses
                              
                              
                              106,204,174
                              
                              
                              
                              109,052,344Operating
      income
                              
                              
                              10,462,060
                              
                              
                              
                              9,606,595Other
      (expense) incomeInterest
      expense, net
                              
                              
                              (1,157,477
                              )
                              
                              
                              (2,859,462
                              )Other
      income(expense)
                              
                              
                              1,463,332
                              
                              
                              
                              (1,438,563
                              )Income
      before income taxes
                              
                              
                              10,767,915
                              
                              
                              
                              5,308,570Income
      tax expense
                              
                              
                              3,666,741
                              
                              
                              
                              2,180,727Net
      income
                              
                              $
                              7,101,174
                              
                              
                              $
                              3,127,843Weighted
      average number of shares outstanding-
      basic
                              
                              
                              22,535,493
                              
                              
                              
                              22,669,066-
      dilutive
                              
                              
                              22,690,774
                              
                              
                              
                              22,766,840Basic
      net income per share
                              
                              $
                              0.32
                              
                              
                              
                              0.14Diluted
      net income per share
                              
                              $
                              0.31
                              
                              
                              
                              0.14




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


67




ATS
CORPORATION




CONSOLIDATED
BALANCE SHEETS




Year Ended December 31,2010
                                    
                                    
                                    2009ASSETSCurrent
      assets:Cash
      and cash equivalents
                                    
                                    $
                                    65,993
                                    
                                    
                                    $
                                    178,225Accounts
      receivable, net
                                    
                                    
                                    21,219,602
                                    
                                    
                                    
                                    22,497,444Prepaid
      expenses and other current assets
                                    
                                    
                                    696,174
                                    
                                    
                                    
                                    625,231Income
      tax receivable, net
                                    
                                    
                                    61,477
                                    
                                    
                                    
                                    205,339Restricted
      cash
                                    
                                    
                                    1,327,245
                                    
                                    
                                    
                                    1,324,510Other
      current assets
                                    
                                    
                                    25,491
                                    
                                    
                                    
                                    46,057Deferred
      income taxes, current
                                    
                                    
                                    698,521
                                    
                                    
                                    
                                    2,361,611Total
      current assets
                                    
                                    
                                    24,094,503
                                    
                                    
                                    
                                    27,238,417Property
      and equipment, net
                                    
                                    
                                    2,714,164
                                    
                                    
                                    
                                    3,011,621Goodwill
                                    
                                    
                                    55,370,011
                                    
                                    
                                    
                                    55,370,011Intangible
      assets, net
                                    
                                    
                                    4,110,470
                                    
                                    
                                    
                                    6,102,798Other
      assets
                                    
                                    
                                    133,314
                                    
                                    
                                    
                                    146,567Deferred
      income taxes
                                    
                                    
                                    1,407,545
                                    
                                    
                                    
                                    1,400,260Total
      assets
                                    
                                    $
                                    87,830,007
                                    
                                    
                                    $
                                    93,269,674LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Current
      portion of debt
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    21,191,135Capital
      leases – current portion
                                    
                                    
                                    79,572
                                    
                                    
                                    
                                    —Accounts
      payable
                                    
                                    
                                    4,457,781
                                    
                                    
                                    
                                    4,753,800Other
      accrued expenses and current liabilities
                                    
                                    
                                    2,381,941
                                    
                                    
                                    
                                    6,356,896Accrued
      salaries and related taxes
                                    
                                    
                                    2,917,294
                                    
                                    
                                    
                                    4,541,509Accrued
      vacation
                                    
                                    
                                    1,968,226
                                    
                                    
                                    
                                    2,259,538Deferred
      revenue
                                    
                                    
                                    513,653
                                    
                                    
                                    
                                    1,392,457Deferred
      rent – current portion
                                    
                                    
                                    320,498
                                    
                                    
                                    
                                    320,498Total
      current liabilities
                                    
                                    
                                    12,638,965
                                    
                                    
                                    
                                    40,815,833Long-term
      debt – net of current portion
                                    
                                    
                                    14,400,000
                                    
                                    
                                    
                                    —Capital
      leases – net of current portion
                                    
                                    
                                    143,648
                                    
                                    
                                    
                                    —Deferred
      rent – net of current portion
                                    
                                    
                                    2,465,962
                                    
                                    
                                    
                                    2,658,055Other
      long-term liabilities
                                    
                                    
                                    —
                                    
                                    
                                    
                                    5,795Total
      liabilities
                                    
                                    
                                    29,648,575
                                    
                                    
                                    
                                    43,479,683Commitments
      and contingencies
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Shareholders’
      equity:Preferred
      stock $.0001 par value, 1,000,000 shares authorized, and no shares issued
      and outstanding
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Common
      stock $0.0001 par value, 100,000,000 shares authorized, 31,561,486 and
      31,235,696 shares issued, respectively
                                    
                                    
                                    3,156
                                    
                                    
                                    
                                    3,124Additional
      paid-in capital
                                    
                                    
                                    132,803,839
                                    
                                    
                                    
                                    131,702,488Treasury
      stock, at cost, 8,897,893 and 8,745,893 shares,
    respectively
                                    
                                    
                                    (31,663,758
                                    )
                                    
                                    
                                    (31,209,118
                                    )Accumulated
      deficit
                                    
                                    
                                    (42,961,805
                                    )
                                    
                                    
                                    (50,062,979
                                    )Other
      comprehensive loss (net of $400,571 tax effect)
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (643,524
                                    )Total
      shareholders’ equity
                                    
                                    
                                    58,181,432
                                    
                                    
                                    
                                    49,789,991Total
      liabilities and shareholders’ equity
                                    
                                    $
                                    87,830,007
                                    
                                    
                                    $
                                    93,269,674




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


68





ATS
CORPORATION




CONSOLIDATED
STATEMENTS OF CASH FLOWS





Years Ended December 31,2010
                                    
                                    
                                    2009Cash
      flows from operating activitiesNet
      income
                                    
                                    $
                                    7,101,174
                                    
                                    
                                    $
                                    3,127,843Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                                    
                                    
                                    2,540,210
                                    
                                    
                                    
                                    3,038,021Non-cash
      interest (income) expense SWAP agreement
                                    
                                    
                                    (354,020
                                    )
                                    
                                    
                                    354,020Employee
      stock-based compensation
                                    
                                    
                                    748,409
                                    
                                    
                                    
                                    654,572Directors’
      fees paid in equity
                                    
                                    
                                    103,098
                                    
                                    
                                    
                                    113,735Deferred
      income taxes
                                    
                                    
                                    1,237,633
                                    
                                    
                                    
                                    (767,726
                                    )Deferred
      rent
                                    
                                    
                                    (192,093
                                    )
                                    
                                    
                                    (243,140
                                    )Gain
      on disposal of equipment
                                    
                                    
                                    (8,722
                                    )
                                    
                                    
                                    (61,437
                                    )Reduction
      in notes payable from acquisition
                                    
                                    
                                    (495,000
                                    )
                                    
                                    
                                    —Provision
      for bad debt
                                    
                                    
                                    974,203
                                    
                                    
                                    
                                    1,150,993Changes
      in assets and liabilities, net of effects of acquisitions:Accounts
      receivable
                                    
                                    
                                    303,639
                                    
                                    
                                    
                                    5,620,210Prepaid
      expenses and other current assets
                                    
                                    
                                    (70,943
                                    )
                                    
                                    
                                    (87,258
                                    )Restricted
      cash
                                    
                                    
                                    (2,735
                                    )
                                    
                                    
                                    (7,980
                                    )Other
      assets
                                    
                                    
                                    34,026
                                    
                                    
                                    
                                    218,044Accounts
      payable
                                    
                                    
                                    (296,021
                                    )
                                    
                                    
                                    (795,938
                                    )Other
      accrued expenses and accrued liabilities
                                    
                                    
                                    (2,576,840
                                    )
                                    
                                    
                                    284,253Accrued
      salaries and related taxes
                                    
                                    
                                    (1,624,215
                                    )
                                    
                                    
                                    1,541,932Accrued
      vacation
                                    
                                    
                                    (291,312
                                    )
                                    
                                    
                                    38,672Income
      taxes payable and receivable, net
                                    
                                    
                                    161,463
                                    
                                    
                                    
                                    (961,207
                                    )Other
      current liabilities
                                    
                                    
                                    (878,804
                                    )
                                    
                                    
                                    (352,895
                                    )Other
      long-term liabilities
                                    
                                    
                                    (5,795
                                    )
                                    
                                    
                                    5,794Net
      cash provided by operating activities
                                    
                                    $
                                    6,407,355
                                    
                                    
                                    $
                                    12,870,508Cash
      flows from investing activitiesPurchase
      of property and equipment
                                    
                                    
                                    (9,074
                                    )
                                    
                                    
                                    (135,414
                                    )Proceeds
      from release of escrows
                                    
                                    
                                    —
                                    
                                    
                                    
                                    3,758,637Proceeds
      from disposals of equipment
                                    
                                    
                                    10,000
                                    
                                    
                                    
                                    61,437Net
      cash provided by (used in) investing activities
                                    
                                    $
                                    926
                                    
                                    
                                    $
                                    3,684,660Cash
      flows from financing activitiesBorrowings
      on line of credit
                                    
                                    
                                    69,814,288
                                    
                                    
                                    
                                    65,880,794Payments
      on line of credit
                                    
                                    
                                    (74,102,523
                                    )
                                    
                                    
                                    (79,747,617
                                    )Issuance
      of notes payable
                                    
                                    
                                    —
                                    
                                    
                                    
                                    139,176Payments
      on notes payable
                                    
                                    
                                    (2,007,900
                                    )
                                    
                                    
                                    (2,157,108
                                    )Payments
      on capital leases
                                    
                                    
                                    (19,614
                                    )
                                    
                                    
                                    (87,079
                                    )Proceeds
      from exercise of stock options
                                    
                                    
                                    19,588
                                    
                                    
                                    
                                    —Proceeds
      from stock issued pursuant to Employee Stock Purchase Plan
                                    
                                    
                                    230,288
                                    
                                    
                                    
                                    167,180Payments
      to repurchase treasury stock
                                    
                                    
                                    (454,640
                                    )
                                    
                                    
                                    (937,111
                                    )Net
      cash used in financing activities
                                    
                                    $
                                    (6,520,513
                                    )
                                    
                                    $
                                    (16,741,765
                                    )Net
      decrease of cash
                                    
                                    $
                                    (112,232
                                    )
                                    
                                    $
                                    (186,597
                                    )Cash
      and cash equivalents, beginning of period
                                    
                                    
                                    178,225
                                    
                                    
                                    
                                    364,822Cash
      and cash equivalents, end of period
                                    
                                    $
                                    65,993
                                    
                                    
                                    $
                                    178,225Supplemental
      disclosures:Cash
      paid or received during the period for:Income
      taxes paid
                                    
                                    $
                                    2,289,228
                                    
                                    
                                    $
                                    3,926,398Income
      tax refunds
                                    
                                    $
                                    23,977
                                    
                                    
                                    $
                                    25,971Interest
      paid
                                    
                                    $
                                    1,972,402
                                    
                                    
                                    $
                                    2,280,525Interest
      received
                                    
                                    $
                                    305,461
                                    
                                    
                                    $
                                    49,978Non-cash
      investing activities:Equipment
      financed under capital leases
                                    
                                    $
                                    242,834
                                    
                                    
                                    $
                                    —




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


69




ATS
CORPORATION




CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY




Common Stock
                                        
                                        
                                        Additional
                                          Paid-In
                                        
                                        
                                        Treasury Stock
                                        
                                        
                                        Accumulated
                                          (Deficit)
                                        
                                        
                                        Accumulated
                                          Other
                                          Comprehensive
                                        
                                        
                                        Total
                                          Shareholders’Shares
                                        
                                        
                                        Amount
                                        
                                        
                                        Capital
                                        
                                        
                                        Shares
                                        
                                        
                                        Amount
                                        
                                        
                                        Earnings
                                        
                                        
                                        Income (Loss)
                                        
                                        
                                        EquityBalance – January
      1, 2009
                                        
                                        
                                        30,867,304
                                        
                                        
                                        $
                                        3,087
                                        
                                        
                                        $
                                        130,767,038
                                        
                                        
                                        
                                        (8,342,755
                                        )
                                        
                                        $
                                        (30,272,007
                                        )
                                        
                                        $
                                        (53,190,822
                                        )
                                        
                                        $
                                        (1,395,840
                                        )
                                        
                                        $
                                        45,911,456Stock-based
      compensation re: stock options and restricted shares
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        654,560
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        654,560Stock-based
      compensation re: directors fees
                                        
                                        
                                        73,474
                                        
                                        
                                        
                                        7
                                        
                                        
                                        
                                        113,740
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        113,747Common
      stock issued re: vested restricted shares
                                        
                                        
                                        170,426
                                        
                                        
                                        
                                        17
                                        
                                        
                                        
                                        (17
                                        )
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        —Common
      stock issued re: ESPP
                                        
                                        
                                        124,492
                                        
                                        
                                        
                                        13
                                        
                                        
                                        
                                        167,167
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        167,180Net
      Income
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        3,127,843
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        3,127,843Purchase
      of treasury shares
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (403,138
                                        )
                                        
                                        
                                        (937,111
                                        )
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (937,111
                                        )Change
      in fair value of interest rate swap agreement, net of tax
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        752,316
                                        
                                        
                                        
                                        752,316Balance – December
      31, 2009
                                        
                                        
                                        31,235,696
                                        
                                        
                                        $
                                        3,124
                                        
                                        
                                        $
                                        131,702,488
                                        
                                        
                                        
                                        (8,745,893
                                        )
                                        
                                        $
                                        (31,209,118
                                        )
                                        
                                        $
                                        (50,062,979
                                        )
                                        
                                        $
                                        (643,524
                                        )
                                        
                                        $
                                        49,789,991Stock-based
      compensation re: stock options and restricted shares
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        748,409
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        748,409Stock-based
      compensation re: directors fees
                                        
                                        
                                        35,551
                                        
                                        
                                        
                                        4
                                        
                                        
                                        
                                        103,094
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        103,098Common
      stock issued re: vested restricted shares
                                        
                                        
                                        180,358
                                        
                                        
                                        
                                        17
                                        
                                        
                                        
                                        (17
                                        )
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        —Common
      stock issued re: ESPP
                                        
                                        
                                        97,131
                                        
                                        
                                        
                                        10
                                        
                                        
                                        
                                        230,278
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        230,288Exercised
      stock options
                                        
                                        
                                        12,750
                                        
                                        
                                        
                                        1
                                        
                                        
                                        
                                        19,587
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        19,588Net
      Income
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        7,101,174
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        7,101,174Purchase
      of treasury shares
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (152,000
                                        )
                                        
                                        
                                        (454,640
                                        )
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (454,640
                                        )Change
      in fair value of interest rate swap agreement, net of tax
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        643,524
                                        
                                        
                                        
                                        643,524Balance – December
      31, 2010
                                        
                                        
                                        31,561,486
                                        
                                        
                                        $
                                        3,156
                                        
                                        
                                        $
                                        132,803,839
                                        
                                        
                                        
                                        (8,897,893
                                        )
                                        
                                        $
                                        (31,663,758
                                        )
                                        
                                        $
                                        (42,961,805
                                        )
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        58,181,432




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




ATS
CORPORATION




CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME





Fiscal Year Ended December 31,2010
                        
                        
                        2009Net
      income
                        
                        $
                        7,101,174
                        
                        
                        $
                        3,127,843Change
      in fair value of interest rate swap agreements
                        
                        
                        643,524
                        
                        
                        
                        752,316Comprehensive
      income
                        
                        $
                        7,744,698
                        
                        
                        $
                        3,880,159




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


70


ATS
CORPORATION




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
1 — Organization and Basis of Presentation





ATS
Corporation (the “Company”) was incorporated in Delaware on April 12, 2005. The
Company was formed to serve as a vehicle for the acquisition of operating
businesses in the federal services and defense industries through a merger,
capital stock exchange, asset acquisition, stock purchase or other similar
business combinations. The Company is an information technology and professional
services firm providing information technology solutions and professional
services to its clients, primarily the U.S. government.





On
January 15, 2007, the Company began operations by consummating a business
combination and acquiring all of the outstanding capital stock of Advanced
Technology Systems, Inc. (“ATSI”) and its subsidiaries (collectively, “ATSI”), a
provider of systems integration and application development to the U.S.
government, for approximately $80.2 million in cash and an aggregate of 173,913
shares of common stock of the Company, valued at $1.0 million. The Company
funded the cash portion of the ATSI purchase price with the proceeds of its
initial public offering. The Company concluded three additional acquisition
transactions in 2007 and integrated all four companies into one operational
unit.





Note 2 — Summary of Significant
Accounting Policies





Use
of Accounting Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“US GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reported periods. The actual results could
differ from those estimates. Significant management estimates include amounts
estimated for costs to complete fixed-price contracts, the amortization period
for long-lived intangible assets, recoverability of long-lived assets, reserves
for accounts receivable, the determination of the fair values for certain
intangible assets, and share-based payments, loss contingencies, and the
valuation of deferred income taxes.





Revenue
Recognition





The
Company recognizes revenue when persuasive evidence of an arrangement exists,
services have been rendered or goods delivered, the contract price is fixed or
determinable, and collectability is reasonably assured. The Company’s revenue is
derived from primarily three different types of contractual arrangements:
time-and-materials contracts, fixed-price contracts and, to a lesser extent,
cost-plus-fee contracts. Revenue on time-and-material contracts is recognized
based on the actual hours performed at the contracted billable rates for
services provided, plus materials cost for products delivered to the customer,
and costs incurred on behalf of the customer. Revenue on fixed-price contracts
is recognized ratably over the period of performance or on
percentage-of-completion depending on the facts and circumstances of the
contract. Revenue on cost-plus-fee contracts is recognized to the extent of
costs incurred, plus an estimate of the applicable fees earned. Fixed fees under
cost-plus-fee contracts are recorded as earned in proportion to the allowable
costs incurred in performance of the contract. For cost-plus-fee contracts that
include performance based fee incentives, the Company recognizes the relevant
portion of the expected fee to be awarded by the customer at the time such fee
can be reasonably estimated, based on factors such as the Company’s prior award
experience and communications with the customer regarding performance. The
Company did not have any cost-plus-fee contracts in 2009, but did have one for
2010.





The
Company’s fixed price contracts are either maintenance and support services
based or require some level of customization. Revenue is recognized ratably over
the contract period for maintenance and support contracts. In accordance with
ASC 985, Software, 605, “Revenue Recognition,” for certain of the Company’s
fixed-price-completion contracts that involve software design, customization, or
integration, management applies contract accounting pursuant to the provisions
of ASC 985-605-35, “Revenue Recognition – Construction and Production-type
Contracts.” Revenue for such arrangements is recognized on the
percentage-of-completion method using costs incurred in relation to total
estimated project costs.


71




ATS
CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
2 — Summary of Significant Accounting Policies – (continued)





Contract
costs include labor, material, subcontracting costs, and allocated allowable
selling, general and administrative costs. Revenue recognition requires judgment
in estimating the revenue and associated costs, assessing risk in performance,
and evaluating technical issues. The Company may estimate award fees and
incentive fees or penalties in recognizing revenue based on anticipated awards
or when there is sufficient information to determine.





On
federal government contracts, the Company allocates costs to contracts
consistent with the federal procurement regulations. The direct and selling,
general and administrative costs associated with these contracts are subject to
government audit by DCAA or other cognizant audit agencies. The incurred cost
audits have been completed through October 31, 2005 without significant
adjustment. Management does not anticipate any material adjustment to the
consolidated financial statements in subsequent periods for audits not yet
performed. The Company’s management performs periodic reviews with the program
managers to assess contract performance. If an adjustment is necessary to a
previous estimate, the change is normally recorded in the current period
earnings.





Contract
revenue recognition inherently involves estimation. Examples of estimates
include the contemplated level of effort to accomplish the tasks under the
contract, the costs of the effort, and an ongoing assessment of the Company’s
progress toward completing the contract. From time to time, as part of its
standard management process, facts develop that require the Company to revise
its estimated total contract costs. To the extent that a revised estimate
affects contract profit or revenue previously recognized, the Company records
the cumulative effect of the revision in the period in which the revision
becomes known. The full amount of an anticipated loss on any type of contract is
recognized in the period in which it becomes probable and can reasonably be
estimated.





Under
certain circumstances, the Company may elect to work at-risk prior to receiving
an executed contract document. The Company has a formal procedure for
authorizing any such at risk work to be incurred. Revenue associated with such
work is recognized only when it can be reliably estimated and realization is
probable. The Company uses its previous experience with customers and
communications with the customer regarding funding status as well as its
knowledge of available funding for the contract in making these
decisions.





Accounts
Receivable





Accounts
receivable include amounts billed and due from customers, amounts earned but
unbilled (primarily related to contracts accounted for under the
percentage-of-completion method of accounting), and amounts retained by
customers pending contract completion.





Allowance
for Doubtful Accounts





An
allowance for bad debt against billed accounts receivable is established by the
Company based on experience and information available regarding collectability
of receivables. Since the majority of the Company’s receivables result from
services provided to the U.S. government, the Company believes the credit risk
to be relatively low.. When the balance of an accounts receivable is determined
to be uncollectible after exercising all means of collection, the receivable
balances are written-off.





Operating
Cost and Expenses





Direct
costs consist of all directly-related contract costs, including compensation
costs for personnel, material cost and any other direct costs. Also appropriate
selling, general and administrative costs are applied to employee direct labor,
subcontractor direct labor and material costs and included as direct costs.
Selling, general and administrative expenses include executive, administrative
and business development labor costs, indirect expenses related to the
performance of these functions, and allocations for fringe benefits cost.
Depreciation and amortization include the costs associated with the systematic
expensing of the Company’s fixed assets, as well as the amortization of the
intangible assets.




Stock
Compensation





Under the
fair value recognition provisions of ASC 718, Stock Compensation, the Company
recognizes stock-based compensation based upon the fair value of the stock-based
awards using the Black-Scholes option pricing model and taking into account the
effects of the employees’ expected exercise and post-vesting employment
termination behavior. Restricted stock units are valued based on the grant date
fair value of a share of common stock and are expensed on a straight line basis
over the vesting period of the award.


72




ATS
CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
2 — Summary of Significant Accounting Policies – (continued)





Deferred
Financing Costs





Costs
associated with obtaining the Company’s financing arrangements are deferred and
amortized over the term of the financing arrangements using the straight-line
method.





Income
Taxes





The
Company accounts for income taxes using the asset and liability method whereby
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the carrying amounts of assets
and liabilities, and their respective tax basis, and operating loss and tax
credit carry forwards. The differences between the basis of the assets and
liabilities for financial reporting and income tax purposes are recorded as
deferred income taxes. Deferred tax assets and liabilities are measured using
tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled. When required, a valuation allowance is
established to reduce deferred tax assets to the amount expected to be realized.
If there is a change in tax rates the effect on deferred tax assets and
liabilities is recognized in income in the period the change
occurred.





The
Company makes a comprehensive review of its portfolio of tax positions
regularly. In this regard, an uncertain tax position represents the Company’s
expected treatment of a tax position taken in a filed return, or planned to be
taken in a future tax return or claim that has not been reflected in measuring
income tax expense for financial reporting purposes. Until these positions are
sustained by the taxing authorities, the Company does not recognize the tax
benefits resulting from such positions and reports the tax effect as a liability
for uncertain tax positions in its consolidated statements of financial
position.




Cash
and Cash Equivalents





The
Company considers all highly liquid investments with original maturities, when
purchased, of three months or less to be cash equivalents.





Fair
Value of Financial Instruments





ASC Topic
825-10-65, “Financial Instruments” requires disclosure about the fair value of
financial instruments. We believe the carrying values of cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses and
other current liabilities approximate their estimated fair values at December
31, 2010 due to their short maturities.





ASC Topic
820, “Fair Value Measurements and Disclosures” defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. Fair value is defined as the price that would be paid to buy or
sell an asset or liability between market participants in an orderly
transaction. The fair value amount is based on pricing assumptions that would be
made by market participants. In general, fair value is based on observable
quoted market prices or data if available. If market prices or data are not
available, valuation models are used.





The
inputs used to valuate financial instruments are categorized into three levels.
Level 1 inputs are quoted market prices of identical financial instruments in an
active market. Level 2 inputs are either quoted market prices for similar
instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, inputs other than quoted market
prices that are observable, and inputs derived from or supported by observable
market data. Level 3 inputs are derived using valuation models in which
observable inputs reflect the reporting entity’s assumptions about the
assumptions of market participants that would be used in pricing the asset or
liability.





The
carrying value of our debt approximate the estimated fair value for debt with
similar terms, interest rates, and remaining maturities currently available to
companies with similar credit ratings at December 31,
2010.


73




ATS
CORPORATION




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
2 — Summary of Significant Accounting Policies – (continued)





Derivative
Instruments and Hedging Activities





The
Company accounts for derivative instruments and hedging activities in accordance
with ASC 815, “Derivatives and Hedging”. Accordingly, derivatives are recognized
as either assets or liabilities in the consolidated balance sheet, and gains and
losses are recognized based on changes in the fair values. The Company
recognizes gains and losses on derivatives designated or deemed to be an
effective hedge, net of tax, in accumulated other comprehensive income (loss) in
the accompanying consolidated financial statements. As an offset to gains or
losses recognized in comprehensive income a gross asset or liability is
recognized, as well as an appropriate deferred tax liability or asset. To the
extent that the hedging relationship is ineffective, the ineffective portion of
the change in the fair value is recorded to operations. The classification of
gains and losses resulting from the changes in fair values is dependent on the
intended use of the derivative and its resulting designation. From time to time
the Company will enter into an interest rate SWAP agreement as a hedge to its
variable rate debt. The Company uses the change in variable cash flow method to
measure the effectiveness of such hedging instrument.





Credit
Risk





Management
believes that credit risk related to the Company’s accounts receivable is
limited since the majority of balances outstanding are with agencies of the U.S.
government or U.S. government sponsored organizations. The Company has
established a “bad debt” allowance of approximately $154 thousand dollars as an
adequate reserve for this risk.




Financial
Statements Reclassifications





Certain
amounts on the prior period financial statements and related notes have been
reclassified to conform to the current presentation.


-
            Amortization
      of Intangibles and Depreciation & amortization which were identified
      separately in the 2009 consolidated statement of cash flows have been
      combined in the 2010 statement;


-
            Stock-based
      compensation shown in the 2009 consolidated statement of cash flows has
      been split into Employee stock-based compensation and Director’s fees paid
      in equity in the 2010 statement;


-
            Non-cash
      interest related to the variable interest rate SWAP agreement was combined
      with Accounts Payable in the 2009 consolidated statement of cash flows, is
      shown separately in the 2010
statement.





Property
and Equipment





Property
and equipment are recorded at cost. Furniture and equipment are depreciated
using the straight-line method over the estimated useful life of the asset based
on the asset class ranging from three to seven years. Leasehold improvements are
amortized over the lease term or useful life of the improvements, whichever is
shorter, using the straight-line method. All repairs and maintenance costs are
expensed when incurred.





Goodwill
and Other Purchased Intangible Assets





Goodwill
represents the excess of costs over fair value of net assets of businesses
acquired. Other purchased intangible assets include the fair value of items such
as customer contracts, backlog and customer relationships. ASC 350 establishes
financial accounting and reporting for acquired goodwill and other intangible
assets. Goodwill and indefinite lived intangible assets acquired in a purchase
business combination are not amortized, but rather tested for impairment on an
annual basis and at an interim date in the event of a triggering
event.




The estimated fair value
of identified definitive-lived intangible assets is amortized over the estimated
useful life of the related intangible asset. The Company has a process pursuant
to which it typically retains a third-party valuation specialist to assist with
management’s analysis in determining the fair values and useful lives of
identified intangible assets. The Company evaluates these assets for impairment
when events occur that suggest a possible impairment. Such events could include,
but are not limited to, the loss of a significant client or contract, decreases
in federal government appropriations or funding for specific programs or
contracts, or other similar events. We determine impairment of goodwill by
comparing the carrying value of the reporting unit to the net present value of
its future net cash flows. If an impairment occurs, we will
record an impairment charge equal to the difference between the carrying value
of the reporting unit and its estimated enterprise fair value based on level 2
inputs such as quoted prices on similar assets or liabilities or other
observable market price data such as stock price, interest rates and yield
curves, which is a level 2 input under the fair value guidance. See Note
8.


74




ATS
CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
2 — Summary of Significant Accounting Policies – (continued)




Long-Lived
Assets (Excluding Goodwill)




In
accordance with the provisions of ASC 350-05 in accounting for long-lived assets
such as property and equipment and intangible assets subject to amortization,
the Company reviews the assets for impairment. If circumstances indicate the
carrying value of the asset may not be fully recoverable, an impairment loss is
recognized at that time, with a related reduction in the carrying value of the
asset is recorded. No events have occurred that would indicate impairment in
2010 or 2009. See Note 9.





Comprehensive
Income




Comprehensive
income is the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. Other
comprehensive income refers to revenue, expenses, and gains and losses that
under US GAAP are included in comprehensive income, but excluded from the
determination of net income. The element within other comprehensive income, net
of tax, represents the change in the fair value of interest rate swap accounted
for as a cash flow hedge. As of December 31, 2009, the accumulated other
comprehensive loss, net of income tax effects, was $643,524, related to the
change in the fair value of the interest rate swap. The SWAP agreement was
terminated in 2010, and the remaining amount related to the SWAP in other
comprehensive income was recognized in earnings.





Commitments
and Contingencies




Liabilities
for loss contingencies arising from claims, assessments, obligations, fines and
penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the claim can be reasonably
estimated.





Income
Per Share





Basic and
diluted net income per share information is presented in accordance with ASC
260, “Earnings Per Share” (ASC 260). Basic income per share is calculated by
dividing the net income attributable to common stockholders by the
weighted-average common shares outstanding during the period. Diluted net income
per share is calculated by dividing net income attributable to common
stockholders by the weighted average common shares outstanding, which includes
common stock equivalents. Common stock equivalents are excluded from a
calculation of diluted income per share if the impact would be anti-dilutive.
The Company’s common stock equivalents include stock options, restricted stock
units, and warrants. The diluted weighted average shares outstanding for the
year ended December 31, 2009 excluded unvested restricted shares, warrants and
stock options to purchase approximately 2,941,129 shares of the Company’s common
stock because such common stock equivalents had an exercise price in excess of
the average market price of the Company’s common stock during the period, or
would be anti-dilutive. The diluted weighted average shares outstanding for the
year ended December 31, 2010 excluded unvested restricted shares, stock options
to purchase approximately 514,558 shares because such common stock equivalents
had an exercise price in excess of the average market price of the Company’s
common stock during the period, or would be anti-dilutive. Information regarding
the weighted average number of basic and diluted shares is presented in Note
13.


75




ATS
CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
3 — Recent Accounting Pronouncements





ASU
2009-13 & ASU 2009-14: In September 2009, the FASB issued Accounting
Standards Update (“ASU”) 2009-13, Multiple-Deliverable Revenue Arrangements, and
ASU 2009-14, Certain Revenue Arrangements That Include Software Elements – a
consensus of the FASB Emerging Issues Task Force, to amend the existing revenue
recognition guidance. ASU 2009-13 amends Accounting Standards Codification
(“ASC”) 605, Revenue Recognition, 25, “Multiple-Element Arrangements” (formerly
EITF Issue 00-21, “Revenue Arrangements with Multiple Deliverables”), as
follows: modifies criteria used to separate elements in a multiple-element
arrangement, introduces the concept of “best estimate of selling price” for
determining the selling price of a deliverable, establishes a hierarchy of
evidence for determining the selling price of a deliverable, requires use of the
relative selling price method and prohibits use of the residual method to
allocate arrangement consideration among units of accounting, and expands the
disclosure requirements for all multiple-element arrangements within the scope
of ASC 605-25. The Company does not expect this ASU to have a material impact on
its revenue recognition for our fiscal year beginning January 1,
2011.





ASU
2009-14 amends the scope of ASC 985, Software, 605, “Revenue Recognition”
(formerly AICPA Statement of Position 97-2, Software Revenue Recognition), to
exclude certain tangible products and related deliverables that contain embedded
software from the scope of this guidance. Instead, the excluded products and
related deliverables must be evaluated for separation, measurement, and
allocation under the guidance of ASC 605-25, as amended by ASU 2009-13. The
amended guidance is effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15, 2010.
Early adoption is permitted. An entity may elect retrospective application to
all revenue arrangements for all periods presented using the guidance in ASC
250, Accounting Changes and Error Corrections. Entities must adopt the
amendments resulting from both of these ASUs in the same period using the same
transition method, where applicable. The Company does not expect this ASU to
have a material impact on its revenue recognition for our fiscal year beginning
January 1, 2011.




In April
2010, the FASB issued ASU 2010-17, Revenue Recognition – Milestone Method (Topic
605). ASU 2010-17 provides guidance on applying the milestone method of revenue
recognition in arrangements with research and development activities. The
Company does not expect this ASU to have a material impact on its revenue
recognition for our fiscal year beginning January 1, 2011.





Note
4 — Accounts Receivable





Accounts
receivable consists of the following:





December 31,2010
                    
                    
                    2009Billed
      receivables
                    
                    $
                    17,926,139
                    
                    
                    $
                    19,559,013Unbilled
      receivables:Amounts
      billable
                    
                    
                    775,767
                    
                    
                    
                    112,300Revenues
      recorded in excess of milestone billings on fixed-price
      contracts
                    
                    
                    2,611,320
                    
                    
                    
                    3,474,459Retainage
                    
                    
                    42,640
                    
                    
                    
                    29,557Other
      receivables
                    
                    
                    18,129
                    
                    
                    
                    65,965Total
      accounts receivable
                    
                    
                    21,373,995
                    
                    
                    
                    23,241,294Allowance
      for doubtful accounts
                    
                    
                    (154,393
                    )
                    
                    
                    (743,850
                    )Accounts
      receivable, net
                    
                    $
                    21,219,602
                    
                    
                    $
                    22,497,444





Billed
receivables represent amounts that have either been invoiced on time and
material contracts or milestones which have been achieved and invoiced on fixed
price contracts.





Unbilled
receivables include $2.6 million associated with fixed price contracts with
specific milestone billing requirements. These fixed priced contracts have
established milestone billing schedules for the duration of the contract. The
balance of the unbilled receivables is $0.8 million, representing accruals
associated with differences between customer and ATSC billing schedules which
will be billed with 30 days. The retainage is associated with U.S. Coast Guard
contracts which require that the Company retain approximately 4% of the invoiced
amounts until the period of performance is attained or the deliverable is
achieved. All unbilled retainage amounts are expected to be billed in 2011 and
are classified as current assets in accordance with industry
practice.


76




ATS
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


The
allowance for doubtful accounts is management’s estimate for a prudent reserve
against these receivables.




Note
5 — Prepaid Expenses and Other Current Assets





Prepaid
expenses and other current assets consisted of the following:




December 31,
                    2010
                  
                  
                  December 31,
                    2009Insurance
                  
                  $
                  253,083
                  
                  
                  $
                  191,793Rent
                  
                  
                  151,362
                  
                  
                  
                  148,242Maintenance
      agreements
                  
                  
                  120,009
                  
                  
                  
                  48,770Subscriptions
      and memberships
                  
                  
                  81,269
                  
                  
                  
                  105,551Finance
      charges
                  
                  
                  6,250
                  
                  
                  
                  70,269Other
                  
                  
                  84,201
                  
                  
                  
                  60,606Total
      prepaid expenses and other current assets
                  
                  $
                  696,174
                  
                  
                  $
                  625,231





Note
6 — Property and Equipment





Property
and equipment consisted of the following:





December 31,
                    2010
                  
                  
                  December 31,
                    2009Equipment
      and furniture
                  
                  $
                  2,212,763
                  
                  
                  $
                  2,487,981Leasehold
      improvements
                  
                  
                  2,047,175
                  
                  
                  
                  2,194,659Property
      held under capital leases
                  
                  
                  275,033
                  
                  
                  
                  —Property
      and equipment, at cost
                  
                  
                  4,534,971
                  
                  
                  
                  4,682,640Less
      accumulated depreciation and amortization
                  
                  
                  (1,775,117
                  )
                  
                  
                  (1,671,019
                  )Less
      accumulated amortization of property held under capital
    leases
                  
                  
                  (45,690
                  )
                  
                  
                  —Total
      property and equipment, net
                  
                  $
                  2,714,164
                  
                  
                  $
                  3,011,621





Depreciation
and amortization of fixed assets was $547,882 for the year ended December 31,
2010 and $836,133 for the year ended December 31, 2009. Accumulated depreciation
for property held under capital leases at December 31, 2010 was
$45,690.





Note
7 — Deferred Rent





Deferred
rent represents the liability associated with the 10 year lease on the Company’s
headquarters in McLean, Virginia. The most significant components of deferred
rent include a tenant improvement allowance, the original basis of which was
$3.2 million, and rent escalations. The buildout cost is being amortized over
the 10 year life of the lease. The straight-line rent amortization is the sum of
the difference between a monthly rent payment and the monthly rent expense of an
operating lease that contains escalated payments in future periods.




December 31,
                    2010
                  
                  
                  Change During
                    2010
                  
                  
                  December 31,
                    2009Build-out
                  
                  $
                  2,377,000
                  
                  
                  $
                  (321,000
                  )
                  
                  $
                  2,698,000Straight-line
      rent amortization
                  
                  
                  409,000
                  
                  
                  
                  128,000
                  
                  
                  
                  281,000Totals
                  
                  $
                  2,786,000
                  
                  
                  $
                  (193,000
                  )
                  
                  $
                  2,979,000


77




ATS
CORPORATION




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


Note
8 — Goodwill




As of
December 31, 2010, there was $55.4 million in goodwill recorded. The cost basis
of the goodwill that is deductible for income tax purposes is approximately
$12.8 million as of December 31, 2010.





Goodwill
represents the excess of purchase price over the fair value of net assets
acquired in business acquisitions. In accordance with ASC 350, goodwill must be
recorded at the reporting unit level. Reporting units are defined as an
operating segment or one level below an operating segment. The Company operates
as one segment and one reporting unit. ASC 350 prohibits the amortization of
goodwill, but requires that it be tested for impairment at least annually (at
any time during the year, but at the same time each year), or more frequently if
events or circumstances change, such as adverse changes in the business climate,
that would more likely than not reduce the reporting unit’s fair value below its
carrying amount.





The
Company performs its annual impairment tests during the third quarter of each
year. As a result of such analysis in 2009 and 2010, the Company concluded that
the estimated fair value of the Company exceeded its carrying
value.




2010
                    
                    
                    
                    2009Goodwill
                    $
                    107,600,685
                    
                    
                    
                    $
                    107,600,685Cumulative
      impairment adjustments
                    
                    (48,820,588
                    )
                    
                    
                    
                    (48,820,588
                    )Cumulative
      other adjustments
                    
                    (3,410,086
                    )
                    
                    
                    
                    (3,410,086
                    )Balance
      December 31
                    $
                    55,370,011
                    
                    
                    
                    $
                    55,370,011




Following
the impairment and adjustments related to post-acquisition expenses, goodwill at
December 31, 2009 and December 31, 2010 was:




Balance,
      January 1, 2009
                  
                  $
                  59,128,648Other
      Adjustments
                  
                  
                  (3,758,637
                  )Balance,
      December 31, 2009
                  
                  $
                  55,370,011Other
      Adjustments
                  
                  
                  —Balance,
      December 31, 2010
                  
                  $
                  55,370,011





During
2009, the Company recorded an approximate $3.8 million reduction to goodwill
reflecting the amount awarded from escrow as a result of a working capital
adjustment in the ATSI acquisition.




78




ATS
CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
9 — Intangible Assets




Intangible
assets represent the customer contracts and backlog resulting from the
acquisitions as follows:




December 31,
                    2010
                  
                  
                  December 31,
                    2009Customer
      contracts and relationships
                  
                  $
                  8,235,000
                  
                  
                  $
                  8,235,000Marketing
      and technology
                  
                  
                  1,112,286
                  
                  
                  
                  1,112,286Intangible
      assets
                  
                  
                  9,347,286
                  
                  
                  
                  9,347,286Less
      accumulated amortization
                  
                  
                  (5,236,816
                  )
                  
                  
                  (3,244,488
                  )Total
      intangible assets, net
                  
                  $
                  4,110,470
                  
                  
                  $
                  6,102,798





Intangible
assets subject to amortization were evaluated as follows:





Assets
                        
                        Weighted-
                          Average
                          Amortization
                          Period
                        
                        Carrying
                          Amount as of
                          December 31,
                          2010
                        
                        
                        Amortization
                          2010
                        
                        
                        Adjusted
                          Carrying
                          Amount as of
                          December 31,
                          2009Customer-related
      intangible assets
                        
                        53
      mos.
                        
                        $
                        3,884,436
                        
                        
                        $
                        (1,864,528
                        )
                        
                        $
                        5,748,964Marketing-related
      intangible assets
                        
                        38
      mos.
                        
                        
                        82,667
                        
                        
                        
                        (49,600
                        )
                        
                        
                        132,267Technology-related
      intangible assets
                        
                        60 mos.
                        
                        
                        143,367
                        
                        
                        
                        (78,200
                        )
                        
                        
                        221,567Totals
                        
                        52
      mos.
                        
                        $
                        4,110,470
                        
                        
                        $
                        (1,992,328
                        )
                        
                        $
                        6,102,798





The
combined weighted average amortization period of all intangible assets is
scheduled below.





Basis for Amortization
                  
                  Asset Value
                  
                  Remaining LifeCustomer
      contracts and relationships
                  
                  $
                  8,235,000
                  
                  25
      mos.Marketing
      and technology
                  
                  
                  1,112,286
                  
                  21
      mos.Total
                  
                  $
                  9,347,286





The
intangible assets are amortized over periods ranging from 38 to 60 months.
Amortization expense for the years ended December 31, 2010 and 2009 was
approximately $2.0 million and $2.2 million, respectively. Expected amortization
expense for each of the fiscal years through December 31, 2013 is as
follows:




Fiscal Year Ended
                  
                  AmountDecember
      31, 2011
                  
                  $
                  1,992,331December
      31, 2012
                  
                  
                  1,962,762December
      31, 2013
                  
                  
                  155,377Total
                  
                  $
                  4,110,470





Note
10 — Restricted Cash





The
Company is required to maintain $1,200,000 on deposit with a financial
institution to support a bonding requirement for one of ATSI’s state contracts.
Such amount including interest earned is reflected in restricted cash in the
accompanying 2010 consolidated balance sheet. The performance under this
contract was completed in 2010, and the customer is testing the product, after
which the bond will be released and the deposit refunded.


79




ATS
CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
11 — Debt




Debt
consisted of the following:




December 31,
                    2010
                  
                  
                  December 31,
                    2009Bank
      Financing
                  
                  $
                  14,400,000
                  
                  
                  $
                  18,688,235Notes
      payable
                  
                  
                  —
                  
                  
                  
                  2,502,900Total
      long-term debt
                  
                  $
                  14,400,000
                  
                  
                  $
                  21,191,135Less
      current portion
                  
                  
                  —
                  
                  
                  
                  (21,191,135
                  )Long-term
      debt, net of current portion
                  
                  $
                  14,400,000
                  
                  
                  $
                  —





At
September 30, 2010, the aggregate maturities of our debt were as
follows:





Years Ending December 31,2010
                  
                  $
                  —2011
                  
                  
                  —2012
                  
                  
                  —2013
                  
                  
                  14,400,000Total
      long-term debt
                  
                  $
                  14,400,000




Bank
Financing





On June
1, 2010, the Company, as Borrower, entered into an amended and restated credit
agreement related to its previous credit facility with Bank of America, N.A., as
Administrative Agent, and other various lender parties (the “Amended Credit
Agreement”).  The Amended Credit Agreement provides for a base credit limit
of $30 million with the capability to increase the aggregate commitment amount
of the facility an additional $25 million, assuming no event of default exists
as defined in the agreement. This effectively increases the maximum availability
under the credit facility from $50 million to $55 million. The term of the
credit facility has been extended an additional three years with a maturity in
June 2013.  Borrowings under the facility are subject to compliance with
covenants including an asset coverage ratio, leverage ratio, and a fixed charge
ratio. Borrowings bear interest at rates based on 30-day LIBOR plus applicable
margins based on a leverage ratio as determined quarterly.  The Amended
Credit Agreement adjusted the applicable margins charged on the outstanding
borrowings from a range of 2.0% to 3.5% to a range of 2.0% to 3.0% based on the
leverage ratio. The fee for the unused portion of the facility ranges from .25%
to .35% based on the leverage ratio compared to the previous rates of .20% to
..375%. The covenants for the minimum fixed charge coverage ratio were adjusted
slightly from 1.3:1 to 1.5:1 while the other financial covenants remained the
same. The Amended Credit Agreement provides a basket for stock repurchase not to
exceed $3.0 million in any period of twelve consecutive months, and total
consideration for acquisitions in any twelve-month period greater than $20
million will require lender approval. As of December 31, 2010, the facility’s
outstanding debt balance was $14.4 million. The Company had an interest rate
swap agreement in place to hedge its exposure on its variable rate debt. The
effective rate on the variable rate debt, taking into consideration the swap
agreement, was 8.64% for the year ended December 31, 2010. The swap was
terminated on September 30, 2010. Without the swap, the effective interest rate
for the fourth quarter of 2010 was 3.88%. The maximum availability under the
facility at December 31, 2010 was $21.2 million, of which the Company has $14.4
million outstanding.





The
Company was in compliance with its loan covenant agreements as of December 31,
2010.





In order
to manage interest rate fluctuation exposure on bank debt, the Company entered
into an interest rate swap agreement with Bank of America, N.A. (“Bank of
America”) on November 9, 2007 providing the Company an ability to eliminate
the variability of interest expense based on $35 million of floating rate debt.
The purpose of the derivative instrument was to hedge cash flows and was not
entered into for trading purposes. The Company recorded cash payments and
receipts related to its interest rate swap as adjustments to interest expense
and as a component of operating cash flow.


80




ATS
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


Historically
the Company accounted for its interest rate swap agreement as a cash flow hedge.
The fair value of the interest rate swap was based on the net present value of
its net projected cash flows, which are a level 2 input under ASC 820-25. On
September 30, 2010, the Company terminated the swap arrangement resulting in an
early payment in the amount of $375,000, the remaining balance of the swap
liability, in accordance with the terms of the agreement. Accordingly, the fair
value of the interest rate swap was reduced to zero at September 30, 2010. 
Since the Company had previously recognized interest expense in 2009 and 2010
relating to the swap ineffectiveness, the effect of terminating the swap
resulted in $0 in interest income for the three months ended December 31, 2010
and $217,156 for the nine months ended September 30, 2010, respectively, net of
tax expense. The related deferred tax asset and other comprehensive income were
reduced to zero as well. The fair value of the interest rate swap was $0 and
$1,398,115 and reflected in other accrued expenses and current liabilities, as
of December 31, 2010 and December 31, 2009, respectively.




Cash Flow Hedge
                  
                  Balances
                    December 31,
                    2010
                  
                  
                  Changes
                    During
                    Year
                  
                  
                  Effectiveness
                    Entry
                  
                  
                  Balances
                    December 31,
                    2009Deferred
      income tax
                  
                  $
                  —
                  
                  
                  $
                  (349,981
                  )
                  
                  $
                  (136,864
                  )
                  
                  $
                  400,571Other
      long-term liability
                  
                  
                  —
                  
                  
                  
                  885,141
                  
                  
                  
                  354,020
                  
                  
                  
                  (1,044,095
                  )Other
      comprehensive loss
                  
                  
                  —
                  
                  
                  
                  (535,160
                  )
                  
                  
                  (217,156
                  )
                  
                  
                  643,524Total
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —





For the
year ended December 31, 2010, the effective interest rate on the outstanding
borrowings under the facility, taking into account the SWAP agreement, was
8.46%. Without the swap, the effective interest rate for the fourth quarter of
2010 was 3.88%.




Notes
Payable




Seller
notes from acquisitions in previous years were paid in full during 2010.
Therefore the Company does not have any notes payable outstanding as of December
31, 2010 other than its credit facility.




Note
12 — Other Accrued Expenses and Current Liabilities




Other
accrued expenses and current liabilities consisted of the
following:




December 31,
                    2010
                  
                  
                  December 31,
                    2009Bank
      overdraft
                  
                  $
                  1,172,424
                  
                  
                  $
                  1,989,189Loss
      contingency
                  
                  
                  —
                  
                  
                  
                  1,500,000Swap
      liability
                  
                  
                  —
                  
                  
                  
                  1,398,115Accrued
      expenses
                  
                  
                  1,101,556
                  
                  
                  
                  987,375Accrued
      interest expense
                  
                  
                  30,409
                  
                  
                  
                  183,118Contract
      loss reserves
                  
                  
                  —
                  
                  
                  
                  52,416Other
                  
                  
                  77,552
                  
                  
                  
                  246,683Total
      other accrued expenses and current liabilities
                  
                  $
                  2,381,941
                  
                  
                  $
                  6,356,896




81




ATS
CORPORATION




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
13 — Income Per Share





Income
per share and the weighted average common shares are calculated as
follows:





ATS CorporationYears Ended December 31,2010
                    
                    
                    2009Net
      Income
                    
                    $
                    7,101,174
                    
                    
                    $
                    3,127,843Weighted
      average number of basic shares outstanding during the
    period
                    
                    
                    22,535,493
                    
                    
                    
                    22,669,066Dilutive
      effect of shares from assumed conversion of options, and restricted
      stock
                    
                    
                    155,281
                    
                    
                    
                    97,774Weighted
      average number of dilutive shares outstanding during the
      period
                    
                    
                    22,690,774
                    
                    
                    
                    22,766,840Basic
      net income per share
                    
                    $
                    0.32
                    
                    
                    $
                    0.14Diluted
      net income per share
                    
                    $
                    0.31
                    
                    
                    $
                    0.14





The
weighted average shares outstanding for the year ended December 31, 2010
excluded stock options to purchase approximately 514,558 shares because such
common stock equivalents had an exercise price in excess of the average market
price of the Company’s common stock during the period, or would be
anti-dilutive. Weighted average shares outstanding for the year ended December
31, 2009 excluded warrants and stock options to purchase approximately 2,941,129
shares because such common stock equivalents had an exercise price in excess of
the average market price of the Company’s common stock during the period, or
would be anti-dilutive.


82




ATS
CORPORATION




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
14 — Stock Plans and Stock-Based Compensation





Under the
fair value recognition provisions of ASC 718 Compensation – Stock Compensation,
the Company recognizes stock-based compensation based upon the fair value of the
stock-based awards taking into account the effects of the employees’ expected
exercise and post-vesting employment termination behavior. A summary of the
components of stock-based compensation expense and related income tax benefits
recognized during the years ended December 31, 2010 and 2009 is as
follows:





Years Ended December 31,2010
                  
                  2009Stock-based
      compensation included in selling & general administrative
      expensesNon-qualified
      stock option expense
                  
                  $
                  96,234
                  
                  
                  $
                  143,153Restricted
      stock expense
                  
                  
                  652,175
                  
                  
                  
                  511,407Stock
      grants to directors in lieu of cash
                  
                  
                  103,098
                  
                  
                  
                  113,747Total
      stock-based compensation expense
                  
                  $
                  851,507
                  
                  
                  $
                  768,307Related
      recognized tax benefit
                  
                  
                  (220,444
                  )
                  
                  
                  (185,770
                  )Total
      after-tax stock-based compensation expense
                  
                  $
                  631,063
                  
                  
                  $
                  582,537





The fair
value of options granted during the years ended December 31, 2010 and December
31, 2009 have been estimated as of the date of grant using the Black-Scholes
option pricing model with the following range or weighted average
assumptions:





Year Ended
                    December 31,
                    2010
                  
                  
                  Year Ended
                    December 31,
                    2009Expected
      dividend yield
                  
                  
                  —
                  %
                  
                  
                  —
                  %Expected
      volatility
                  
                  
                  66.8-70.6
                  %
                  
                  
                  55.3-80.4
                  %Risk
      free interest rate
                  
                  
                  1.58-2.5
                  %
                  
                  
                  1.42
                  %Expected
      life of options
                  
                  6.25
      years
                  
                  
                  6.25
      yearsForfeiture
      rate
                  
                  
                  4.25
                  %
                  
                  
                  4.25
                  %





Expected
volatility is calculated based on the historical experience of the Company’s
stock price.





On
January 12, 2008, the stockholders of the Company approved the ATS Corporation
2006 Omnibus Incentive Compensation Plan (the “Plan”). Under the Plan, the
Company reserved 1.5 million shares of the Company’s common stock for issuance
to employees and directors through incentive stock options, or non-qualified
stock options or through restricted stock units. During the year ended December
31, 2010, the Company issued 158,000 stock options and 226,200 shares of
restricted stock. The stock options have vesting periods of up to four years.
During the year ended December 31, 2010, 142,000 options vested, of which 23,875
vested options were forfeited after termination of employment. In total, 183,375
unvested options were forfeited in 2010.


83




ATS
CORPORATION




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
14 — Stock Plans and Stock-Based Compensation
– (continued)




A summary
of the stock option activity is presented below:




(In Thousands, Except Share and
                  Per Share Data)
                
                Shares
                
                
                Weighted
                  Average
                  Exercise
                  Price
                  Per Share
                
                
                Weighted
                  Average
                  Remaining
                  Contractual
                  Term (Years)
                
                
                Aggregate
                  Intrinsic
                  ValueOptions
      outstanding, January 1, 2009
                
                
                394,500
                
                
                $
                3.16
                
                
                
                9.0
                
                
                $
                —Options
      granted
                
                
                332,000
                
                
                
                1.52
                
                
                
                
                
                
                
                302,160Options
      forfeited
                
                
                (88,500
                )
                
                
                2.39
                
                
                
                —
                
                
                
                39,245Options
      outstanding, December 31, 2009
                
                
                638,000
                
                
                $
                2.41
                
                
                
                9.6
                
                
                
                310,655Options
      granted
                
                
                158,000
                
                
                
                2.83
                
                
                
                
                
                
                
                4,500Options
      exercised
                
                
                (12,750
                )
                
                
                1.54
                
                
                
                —
                
                
                
                19,143Options
      forfeited
                
                
                (204,000
                )
                
                
                2.32
                
                
                
                —
                
                
                
                131,013Options
      outstanding, December 31, 2010
                
                
                579,250
                
                
                $
                2.57
                
                
                
                8.1
                
                
                
                310,655Options
      exercisable at December 31, 2010
                
                
                203,625
                
                
                $
                2.96
                
                
                
                7.2
                
                
                $
                92,475





Options
outstanding as of December 31, 2010 were:





Options Outstanding
                        
                        
                        Options ExercisableExercise
                          Prices
                        
                        
                        Number
                          Outstanding
                        
                        
                        Weighted-
                          average
                          Remaining
                          Life in Years
                        
                        
                        Weighted-
                          average
                          Exercise
                          Price
                        
                        
                        Aggregate
                          Intrinsic Value
                        
                        
                        Number
                          Exercisable
                        
                        
                        Weighted-
                          average
                          Exercise
                          Price
                        
                        
                        Aggregate
                          Intrinsic Value$
                        1.40
                        
                        
                        
                        10,000
                        
                        
                        
                        8.0
                        
                        
                        $
                        1.40
                        
                        
                        $
                        13,500
                        
                        
                        
                        2,500
                        
                        
                        $
                        1.40
                        
                        
                        $
                        3,3751.50
                        
                        
                        
                        170,750
                        
                        
                        
                        8.3
                        
                        
                        
                        1.50
                        
                        
                        
                        213,438
                        
                        
                        
                        43,250
                        
                        
                        
                        1.50
                        
                        
                        
                        54,0632.15
                        
                        
                        
                        108,500
                        
                        
                        
                        7.4
                        
                        
                        
                        2.15
                        
                        
                        
                        65,100
                        
                        
                        
                        55,750
                        
                        
                        
                        2.15
                        
                        
                        
                        33,4502.23
                        
                        
                        
                        5,000
                        
                        
                        
                        8.7
                        
                        
                        
                        2.23
                        
                        
                        
                        2,600
                        
                        
                        
                        1,250
                        
                        
                        
                        2.23
                        
                        
                        
                        6502.50
                        
                        
                        
                        15,000
                        
                        
                        
                        9.0
                        
                        
                        
                        2.50
                        
                        
                        
                        3,750
                        
                        
                        
                        3,750
                        
                        
                        
                        2.50
                        
                        
                        
                        9382.80
                        
                        
                        
                        50,000
                        
                        
                        
                        9.7
                        
                        
                        
                        2.80
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —2.90
                        
                        
                        
                        93,000
                        
                        
                        
                        9.3
                        
                        
                        
                        2.90
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —3.40
                        
                        
                        
                        20,000
                        
                        
                        
                        7.0
                        
                        
                        
                        3.40
                        
                        
                        
                        —
                        
                        
                        
                        15,000
                        
                        
                        
                        3.40
                        
                        
                        
                        —3.50
                        
                        
                        
                        27,500
                        
                        
                        
                        6.9
                        
                        
                        
                        3.50
                        
                        
                        
                        —
                        
                        
                        
                        22,500
                        
                        
                        
                        3.50
                        
                        
                        
                        —3.67
                        
                        
                        
                        15,000
                        
                        
                        
                        6.8
                        
                        
                        
                        3.67
                        
                        
                        
                        —
                        
                        
                        
                        11,250
                        
                        
                        
                        3.67
                        
                        
                        
                        —3.75
                        
                        
                        
                        4,500
                        
                        
                        
                        6.5
                        
                        
                        
                        3.75
                        
                        
                        
                        —
                        
                        
                        
                        3,375
                        
                        
                        
                        3.75
                        
                        
                        
                        —4.88
                        
                        
                        
                        60,000
                        
                        
                        
                        6.2
                        
                        
                        
                        4.88
                        
                        
                        
                        —
                        
                        
                        
                        45,000
                        
                        
                        
                        4.88
                        
                        
                        
                        —579,250
                        
                        
                        
                        8.1
                        
                        
                        $
                        2.41
                        
                        
                        $
                        298,388
                        
                        
                        
                        203,625
                        
                        
                        $
                        2.96
                        
                        
                        $
                        92,476





The
weighted average grant date fair value of options granted during the years ended
December 31, 2010 and 2009 were $2.66 and $0.94, respectively. As of December
31, 2010, there was approximately $394,000 of unrecognized compensation expense,
to be recognized over a weighted-average period of 1.6 years. The fair value of
options vested during the years ended December 31, 2010 and 2009 was
approximately $169,000 and $113,000, respectively.





Pursuant
to the Plan, during the year ended December 31, 2010, the Company granted
226,200 restricted shares valued at $0.6 million to certain employees and
directors. The stock price range was from $2.45 to $3.04 per share. Such shares
vest ratably over a one to five-year period. During 2010, 180,362 shares from
current and previous years vested.





In
addition to employee based stock compensation the directors have the option to
be paid their fees in stock or cash. Director fees paid in the form of stock
during 2010 and 2009 amounted to $103,098 and $113,747,
respectively.


84




ATS
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
14 — Stock Plans and Stock-Based Compensation
 – (continued)





A summary
of the activity of the Company’s restricted shares is presented
below:





Nonvested Restricted Stock
                  
                  No. of
                    Shares
                  
                  
                  Weighted-average
                    Grant-Date
                    Fair ValueNonvested
      at January 1, 2009
                  
                  
                  407,865
                  
                  
                  $
                  3.38Granted
                  
                  
                  263,142
                  
                  
                  
                  1.49Vested
                  
                  
                  (170,427
                  )
                  
                  
                  3.08Forfeited
                  
                  
                  (37,594
                  )
                  
                  
                  3.28Nonvested
      at December 31, 2009
                  
                  
                  462,986
                  
                  
                  $
                  2.42Granted
                  
                  
                  226,200
                  
                  
                  
                  2.74Vested
                  
                  
                  (180,362
                  )
                  
                  
                  2.90Forfeited
                  
                  
                  (105,428
                  )
                  
                  
                  1.84Nonvested
      at December 31, 2010
                  
                  
                  403,396
                  
                  
                  $
                  2.54





There was
$0.7 million of total unrecognized compensation cost, net of estimated
forfeitures, related to restricted shares granted under the Plan as of December
31, 2010. That cost is expected to be recognized over a weighted-average period
of 1.3 years. The total fair value of shares vested during the year ended
December 31, 2010 was $522,316.





Stock
Purchase Plan





On July
24, 2007, the Company adopted an employee stock purchase program with a
commencement date of October 1, 2007. The program is officially called the 2007
Employee Stock Purchase Plan (the “ESPP”). The Company initially reserved an
aggregate of 150,000 shares of Common Stock exclusively for issuance under the
ESPP. Under the ESPP eligible employees may acquire shares of the Company’s
common stock at periodic intervals, namely four month offering periods (the
“Offering Periods”) during which payroll deductions are made and shares are
subsequently purchased at a discount. The ESPP was approved by our shareholders
at the May 7, 2008 annual meeting. As of December 31, 2010, 347,104 shares had
been issued under the ESPP at a weighted average price per share of
$1.93.  Of these shares, 97,131 were purchased by the employees at a
weighted average price per share of $2.37 during the twelve months ended
December 31, 2010.





The
number of shares of common stock authorized under the ESPP is subject to an
automatic annual increase on the first day of the Company’s fiscal year by an
amount equal to the lesser of (i) 100,000 shares, (ii) 1% of the outstanding
shares on such date, or (iii) a lesser amount determined by the Board of
Directors. Accordingly, the Board increased the number of shares authorized
under the ESPP by 100,000 for fiscal years 2009 and 2010.





Note
15 — Common Stock





The
Company had 2,980,175 warrants outstanding on January 1, 2009, which related to
its initial public offering. Such warrants expired unexercised on October 19,
2009.





On
February 12, 2009, the Board of Directors approved a repurchase program
authorizing the Company to purchase up to 2.0 million shares of Company common
stock for not more than $3 million, in the open market from time to time over a
twelve-month period. The timing of the share repurchases under the program is at
the discretion of the Company and will depend on a variety of factors, including
market conditions and bank approvals and may be suspended or discontinued at any
time. Common stock acquired through the repurchase program will be held by the
Company as treasury shares and may be used for general corporate purposes,
including re-issuances in connection with acquisitions, employee stock option
exercises or other employee stock plans.


85




ATS
CORPORATION




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
15 — Common Stock  – (continued)




The
Company repurchased approximately 403,000 shares of common stock for
approximately $937,000 during the year ended December 31, 2009 as part of the
repurchase program and 152,000 share of common stock for approximately $455,000
during the year ended December 31, 2010.




Note
16 — Income Taxes




In
accordance with ASC 740-10 the Company applies a more-likely-than-not threshold
of financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Company has no uncertain tax positions
requiring de-recognition.





The
Company files its tax returns as prescribed by the tax laws of the jurisdictions
in which it operates. The Company, or its subsidiary, files income tax returns
in the U.S. federal jurisdiction and various states. For income tax returns
filed by us, the Company is no longer subject to U.S. federal, state and local
tax examinations by tax authorities for years before 2007, although carry
forward tax attributes that were generated prior to 2005 may still be adjusted
upon examination by tax authorities if they either have been or will be
utilized. It is the Company’s policy to recognize interest and penalties related
to income tax matters in penalty expense. For both the years ended December 31,
2010 and 2009, there were less than $15,000 interest and penalties associated
with state and local tax filings.





The
components of income tax expense (benefit) are as follows:




Year Ended December 31,2010
                  
                  
                  2009Current:Federal
                  
                  $
                  2,004,409
                  
                  
                  $
                  2,429,396State
      and local
                  
                  
                  424,700
                  
                  
                  
                  519,057Total
      current
                  
                  
                  2,429,109
                  
                  
                  
                  2,948,453Deferred:Federal
                  
                  
                  1,094,472
                  
                  
                  
                  (684,898
                  )State
      and local
                  
                  
                  143,160
                  
                  
                  
                  (82,828
                  )Total
      deferred
                  
                  
                  1,237,632
                  
                  
                  
                  (767,726
                  )Total
      income tax expense
                  
                  $
                  3,666,741
                  
                  
                  $
                  2,180,727





The
income tax expense differs from the amounts computed by applying the statutory
U.S. income tax rate of 34% as a result of the following:





Year Ended December 31,
                    
                    
                    Year Ended December 31,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Expected
      tax expense computed at the federal rate
                    
                    $
                    3,660,958
                    
                    
                    $
                    1,804,914
                    
                    
                    
                    34.0
                    %
                    
                    
                    34.0
                    %(Not
      includable) nondeductible items
                    
                    
                    (477,644
                    )
                    
                    
                    (46,885
                    )
                    
                    
                    (4.4
                    )%
                    
                    
                    (0.8
                    )%Adjustment
      for prior-year taxes
                    
                    
                    (2,376
                    )
                    
                    
                    180,881
                    
                    
                    
                    0.0
                    %
                    
                    
                    3.4
                    %State
      and local taxes, net of federal
                    
                    
                    477,363
                    
                    
                    
                    235,586
                    
                    
                    
                    4.4
                    %
                    
                    
                    4.4
                    %Other
                    
                    
                    8,440
                    
                    
                    
                    6,231
                    
                    
                    
                    0.1
                    %
                    
                    
                    0.1
                    %Total
      income tax expense (benefit)
                    
                    $
                    3,666,741
                    
                    
                    $
                    2,180,727
                    
                    
                    
                    34.1
                    %
                    
                    
                    41.1
                    %





The
includable item for 2010 relates to approximately $1.0 million from the release
of escrows as a result of settling the arbitration with the former shareholders
of ATSI.


86




ATS
CORPORATION




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
16 — Income Taxes  – (continued)





The tax
effects of temporary differences that give rise to significant deferred tax
assets (liability) are presented below:





As of December 31,2010
                      
                      
                      2009Deferred
      tax assets:Reserves
      and accruals
                      
                      $
                      730,068
                      
                      
                      $
                      1,854,709Goodwill
                      
                      
                      1,370,146
                      
                      
                      
                      1,831,086Stock-based
      compensation
                      
                      
                      99,524
                      
                      
                      
                      77,336Deferred
      rent
                      
                      
                      1,070,926
                      
                      
                      
                      1,144,891Capital
      loss carry forward
                      
                      
                      —
                      
                      
                      
                      140,750Net
      operating loss carry forward
                      
                      
                      297,567
                      
                      
                      
                      327,364Start
      up costs
                      
                      
                      366,896
                      
                      
                      
                      400,298Other
                      
                      
                      —
                      
                      
                      
                      537,445Total
      deferred tax assets
                      
                      
                      3,395,127
                      
                      
                      
                      6,313,879Valuation
      allowance
                      
                      
                      —
                      
                      
                      
                      (140,750
                      )Total
      deferred tax assets net of valuation allowance
                      
                      
                      3,935,127
                      
                      
                      
                      6,173,129Deferred
      tax liabilities:Fixed
      assets
                      
                      
                      (994,526
                      )
                      
                      
                      (1,010,184
                      )Intangible
      assets
                      
                      
                      (566,112
                      )
                      
                      
                      (1,244,739
                      )Prepaid
      expenses
                      
                      
                      (206,987
                      )
                      
                      
                      (156,335
                      )481A
      Election adjustment
                      
                      
                      (61,436
                      )Total
      deferred tax liabilities
                      
                      
                      (1,829,061
                      )
                      
                      
                      (2,411,258
                      )Net
      deferred tax asset
                      
                      $
                      2,106,066
                      
                      
                      $
                      3,761,871





As our
operations continue to be profitable, we expect to have taxable income in 2010
and in future periods that will enable us to fully utilize our deferred tax
assets.





As of
December 31, 2010, the Company had federal net operating loss carry forwards for
tax purposes of approximately $0.8 million. These net operating loss carry
forwards are limited by certain tax laws and are deductible ratably through
2020, although they begin to expire in 2010.




Note
17 — Market Segments and Significant Customers





Gross
revenue after any prompt pay discounts by customer sector was as
follows:





Year Ended December 31,($ in Thousands)
                  
                  2010
                  
                  
                  2009Federal
      civilian agencies
                  
                  $
                  55,329
                  
                  
                  
                  47.4
                  %
                  
                  $
                  55,636
                  
                  
                  
                  46.9
                  %Department
      of Defense
                  
                  
                  31,687
                  
                  
                  
                  27.2
                  %
                  
                  
                  37,407
                  
                  
                  
                  31.5
                  %Government
      sponsored enterprises
                  
                  
                  15,457
                  
                  
                  
                  13.3
                  %
                  
                  
                  11,665
                  
                  
                  
                  9.8
                  %Commercial
      and other
                  
                  
                  12,301
                  
                  
                  
                  10.5
                  %
                  
                  
                  10,823
                  
                  
                  
                  9.2
                  %State
      & local government
                  
                  
                  1,892
                  
                  
                  
                  1.6
                  %
                  
                  
                  3,128
                  
                  
                  
                  2.6
                  %Total
                  
                  $
                  116,666
                  
                  
                  
                  100.0
                  %
                  
                  $
                  118,659
                  
                  
                  
                  100.0
                  %





Although
ATSI views itself as having several markets, it operates in a single homogenous
reporting segment. Financial information is reviewed and evaluated by the chief
operating decision maker on a consolidated basis relating to the single
reporting segment.


87




ATS
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note 18 — Retirement
Savings Plan





The
Company has a qualified 401(k) retirement plan (“401(k) Plan”) that was funded
by contributions from the Company and the full-time employees who elect to
participate in the plan. The employer contributions are 50% of employee
contributions, up to 3% of an employee’s gross salary. The employer
contributions to the 401(k) Plan for the years ended December 31, 2010 and 2009
were $1,157,846 and $1,381,712, respectively. Employer contributions vest
immediately.





Note
19 — Commitments & Contingencies





Employment
Agreements





Effective
January 31, 2011, Sidney Fuchs left the Company’s employ. Pursuant to the terms
of his employment agreement effective April 5, 2010 and as amended on January 5,
2011, Mr. Fuchs will receive payments totaling $607,500, representing eighteen
months’ base salary and eligibility to continue health benefits for a period of
eighteen months. Following the termination date, Mr. Fuchs will also receive his
bonus for fiscal 2010 under our Annual Incentive Bonus Plan in an amount
determined to be $79,102. Furthermore, 60,000 unvested restricted shares held by
Mr. Fuchs vested and 40,000 unvested stock options held by Mr. Fuchs vested,
totaling 100,000 shares. Mr. Fuchs’ employment agreement also included a six
month non-competition period and a two-year non-solicitation
obligation.





Effective
February 1, 2011, Pamela Little serves as a Co-Chief Executive Officer and Chief
Financial Officer and has an employment agreement with the Company which
provides for base compensation and termination benefits.




Effective
February 1, 2011, John Hassoun serves as a Co-Chief Executive Officer. Mr.
Hassoun joined the Company as Senior Vice President of Federal Programs on
September 1, 2010. At that time the Company entered into an employment agreement
with Mr. Hassoun which provides for base compensation and termination
benefits.




The
Company is party to a chairman agreement (the "Agreement") with Dr. Bersoff,
pursuant to which he will serve as the Company's Non-Executive Chairman of the
Board of Directors until the later of June 30, 2012 or the Company's 2012 annual
stockholders' meeting (or any earlier change in control of the Company). The
terms of the Agreement provide for (i) monthly payments of $13,333.33, paid
quarterly, (ii) eligibility to receive future equity award grants comparable to
other members of the Board, and (iii) health insurance consistent with that of
Company executives through the termination date. The Agreement also provides for
a post termination eighteen-month non-solicitation and non-competition
term.




In
addition, the Company has entered into employment agreements with certain key
employees that provide for severance payments in the event of
termination.


88




ATS
CORPORATION




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
19 — Commitments & Contingencies – (continued)




Leases





The
Company leases office space and certain equipment under various operating and
capital leases. Rent expense on certain leases containing fixed escalations or
other lease incentives is recognized on a straight line basis over the term of
each lease. The leases expire in at various dates through May 2018. As of
December 31, 2010, future minimum lease payments due under these leases are as
follows:





Year
                  
                  Capital
                    Leases
                  
                  
                  Facility
                    Rent
                  
                  
                  Subtotal
                    Commitments
                  
                  
                  Sublease
                    Income
                  
                  
                  Net Lease
                    Payments2011
                  
                  $
                  87,986
                  
                  
                  $
                  1,822,489
                  
                  
                  $
                  1,910,475
                  
                  
                  $
                  30,181
                  
                  
                  $
                  1,880,2942012
                  
                  
                  87,986
                  
                  
                  
                  1,751,653
                  
                  
                  
                  1,839,639
                  
                  
                  
                  —
                  
                  
                  
                  1,839,6392013
                  
                  
                  65,989
                  
                  
                  
                  1,788,782
                  
                  
                  
                  1,854,771
                  
                  
                  
                  —
                  
                  
                  
                  1,854,7712014
                  
                  
                  —
                  
                  
                  
                  1,833,502
                  
                  
                  
                  1,833,502
                  
                  
                  
                  —
                  
                  
                  
                  1,833,5022015
      and thereafter
                  
                  
                  —
                  
                  
                  
                  6,611,289
                  
                  
                  
                  6,611,289
                  
                  
                  
                  —
                  
                  
                  
                  6,611,289Total
                  
                  $
                  241,961
                  
                  
                  $
                  13,807,715
                  
                  
                  $
                  14,049,676
                  
                  
                  $
                  30,181
                  
                  
                  $
                  14,019,495Less
      interest
                  
                  
                  (18,741
                  )Net
      capital leases
                  
                  
                  223,220Less
      current portion, net
                  
                  
                  (79,572
                  )Long-term
      capital leases
                  
                  
                  143,648





Rent
expense was approximately $2,330,000 and $3,216,000, for the years ended
December 31, 2010 and 2009, respectively.





Legal
Proceedings





From time
to time, we are involved in various legal matters and proceedings concerning
matters arising in the ordinary course of business. We currently believe that
any ultimate liability arising out of these matters and proceedings will not
have a material adverse effect on our financial position, results of operations
or cash flows.





The
Company was a defendant in Maximus, Inc. vs. Advanced Technology Systems, Inc.,
in the Connecticut Superior Court, Complex Litigation Docket. The lawsuit
regarded breach of contract and other claims related to a subcontract between
Maximus and ATSI associated with a prime contract between Maximus and the State
of Connecticut. The case was filed in August 2007. On April 6, 2010, a
settlement agreement was signed between Maximus and the Company. In accordance
with the terms of the settlement, the Company paid Maximus $1.5 million in
return for a full release. The Company had fully accrued the $1.5 million
settlement liability as of December 31, 2009.





Based on
the claims asserted in the Maximus lawsuit, we made an indemnification demand
against the former principal owners of ATSI under the stock purchase agreement
governing the transaction in which the Company (then Federal Services
Acquisition Corporation) acquired ATSI. This indemnification demand of $1.25
million was paid in August 2010 and is included in other income in the
consolidated statement of operations for the year ended December 31,
2010.





The
Company also received $0.5 million in settlement of a claim with the former
owners of Number Six Software (“NSS”) relating to working capital balances
delivered at acquisition.


89




ATS
CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
20 — Summarized Quarterly Financial Information
(Unaudited)





The table
below sets forth selected unaudited quarterly condensed financial operating
results of the Company for the years ended December 31, 2010 and
2009.





Year Ended December 31, 2010First
                  
                  
                  Second
                  
                  
                  Third
                  
                  
                  FourthRevenue
                  
                  $
                  30,511,983
                  
                  
                  $
                  29,246,328
                  
                  
                  $
                  29,246,619
                  
                  
                  $
                  27,661,304Operating
      expenses
                  
                  
                  28,459,670
                  
                  
                  
                  27,048,632
                  
                  
                  
                  26,519,999
                  
                  
                  
                  24,175,873Income
      from operations
                  
                  $
                  2,052,313
                  
                  
                  $
                  2,197,696
                  
                  
                  $
                  2,726,620
                  
                  
                  $
                  3,485,431Other
      income (expense)
                  
                  
                  (321,155
                  )
                  
                  
                  (352,995
                  )
                  
                  
                  1,067,931
                  
                  
                  
                  (87,926
                  )Provision
      for income taxes
                  
                  
                  (624,590
                  )
                  
                  
                  (707,675
                  )
                  
                  
                  (1,131,537
                  )
                  
                  
                  (1,202,939
                  )Net
      income (loss)
                  
                  $
                  1,106,568
                  
                  
                  $
                  1,137,026
                  
                  
                  $
                  2,663,014
                  
                  
                  $
                  2,194,566Basic
      earnings per share
                  
                  $
                  0.05
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.12
                  
                  
                  $
                  0.10Diluted
      earnings per share
                  
                  $
                  0.05
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.12
                  
                  
                  $
                  0.10Weighted-average
      shares outstanding:Basic
                  
                  
                  22,536,486
                  
                  
                  
                  22,472,993
                  
                  
                  
                  22,540,904
                  
                  
                  
                  22,590,930Diluted
                  
                  
                  22,742,880
                  
                  
                  
                  22,590,474
                  
                  
                  
                  22,627,723
                  
                  
                  
                  22,751,169




Year Ended December 31, 2009First
                  
                  
                  Second
                  
                  
                  Third
                  
                  
                  FourthRevenue
                  
                  $
                  27,156,514
                  
                  
                  $
                  30,266,809
                  
                  
                  $
                  32,074,434
                  
                  
                  $
                  29,161,182Operating
      expenses
                  
                  
                  25,472,379
                  
                  
                  
                  27,546,164
                  
                  
                  
                  28,204,114
                  
                  
                  
                  27,829,687Income
      from operations
                  
                  $
                  1,684,135
                  
                  
                  $
                  2,720,645
                  
                  
                  $
                  3,870,320
                  
                  
                  $
                  1,331,495Other
      income (expense)
                  
                  
                  (774,080
                  )
                  
                  
                  (792,604
                  )
                  
                  
                  (537,705
                  )
                  
                  
                  (2,193,636
                  )Provision
      for income (tax expense) benefit
                  
                  
                  (484,466
                  )
                  
                  
                  (756,253
                  )
                  
                  
                  (1,340,816
                  )
                  
                  
                  400,808Net
      income (loss)
                  
                  $
                  425,589
                  
                  
                  $
                  1,171,788
                  
                  
                  $
                  1,991,799
                  
                  
                  $
                  (461,333
                  )Basic
      earnings per share
                  
                  $
                  0.02
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.09
                  
                  
                  $
                  (0.02
                  )Diluted
      earnings per share
                  
                  $
                  0.02
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.09
                  
                  
                  $
                  (0.02
                  )Weighted-average
      shares outstanding:Basic
                  
                  
                  22,542,200
                  
                  
                  
                  22,660,767
                  
                  
                  
                  22,741,726
                  
                  
                  
                  22,728,722Diluted
                  
                  
                  22,542,200
                  
                  
                  
                  22,660,767
                  
                  
                  
                  22,846,549
                  
                  
                  
                  22,890,749





Note
21 — Subsequent Events





The Board
of Directors has begun a process to evaluate strategic alternatives for the
Company. There can be no assurance that the review of strategic alternatives
will result in the Company pursuing any particular transaction, or, if it
pursues any such transaction, that it will be completed. President and Chief
Executive Officer Sidney E. Fuchs, who joined the Company during 2010 as its
Chief Operating Officer, decided to depart from the Company effective January
31, 2011. Executive Vice President and Chief Financial Officer Pamela A. Little
and Senior Vice President John Hassoun have become Co-Chief Executive Officers,
with Ms. Little having primary responsibility for financial and administrative
aspects of the Company's affairs and Mr. Hassoun having primary responsibility
for operational matters, such as pursuit and execution of
contracts.


90





ATS
CORPORATION




Item
15(a) 2. Supplementary Financial Data





Schedule
II — Valuation and Qualifying Accounts for fiscal years ended December
31, 2010 and 2009.





Balance at
                      Beginning
                      of Period
                    
                    
                    Additions
                      at Cost
                    
                    
                    Deductions
                    
                    
                    Other
                      Changes
                    
                    
                    Balance
                      at End
                      of Period2010Reserves
      deducted from assets to which they apply:Allowances
      for doubtful accounts
                    
                    $
                    743,850
                    
                    
                    $
                    974,203
                    
                    
                    $
                    (1,563,660
                    )
                    
                    $
                    —
                    
                    
                    $
                    154,393Deferred
      Tax Asset Valuation Allowance
                    
                    $
                    140,733
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    (140,733
                    )
                    
                    $
                    —2009Reserves
      deducted from assets to which they apply:Allowances
      for doubtful accounts
                    
                    $
                    770,988
                    
                    
                    $
                    1,150,993
                    
                    
                    $
                    (1,178,131
                    )
                    
                    $
                    —
                    
                    
                    $
                    743,850Deferred
      Tax Asset Valuation Allowance
                    
                    $
                    140,733
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    140,733





Deductions
for bad debt write-off related to a contract with a local government agency
accounted for $1,336,423, or 85% of the deductions for 2010. Deductions for bad
debt write-offs associated with Number Six Software, Inc. accounted for
$654,011, or 56% of the deductions for 2009. These were included in the claim
against the former NSS shareholders, net of associated tax
benefits.




91





SIGNATURES





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





ATS
      CORPORATIONBy:
              /s/
      Pamela A. LittlePamela
      A. LittleCo-Chief
      Executive Officer
    and Chief Financial OfficerFebruary
      17, 2011
              By:
              /s/
      John A. HassounJohn
      A. HassounCo-Chief
      Executive Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Name
              
              Position
              
              Date/s/ Edward H. Bersoff
              
              Chairman
              
              February
      17, 2011Dr. Edward H. Bersoff/s/ Pamela A. Little
              
              Co-Chief
      Executive Officer
    and Chief Financial Officer
              
              February
      17, 2011Pamela A. Little/s/ John
      A. Hassoun
              
              Co-Chief
      Executive Officer
              
              February
      17, 2011John
      A. Hassoun/s/ Kevin Flannery
              
              Director
              
              February
      17, 2011Kevin Flannery/s/ Joel R. Jacks
              
              Director
              
              February
      17, 2011Joel R. Jacks/s/ Anita
      Jones
              
              Director
              
              February
      17, 2011Dr.
      Anita Jones/s/ Peter M. Schulte
              
              Director
              
              February
      17, 2011Peter M. Schulte/s/ Edward J. Smith
              
              Director
              
              February
      17, 2011Edward J. Smith/s/ James
      R. Swartwout
              
              Director
              
              February
      17, 2011James
      R. Swartwout




92