Tableof Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

 

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**(Markone)**
| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                         |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                     |
| ** ** | ** ** | **FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008.**                                                                                                                              |
| ** ** | ** ** | ** **                                                                                                                                                                     |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                        |
| ** ** | ** ** | ** **                                                                                                                                                                     |
| ** ** | ** ** | **FOR THE TRANSITION PERIOD FROM             TO              .** |

 

**COMMISSION FILE NUMBER: 0-51552**

** **

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**ATS CORPORATION**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                     | ** ** | **11-3747850**                        |
|----------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)  |       |                                  |

 

**7925 Jones Branch Drive**

**McLean, Virginia 22102**

(Addressof principal executive offices)

 

**(571) 766-2400**

(Registrant’stelephone number, including area code)

 

**7915 Jones Branch Drive**

**McLean, Virginia 22102**

(Formername, former address and former fiscal year, if changed since last report)

 

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

 

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

 
| Large accelerated filer  o                     |   | Accelerated filer x          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer o                        |   | Smaller reporting  company o |
| (Do not check if a  smaller reporting company) |   |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes  o   No  x

 

The number of shares of the issuer’s common stock,$0.0001 par value, outstanding as of August 5, 2008 was 22,381,860.

 

 

 

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Tableof Contents

 

**ATS CORPORATION**

** **

**TABLE OF CONTENTS**

 
| **PART I  — FINANCIAL INFORMATION** |                                                                                                                                  |
|-----------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|
|                                          |                                                                                                                                  |   |
| Item 1.                                       | Financial  Statements                                                                                                                 | 3 |
|                                          |                                                                                                                                  |   |
|                                          | Consolidated Balance Sheets as of June 30, 2008  (unaudited) and as of December 31, 2007 (audited)                          | 3 |
|                                          |                                                                                                                                  |   |
|                                          | Consolidated  Statements of Operations (unaudited) for the three and six months ended  June 30, 2008 and June 30, 2007 | 4 |
|                                          |                                                                                                                                  |   |
|                                          | Consolidated Statements of Cash Flows (unaudited) for  the six months ended June 30, 2008 and June 30, 2007            | 5 |
|                                          |                                                                                                                                  |   |
|                                          | Notes to Consolidated Financial Statements                                                                                            | 6 |
|                                          |                                                                                                                                  |   |
| Item 2.                                  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                           | 10 |
|                                          |                                                                                                                                  |   |
| Item 3.                                  | Quantitative  and Qualitative Disclosures about Market Risk                                                                           | 17 |
|                                          |                                                                                                                                  |   |
| Item 4.                                  | Controls and  Procedures                                                                                                              | 17 |
|                                          |                                                                                                                                  |   |
| **PART II  — OTHER INFORMATION**    |                                                                                                                                  |
|                                          |                                                                                                                                  |   |
| Item 1.                                  | Legal Proceedings                                                                                                                     | 17 |
|                                          |                                                                                                                                  |   |
| Item 1A.                                      | Risk Factors                                                                                                                          | 18 |
|                                          |                                                                                                                                  |   |
| Item 2.                                       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                          | 18 |
|                                          |                                                                                                                                  |   |
| Item 3.                                  | Defaults upon  Senior Securities                                                                                                      | 18 |
|                                          |                                                                                                                                  |   |
| Item 4.                                       | Submission  of Matters to a Vote of Security Holders                                                                                  | 18 |
|                                          |                                                                                                                                  |   |
| Item 5.                                  | Other Information                                                                                                                     | 19 |
|                                          |                                                                                                                                  |   |
| Item 6.                                  | Exhibits                                                                                                                              | 19 |
|                                          |                                                                                                                                  |   |
| **SIGNATURES**                                | 20                                                                                                                                    |

 

2

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Tableof Contents

 

**ATS CORPORATION**

 

**PART I — FINANCIAL INFORMATION**

 

**ITEM 1. — FINANCIALSTATEMENTS**

 

**CONSOLIDATEDBALANCE SHEETS**

 
| ** **                                                                                                                                                                                | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                                                                | ** ** | **2008**          | ** **  | **2007**              | ** ** |
| ** **                                                                                                                                                                                | ** ** | **(unaudited)**   | ** **  | **(audited)**         | ** ** |
| ** **                                                                                                                                                                                | ** ** | ** **        | ** **  | ** **            | ** ** |
| **ASSETS**                                                                                                                                                                                |       |              |        |                  |       |
| **Current  assets**                                                                                                                                                                       | ** ** | ** **        | ** **  | ** **            | ** ** |
| Cash                                                                                                                                                                                      |       | $                 | 13,774      |                  | $          | 1,901,977 |   |
| Accounts  receivable, net                                                                                                                                                                 |       | 36,258,977        |        | 31,191,784            |       |
| Prepaid expenses                                                                                                                                                                          |       | 936,597           |        | 923,803               |       |
| Income taxes  receivable                                                                                                                                                                  |       | 873,090           |        | 3,493,319             |       |
| Inventory                                                                                                                                                                                 |       | 123,158           |        | —                |       |
| Other current  assets                                                                                                                                                                     |       | 4,037             |        | 16,663                |       |
| Deferred income  taxes, current                                                                                                                                                           |       | 1,135,949         |        | 1,335,965             |       |
|                                                                                                                                                                                      |       |              |        |                  |       |
| **Total  current assets**                                                                                                                                                                 |       | 39,345,582        |        | 38,863,511            |       |
|                                                                                                                                                                                      |       |              |        |                  |       |
| **Property  and equipment, net**                                                                                                                                                          |       | 3,996,914         |        | 1,501,409             |       |
| **Goodwill**                                                                                                                                                                              |       | 107,630,414       |        | 107,600,686           |       |
| **Intangible  assets, net**                                                                                                                                                               |       | 18,104,387        |        | 21,446,868            |       |
| **Restricted  cash**                                                                                                                                                                      |       | 1,300,488         |        | 1,278,489             |       |
| **Other  assets**                                                                                                                                                                         |       | 570,620           |        | 259,353               |       |
|                                                                                                                                                                                      |       |              |        |                  |       |
| **Total  assets**                                                                                                                                                                         |       | $                 | 170,948,405 |                  | $          | 170,950,316 |   |
|                                                                                                                                                                                      |       |              |        |                  |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                            |       |              |        |                  |       |
| **Current  liabilities:**                                                                                                                                                                 |       |              |        |                  |       |
| Current portion  of long-term debt                                                                                                                                                        |       | $                 | 2,670,191   |                  | $          | 2,820,191 |   |
| Capital leases –  current portion                                                                                                                                                    |       | 83,228            |        | 96,558                |       |
| Accounts payable  and accrued expenses                                                                                                                                                    |       | 8,128,786         |        | 8,634,665             |       |
| Accrued salaries  and related taxes                                                                                                                                                       |       | 3,033,769         |        | 4,425,966             |       |
| Accrued vacation                                                                                                                                                                          |       | 2,874,082         |        | 2,479,540             |       |
| Income taxes  payable                                                                                                                                                                     |       | —            |        | 1,926,225             |       |
| Deferred revenue                                                                                                                                                                          |       | 1,534,300         |        | 2,164,574             |       |
| Deferred rent –  current portion                                                                                                                                                     |       | 373,548           |        | 80,984                |       |
|                                                                                                                                                                                      |       |              |        |                  |       |
| **Total  current liabilities**                                                                                                                                                            |       | 18,697,904        |        | 22,628,703            |       |
| **Long-term  debt – net of current portion**                                                                                                                                         |       | 47,056,541        |        | 45,604,958            |       |
| **Capital  leases – net of current portion**                                                                                                                                         |       | 44,697            |        | 87,078                |       |
| **Deferred  rent – net of current portion**                                                                                                                                          |       | 2,938,773         |        | 94,069                |       |
| **Other  long-term liabilities (at fair value)**                                                                                                                                          |       | 816,304           |        | 678,678               |       |
| **Deposits**                                                                                                                                                                              |       | —            |        | 45,976                |       |
| **Deferred  income taxes**                                                                                                                                                                |       | 4,594,101         |        | 6,475,540             |       |
|                                                                                                                                                                                      |       |              |        |                  |       |
| **Total  liabilities**                                                                                                                                                                    |       | 74,148,320        |        | 75,615,002            |       |
| **Commitments  and contingencies**                                                                                                                                                        |       | —            |        | —                |       |
|                                                                                                                                                                                      |       |              |        |                  |       |
| **Shareholders’  equity:**                                                                                                                                                           |       |              |        |                  |       |
| **Preferred  stock $.001 par value, 1,000,000 shares authorized, and no shares issued and  outstanding**                                                                                  |       | —            |        | —                |       |
| **Common  stock $.001 par value, 100,000,000 shares authorized, 30,724,615 and  27,529,010 shares issued, respectively, and 22,381,860 and 19,186,255 shares  outstanding, respectively** |       | 3,072             |        | 2,753                 |       |
| **Additional  paid-in capital**                                                                                                                                                           |       | 130,595,982       |        | 129,384,746           |       |
| **Treasury  stock, at cost, 8,342,755 and 8,342,755 shares held, respectively**                                                                                                           |       | (30,272,007       | )           | (30,272,007           | )          |
| **Accumulated  deficit**                                                                                                                                                                  |       | (3,020,527        | )           | (3,362,407            | )          |
| **Accumulated  other comprehensive loss (net of tax benefit of $309,869 and $260,907,  respectively)**                                                                                    |       | (506,435          | )           | (417,771              | )          |
|                                                                                                                                                                                      |       |              |        |                  |       |
| **Total  shareholders’ equity**                                                                                                                                                      |       | 96,800,085        |        | 95,335,314            |       |
|                                                                                                                                                                                      |       |              |        |                  |       |
| **Total  liabilities and shareholders’ equity**                                                                                                                                      |       | $                 | 170,948,405 |                  | $          | 170,950,316 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

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**ATSCORPORATION**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

 
| ** **                                         | ** ** | **Three Months**        | ** ** | **Six Months**          | ** ** |
|----------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                         | ** ** | **Ended June 30,** | ** ** | **Ended June 30,** | ** ** |
| ** **                                         | ** ** | **2008**                     | ** ** | **2007**                     | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                         | ** ** | **(unaudited)**              | ** ** | **(unaudited)**              | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **                                         | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenue**                                        |       | $                            | 33,788,772 |                         | $          | 26,247,681 |   | $ | 68,662,297 |   | $ | 49,725,401 |   |
| ** **                                         | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Operating  costs and expenses**                  | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Direct costs                                       |       | 22,964,775                   |       | 18,705,377                   |       | 45,233,416 |   | 35,169,594 |   |
| Selling, general  and administrative expenses      |       | 7,764,830                    |       | 6,179,367                    |       | 17,214,511 |   | 12,155,875 |   |
| Depreciation and  amortization                     |       | 2,034,302                    |       | 1,083,404                    |       | 4,076,910 |   | 2,004,040 |   |
| **Total  operating costs and expenses**            |       | 32,763,907                   |       | 25,968,148                   |       | 66,524,837 |   | 49,329,509 |   |
| ** **                                         | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Operating  income**                              |       | 1,024,865                    |       | 279,533                      |       | 2,137,460 |   | 395,892 |   |
| ** **                                         | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Other  (expense) income**                        | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest, net                                      |       | (944,729                     | )          | 7,537                        |       | (1,749,136 | ) | 150,988 |   |
| Loss on warrant  liabilities                       |       | —                       |       | —                       |       | — |   | (6,930,000 | ) |
| Other income                                       |       | (4,705                       | )          | 9,019                        |       | 66,172 |   | 9,754 |   |
|                                               |       |                         |       |                         |       |   |   |   |   |
| **Income  (loss) before income taxes**             |       | 75,431                       |       | 296,089                      |       | 454,496 |   | (6,373,366 | ) |
|                                               |       |                         |       |                         |       |   |   |   |   |
| **Income  tax expense**                            |       | 8,579                        |       | 171,461                      |       | 112,615 |   | 274,172 |   |
|                                               |       |                         |       |                         |       |   |   |   |   |
| **Net  income (loss)**                             |       | $                            | 66,852     |                         | $          | 124,628 |   | $ | 341,881 |   | $ | (6,647,538 | ) |
|                                               |       |                         |       |                         |       |   |   |   |   |
| **Weighted  average number of shares outstanding** | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| —basic                                        |       | 20,410,516                   |       | 18,133,828                   |       | 19,706,731 |   | 19,214,534 |   |
| —diluted                                      |       | 20,465,439                   |       | 18,440,030                   |       | 19,734,193 |   | 19,214,534 |   |
| ** **                                         | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net  income (loss) per share**                   | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| —basic                                        |       | $                            | 0.00       |                         | $          | 0.01 |   | $ | 0.02 |   | $ | (0.35 | ) |
| —diluted                                      |       | $                            | 0.00       |                         | $          | 0.01 |   | $ | 0.02 |   | $ | (0.35 | ) |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

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**ATSCORPORATION**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 
| ** **                                                                                                               | ** ** | **Six months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **2008**                                      | ** ** | **2007** | ** ** |
| ** **                                                                                                               | ** ** | **(unaudited)**                               | ** ** | **(unaudited)** | ** ** |
| **Cash  flows from operating activities**                                                                                | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Net income  (loss)                                                                                                       |       | $                                             | 341,881    |   | $ | (6,647,538 | ) |
| Adjustments to  reconcile net income (loss) to net cash (used in) operating activities:                                  |       |                                          |       |   |   |
| Depreciation and  amortization                                                                                           |       | 4,076,910                                     |       | 2,004,040 |   |
| Stock-based  compensation                                                                                                |       | 765,266                                       |       | 709,519 |   |
| Deferred income  taxes                                                                                                   |       | (1,507,705                                    | )          | (1,816,378 | ) |
| Deferred rent                                                                                                            |       | (40,990                                       | )          | — |   |
| Gain on disposal  of equipment                                                                                           |       | (16,638                                       | )          | — |   |
| Loss on warrant  liabilities                                                                                             |       | —                                        |       | 6,930,000 |   |
| Provision for bad  debt                                                                                                  |       | 92,780                                        |       | — |   |
| Interest on  notes payable                                                                                               |       | —                                        |       | 1,354 |   |
|                                                                                                                     |       |                                          |       |   |   |
| Changes in  assets and liabilities, net of effects of acquisitions and adjustments  related to other comprehensive loss: |       |                                          |       |   |   |
| Accounts  receivable                                                                                                     |       | (5,159,974                                    | )          | (6,497,779 | ) |
| Prepaid expenses  and other current assets                                                                               |       | (12,794                                       | )          | (496,748 | ) |
| Restricted cash                                                                                                          |       | (21,999                                       | )          | (28,706 | ) |
| Other assets                                                                                                             |       | (608,511                                      | )          | 283,359 |   |
| Accrued interest  payable and receivable                                                                                 |       | (123,158                                      | )          | — |   |
| Accounts payable  and other accrued expenses                                                                             |       | (773,013                                      | )          | (387,770 | ) |
| Accrued salaries  and related taxes                                                                                      |       | (1,392,197                                    | )          | (4,473,193 | ) |
| Accrued vacation                                                                                                         |       | 394,542                                       |       | 404,518 |   |
| Income taxes  payable and receivable                                                                                     |       | 879,118                                       |       | 689,421 |   |
| Other current  liabilities                                                                                               |       | (347,088                                      | )          | (76,985 | ) |
| Other long-term  liabilities                                                                                             |       | (45,976                                       | )          | (234,328 | ) |
|                                                                                                                     |       |                                          |       |   |   |
| **Net  cash used in operating activities**                                                                               |       | (3,499,546                                    | )          | (9,637,214 | ) |
|                                                                                                                     |       |                                          |       |   |   |
| **Cash  flows from investing activities**                                                                                | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Purchase of  property and equipment                                                                                      |       | (57,574                                       | )          | (325,836 | ) |
| Proceeds from  disposals of equipment                                                                                    |       | 21,103                                        |       | — |   |
| Acquisitions of  businesses — net of cash acquired                                                                  |       | (45,779                                       | )          | (80,393,917 | ) |
| Sale of U.S.  government securities held in trust fund                                                                   |       | —                                        |       | 121,024,475 |   |
| Release of cash  held in trust fund                                                                                      |       | —                                        |       | 1,332 |   |
|                                                                                                                     |       |                                          |       |   |   |
| **Net  cash (used in) provided by investing activities**                                                                 |       | (82,250                                       | )          | 40,306,054 |   |
|                                                                                                                     |       |                                          |       |   |   |
| **Cash  flows from financing activities**                                                                                | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Borrowings on  lines of credit                                                                                           |       | 30,451,556                                    |       | — |   |
| Payments on  lines of credit                                                                                             |       | (27,708,307                                   | )          | — |   |
| Payments on  notes payable                                                                                               |       | (1,441,667                                    | )          | — |   |
| Payments on  capital leases                                                                                              |       | (54,279                                       | )          | (33,231 | ) |
| Proceeds from  stock issued regarding Employee Stock Purchase Plan                                                       |       | 211,813                                       |       | — |   |
| Proceeds from  exchange of stock for warrants, net of expense                                                            |       | 234,477                                       |       | — |   |
| Purchase of  stock purchase warrants                                                                                     |       | —                                        |       | (350,722 | ) |
| Payments to  repurchase treasury stock                                                                                   |       | —                                        |       | (30,272,007 | ) |
|                                                                                                                     |       |                                          |       |   |   |
| **Net  cash provided by (used in) financing activities**                                                                 |       | 1,693,593                                     |       | (30,655,960 | ) |
| ** **                                                                                                               | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| **Net  (decrease) increase in cash**                                                                                     |       | (1,888,203                                    | )          | 12,880 |   |
|                                                                                                                     |       |                                          |       |   |   |
| **Cash,****beginning of period**                                                                                         |       | 1,901,977                                     |       | 213,395 |   |
|                                                                                                                     |       |                                          |       |   |   |
| **Cash,****end of period**                                                                                               |       | $                                             | 13,774     |   | $ | 226,275 |   |
|                                                                                                                     |       |                                          |       |   |   |
| **Supplemental  disclosures:**                                                                                           |       |                                          |       |   |   |
| Cash paid or  received during the period for:                                                                            |       |                                          |       |   |   |
| Income taxes  paid                                                                                                       |       | $                                             | 2,401,682  |   | $ | 569,866 |   |
| Income tax  refunds                                                                                                      |       | 1,350,000                                     |       | — |   |
| Interest paid                                                                                                            |       | 821,284                                       |       | 5,427 |   |
| Interest  received                                                                                                       |       | 34,160                                        |       | 153,349 |   |
| Non-cash  investing and financing activities:                                                                            |       |                                          |       |   |   |
| Increase in  fixed assets due to build-out allowance                                                                     |       | 3,178,257                                     |       | — |   |
| Increase in  deferred revenue due to build-out allowance                                                                 |       | (3,178,257                                    | )          | — |   |
| Issuance of  stock related to acquisition of businesses                                                                  |       | —                                        |       | 1,200,000 |   |
| Notes payable  issued related to acquisition of businesses                                                               |       | —                                        |       | 86,857 |   |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

 

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**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**NOTE 1****3⁄4BASISOF PRESENTATION**

 

*Principlesof Consolidation* – The consolidated financial statementsinclude the accounts of ATS Corporation (“ATSC”) and its subsidiary AdvancedTechnology Systems, Inc. (“ATSI”), (collectively the “Company”).  All material intercompany accounts,transactions, and profits are eliminated in consolidation.  The 2007 statements of operations and cashflows reflect the activities of acquired companies from the date acquired.

 

The accompanyingconsolidated financial statements of the Company have been prepared bymanagement in accordance with the instructions to Form 10-Q of theSecurities and Exchange Commission. These statements include all adjustments considered necessary bymanagement to present a fair statement of the consolidated balance sheets,results of operations, and cash flows. Certain information and note disclosures normally included in the annualfinancial statements have been condensed or omitted pursuant to thoseinstructions, although the Company believes that the disclosures made areadequate to make the information presented not misleading.  Therefore, these financial statements shouldbe read in conjunction with the audited consolidated financial statements,including the notes thereto, contained in the Company’s 2007 Annual Report on Form 10-K.  The results reported in these financialstatements should not be regarded as necessarily indicative of results that maybe expected for the entire year.

 

*AccountingEstimates* – The Company’s financial statements have beenprepared in conformity with accounting principles generally accepted in theUnited States of America (“US GAAP”). The preparation of the financial statements requires management to makeestimates and judgments that affect the reported amounts of assets andliabilities and the disclosure of contingencies at the date of the financialstatements, as well as the reported amounts of revenues and expenses during thereporting period.  Estimates have beenprepared on the basis of the most current and best available information andactual results could differ materially from those estimates.

 

*FinancialStatements Reclassifications –*Certain amounts on the priorperiod financial statements and related notes have been reclassified to conformto the 2008 presentation.

 

**NOTE 2****3⁄4RECENTACCOUNTING PRONOUNCEMENTS**

 

**Adoptionof New Accounting Standards**

 

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 157, *FairValue Measurements* (“SFAS No. 157”). SFAS No. 157 definesfair value, establishes a framework for measuring fair value in generallyaccepted accounting principles and expands disclosures about fair valuemeasurements. Specifically, this Statement sets forth a definition of fairvalue, and establishes a hierarchy prioritizing the inputs to valuationtechniques, giving the highest priority to quoted prices in active markets foridentical assets and liabilities and the lowest priority to unobservableinputs. The provisions of SFAS No. 157 are generally required to beapplied on a prospective basis, except to certain financial instrumentsaccounted for under SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities*, for which theprovisions of SFAS No. 157 should be applied retrospectively. In February 2008,the FASB issued Staff Position FAS 157-2, *EffectiveDate of FASB Statement No. 157*, which defers the implementationfor the non-recurring nonfinancial assets and liabilities from fiscal yearsbeginning after November 15, 2007 to fiscal years beginning after November 15,2008.  The disclosure requirements ofSFAS No. 157, which took effect on January 1, 2008, are presented inNote 4.  On January 1, 2009, theCompany will implement the previously-deferred provisions of SFAS No. 157for nonfinancial assets and liabilities recorded at fair value as required. TheCompany does not believe that the remaining provisions will have a materialeffect on the Company’s consolidated financial position or results ofoperations when they become effective.

 

In February 2007,the FASB issued SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities—Including anamendment of FASB Statement No. 115* (“SFAS No. 159”). SFASNo. 159 permits an entity, at specified election dates, to choose tomeasure certain financial instruments and other items at fair value. Theobjective of SFAS No. 159 is to provide entities with the opportunity tomitigate volatility in reported earnings caused by measuring related assets andliabilities differently, without having to apply complex hedge accountingprovisions. The adoption of SFAS No. 159, effective January 1, 2008,did not have a material impact on our consolidated financial statements.  The Company did not elect the fair valuemeasurement option for any of our existing financial instruments.

 

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**StandardsIssued But Not Yet Effective**

 

In December 2007,the FASB issued SFAS No. 141(R)—*Business Combinations*(“SFASNo. 141(R)”).  SFAS No. 141(R) replacesFASB Statement No. 141—*Business Combinations*.The new statement retains the fundamental requirements that the acquisition (orpurchase) method of accounting be used for all business combinations andexpands the definition of a business, thus increasing the number oftransactions which may qualify as business combinations. Contingentconsideration will be measured at fair value at the acquisition date, withchanges in fair value recognized in earnings, and transaction-related expensesand restructuring costs will be expensed as incurred. Changes in acquired taxcontingencies will be recognized in earnings if outside the purchase priceallocation period (generally one year or less). Adjustments to finalizepurchase price allocations will be shown as revised in future financialstatements to reflect the adjustments as if they had been recorded on theacquisition date. Also, in the event of a bargain purchase (acquisition of abusiness at below fair market value of net assets acquired) a gain could berecognized, or in the event of a change in control of an existing investment, again or loss could be recognized. SFAS No. 141(R) will be appliedprospectively to business acquisitions with acquisition dates on or after January 1,2009. The Company is currently assessing the impact of adopting SFAS No. 141(R) onits consolidated financial statements.

 

In December 2007,the FASB issued SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements—An Amendment of ARB No. 51*(“SFAS No. 160”).SFAS No. 160 establishes new accounting and reporting standards forthe non-controlling interest in a subsidiary and for the deconsolidation of asubsidiary. SFAS No. 160 is effective for fiscal years beginning onor after December 15, 2008 and early adoption is prohibited.  Adoption of this statement is not expected tohave a material impact on the Company’s consolidated financial position orresults of operations when it becomes effective in 2009, but may significantlyaffect the accounting for noncontrolling (or minority) interests from that dateforward.

 

In March 2008, theFASB issued Statement SFAS No. 161, *Disclosure aboutDerivative Instruments and Hedging Activities—An Amendment of FASB Statement No. 133*(“SFAS No. 161”).  SFAS No. 161 requires more disclosures aboutan entity’s derivative and hedging activities in order to improve thetransparency of financial reporting.  SFAS No. 161 is effectivefor financial statements issued for fiscal years and interim periods beginningafter November 15, 2008, with early applicationencouraged.  This Statement encourages, but does not require,comparative disclosures for earlier periods at initial adoption.  TheCompany will adopt the provisions of SFAS No. 161 on January 1, 2009,which is not expected to have a material impact on the Company’s consolidatedfinancial statements.

 

**NOTE 3****3⁄4RESTRICTEDCASH**

 

The Company is requiredto maintain $1.2 million on deposit with a financial institution to support abonding requirement for one of the ATSI state contracts.  This amount, and accumulated interest of$100,488 earned thereon as of June 30, 2008, is reflected in restrictedcash in the accompanying consolidated balance sheets.

 

**NOTE 4****3⁄4FAIRVALUE OF FINANCIAL INSTRUMENTS**

 

Inorder to manage interest rate fluctuation exposure on bank debt, the Companyentered into an interest rate swap agreement with Bank of America on November 9,2007 providing the Company an ability to eliminate the variability of interestexpense based on $35 million of floating rate debt.  The purpose of the derivative instrument isto hedge cash flows and not for trading purposes.  The Company records cash payments andreceipts related to its interest rate swap as adjustments to interest expenseand as a component of operating cash flow.

 

A $816,000 and $679,000 liability are included inother long-term liabilities, as of June 30, 2008 and December 31,2007, respectively, related to this interest rate swap. This valuation method,which is consistent with the second highest level of the valuation hierarchydescribed in SFAS 157, *Fair Value Measurements*,is fair market value based upon an extrapolation of forward rates for theremaining term of the interest rate swap. An $89,000 loss related to a change in market value for this derivative,net of a tax benefit of $54,000, was recorded in other comprehensive loss forthe six months ended June 30, 2008.

 

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**NOTE 5****3⁄4STOCKPLANS AND STOCK-BASED COMPENSATION**

 

In December 2004, the FASB issued SFAS No. 123(R),*Share Based Payment*, which requires thatcompensation costs related to share-based payment transactions be recognized infinancial statements. Under the fair value recognition provisions of SFAS No. 123(R),the Company recognizes stock-based compensation based upon the fair value ofthe stock-based awards taking into account the effects of the employees’expected exercise and post-vesting employment termination behavior.

 
| **Compensation Related to Options and Restricted** | ** ** | **Six Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| **Stock and Selling Expenses**                               | ** ** | **June 30, 2008**    | ** ** | **June 30, 2007**    | ** ** |
| Non-qualified stock option expense                           |       | $                              | —     |                           | $          | 591,000 |   |
| Incentive stock  options                                                    |       | 90,000                         |       | 34,000                         |       |
| Restricted stock                                                            |       | 495,000                        |       | 85,000                         |       |
| Stock grants to  Directors in lieu of cash                                  |       | 180,000                        |       | —                         |       |
| Total  stock-based compensation expense                                     |       | $                              | 765,000    |                           | $          | 710,000 |   |

 

The fair value of options granted during the periodended June 30, 2008 has been estimated as of the date of grant using the Black-Scholesoption pricing model with the following assumptions:

 
| ** **                | ** ** | **Six months  Ended June 30,** | ** ** |
|---------------------------|------------|-----------------------------------------------|------------|
| ** **                | ** ** | **2008**                                      | ** ** |
| Expected  dividend yield  |       | 0                                             | %          |
| Expected  volatility      |       | 38.9                                          | %          |
| Risk free  interest rate  |       | 2.99                                          | %          |
| Expected life of  options |       | 6.25 years                                    |       |
| Forfeiture rate           |       | 4.25                                          | %          |

 
| ** **   | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|--------------|------------|------------------------------|------------|------------------------------|------------|
| ** **   | ** ** | ** **                   | ** ** | **Weighted-**                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **   | ** ** | ** **                   | ** ** | **average**                  | ** ** | **Weighted-** | ** ** | ** ** | ** ** | **Weighted-** | ** ** |
| ** **   | ** ** | ** **                   | ** ** | **Remaining**                | ** ** | **average** | ** ** | ** ** | ** ** | **average** | ** ** |
| **Exercise** | ** ** | **Number**                   | ** ** | **Life in**             | ** ** | **Exercise** | ** ** | **Number** | ** ** | **Exercise** | ** ** |
| **Prices**   | ** ** | **Outstanding**              | ** ** | **Years**                    | ** ** | **Price** | ** ** | **Exercisable** | ** ** | **Price** | ** ** |
| $            | 2.15       |                         | 178,500    |                         | 9.92       |   | $ | 2.15 |   | — |   | $ | — |   |
| 3.40         |       | 170,000                      |       | 9.46                         |       | 3.40 |   | — |   | — |   |
| 3.50         |       | 60,000                       |       | 9.36                         |       | 3.50 |   | — |   | — |   |
| 3.67         |       | 30,000                       |       | 9.25                         |       | 3.67 |   | — |   | — |   |
| 3.75         |       | 4,500                        |       | 9.04                         |       | 3.75 |   | — |   | — |   |
| 3.85         |       | 4,500                        |       | 8.83                         |       | 3.85 |   | 1,125 |   | 3.85 |   |
| 4.32         |       | 15,000                       |       | 8.66                         |       | 4.32 |   | 3,750 |   | 4.32 |   |
| 4.88         |       | 120,000                      |       | 8.65                         |       | 4.88 |   | 30,000 |   | 4.88 |   |
|         |       | 582,500                      |       | 8.08                         |       | $ | 3.09 |   | 34,875 |   | $ | 4.87 |   |
|              |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |

 

**NOTE 6****3⁄4INCOME(LOSS) PER SHARE**

 

Basic and diluted earnings per share information ispresented in accordance with SFAS No. 128, *Earnings PerShare*.  Basic earnings pershare is calculated by dividing the net income attributable to commonstockholders by the weighted-average common shares outstanding during theperiod.  Diluted earnings per share iscalculated by dividing net income attributable to

 

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commonstockholders by the weighted average common shares outstanding which includescommon stock equivalents.  The Company’scommon stock equivalents include stock options, restricted stock units, andwarrants.  The weighted average sharesoutstanding for the three months ended June 30, 2008 and 2007 excluderestricted shares, warrants and stock options to purchase approximately3,507,752 and 41,658,967 shares, respectively, because such options or warrantshave an exercise price in excess of the average market price of the Company’scommon stock during the period. The weighted average shares outstanding for thesix months ending June 30, 2008 and 2007 exclude restricted shares,warrants and stock options to purchase approximately 3,535,213 and 41,979,501shares, respectively, because such options or warrants have an exercise pricein excess of the average market price of the Company’s common stock during theperiod.

 

**NOTE 7****3⁄4SEGMENTACCOUNTING**

 

The Company has only one reportable segment.

 

**NOTE 8****3⁄4WARRANTEXCHANGE OFFER**

 

On April 8, 2008, we announced an offer toholders of all 36,380,195 outstanding, publicly-traded warrants, that wouldpermit the exercise of the warrants on amended terms, for a limited time.  The offer modified the terms of the warrantsto allow holders to receive one share of common stock for every 12.5 warrantssurrendered, without paying a cash exercise price.  In addition, for each 10 warrants a holdertendered in the cashless exercise, the holder could also exercise oneadditional warrant by paying a reduced cash exercise price of $2.25 for oneshare of common stock.

 

The offer commenced on April 8, 2008, and wasextended on May 2, 2008 until May 16, 2008.  Under the tender offer, a total of 33,400,020warrants were exercised (approximately 92% of the 36,380,195 publicly tradedwarrants issued in the initial public offering of our predecessor, FederalServices Acquisition Corporation).  Thisconsisted of 33,073,703 warrants tendered for cashless exercise in exchange for2,645,887 shares of common stock (on the basis of 12.5 warrants for 1 share ofcommon stock), and 326,317 warrants exercised by payment of a reduced cashprice of $2.25 per share.  As a result ofthe exercise of warrants, 2,972,204 new shares of common stock were issued.Cash received by the Company was $734,192 and expenses were $499,715.  The warrants that were not exercised duringthe tender offer had their original terms reinstituted and will expire on October 19,2009, unless earlier exercised in accordance with their original terms.

 

**NOTE 9—CREDIT FACILITY**

 

On May 12, 2008,ATSC, with Bank of America, N.A., as lenders’ agent and their other lenders andthe guarantors listed on the signature page thereto, modified theirexisting credit agreement by entering into an Amendment No. 3 to CreditAgreement (the “Third Amendment”), Capitalized terms used in this summary have the same meanings assignedto them in the Third Amendment.  Thefollowing primary changes were made pursuant to such Third Amendment:  (i) amendment of the financial covenantsto revise the required Consolidated Leverage Ratios, the required minimum ConsolidatedEBITDA, the required Consolidated Asset Coverage Ratio, and the requiredConsolidated Fixed Charge Coverage Ratios; (ii) inclusion of a requirementof the Lenders’ consent to acquisitions, if the pro forma Consolidated LeverageRatio exceeds 2.50 to 1.00; (iii) inclusion of a new requirement that,depending on the Consolidated Leverage Ratio, either 50% or 100% of the NetCash Proceeds from ATSC’s sale of Equity Interests shall be applied to prepaythe Loans (provided, however, that this prepayment requirement does not applyto either proceeds from the sale of the ATSC Early Warrant Exercise Programeffective as of April 8, 2008, or sales or issuances of Equity Intereststo ATSC); (iv)  adjustment of the due date for the accounts receivableaging report and accounts payable aging report from ATSC to 30 days after theend of each month; and (v) modification of the interest rate applicable toloans outstanding under the Third Amendment (with interest continuing to bebased on LIBOR, but with increments ranging from 200 basis points to 350 basispoints, depending on the Consolidated Leverage Ratio).  This description of the Third Amendment isqualified in its entirety by the full text of the Third Amendment attached as Exhibit 10.1to the Quarterly Report on Form 10-Q dated March 31, 2008.

 

**NOTE 10—SUBSEQUENT EVENTS**

 

On August 4, 2008,the Company and Dr. Edward H. Bersoff, the Company’s Chairman, Presidentand Chief Executive Officer, amended Dr. Bersoff’s employment agreement,extending his employment term as Chief Executive Officer through December 31,2009.    The Company originally enteredinto an employment agreement with Dr.  Bersoff on March 19, 2007, whohad been serving in that capacity since January 16, 2007.

 

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On August 7,2008, the Company announced that George Troendle has been appointed the ChiefOperating Officer of the Company effective August 11, 2008.  Mr. Troendle submitted his resignationas a director of the Company on August 7, 2008 to be effective with hisappointment as the Chief Operating Officer on August 11, 2008.  Mr. Troendle has served as a directorsince June 11, 2007.  Mr. Troendle was the founder, Chief Executive Officerand a Director of Resource Consultants Inc. (“RCI”), a broadly diversifiedtechnology company, specializing in support of government agencies,particularly defense and homeland security.  In 2005, RCI became part ofSerco North America, a $500 million division of Serco Group, a $3.5 billioninternational services company specializing in government operations.  Mr. Troendlebecame President of Serco North America and served in that capacity untilstepping down in 2006.  Prior to founding RCI, Mr. Troendlewas one of three executives running a major division of Advanced Technology, Inc.,a 300-employee technology company primarily supporting the Department of theNavy. Mr. Troendle graduated from Georgetown University with both an M.A.and B.A. in Economics.

 

On August 7,2008 Mr. Troendle entered into an employment agreement (the “Agreement”)with the Company effective August 11, 2008.  The terms of the Agreement provide for a basesalary of $300,000, with an annual performance bonus of up to 60% of basesalary at target performance and health, life and disability insuranceconsistent with that of other Company executives.  The Agreement providesfor 12 months’ severance in the case of his involuntary termination (other thanupon a change in control) throughout the Agreement’s term which extends until December 31,2010.  The severance payment would be calculated based on his then currentannual base salary and a bonus component, as provided for in theAgreement.  In the event the Company is merged or purchased by a thirdparty and the Company’s shareholders immediately prior to the transactionretain less than 50% of the surviving entity, and Mr. Troendle isterminated involuntarily by the acquiring entity or terminated voluntarily for “goodreason,” then he would receive his then current base salary and target bonusfor 12 months.

 

**Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

 

***FORWARD-LOOKING STATEMENTS***

 

Someof the statements in this Quarterly Report on Form 10-Q constituteforward-looking statements.  Thesestatements involve known and unknown risks, uncertainties, and other factorsthat may cause our actual results, levels of activity, performance orachievements to be materially different from any future results, levels ofactivity, performance or achievements expressed or implied by suchforward-looking statements.  In somecases, 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 becausethey discuss our future expectations, contain projections of our future resultsof operations or of our financial position, or state other forward-lookinginformation.  The factors described inour filings with the SEC, as well as any cautionary language in this QuarterlyReport on Form 10-Q, provide examples of risks, uncertainties and eventsthat may cause our actual results to differ materially from the expectations wedescribe in our forward-looking statements, including but not limited to:

 

·                  risks related tothe government contracting industry, including possible changes in governmentspending priorities;

 

·                  risks related toour business, including our dependence on contracts with U.S. FederalGovernment agencies and departments, continued good relations, and beingsuccessful in competitive bidding, with those customers;

 

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

 

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

 

·                  other risks anduncertainties disclosed in our filings with the Securities and ExchangeCommission.

 

Additional factors thatmay affect our results are discussed in our Annual Report on Form 10-K forthe year ended December 31, 2007 under “Item 1A. Risk Factors.”  Although we believe the expectationsreflected in the forward-looking statements are reasonable, we cannot guaranteefuture results, levels of activity, performance, or achievements.  You should not

 

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place undue reliance onthese forward-looking statements, which apply only as of the date of thisQuarterly Report on Form 10-Q.  Weundertake no obligation to update these forward-looking statements, even if oursituation changes in the future.

 

The terms “we” and “our”as used throughout this Quarterly Report on Form 10-Q refer to ATSCorporation and Advanced Technology Systems, Inc., the wholly-ownedsubsidiary of ATSC, unless otherwise indicated.

 

**Overview**

 

ATS Corporation was organized as a “blank check”company under the laws of the State of Delaware on April 12, 2005 and wasformed for the purpose of acquiring, through a merger, capital stock exchange,asset acquisition, stock purchase or other similar business combination, anoperating business in the federal services and defense industries. ATSCacquired four companies in 2007.  Theirresults are included in the results of operations for 2007 from the dates ofacquisition.  Calendar year 2008 is thefirst full year that ATSC is an operating company with the acquisitions fullyintegrated into its operations.

 

ATSC (www.atsva.com) is an information technologyservices firm serving both the government and commercial organizations,specializing in software and systems development, systems integration,information technology infrastructure and outsourcing, information sharing andconsulting services.

 

Our diverse customer baseconsists primarily of U.S. government agencies. For the quarter ended June 30,2008, we generated approximately 36% of our revenue from federal civilianagencies, 40% from defense and homeland security agencies, 21% from commercialcustomers, including government-sponsored enterprises, and 3% from state andlocal customers. Our largest clients in the quarter ended June 30, 2008were the U.S. Department of Housing and Urban Development (“HUD”), the U.S.Coast Guard, and Fannie Mae, representing approximately 15%, 12% and 10%,respectively, of total revenue.

 

We derive substantially all of our revenues from feesfor consulting services.  We generatethese fees from contracts with various payment arrangements, including time andmaterials contracts, fixed-price contracts and cost-type contracts.  During the six months ended June 30,2008, revenue from time and materials and fixed-price contracts wereapproximately 66% and 34% respectively, of total revenue.  We typically issue monthly invoices to ourclients for services rendered.  Werecognize revenue on time and materials contracts based on actual hoursdelivered at the contracted billable hourly rate plus the cost of materialsincurred.  We recognize revenue onfixed-price contracts using the percentage-of-completion method based on costswe incurred in relation to total estimated cost.  However, if the contract is primarily forservices, we recognize revenue on a straight-line basis over the term of thecontract.  We recognize revenue from cost-typecontracts to the extent of costs incurred plus a proportionate amount of thefee earned.

 

On occasion, we enter into contracts that include thedelivery of a combination of two or more of our service offerings.  Typically, such multiple-element arrangementsincorporate the design, development, or modification of systems and an ongoingobligation to manage, staff, maintain, host, or otherwise run solutions andsystems provided to the client.  Suchcontracts are divided into separate units of accounting, and the totalarrangement fee is allocated to each unit based on its relative fairvalue.  In accordance with our revenuerecognition policy, revenue is recognized separately for each element.

 

The fees under certain government contracts may beincreased or decreased in accordance with cost or performance incentiveprovisions that measure actual performance against targets or othercriteria.  Such incentive fee awards orpenalties are included in revenue at the time the amounts can be reasonablydetermined.  Provisions for anticipatedcontract losses are recognized at the time they become known.

 

In the six months ended June 30, 2008, we derivedapproximately 19% of our revenue through relationships with prime contractors,who contract directly with the end-client and subcontract with us.

 

Our most significant expense is direct cost, whichconsists primarily of project personnel salaries and benefits, and directexpenses incurred to complete projects. The number of consulting personnel assigned to a project will varyaccording to the size, complexity, duration, and demands of the project.  As of June 30, 2008, we had 619personnel that worked on our contracts.

 

General and administrative expenses consist primarilyof costs associated with our executive management, finance and administrativegroups, human resources, sales and marketing personnel, and costs associatedwith marketing and bidding

 

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on future projects, unassigned consulting personnel,personnel training, occupancy costs, depreciation and amortization, travel andall other corporate costs.

 

**Contract Backlog**

 

We define backlog as thefuture revenue we expect to receive from our existing contracts and othercurrent engagements.  We generallyinclude in backlog the estimated revenue represented by contract options thathave been priced, though not exercised. We do not include any estimate of revenue relating to potential futuredelivery orders that may be awarded under our General Services AdministrationMultiple Award Schedule contracts, other Indefinite Delivery/IndefiniteQuantity  (“IDIQ”) contracts, or othercontract vehicles that are also held by a large number of firms, an order underwhich potential further delivery orders or task orders may be issued by any ofa large number of different agencies and are likely to be subject to acompetitive bidding process.  Our backlogas of June 30, 2008 was approximately $187.1 million, of which $77.1million was funded.

 

**Recent Events**

 

**Warrant Exchange Offer**

 

On April 8, 2008, we announced an offer toholders of all 36,380,195 outstanding, publicly-traded warrants, that wouldpermit the exercise of the warrants on amended terms, for a limited time.  The offer modified the terms of the warrantsto allow holders to receive one share of common stock for every 12.5 warrantssurrendered, without paying a cash exercise price.  In addition, for each 10 warrants a holder tenderedin the cashless exercise, the holder could also exercise one additional warrantby paying a reduced cash exercise price of $2.25 for one share of common stock.

 

The offer commenced on April 8, 2008, and wasextended on May 2, 2008 until May 16, 2008.  Under the tender offer, a total of 33,400,020warrants were exercised (approximately 92% of the 36,380,195 publicly tradedwarrants issued in the initial public offering of our predecessor, FederalServices Acquisition Corporation).  Thisconsisted of 33,073,703 warrants tendered for cashless exercise in exchange for2,645,887 shares of common stock (on the basis of 12.5 warrants for 1 share ofcommon stock), and 326,317 warrants exercised by payment of a reduced cashprice of $2.25 per share.  As a result ofthe exercise of warrants, 2,972,204 new shares of common stock wereissued.  Cash received by the Company was$734,192 and expenses were $499,715.  Thewarrants that were not exercised during the tender offer had their originalterms reinstituted and will expire on October 19, 2009, unless earlierexercised in accordance with their original terms.

 

**Change Of Address Of CorporateHeadquarters**

 

On February 11, 2008, the Company executed a newlease, with West*Group Properties, LLC, at 7925 Jones Branch Drive, McLean,Virginia, with the intent of relocating its principal executive offices from7915 Jones Branch Drive, McLean, Virginia. The details of this new lease and a copy thereof were filed as a part ofa Form 8-K dated February 11, 2008. On June 1, 2008, the Company officially relocated, in effectterminating the prior lease at the 7915 Jones Branch Drive location.

 

The new lease agreement included provisions for abuild-out allowance of approximately $3,200,000. Of this amount, approximately$2,175,000 was used to prepare the building for occupancy and $1,025,000 wasused to purchase additional capital assets, including a telephone system, forthe Company’s use. In accordance with generally accepted accounting principles,these amounts will be capitalized and depreciated over their expected usefullives. The Company will amortize leasehold improvements over the shorter oftheir estimated useful lives or the initial term of the lease.

 

In accordance with Financial Accounting StandardsBoard Technical Bulletin No. 85-3, *Accounting for OperatingLeases with Scheduled Rent Increases*, the Company includes thebuild-out period in the calculations of rent expense and construction allowanceamortization.  Additionally, inaccordance with Financial Accounting Standards Board Technical Bulletin No. 88-1,*Issues Relating to Accounting for Leases*,the Company classifies construction allowances on its Consolidated FinancialStatements as deferred credits, which are amortized as a reduction to rentexpense. Construction allowances are presented within operating activities onour Consolidated Statements of Cash Flows as supplemental disclosures.

 

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**Results of Operations (unaudited)**

 

Results of operations forthe three and six months ended June 30, 2008 compared with the three andsix months ended June 30, 2007 are presented below.

 

The following table setsforth certain financial data as dollars and as a percentage of revenue.

 
| ** **                                         | ** ** | **For the Three** | ** ** | ** ** | ** ** | **For the Three** | ** ** | ** ** | ** ** | **For the Six** | ** ** | ** ** | ** ** | **For the Six** | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|------------|------------|-----------------------------|------------|------------|------------|---------------------------|------------|------------|------------|---------------------------|------------|------------|------------|
| ** **                                         | ** ** | **Months Ended**       | ** ** | ** ** | ** ** | **Months Ended**       | ** ** | ** ** | ** ** | **Months Ended**     | ** ** | ** ** | ** ** | **Months Ended**     | ** ** | ** ** | ** ** |
| ** **                                         | ** ** | **June 30,**           | ** ** | ** ** | ** ** | **June 30,**           | ** ** | ** ** | ** ** | **June 30,**         | ** ** | ** ** | ** ** | **June 30,**         | ** ** | ** ** | ** ** |
| ** **                                         | ** ** | **2008**                    | ** ** | **%**      | ** ** | **2007**                    | ** ** | **%**      | ** ** | **2008**                  | ** ** | **%**      | ** ** | **2007**                  | ** ** | **%**      | ** ** |
|                                               |       |                        |       |       |       |                        |       |       |       |                      |       |       |       |                      |       |       |       |
| **Revenue**                                        |       | $                           | 33,788,772 |       |       |                        | $          | 26,247,681 |       |                      |       | $          | 68,662,297 |                      |       |       | $          | 49,725,401 |   |   |   |
| ** **                                         | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** |
| **Operating  costs and expenses**                  | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** |
| Direct costs                                       |       | 22,964,775                  |       | 68.0       | %          | 18,705,377                  |       | 71.3       | %          | 45,233,416                |       | 65.9       | %          | 35,169,594                |       | 70.7       | %          |
| Selling, general  and administrative expenses      |       | 7,764,830                   |       | 23.0       | %          | 6,179,367                   |       | 23.5       | %          | 17,214,511                |       | 25.1       | %          | 12,155,875                |       | 24.4       | %          |
| Depreciation and  amortization                     |       | 2,034,302                   |       | 6.0        | %          | 1,083,404                   |       | 4.1        | %          | 4,076,910                 |       | 5.9        | %          | 2,004,040                 |       | 4.0        | %          |
|                                               |       |                        |       |       |       |                        |       |       |       |                      |       |       |       |                      |       |       |       |
| **Total  operating costs and expenses**            |       | 32,763,907                  |       | 97.0       | %          | 25,968,148                  |       | 98.9       | %          | 66,524,837                |       | 96.9       | %          | 49,329,509                |       | 99.2       | %          |
| ** **                                         | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** |
| **Operating  income**                              |       | 1,024,865                   |       | 3.0        | %          | 279,553                     |       | 1.1        | %          | 2,137,460                 |       | 3.1        | %          | 395,892                   |       | 0.8        | %          |
| ** **                                         | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** |
| **Other  (expense) income**                        | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** |
| Interest Income  (Expense), net                    |       | (944,729                    | )          | (2.8       | )%         | 7,537                       |       | 0.0        | %          | (1,749,136                | )          | (2.5       | )%         | 150,988                   |       | 0.3        | %          |
| Loss on warrant  liabilities                       |       | —                      |       | —     |       | —                      |       | —     |       | —                    |       | —     |       | (6,930,000                | )          | (13.9      | )%         |
| Other income                                       |       | (4,705                      | )          | (0.0       | )%         | 9,019                       |       | 0.0        |       | 66,172                    |       | 0.1        | %          | 9,754                     |       | 0.0        | %          |
|                                               |       |                        |       |       |       |                        |       |       |       |                      |       |       |       |                      |       |       |       |
| **Income  (loss) before income taxes**             |       | 75,431                      |       | 0.2        | %          | 296,089                     |       | 1.1        | %          | 454,496                   |       | 0.7        | %          | (6,373,366                | )          | (12.8      | )%         |
|                                               |       |                        |       |       |       |                        |       |       |       |                      |       |       |       |                      |       |       |       |
| **Income  tax expense**                            |       | 8,579                       |       | 0.2        | %          | 171,461                     |       | 0.7        | %          | 112,615                   |       | 0.2        | %          | 274,172                   |       | 0.6        | %          |
|                                               |       |                        |       |       |       |                        |       |       |       |                      |       |       |       |                      |       |       |       |
| **Net  Income (loss)**                             |       | $                           | 66,852     |       | 0.0        | %                           | $          | 124,628    |       | 0.5                       | %          | $          | 341,881    |                      | 0.4        | %          | $          | (6,647,538 | ) | (13.4 | )% |
|                                               |       |                        |       |       |       |                        |       |       |       |                      |       |       |       |                      |       |       |       |
| **Weighted  average number of shares outstanding** | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** |
| **—basic**                                    |       | 20,410,516                  |       |       |       | 18,133,828                  |       |       |       | 19,706,731                |       |       |       | 19,214,534                |       |       |       |
| **—diluted**                                  |       | 20,465,439                  |       |       |       | 18,440,030                  |       |       |       | 19,734,193                |       |       |       | 19,214,534                |       |       |       |
| ** **                                         | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** |
| **Net  income (loss) per share**                   | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** | ** **                | ** ** | ** ** | ** ** |
| **—basic**                                    |       | $                           | 0.00       |       |       |                        | $          | 0.01       |       |                      |       | $          | 0.02       |                      |       |       | $          | (0.35 | ) |   |   |
| **—diluted**                                  |       | $                           | 0.00       |       |       |                        | $          | 0.01       |       |                      |       | $          | 0.02       |                      |       |       | $          | (0.35 | ) |   |   |

 

**Comparison of the three monthsended June 30, 2008 to the three months ended June 30, 2007.**

 

***Revenue***– Revenue increased by $7.5 million, or 29%, to $33.8 million for the threemonths ended June 30, 2008. Comparisons to prior periods are strongly affected by the acquisitionsin 2007, which added to our revenue base. Revenue from commercial contracts increased $0.7 million to $7.2million, or 11%.  This increase wasdriven primarily by increased revenue from existing customers, as well as newsources such as IBM, CareFirst and Blue Cross Blue Shield.  Revenue from the civilian and defensecustomers increased $6.1 million to $26.6 million, or 30%.  Growth with existing customers such as HUDand the Department of Education combined with revenue from new sources such asthe United States Air Force and the United States Coast Guard have driven thisincrease.

 

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***Directcosts –***Direct costs were 68.0% and 71.3% of revenue forthe three month periods ended June 30, 2008 and 2007 respectively, animprovement of 3.3%.  Direct costs arecomprised of direct labor, fringe on this labor, subcontract labor costs andmaterial and other direct costs (“ODCs”). Material and ODCs are incurred in response to specific client tasks andmay vary from period to period.  Thesingle largest component of direct costs, direct labor, was $11.0 million and$9.9 million for the three month periods ended June 30, 2008 and 2007,respectively. Overall margins for the second quarter 2008 improved 3.3% over2007 to 32.0% from 28.7%  This is partlyattributable to higher margins associated with commercial business acquired in2007.  Also, several HUD contracts havesuccessfully transitioned from the development phase to on-going maintenanceand support, which is more profitable. Increased business with the U.S. Coast Guard has generated highermargins as well.

 

***Selling,general and administrative (“SG&A”) expenses –***Componentsof SG&A are marketing, bid and proposal costs, indirect labor and theassociated fringe benefits, facilities costs and other discretionaryexpenses.  As a percentage of revenue,SG&A expenses were 23.0% and 23.5% for the three month periods ended June 30,2008 and 2007, respectively.  Reducedspending on legal and accounting fees, as well as a reduction in indirect laborcosts, have contributed to this improvement.

 

***Depreciationand amortization –***Amortization expense increased to 6.0%of revenue for the three months ended June 30, 2008 compared to 4.1% forthe three month period ended June 30, 2007.  This was directly related to additionalintangible amortization expense associated with acquisitions in 2007.

 

***Interest,net –***The net change in interest (expense) income was$0.9 million for the three month period ended June 30, 2008 compared withthe three month period ended June 30, 2007.  This is a result of borrowings to financeacquisitions made in 2007, as well as interest on notes with the former ownersof the acquired companies.

 

***Incometaxes******–*** For thethree months ended June 30, 2008 and 2007, the Company reported income taxexpense of $8.6 thousand and $171.5 thousand, respectively.  Income tax expense was higher for the threemonths ended June 30, 2007 due to higher pre-tax net income.

 

**Comparison of the six monthsended June 30, 2008 to the six months ended June 30, 2007.**

 

***Revenue***– Revenue increased by $18.9 million, or 38%, to $68.7 million for the sixmonths ended June 30, 2008. Comparisons to prior periods are strongly affected by the acquisitionsin 2007, which added to our revenue base. Revenue from commercial contracts increased $3.0 million to $15.6million, or 23.7%.  This increase wasdriven primarily by increased revenue from existing customers, as well as newsources such as IBM, CareFirst and Blue Cross Blue Shield.  Revenue from the civilian and defensecustomers increased $15.2 million to $53.1 million, or 40.2%.  Growth with existing customers such as HUDand the Department of Education combined with revenue from new sources such asthe United States Air Force and the United States Coast Guard have driven thisincrease.

 

***Directcosts –***Direct costs were 65.9% and 70.7% of revenue forthe six month periods ended June 30, 2008 and 2007, an improvement of4.8%.  Direct costs are comprised ofdirect labor, fringe on this labor, subcontract labor costs and material andother direct costs (“ODCs”).  Materialand ODCs are incurred in response to specific client tasks and may vary fromperiod to period.  The single largestcomponent of direct costs, direct labor, was $22.4 million and $15.6 millionfor the six month periods ended June 30, 2008 and 2007, respectively.  Overall margins for the first half ofimproved 3.4% over 2007 to 31.3% from 27.9% This is attributable to higher margins associated with commercialbusiness acquired in 2007, as well as several HUD contracts having successfullytransitioned from the lower-margin development phase to the higher-marginon-going maintenance and support phase. Higher margins in the defense division, 33.6% in 2008 versus 29.6% in2007, are also driving this margin improvement. Much of this increase is due to a higher percentage of business with theU.S. Coast Guard which has higher margins.

 

***Selling,general and administrative (“SG&A”) expenses –***Componentsof SG&A are marketing, bid and proposal costs, indirect labor and theassociated fringe benefits, facilities costs and other discretionaryexpenses.  As a percentage of revenue,SG&A expenses were 25.1% and 24.4% for the periods ended June 30, 2008and 2007, respectively.  This increasewas primarily driven by an enhanced business development function needed toaddress the expanded markets presented by the acquisitions made in 2007.

 

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***Depreciationand amortization –***Amortization expenses increased to5.9% of revenue for the six months ended June 30, 2008 compared to 4.0%for the six month period ended June 30, 2007.  This was directly related to additionalintangible amortization expense associated with acquisitions in 2007.

 

***Interest,net –***The net change in interest (expense) income was$1.9 million for the six months ended June 30, 2008 compared with the sixmonths ended June 30, 2007.  This isa result of borrowings to finance acquisitions made in 2007, as well asinterest on notes with the former owners of the acquired companies.

 

***Incometaxes******–*** For thesix months ended June 30, 2008 and 2007, the Company reported income taxexpense of $112.6 thousand and $274.2 thousand, respectively.  Income tax expense was higher for the sixmonths ending June 30, 2007 due to higher pre-tax net income withoutconsideration of the losses on warrants which were not tax deductible.

 

**FinancialCondition, Liquidity and Capital Resources**

 

**FinancialCondition. **Total assets remained steady at $170.95million as of June 30, 2008 compared to $170.95 million as of December 31,2007.  Although aggregate movement was small,several components of total assets changed significantly; net trade accountsreceivable increased by $5.1 million while income taxes receivable decreased by$2.6 million.  The increase in tradeaccounts receivable was partly due to an increase in revenue of $3.3 million inthe three month period ended June 30, 2008 over the three month periodended December 31, 2007 and partly due to delayed payments of $2.9 millionon a Federal contract caused by a change in the government payments office. Thedelayed Federal payment issue has been resolved and $1.6 million of the delayedpayment has been received as of July 31, 2008.

 

Ourtotal liabilities showed a slight decrease of $1.5 million to $74.1 million asof June 30, 2008 from $75.6 million as of December 31, 2007.  Although the aggregate movement was small,significant changes within total liabilities were: increased borrowings underour lines of credit of $1.3 million, an increase in deferred rent expense of$3.1 million and decreases in accounts payable and accrued expenses of $1.9million and taxes payable and deferred taxes of $3.8 million.

 

**Liquidityand Capital Resources. **Our primary liquidity needs are to financethe costs of operations, acquire capital assets and to make selective strategicacquisitions.  We expect to meet ourshort-term requirements through funds generated from operations and from our$50 million line of credit facility.  Asof June 30, 2008, we had an outstanding balance of $43.8 million on ourcredit facility.  As noted above, therewas a large increase in accounts receivable in the first six months of thefiscal year.  The balance is expected todecline due to increased collection efforts, thus reducing the outstandingbalance on the credit facility.  Thecredit facility is considered adequate to meet the operations liquidity andcapital requirements.

 

Netcash used by operating activities was $3.5 million for the six months ended June 30,2008.  Cash used by operating activitieswas primarily driven by working capital changes, which were principally changesin accounts receivable as discussed above.

 

Netcash used by investing activities was $0.1 million for the six months ended June 30,2008.

 

Netcash provided by financing activities was $1.7 million for the six months endedJune 30, 2008.  This was used tofund working capital growth during the first six months of the fiscal year.

 

Weexpect to retain future earnings, if any, for use in the operation andexpansion of our business and do not anticipate paying any cash dividends inthe foreseeable future.

 

OnMay 12, 2008, ATSC and its lenders amended the terms of the Company’scredit agreement, effective March 31, 2008.  The facility is a three-year, securedfacility that permits continuously renewable borrowings of up to $50.0 million,with an expiration date of June 4, 2010. The interest rate is based onLIBOR plus the applicable rate ranging from 200 to 350 basis points dependingon the Company’s consolidated leverage ratio. The Company pays a fee in theamount of .20% to .375% on the unused portion of the facility, based on itsconsolidated leverage ratio, as defined in the agreement.  Any outstanding balances under the facilityare due on the expiration date.  Theamended agreement places certain restrictions on the Company’s ability to makeacquisitions.  It also requires theCompany to reduce the principal amount on its loan outstanding by between 50%to 100% of the net cash proceeds from the sale or issuance of equity interests,other than the warrant exercise program completed during the second quarter.

 

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**Off-BalanceSheet Arrangements**

 

Forthe six months ended June 30, 2008, we did not have any off-balance sheetarrangements.

 

***Contractual Obligations***

 

*The following table summarizes our contractual obligationsas of June 30, 2008 that require us to make future cash payments.*

 
| ** **                           | ** ** | **Less than**      | ** **  | **One to Three** | ** ** | **Three to Five** | ** ** | **More than**  | ** **   | ** ** | ** ** |
|--------------------------------------|------------|-------------------------|-------------|----------------------------|------------|-----------------------------|------------|---------------------|--------------|------------|------------|
| ** **                           | ** ** | **One Year**       | ** **  | **Years**                  | ** ** | **Years**                   | ** ** | **Five Years** | ** **   | **Total**  | ** ** |
| ** **                           | ** ** | **(in thousands)** | ** **  |
| Long-Term Debt Obligations |       | $                       |  2,670 |                       | $          |  47,057                |       | $                   |  — |       | $          |  — |   | $ |  49,727 |   |
| Capital Leases                       |       | 95                      |        | 48                         |       | —                      |       | —              |         | 143        |       |
| Operating Leases                     |       | 2,553                   |        | 6,042                      |       | 5,435                       |       | 5,672               |         | 19,702     |       |
| Total                                |       | $                       | 5,318       |                       | 53,147     |                        | $          | 5,435               |         | $          | 5,672      |   | $ | 69,572 |   |
|                                      |            |                         |             |                            |            |                             |            |                     |              |            |            |  |  |  |  |  |

 

***Recent Accounting Pronouncements***

 

**Adoptionof New Accounting Standards**. In September 2006, the FASB issued “SFAS” No. 157, *Fair Value Measurements* (“SFAS No. 157”).SFAS No. 157 defines fair value, establishes a framework for measuringfair value in generally accepted accounting principles and expands disclosuresabout fair value measurements. Specifically, this Statement sets forth adefinition of fair value, and establishes a hierarchy prioritizing the inputs tovaluation techniques, giving the highest priority to quoted prices in activemarkets for identical assets and liabilities and the lowest priority tounobservable inputs. The provisions of SFAS No. 157 are generally requiredto be applied on a prospective basis, except to certain financial instrumentsaccounted for under SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities*, for which theprovisions of SFAS No. 157 should be applied retrospectively. In February 2008,the FASB issued Staff Position FAS 157-2, *EffectiveDate of FASB Statement No. 157*, which defers the implementationfor the non-recurring nonfinancial assets and liabilities from fiscal yearsbeginning after November 15, 2007 to fiscal years beginning after November 15,2008.  The disclosure requirements ofSFAS No. 157 which took effect on January 1, 2008 are presented inNote 4 to the June 30, 2008 interim financial statements.  On January 1, 2009, the Company willimplement the previously-deferred provisions of SFAS No. 157 fornonfinancial assets and liabilities recorded at fair value as required. TheCompany does not believe that the remaining provisions will have a materialeffect on the Company’s consolidated financial position or results ofoperations when they become effective.

 

In February 2007,the FASB issued SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities—Including anamendment of FASB Statement No. 115* (“SFAS No. 159”). SFASNo. 159 permits an entity, at specified election dates, to choose tomeasure certain financial instruments and other items at fair value. Theobjective of SFAS No. 159 is to provide entities with the opportunity tomitigate volatility in reported earnings caused by measuring related assets andliabilities differently, without having to apply complex hedge accountingprovisions. The adoption of SFAS No. 159 effective January 1, 2008did not have a material impact on our consolidated financial statements.  The Company did not elect the fair valuemeasurement option for any of our existing financial instruments.

 

**StandardsIssued But Not Yet Effective.  **InDecember 2007, the FASB issued SFAS No. 141(R)—*BusinessCombinations*(“SFAS No. 141(R)”).  SFAS No. 141(R) will replace FASBStatement No. 141—*Business Combinations*.The new statement retains the fundamental requirements that the acquisition (orpurchase) method of accounting be used for all business combinations andexpands the definition of a business, thus increasing the number oftransactions which may qualify as business combinations. Contingentconsideration will be measured at fair value at the acquisition date, withchanges in fair value recognized in earnings, and transaction-related expensesand restructuring costs will be expensed as incurred. Changes in acquired taxcontingencies will be recognized in earnings if outside the purchase priceallocation period (generally one year or less). Adjustments to finalizepurchase price allocations will be shown as revised in future financialstatements to reflect the adjustments as if they had been recorded on theacquisition date. Also, in the event of a bargain purchase (acquisition of abusiness at below fair market value of net assets acquired) a gain could berecognized, or in the event of a change in control of an existing investment again or loss could be recognized.

 

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In December 2007,the FASB issued SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements–An Amendment of ARB No. 51*(“SFAS No. 160”).SFAS No. 160 establishes new accounting and reporting standards forthe non-controlling interest in a subsidiary and for the deconsolidation of asubsidiary. SFAS No. 160 is effective for fiscal years beginning onor after December 15, 2008 and early adoption is prohibited.  Adoption of this statement is not expected tohave a material impact on the Company’s consolidated financial position orresults of operations when it becomes effective in 2009, but may significantlyaffect the accounting for noncontrolling (or minority) interests from that dateforward.

 

In March 2008, theFinancial Accounting Standards Board (FASB) issued Statement of Financial AccountingStandards (SFAS) No. 161, *Disclosure aboutDerivative Instruments and Hedging Activities – An Amendment of FASB Statement No. 133*(“SFAS No. 161”).  SFAS No. 161 requires more disclosures aboutan entity’s derivative and hedging activities in order to improve thetransparency of financial reporting.  SFAS No. 161 is effectivefor financial statements issued for fiscal years and interim periods beginningafter November 15, 2008, with early applicationencouraged.  This Statement encourages, but does not require,comparative disclosures for earlier periods at initial adoption.  TheCompany will adopt the provisions of SFAS No. 161 on January 1, 2009,which is not expected to have a material impact on the Company’s consolidatedfinancial statements.

 

**Item 3. Quantitative and Qualitative Disclosures about MarketRisk.**

 

We are exposed to certainfinancial market risks, the most predominant being fluctuations in interestrates for a portion of our borrowings under our credit facility.  As of June 30, 2008, we had anoutstanding balance of $43.8 million under our variable interest rate line ofcredit.  In November 2007, we hedgedthe interest rate risk on $35 million of this debt by executing an interestrate swap as discussed in Note 4 of the financial statements.

 

**Item 4. Controls and Procedures.**

 

Our management performed an assessment, under thesupervision and with the participation of our Chief Executive Officer(principal executive officer) and our Chief Financial Officer (principalfinancial officer), of the effectiveness of the design and operation of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) or15d-15(e) of the Securities Exchange Act of 1934, as amended) as of June 30,2008 and have concluded that these controls and procedures are effective toensure that information required to be disclosed by the Company is recorded,processed, summarized, and reported within the time periods specified in theSecurities and Exchange Commission’s (the “SEC”) rules and forms.  The forms of certification are required inaccordance with Section 302 of the Sarbanes – Oxley Act of 2002.

 

Disclosure controls and procedures are designed withthe objective of ensuring that information required to be disclosed in ourreports filed or submitted under the Securities Exchange Act of 1934, such asthis Quarterly Report on Form 10-Q, is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules andforms.  Disclosure controls andprocedures are also designed with the objective of ensuring that suchinformation is accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, as appropriate, to allowtimely decisions regarding required disclosure.

 

**Changesin Internal Control Over Financial Reporting**

 

During the threemonths ended June 30, 2008, no change occurred in the Company’s internalcontrol over financial reporting that materially affected, or is likely tomaterially affect, the Company’s internal control over financial reporting.

 

**PART II — OTHER INFORMATION**

 

**Item 1. Legal Proceedings.**

 

From time to time, we areinvolved in various legal matters and proceedings concerning matters arising inthe ordinary course of business. Other than possibly the below disclosure, wecurrently believe that any ultimate liability arising out of these matters andproceedings will not have a material adverse effect on our financial position,results of operations or cash flows.

 

Weare a defendant in *Maximus, Inc. vs.Advanced Technology Systems, Inc.*, pending in the ConnecticutSuperior Court, Hartford District.  Thelawsuit asserts breach of contract and other claims related to a subcontractbetween Maximus and ATSI associated with a prime contract between Maximus andthe State of Connecticut.  The case wasfiled in August 2007.

 

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Wehave filed our answer denying Maximus’ claims and have asserted ourcounterclaims. Discovery has commenced and is scheduled to be completed in February 2009.Trial is set for July 2010.  Basedon the claims asserted in the lawsuit, we have made an indemnification demandagainst the selling shareholders of ATSI under the stock purchase agreementgoverning the transaction in which the Company (then Federal ServicesAcquisition Corporation) acquired ATSI. That demand is subject to the dispute resolution process provided for inthe stock purchase agreement.  This has beensubmitted to arbitration.

 

We are involved in legalarbitration proceedings with the former owners of ATSI.  At the time of the purchase of ATSI by ATSC(then Federal Acquisition Corporation), funds were set aside in certain escrowaccounts: tax, working capital attainment, and indemnification regarding legalissues with a customer, Maximus.  We havemade a demand for these funds under the stock purchase agreement governing thetransaction.  The previous owners havemade a counter demand.

 

**Item 1A. Risk Factors.**

 

There are no materialupdates to the risk factors previously disclosed in our Form 10-K for theyear ended December 31, 2007.

 

**Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds.**

 

The Company did notrepurchase any equity securities this period.

 

**RecentSales of Unregistered Securities**

 

There have been nochanges to the “Recent Sales of Unregistered Securities” disclosed in Part II,Item 2 of our Form 10-Q for the quarter ended March 31, 2008, otherthan a total of 62,604 shares of unregistered stock valued at approximately$144,000 issued to five directors of the Company on May 7, 2008.  The issuances of these shares are exemptunder Section 4(2) of the Securities Act of 1933, as amended.

 

**Item 3.  Defaults upon SeniorSecurities.**

 

Not applicable.

 

**Item 4.  Submission of Mattersto a Vote of Security Holders.**

 

The annual meeting ofshareholders was held on May 7, 2008. The following matters were presented to the shareholders and the resultsof the votes were as follows:

 

To elect Joseph A.Saponaro as a Class Three Director for a three-year term.

 
| Votes for      |   | 15,143,775 |   |
|----------------|--------|------------|--------|
| Votes withheld |   | 500        |   |

 

To elect Peter M. Schulteas a Class Three Director for a three-year term.

 
| Votes for      |   | 14,989,325 |   |
|----------------|--------|------------|--------|
| Votes withheld |   | 154,950    |   |

 

To approve the ATSCorporation 2007 Employee Stock Purchase Plan.

 
| Votes for     |   | 6,078,919 |   |
|---------------|--------|-----------|--------|
| Votes against |   | 45,495    |   |
| Abstentions   |   | 407,446   |   |

 

To ratify the appointmentof Grant Thornton, LLP as the Company’s independent registered publicaccounting firm for the fiscal year 2008.

 
| Votes for     |   | 15,144,275 |   |
|---------------|--------|------------|--------|
| Votes against |   | —     |   |
| Abstentions   |   | —     |   |

 

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**Item 5.  Other Information.**

 

None.

 

**Item 6.  Exhibits.**

 
| **Exhibit** | ** ** | ** **                                                                                                                                       |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Description**                                                                                                                                  |
|        |       |                                                                                                                                             |
| 31.1        |       | Certification of Principal Executive Officer  pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act  of 1934, as amended |
|        |       |                                                                                                                                             |
| 31.2        |       | Certification of Principal Financial Officer  pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act  of 1934, as amended |
|        |       |                                                                                                                                             |
| 32.1        |       | Certification of Principal Executive Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                     |
|        |       |                                                                                                                                             |
|        |       |                                                                                                                                             |
| 32.2        |       | Certification of Principal Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                     |

 

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##### **SIGNATURES**

#####  

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                           |   | ATS Corporation |
|---------------------------|--------|-----------------|
|                      |   |            |   |
|                      |   | By:             | /s/ Edward H. Bersoff |
|                      |   |            | Chairman of the Board and |
|                      |   |            | Chief Executive Officer |
|                      |   |            |   |
|                      |   | By:             | /s/ Pamela A.  Little |
|                      |   |            | Chief Financial Officer |
| Date: August 8, 2008 |   |            |   |

 

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