**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

 

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| **x**                                                   | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| ** **                                              | ** ** | ** **                                                                                    |
| **FOR THE  QUARTERLY PERIOD ENDED September 30, 2006.** |
| ** **                                              | ** ** | ** **                                                                                    |
| **o**                                                   | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**COMMISSION FILE NUMBER:0-51552**

 

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**FEDERAL SERVICES ACQUISITION CORPORATION**

(Exact name of registrant as specified in its charter)

 

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

 

**900 Third Avenue, 33**rd Floor

**New York, New York,10022-4775**

(Address of principal executive office)

 

**(646) 403-9765**

(Registrant’s telephone number, including area code)

 

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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 the SecuritiesExchange Act of 1934 during the preceding 12 months and (2) has been subject tosuch filing requirements for the past 90days.    Yes  x   No  o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated” filer in Rule 12b-2 ofthe Exchange Act.    

Large AcceleratedFiler  o   Accelerated Filer  o   Non-acceleratedFiler x

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

The number of shares of the issuer’s Common Stock,$0.0001 par value, outstanding as of October 24, 2006 was 26,250,000.

 

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#####  

**TABLE OF CONTENTS**

 
| **PART I — FINANCIAL  INFORMATION** |   |                                                                                                                                                                                                                                                                                                                                                                   |
|------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item  1.                                 |   | Financial  Statements                                                                                                                                                                                                                                                                                                                                                  |   |   |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
|                                     |   | Condensed  Balance Sheets as of September 30, 2006 (unaudited) and as of December 31,  2005                                                                                                                                                                                                                                                                            |   | 3 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
|                                     |   | Condensed Statements of Operations (unaudited) for the  three months ended September 30, 2006, for the three months ended September  30, 2005, for the nine months ended September 30, 2006, for the period from  April 12, 2005 (date of inception) through September 30, 2005 and for the  period from April 12, 2005 (date of inception) through September 30, 2006 |   | 4 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
|                                     |   | Condensed Statements of Changes in Stockholders’  Equity for the period from April 12, 2005 (date of inception) through  December 31, 2005 and (unaudited) for the nine months ended September 30,  2006                                                                                                                                                          |   | 5 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
|                                     |   | Condensed Statements of Cash Flows (unaudited) for the  nine months ended September 30, 2006, for the period from April 12, 2005  (date of inception) through September 30, 2005 and for the period from April  12, 2005 (date of inception) through September 30, 2006,                                                                                               |   | 6 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
|                                     |   | Notes to Condensed Unaudited Financial Statements                                                                                                                                                                                                                                                                                                                      |   | 7-12 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 2.                             |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operation                                                                                                                                                                                                                                                                             |   | 13-15 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 3.                             |   | Quantitative and Qualitative Disclosures about Market  Risk                                                                                                                                                                                                                                                                                                            |   | 16 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 4.                             |   | Controls and Procedures                                                                                                                                                                                                                                                                                                                                                |   | 16 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| **PART  II — OTHER INFORMATION**    |   |                                                                                                                                                                                                                                                                                                                                                                   |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 1.                             |   | Legal  Proceedings                                                                                                                                                                                                                                                                                                                                                     |   | 17 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 1A.                                 |   | Risk Factors                                                                                                                                                                                                                                                                                                                                                           |   | 17-28 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 2.                             |   | Unregistered Sales of Equity Securities and Use of  Proceeds                                                                                                                                                                                                                                                                                                           |   | 29 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 3.                             |   | Defaults upon Senior Securities                                                                                                                                                                                                                                                                                                                                        |   | 29 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 4.                                  |   | Submission of Matters to Vote by Securities Holders                                                                                                                                                                                                                                                                                                                    |   | 29 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 5.                             |   | Other  Information                                                                                                                                                                                                                                                                                                                                                     |   | 29 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 6.                             |   | Exhibits                                                                                                                                                                                                                                                                                                                                                               |   | 29-30 |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| **SIGNATURES**                           |   | 31                                                                                                                                                                                                                                                                                                                                                                     |

 

2

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**PART I — FINANCIALINFORMATION**

**ITEM 1. —FINANCIAL STATEMENTS**

**FederalServices Acquisition Corporation**(a development stagecompany)Condensed Balance Sheets
| ** **                                                                                                                                                                     | ** ** | **September 30, 2006** | ** **  | **December 31, 2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|
| ** **                                                                                                                                                                     | ** ** | **(Unaudited)**                  | ** **  | ** **                      | ** ** |
| **ASSETS**                                                                                                                                                                     | ** ** | ** **                       | ** **  | ** **                      | ** ** |
| Current assets:                                                                                                                                                                |       |                             |        |                            |       |
| Cash and cash  equivalents                                                                                                                                                     |       | $                                | 1,033,477   |                            | $          | 1,855,394 |   |
| Prepaid expenses                                                                                                                                                               |       | 4,192                            |        | 72,122                          |       |
|                                                                                                                                                                           |       |                             |        |                            |       |
| Total current assets                                                                                                                                                           |       | 1,037,669                        |        | 1,927,516                       |       |
|                                                                                                                                                                           |       |                             |        |                            |       |
| Short-term  investments held in Trust Account (including interest receivable of $168,319  and $39,444, respectively) (fair value $120,067,505 and $117,709,036,  respectively) |       | 120,067,505                      |        | 117,709,036                     |       |
| Cash and cash  equivalents held in trust fund                                                                                                                                  |       | 12,187                           |        | 281,348                         |       |
|                                                                                                                                                                           |       |                             |        |                            |       |
| Deferred income  tax benefit                                                                                                                                                   |       | 443,344                          |        | 34,629                          |       |
| Deferred  acquisition costs                                                                                                                                                    |       | 1,154,976                        |        | —                          |       |
| Total assets                                                                                                                                                                   |       | $                                | 122,715,681 |                            | $          | 119,952,529 |   |
| ** **                                                                                                                                                                     | ** ** | ** **                       | ** **  | ** **                      | ** ** |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                 | ** ** | ** **                       | ** **  | ** **                      | ** ** |
| Current liabilities:                                                                                                                                                           |       |                             |        |                            |       |
| Accrued expenses                                                                                                                                                               |       | $                                | 1,268,456   |                            | $          | 34,289 |   |
| Income tax  payable—current                                                                                                                                               |       | 160,786                          |        | 356,000                         |       |
| Deferred income  tax                                                                                                                                                           |       | 75,946                           |        | 15,714                          |       |
| Warrant liabilities                                                                                                                                                            |       | 14,700,000                       |        | 19,740,000                      |       |
| Total current  liabilities                                                                                                                                                     |       | 16,205,188                       |        | 20,146,003                      |       |
|                                                                                                                                                                           |       |                             |        |                            |       |
| Common Stock, subject  to possible redemption 4,197,900 shares                                                                                                                 |       | 23,424,282                       |        | 23,424,282                      |       |
| Interest income  attributable to common stock subject to possible redemption (net of taxes of  $424,728 and $64,000, respectively)                                             |       | 536,756                          |        | 97,996                          |       |
|                                                                                                                                                                           |       |                             |        |                            |       |
| Total common stock,  subject to possible redemption                                                                                                                            |       | 23,961,038                       |        | 23,522,278                      |       |
|                                                                                                                                                                           |       |                             |        |                            |       |
| COMMITMENTS AND  CONTINGENCIES (Note I)                                                                                                                                        |       |                             |        |                            |       |
|                                                                                                                                                                           |       |                             |        |                            |       |
| STOCKHOLDERS’ EQUITY:                                                                                                                                                     |       |                             |        |                            |       |
| Preferred  stock—$.0001 par value; 1,000,000 shares authorized; 0 issued and outstanding                                                                                  |       |                             |        |                            |       |
| Common  stock—$.0001 par value, 100,000,000 shares authorized; 26,250,000 issued and  outstanding (which includes 4,197,900 shares subject to possible redemption)        |       | 2,625                            |        | 2,625                           |       |
| Additional  paid-in capital                                                                                                                                                    |       | 81,467,698                       |        | 81,467,698                      |       |
| Retained  earnings (deficit) accumulated during the development stage                                                                                                          |       | 1,079,132                        |        | (5,186,075                      | )          |
|                                                                                                                                                                           |       |                             |        |                            |       |
| Total  stockholders’ equity                                                                                                                                               |       | 82,549,455                       |        | 76,284,248                      |       |
|                                                                                                                                                                           |       |                             |        |                            |       |
|                                                                                                                                                                           |       | $                                | 122,715,681 |                            | $          | 119,952,529 |   |

 

See notes to condensedfinancial statements

3

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** **

**FederalServices Acquisition Corporation**(a development stagecompany) Condensed Statements of Operations(Unaudited)

 

 
| ** **                                                  | ** ** | **For the Three  Months ended  September 30, 2006** | ** ** | **For the Three  Months ended  September 30, 2005** | ** ** | **For the Nine  Months ended  September 30, 2006** | ** ** | **For the period from  April 12, 2005  (date of inception)  through  September 30, 2005** | ** ** | **For the period from  April  12, 2005  (date of inception)  through  September 30, 2006** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Expenses:                                                   |       |                                                                         |       |                                                                         |       |                                                                        |       |                                                                                                                                   |       |                                                                                                                                         |       |
| Operating costs                                             |       | $                                                                            | 102,400    |                                                                         | $          | —                                                                      |       | $                                                                                                                                      | 996,021    |                                                                                                                                         | $          | 1,000 |   | $ | 1,129,182 |   |
| Other income:                                               |       |                                                                         |       |                                                                         |       |                                                                        |       |                                                                                                                                   |       |                                                                                                                                         |       |
| Bank interest                                               |       | 9,016                                                                        |       | 48                                                                           |       | 33,233                                                                      |       | 92                                                                                                                                     |       | 42,016                                                                                                                                       |       |
| Interest on cash and short term investments held in  trust  |       | 1,439,747                                                                    |       | —                                                                       |       | 3,999,443                                                                   |       | —                                                                                                                                 |       | 4,809,827                                                                                                                                    |       |
| Gain (loss) on warrant liability                            |       | 4,200,000                                                                    |       | —                                                                       |       | 5,040,000                                                                   |       | —                                                                                                                                 |       | (420,000                                                                                                                                     |       |
|                                                        |       |                                                                         |       |                                                                         |       |                                                                        |       |                                                                                                                                   |       |                                                                                                                                         |       |
| Total other income                                          |       | 5,648,763                                                                    |       | 48                                                                           |       | 9,072,676                                                                   |       | 92                                                                                                                                     |       | 4,431,843                                                                                                                                    |       |
|                                                        |       |                                                                         |       |                                                                         |       |                                                                        |       |                                                                                                                                   |       |                                                                                                                                         |       |
| **Income  (loss) before provision for taxes**               |       | 5,546,363                                                                    |       | 48                                                                           |       | 8,076,655                                                                   |       | (908                                                                                                                                   | )          | 3,302,661                                                                                                                                    |       |
| (Provision)  benefit for income taxes                       |       |                                                                         |       |                                                                         |       |                                                                        |       |                                                                                                                                   |       |                                                                                                                                         |       |
| Current                                                     |       | (840,378                                                                     | )          | —                                                                       |       | (1,721,171                                                                  | )          | —                                                                                                                                 |       | (2,054,171                                                                                                                                   |       |
| Deferred                                                    |       | 232,431                                                                      |       | —                                                                       |       | 348,483                                                                     |       | —                                                                                                                                 |       | 367,398                                                                                                                                      |       |
|                                                        |       |                                                                         |       |                                                                         |       |                                                                        |       |                                                                                                                                   |       |                                                                                                                                         |       |
| **Net  income (loss)**                                      |       | 4,938,416                                                                    |       | 48                                                                           |       | 6,703,967                                                                   |       | (908                                                                                                                                   | )          | 1,615,888                                                                                                                                    |       |
| Weighted average  number of shares outstanding—basic   |       | 26,250,000                                                                   |       | 5,250,000                                                                    |       | 26,250,000                                                                  |       | 5,250,000                                                                                                                              |       |                                                                                                                                         |       |
|                                                        |       |                                                                         |       |                                                                         |       |                                                                        |       |                                                                                                                                   |       |                                                                                                                                         |       |
| Net income per  share—basic                            |       | $                                                                            | 0.19       |                                                                         | $          | 0.00                                                                        |       | $                                                                                                                                      | 0.26       |                                                                                                                                         | $          | 0.00 |   |   |   |
|                                                        |       |                                                                         |       |                                                                         |       |                                                                        |       |                                                                                                                                   |       |                                                                                                                                         |       |
| Net income                                                  |       | $                                                                            | 4,938,416  |                                                                         |       |                                                                        | $          | 6,703,967                                                                                                                              |       |                                                                                                                                         |       |   |   |
|                                                        |       |                                                                         |       |                                                                         |       |                                                                        |       |                                                                                                                                   |       |                                                                                                                                         |       |
| Gain on  derivative liabilities attributed to warrants      |       | 4,200,000                                                                    |       |                                                                         |       | 5,040,000                                                                   |       |                                                                                                                                   |       |                                                                                                                                         |       |
| Adjusted net  income—for diluted earnings              |       | $                                                                            | 738,416    |                                                                         |       |                                                                        | $          | 1,663,967                                                                                                                              |       |                                                                                                                                         |       |   |   |
| Weighted average  shares outstanding                        |       | 26,250,000                                                                   |       | 5,250,000                                                                    |       | 26,250,000                                                                  |       | 5,250,000                                                                                                                              |       |                                                                                                                                         |       |
| Shares from  assumed conversion of warrants                 |       | 3,111,111                                                                    |       | —                                                                       |       | 3,818,182                                                                   |       | —                                                                                                                                 |       |                                                                                                                                         |       |
| Weighted average  number of shares outstanding—diluted |       | 29,361,111                                                                   |       | 5,250,000                                                                    |       | 30,068,182                                                                  |       | 5,250,000                                                                                                                              |       |                                                                                                                                         |       |
| Net income per  share—diluted                          |       | $                                                                            | 0.03       |                                                                         | $          | 0.00                                                                        |       | $                                                                                                                                      | 0.06       |                                                                                                                                         | $          | 0.00 |   |   |   |
|                                                             |            |                                                                              |            |                                                                              |            |                                                                             |            |                                                                                                                                        |            |                                                                                                                                              |            |  |  |  |  |  |

 

See notes to condensed financial statements

4

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**FederalServices Acquisition Corporation**(a development stagecompany)Condensed Statements of Changes in Stockholders’ EquityFor the period from April 12, 2005 (date of inception) through September 30,2006

 
| ** **                                                                                                                                                       | ** ** | **Common Stock** | ** ** | **Additional  Paid-In** | ** ** | **(Deficit)  Income  Accumulated  During the  Development** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|------------------------------------------------------------------|------------|------------|------------|
| ** **                                                                                                                                                       | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **Capital**                                                      | ** ** | **Stage**  | ** ** | **Total** | ** ** |
| ** **                                                                                                                                                       | ** ** | ** **            | ** ** | ** **              | ** ** | ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Balance—April 12,  2005 (date of inception)**                                                                                                        | ** ** | ** **            | ** ** | ** **              | ** ** | ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Initial capital from founding stockholders                                                                                                                       |       | 5,250,000             |       | $                       | 525        |                                                             | $          | 5,475      |       | $ | — |   | $ | 6,000 |   |
| Sale of 21,000,000 units (including 4,197,900 shares  of common stock subject to possible redemption), net of underwriters’  discount and offering expenses |       | 21,000,000            |       | 2,100                   |       | 119,166,505                                                      |       | —     |       | 119,168,605 |   |
| Reclassification of proceeds allocated to warrants -  derivatives liability                                                                                      |       | —                |       | —                  |       | (14,280,000                                                      | )          | —     |       | (14,280,000 | ) |
| Reclassification as a result of  4,197,900 shares of common stock being  subject to possible redemption                                                     |       | —                |       | —                  |       | (23,424,282                                                      | )          | —     |       | (23,424,282 | ) |
| Accretion of trust fund relating to common stock  subject to possible redemption                                                                                 |       | —                |       | —                  |       | —                                                           |       | (97,996    | )          | (97,996 | ) |
| Net income for the period                                                                                                                                        |       | —                |       | —                  |       | —                                                           |       | (5,088,079 | )          | (5,088,079 | ) |
| **Balance—December  31, 2005**                                                                                                                              |       | 26,250,000            |       | 2,625                   |       | 81,467,698                                                       |       | (5,186,075 | )          | 76,284,248 |   |
| ** **                                                                                                                                                       | ** ** | ** **            | ** ** | ** **              | ** ** | ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accretion of trust fund relating to common stock  subject to possible redemption                                                                                 |       | —                |       | —                  |       | —                                                           |       | (438,760   | )          | (438,760 | ) |
| Net income for the period                                                                                                                                        |       | —                |       | —                  |       | —                                                           |       | 6,703,967  |       | 6,703,967 |   |
| ** **                                                                                                                                                       | ** ** | ** **            | ** ** | ** **              | ** ** | ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Balance—September  30, 2006 (Unaudited)**                                                                                                                 |       | 26,250,000            |       | $                       | 2,625      |                                                             | $          | 81,467,698 |       | $ | 1,079,132 |   | $ | 82,549,455 |   |

 

See notes to condensed financial statements

5

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**FederalServices Acquisition Corporation**(a development stagecompany) Condensed Statements of Cash Flows(Unaudited)
| ** **                                                                         | ** ** | **For the Nine Months  ended  September 30, 2006** | ** ** | **For the period from  April 12, 2005 (date of  inception) through  September 30, 2005** | ** ** | **For the period from  April 12, 2005 (date  of inception) through  September 30, 2006** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Cash  flows from operating activities:**                                         | ** ** | ** **                                                                  | ** ** | ** **                                                                                                                                 | ** ** | ** **                                                                                                                                 | ** ** |
| Net income  (loss)                                                                 |       | $                                                                           | 6,703,967  |                                                                                                                                       | $          | (908                                                                                                                                       | )          | $ | 1,615,888 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                                                        |       |                                                                                                                                       |       |                                                                                                                                       |       |
| Deferred income  tax                                                               |       | (348,483                                                                    | )          | —                                                                                                                                     |       | (367,398                                                                                                                                   | )          |
| (Gain) Loss on  warrant liabilities                                                |       | (5,040,000                                                                  | )          | —                                                                                                                                     |       | 420,000                                                                                                                                    |       |
| Changes in:                                                                        |       |                                                                        |       |                                                                                                                                       |       |                                                                                                                                       |       |
| Interest  receivable                                                               |       | (128,876                                                                    | )          | —                                                                                                                                     |       | (168,319                                                                                                                                   | )          |
| Prepaid expenses                                                                   |       | 67,930                                                                      |       | —                                                                                                                                     |       | (4,192                                                                                                                                     | )          |
| Accrued expenses                                                                   |       | 1,234,167                                                                   |       | 1,000                                                                                                                                      |       | 1,268,456                                                                                                                                  |       |
| Income taxes  payable—current                                                 |       | (195,214                                                                    | )          | —                                                                                                                                     |       | 160,786                                                                                                                                    |       |
|                                                                               |       |                                                                        |       |                                                                                                                                       |       |                                                                                                                                       |       |
| Net cash provided by operating activities                                          |       | 2,293,491                                                                   |       | 92                                                                                                                                         |       | 2,925,221                                                                                                                                  |       |
| ** **                                                                         | ** ** | ** **                                                                  | ** ** | ** **                                                                                                                                 | ** ** | ** **                                                                                                                                 | ** ** |
| **Cash  flows from investing activities:**                                         | ** ** | ** **                                                                  | ** ** | ** **                                                                                                                                 | ** ** | ** **                                                                                                                                 | ** ** |
| Purchase of U.S. government securities held in Trust  fund                         |       | (595,573,920                                                                | )          | —                                                                                                                                     |       | (830,422,578                                                                                                                               | )          |
| Maturities of U.S. government securities held in  Trust fund                       |       | 593,344,327                                                                 |       | —                                                                                                                                     |       | 710,523,392                                                                                                                                |       |
|                                                                               |       |                                                                        |       |                                                                                                                                       |       |                                                                                                                                       |       |
| Cash held in Trust Fund                                                            |       | 269,161                                                                     |       | —                                                                                                                                     |       | (12,187                                                                                                                                    | )          |
| Deferred acquisition costs                                                         |       | (1,154,976                                                                  | )          | —                                                                                                                                     |       | (1,154,976                                                                                                                                 | )          |
|                                                                               |       |                                                                        |       |                                                                                                                                       |       |                                                                                                                                       |       |
| Net cash used in investing activities                                              |       | (3,115,408                                                                  | )          | —                                                                                                                                     |       | (121,066,349                                                                                                                               | )          |
| ** **                                                                         | ** ** | ** **                                                                  | ** ** | ** **                                                                                                                                 | ** ** | ** **                                                                                                                                 | ** ** |
| **Cash  flows from financing activities:**                                         | ** ** | ** **                                                                  | ** ** | ** **                                                                                                                                 | ** ** | ** **                                                                                                                                 | ** ** |
| Proceeds from public offering, net of expenses                                     |       | —                                                                      |       | —                                                                                                                                     |       | 119,168,605                                                                                                                                |       |
| Proceeds from notes payable to stockholders                                        |       | —                                                                      |       | 154,000                                                                                                                                    |       | 154,000                                                                                                                                    |       |
| Repayment of notes to stockholders                                                 |       | —                                                                      |       | —                                                                                                                                     |       | (154,000                                                                                                                                   | )          |
| Payments of deferred offering costs                                                |       | —                                                                      |       | (103,494                                                                                                                                   | )          | —                                                                                                                                     |       |
| Proceeds from sale of common stock to founders                                     |       | —                                                                      |       | 6,000                                                                                                                                      |       | 6,000                                                                                                                                      |       |
|                                                                               |       |                                                                        |       |                                                                                                                                       |       |                                                                                                                                       |       |
| Net cash provided by financing activities                                          |       | —                                                                      |       | 56,506                                                                                                                                     |       | 119,174,605                                                                                                                                |       |
| ** **                                                                         | ** ** | ** **                                                                  | ** ** | ** **                                                                                                                                 | ** ** | ** **                                                                                                                                 | ** ** |
| **Net  (decrease) increase in cash and cash equivalents**                          |       | (821,917                                                                    | )          | 56,598                                                                                                                                     |       | 1,033,477                                                                                                                                  |       |
| Cash and cash  equivalents—beginning of period                                |       | 1,855,394                                                                   |       | —                                                                                                                                     |       | —                                                                                                                                     |       |
|                                                                               |       |                                                                        |       |                                                                                                                                       |       |                                                                                                                                       |       |
| Cash and cash  equivalents—end of period                                      |       | $                                                                           | 1,033,477  |                                                                                                                                       | $          | 56,598                                                                                                                                     |       | $ | 1,033,477 |   |
| ** **                                                                         | ** ** | ** **                                                                  | ** ** | ** **                                                                                                                                 | ** ** | ** **                                                                                                                                 | ** ** |
| **Supplemental  Disclosure of noncash activities:**                                | ** ** | ** **                                                                  | ** ** | ** **                                                                                                                                 | ** ** | ** **                                                                                                                                 | ** ** |
| Cash paid during  the period for:                                                  |       |                                                                        |       |                                                                                                                                       |       |                                                                                                                                       |       |
| Income taxes                                                                       |       | $                                                                           | 1,916,385  |                                                                                                                                       | $          | —                                                                                                                                     |       | $ | 1,916,385 |   |
| Non-cash  activities:                                                              |       |                                                                        |       |                                                                                                                                       |       |                                                                                                                                       |       |
| Reclassification of common stock subject to possible  redemption                   |       | $                                                                           | —     |                                                                                                                                       | $          | —                                                                                                                                     |       | $ | 23,424,282 |   |
| Accretion of trust fund relating to common stock  subject to possible redemption   |       | 438,760                                                                     |       | —                                                                                                                                     |       | 536,756                                                                                                                                    |       |
|                                                                               |       |                                                                        |       |                                                                                                                                       |       |                                                                                                                                       |       |
| Warrant obligation in connection with sale of units  in offering                   |       | —                                                                      |       | —                                                                                                                                     |       | 14,280,000                                                                                                                                 |       |
| Accrued offering  costs                                                            |       | —                                                                      |       | 280,000                                                                                                                                    |       | —                                                                                                                                     |       |

 

See notes tocondensed financial statements

6

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**FEDERALSERVICES ACQUISITION CORPORATION**

**(adevelopment stage company)**

**Notes to Condensed Unaudited Financial Statements**

**September 30, 2006**

**NOTE A—BASIS OF PRESENTATION**

In the opinion of management, the accompanyingunaudited condensed financial statements contain all adjustments necessary topresent fairly the financial position of Federal Services AcquisitionCorporation (the “Company”) and its results of operations and cash flows forthe interim period presented. Such financial statements have been condensed inaccordance with the applicable regulations of the Securities and ExchangeCommission and, therefore, do not include all disclosures required byaccounting principles generally accepted in the United States of America. Thesefinancial statements should be read in conjunction with Federal ServicesAcquisition Corporation’s audited financial statements for the period fromApril 12, 2005 (date of inception) to December 31, 2005 included on Form 10-K/Afiled on September 29, 2006. The results of the Company’s operations for theinterim period are not necessarily indicative of the operating results for thefull year.

**NOTE B—ORGANIZATION AND BUSINESSOPERATIONS**

The Company was incorporated in Delaware onApril 12, 2005. The Company was formed to serve as a vehicle for theacquisition of an operating business in the federal services and defenseindustries through a merger, capital stock exchange, asset acquisition, stockpurchase or other similar business combination. The Company has neither engagedin any operations nor generated revenue to date. The Company is considered tobe in the development stage and is subject to the risks associated withactivities of development stage companies.

The registration statement for the Company’s initialpublic offering (the “Offering”) was declared effective on October 19,2005.  The Company consummated the offering on October 25, 2005 andreceived net proceeds of $119,169,000. The Company’s management has broaddiscretion with respect to the specific application of the net proceeds of theOffering, although substantially all of the net proceeds of the Offering areintended to be generally applied toward consummating a business combinationwith (or acquisition of) an operating business in the federal services anddefense industries (“Business Combination”). Nonetheless, there is no assurancethat the Company will be able to successfully effect a Business Combination. Asof September 30, 2006, an amount of $120,079,692 including interest receivableof $168,319 of the net proceeds is being held in a trust account (“TrustAccount”) and is invested in U.S. government securities, and cash or cashequivalents until the earlier of (i) the consummation of its first BusinessCombination or (ii) the distribution of the Trust Account to the Company’spublic stockholders. The remaining proceeds may be used to pay for business,legal and accounting due diligence on prospective acquisitions and continuinggeneral and administrative expenses. The Company, after signing a definitiveagreement for the acquisition of a target business, will submit suchtransaction for stockholder approval. In the event that public stockholders of20% or more of the outstanding stock (excluding, for this purpose, those sharesof common stock issued prior to the Offering) vote against the BusinessCombination and exercise their conversion rights, the Business Combination willnot be consummated.

In the event that the Company does not consummate aBusiness Combination within 18 months from the date of the consummation ofthe Offering, or 24 months from the consummation of the Offering ifcertain extension criteria have been satisfied (the “Acquisition Period”), theproceeds held in the Trust Account will be distributed to the Company’s publicstockholders, excluding the Founders (defined in the following sentence) to theextent of their stock acquired prior to the Offering. However, the persons whowere stockholders prior to the Offering (the “Founders”) will participate inany liquidation distribution with respect to any shares of the common stockacquired in connection with or following the Offering. In the event of suchdistribution, it is likely that the per share value of the residual assetsremaining available for distribution (including Trust Account assets) will beless than the initial public offering price per unit in the Offering (assumingno value is attributed to the Warrants contained in the Units offered in theOffering as discussed in Note D).

Public stockholders owning less than 20% of the sharessold in the Offering who vote against a Business Combination and exercise theirconversion rights will be entitled to convert their stock into a pro rata shareof the Trust Account, including any interest earned on their portion of theTrust Account (net of taxes payable), if the Business Combination is approvedand consummated. The Founders cannot convert their stock into a pro rata shareof the Trust Account under these circumstances, because they have agreed tovote their stock in accordance with the majority of the shares of common stockvoted by the public stockholders. Public stockholders who convert their stockwill retain any warrants they hold.

7

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The Founders will be entitled to registration rightspursuant to an agreement signed as a part of the Offering. The holders of themajority of these shares are entitled to make up to two demands that theCompany register these shares. The holders of the majority of these shares canelect to exercise these registration rights at any time after the date on whichtheir shares of common stock are released from escrow (see below). In addition,these stockholders have certain “piggy-back” registration rights onregistration statements filed subsequent to such date. The Company will bearthe expenses incurred in connection with the filing of any such registrationstatement.

Upon consummation of the Offering, the Founders placedthe shares they owned into an escrow account. These shares will not betransferable during the escrow period and will not be released from escrow untilthe earliest of:

·         three years following the date of theOffering;

·         liquidation; and

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

During the escrow period, the holders of these shareswill not be able to sell or transfer their securities except to their spousesand children or trusts established for their benefit, but will retain all otherrights as stockholders, including, without limitation, the right to vote theirshares of common stock and the right to receive cash dividends, if declared. Ifdividends are declared and payable in shares of common stock, such dividendswill also be placed in escrow. If the Company is unable to effect a BusinessCombination and liquidates, none of the Founders will receive any portion ofthe liquidation proceeds with respect to common stock owned by them.

**NOTE C—SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

**[1]   Cash and cashequivalents:**

The Company considers all highly liquid investmentswith original maturities of three months or less to be cash equivalents. TheCompany had cash deposits in excess of the federally insured limits atSeptember 30, 2006.

**[2]   Accounting forWarrants and Derivative Instruments:**

On October 25, 2005, theCompany consummated its initial public offering of 21,000,000 units. Each unitconsists of one share of common stock and two redeemable common stock purchasewarrants. Each warrant entitles the holder to purchase form the Company oneshare of its common stock at an exercise price of $6.00. The warrant agreementprovides for the Company to register the shares underlying the warrants and issilent as to the penalty to be incurred in the absence of the Company’s abilityto deliver registered shares to the warrant holders upon warrant exercise.

*Accounting for Warrantsand Derivative Instruments.*   Emerging Issues Task Force 00-19, or EITF 00-19, “*Accounting for Derivative Financial Instruments Indexed to andPotentially Settled in, a Company’s Own Stock*,” provides criteriafor determining whether freestanding contracts that are settled in a company’sown stock, including common stock warrants, should be designated as either anequity instrument, an asset or as a liability under SFAS No. 133. Under theprovisions of EITF 00-19, a contract designated as an asset or a liability mustbe carried at fair value on a company’s balance sheet, with any changes in fairvalue recorded in a company’s results of operations. A contract designated asan equity instrument is included within equity, and no fair value adjustmentsare required from period to period. In accordance with EITF 00-19, the warrantsto purchase common stock included in the units and sold in our initial publicoffering are separately accounted for as liabilities. The agreements related tothe warrants provides for us to register and maintain the registration of theshares underlying the securities and is silent as to the penalty to be incurredin the absence of our ability to deliver registered shares to the holders uponexercise of the securities. Under EITF 00-19, registration of the common stockunderlying the warrants is not within the our control and, as a result, we mustassume that it could be required to settle the securities on a net-cash basis,thereby necessitating the treatment of the potential settlement obligation as aliability. The fair value of these securities are presented on our balancesheet as “warrant liabilities,” and the unrealized changes in the values ofthese derivatives are shown in our statement of operations as “Gain (loss) onwarrant liability.”

Fairvalues for traded securities and derivatives are based on quoted market prices.Where market prices are not readily available, fair values are determined usingmarket based pricing models incorporating readily observable market data andrequiring judgment and estimates. The warrants sold in our initial publicoffering are publicly traded, and consequently the fair value of these warrantsis estimated as the market price of a warrant at each reporting period. To theextent that the market prices of our warrants and units increase or decrease,our derivative liabilities will also increase or decrease with a correspondingimpact on our statement of operations.

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

Basic income/loss per share is based on the weightedaverage number of common shares outstanding during the period. The per shareeffects of potential common shares such as warrants, aggregating 3,111,111shares and 3,818,182 shares, have been included for the three months and thenine months ended September 30, 2006, respectively. These potential shares havenot been included in the other reporting periods because the effect would beanti-dilutive.

8

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The followingtable presents pro forma income per share attributable to common stockholderssubject to possible conversion and not subject to possible conversion. The comparative2005 proforma is not presented herein, since the Offering was consummated onOctober 25, 2005, and therefore is not applicable:

 
| ** **                                                                                                                                               | ** ** | **Three months  ended  September 30, 2006**                                    | ** ** | **Nine months  ended  September 30, 2006**                                     | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|
|                                                                                                                                                     |       |                                                                                          |       |                                                                                          |       |
| Net income                                                                                                                                               |       | $                                                                                             | 4,938,416  |                                                                                          | $          | 6,703,967 |   |
|                                                                                                                                                     |       |                                                                                          |       |                                                                                          |       |
| Interest income  attributable to common stock subject to possible conversion                                                                             |       |                (157,948 | )          |                (438,760 | )          |
|                                                                                                                                                     |       |                                                                                          |       |                                                                                          |       |
| Pro forma net  income attributable to common stockholders not subject to possible conversion                                                             |       | $                                                                                             | 4,780,468  |                                                                                          | $          | 6,265,207 |   |
|                                                                                                                                                     |       |                                                                                          |       |                                                                                          |       |
| Pro forma  weighted average number of shares outstanding, excluding shares subject to  possible conversion - basic                                       |       | 22,052,100                                                                                    |       | 22,052,100                                                                                    |       |
|                                                                                                                                                     |       |                                                                                          |       |                                                                                          |       |
| Pro forma net income per share, excluding shares  subject to possible conversion - basic                                                                 |       | $                                                                                             | 0.22       |                                                                                          | $          | 0.28 |   |
|                                                                                                                                                     |       |                                                                                          |       |                                                                                          |       |
| Net income                                                                                                                                               |       | $                                                                                             | 4,938,416  |                                                                                          | $          | 6,703,967 |   |
|                                                                                                                                                     |       |                                                                                          |       |                                                                                          |       |
| Interest income attributable to common stock subject  to possible conversion                                                                             |       | (157,948                                                                                      | )          | (438,760                                                                                      | )          |
|                                                                                                                                                     |       |                                                                                          |       |                                                                                          |       |
| Gain on derivative liabilities attributed to  warrants                                                                                                   |       | (4,200,000                                                                                    | )          | (5,040,000                                                                                    | )          |
|                                                                                                                                                     |       |                                                                                          |       |                                                                                          |       |
| Pro forma net  income attributable to common stockholders not subject to possible conversion  less gain on derivative liabilities attributed to warrants |       | $                                                                                             | 580,468    |                                                                                          | $          | 1,225,207 |   |
|                                                                                                                                                     |       |                                                                                          |       |                                                                                          |       |
| Pro forma  weighted average number of shares outstanding excluding shares subject to  possible conversion - basic                                        |       | 22,052,100                                                                                    |       | 22,052,100                                                                                    |       |
|                                                                                                                                                     |       |                                                                                          |       |                                                                                          |       |
| Shares from  assumed conversion on warrants                                                                                                              |       | 3,111,111                                                                                     |       | 3,818,182                                                                                     |       |
|                                                                                                                                                     |       |                                                                                          |       |                                                                                          |       |
| Pro forma  weighted average number of shares outstanding, excluding shares subject to  possible conversion - diluted                                     |       | 25,163,211                                                                                    |       | 25,870,282                                                                                    |       |
|                                                                                                                                                     |       |                                                                                          |       |                                                                                          |       |
| Pro forma net income  per share, excluding shares subject to possible conversion - diluted                                                               |       | $                                                                                             | 0.02       |                                                                                          | $          | 0.05 |   |

 

**[4]    Use ofestimates:**

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

**[5]    Fair valueof financial instruments:**

The carrying amounts of the Company’s financialassets, including cash and cash equivalents and short term investments,approximate fair value because of their short term maturities.

**[6]    Incometaxes:**

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

9

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**[7]    NewAccounting Pronouncement:**

The Financial Accounting Standards Board (“FASB”) hasissued interpretation No. 48, “Accounting for Uncertainty in Income Taxes—AnInterpretation of FASB Statement No. 109” (“FIN 48”), regarding accounting for,and disclosure of, uncertain tax positions. FIN 48 clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN48 prescribes a recognition threshold and measurement attribute for thefinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure, and transition. FIN 48 is effective for fiscal yearsbeginning after December 15, 2006. The Company is currently evaluating theimpact FIN 48 will have on its results of operations and financial position.The cumulative effect of applying the provisions of FIN 48, if any, will bereported as an adjustment to the opening balance of retained earningsaccumulated during the development stage on January 1, 2007.

**NOTE D—INITIAL PUBLIC OFFERING**

On October 25, 2005, the Company sold 21,000,000 Units(“Units”).  Each Unit consisted of one share of the Company’s commonstock, $.0001 par value, and two warrants (“Warrants”). Each Warrant entitlesthe holder to purchase from the Company one share of common stock at anexercise price of $5.00.  Each Warrant is exercisable on the later of(a) the completion of a Business Combination or (b) October 19, 2006 andexpires October 19, 2009, or earlier upon redemption.  The Warrants areredeemable at a price of $.01 per Warrant upon 30 days notice after theWarrants become exercisable, only in the event that the last sale price of thecommon stock is at least $8.50 per share for any 20 trading days within a 30trading day period ending on the third day prior to the date on which notice ofredemption is given.

In connection with the Offering, the Company paid CRTCapital Group LLC an underwriter’s discount of 5% of the gross proceeds of theOffering.

**NOTE E—INVESTMENTS HELD IN TRUST**

The management of the Company intends to hold tillmaturity the investments held in the Trust Account, which consist principallyof short-term Treasury Bills. These bills are purchased at a discount and theCompany accretes interest income which is equivalent to the difference betweenthe purchase price and the market price.

**NOTE F—INCOME TAXES**

The provision for income taxes and the deferred taxliability (benefit) for the three months and the nine months ending September30, 2006, respectively, consists of the following:

 
| ** **                              | ** ** | **For the Three Months  ending  September 30, 2006** | ** ** | **For the Nine Months  ending  September 30, 2006** | ** ** |
|-----------------------------------------|------------|-------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|
| Current                                 |       |                                                                          |       |                                                                         |       |
| Federal                                 |       | $                                                                             | 526,480    |                                                                         | $          | 1,078,373 |   |
| State and local                         |       | 313,898                                                                       |       | 642,798                                                                      |       |
| Total current  income tax               |       | $                                                                             | 840,378    |                                                                         | $          | 1,721,171 |   |
|                                    |       |                                                                          |       |                                                                         |       |
| Deferred tax  provision (benefit)       |       |                                                                          |       |                                                                         |       |
| Federal                                 |       | $                                                                             | 145,641    |                                                                         | $          | (220,735 | ) |
| State and local                         |       | 86,790                                                                        |       | (127,748                                                                     | )          |
| Total deferred tax  provision (benefit) |       | $                                                                             | 232,431    |                                                                         | $          | (348,483 | ) |

 

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

10

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Deferred tax assets andliabilities at September 30, 2006 and December 31, 2005 consist of thefollowing:

 
| ** **                                                 | ** ** | **As of  September 30,  2006** | ** ** | **As of  December 31,  2005** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------|------------|
| Deferred tax assets  — start up costs                 |       | $                                        | 443,344    |                                    | $          | 34,629 |   |
| Deferred tax  liability — accrued interest receivable |       | (75,946                                  | )          | (15,714                                 | )          |
|                                                       |       |                                     |       |                                    |       |
| Net deferred tax  benefit                                  |       | $                                        | 367,398    |                                    | $          | 18,915 |   |

 

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

**NOTE G—NOTES PAYABLE TO STOCKHOLDERS**

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

**NOTE H—RELATED PARTY TRANSACTIONS**

The Company has agreed to pay CM Equity Management,L.P., a company where certain of the Founders serve in executive capacities, anadministrative fee of $7,500 per month for office space and general andadministrative services from October 19, 2005 through the effective date of theacquisition of a target business. For the three months and nine months endedSeptember 30, 2006, the amount paid or accrued to this entity was $22,500 and $67,500,respectively. For the period from inception to September 30, 2006, the amountpaid or accrued to this entity was $85,645.

Two of the Founders have agreed with the Company andthe underwriters that if the Company liquidates prior to the consummation of aBusiness Combination, they may be personally liable to ensure that the proceedsof the Trust Account are not reduced by the claims of vendors or othersentities that are owed money by the Company for services rendered or productssold to the Company or the claims of prospective target businesses.

**NOTE I—COMMITMENTS**

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

The Company has engaged CRT Capital Group LLC, theunderwriter, on a non-exclusive basis, as their agent for the solicitation ofthe exercise of the warrants. The Company has agreed to pay CRT Capital GroupLLC a commission equal to 2% of the exercise price for each warrant exercisedmore than one year from October 19, 2005 if the exercise was solicited by CRTCapital Group LLC.

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

At September 30, 2006, 42,000,000 shares of commonstock were reserved for issuance upon exercise of redeemable warrants.

**NOTE K—FOUNDERS**

One or more of theFounders agreed with the Company that during the 40 trading day periodbeginning 60 days after the end of the “restricted period” underRegulation M, they collectively would spend up to $2,000,000 to purchasewarrants in the public marketplace at prices not to exceed $.65 per warrant.They have further agreed that any warrants purchased by them or theiraffiliates or designees would not be sold or transferred until the completionof a Business Combination. As of September 30, 2006, 3,699,528 warrants havebeen purchased by the Founders.

11

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**NOTEL—PROPOSED ACQUISITION OF ADVANCED TECHNOLOGY SYSTEMS, INC.**

On April 19, 2006,the Company entered into the stock purchase agreement with ATS, the shareholdersof ATS and Claude Rumsey, as the shareholders’ representative. Upon completionof the acquisition, the Company will own all of the issued and outstandingcapital stock of ATS and, indirectly through ATS, the Company will own all ofthe outstanding shares of common stock and ownership interests of ATS’wholly-owned subsidiaries. ATS and its shareholders have approved the stockpurchase agreement and, therefore, no further action need be taken by ATS’shareholders to approve the acquisition.

The Company will purchase all of the outstandingcapital stock of ATS for up to $124 million. The purchase price will becomprised of $84 million in cash and $1 million in stock at closing and up to$39 million in aggregate additional cash payments over a two-year period uponATS’ achievement of specified targets for adjusted earnings before interest,taxes, depreciation and amortization following the closing.

The stock purchase agreement was amended as ofSeptember 30, 2006 primarily to extend, from September 30, 2006 toNovember 30, 2006, the date after which the ATS shareholders may terminatethe agreement if the acquisition has not closed.

**NOTE M—DEFERRED ACQUISITION COSTS**

As of September 30, 2006,the Company had accumulated $1,154,976 in deferred costs related to theproposed acquisition of ATS.  Thesecharges will be capitalized contingent upon the completion of the Acquisitionfollowing the required approval by the Company’s stockholders and thefulfillment of certain other conditions. If the Acquisition is not completed these charges will be recorded asexpenses.

12

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**Item 2. Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

***FORWARD-LOOKING STATEMENTS***

*This Quarterly Report on Form 10-Qand the documents incorporated by reference into the Quarterly Report onForm 10-Q include forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the Securities Exchange Act of1934. These forward-looking statements can be identified by the use offorward-looking terminology, including the words “believes,” “estimates,” “anticipates,”“expects,” “intends,” “may,” “will” or “should,” or, in each case, theirnegative or other variations or comparable terminology. Such statementsinclude, but are not limited to, any statements relating to our ability toconsummate any acquisition or other business combination and any otherstatements that are not historical facts. These statements are based onmanagement’s current expectations, but actual results may differ materially dueto various factors, including, but not limited to:*

·      *our being a development stage company with no operating history;*

·      *our dependence on key personnel, some of whom may or may not join usfollowing a business combination;*

·      *risks that the acquisition of ATS or another business combination maynot be completed due to failure of the conditions to closing of the acquisitionbeing satisfied or other factors;*

·      *our personnel allocating their time to other businesses and potentiallyhaving conflicts of interest with our business;*

·      *our potentially being unable to obtain additional financing to completea business combination;*

·      *the ownership of our securities being concentrated;*

·      *risks associated with the federal services industry;*

·      *risks associated with the defense industry; and*

·      *those other risks and uncertainties detailed in the Company’s filingswith the Securities and Exchange Commission.*

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

*Theseforward-looking statements are subject to numerous risks, uncertainties andassumptions about us. The forward-looking events we discuss in this QuarterlyReport on Form 10-Q speak only as of the date of such statement and might notoccur in light of these risks, uncertainties and assumptions. We undertake noobligation and disclaim any obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise.*

*Unlessotherwise provided in this Quarterly Report on Form 10-Q, references to “theCompany,” “the Registrant,” “we,” “us” and “our” refer to Federal ServicesAcquisition Corporation.*

**MANAGEMENT’S DISCUSSION AND ANALYSIS**

**OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

We area “blank check” company organized under the laws of the State of Delaware onApril 12, 2005 and were formed for the purpose of acquiring, through amerger, capital stock exchange, asset acquisition, stock purchase or othersimilar business combination, an operating business in the federal services anddefense industries. We intend to use the trust account funds, together with anyadditional financing arrangements that we undertake, to effect a businesscombination.

We have neither engaged in any operations norgenerated any revenues nor incurred any debt or expenses during the periodended September 30, 2006, other than in connection with our public offeringand, thereafter, certain legal and other expenses related to pursuingacquisitions of target businesses. Our entire activity since inception has beento prepare for and consummate our initial public offering and to identify andinvestigate target businesses for a business combination.

13

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Our net proceeds from the sale of our units, afterdeducting offering expenses of approximately $531,000 and underwritingdiscounts of $6,300,000, were approximately $119,169,000. Of this amount,$117,180,000 was placed in trust and the remaining $1,989,000 was not placed intrust. We will use substantially all of the net proceeds of our offering toacquire a target business, including identifying and evaluating prospectiveacquisition candidates, selecting the target business, and structuring,negotiating and consummating the business combination. To the extent that our capitalstock is used in whole or in part as consideration to effect a businesscombination, the proceeds held in the trust account as well as any other netproceeds not expended will be used to finance the operations of the targetbusiness. We believe that the funds available to us outside of the trustaccount will be sufficient to allow us to operate for at least the next 13months, assuming that a business combination is not consummated during thattime. For the three and nine months ended September 30, 2006, respectively, wehave incurred the following expenses:

•       $0 and $663,327 for legal, accounting, travel and otherexpenses attendant to the due diligence investigations,  structuring, andnegotiating of a business combination;

•       $22,500 and $67,500 for administrative services and support($7,500 per month);

•       $21,943 and $86,624 of expenses for legal and accounting feesrelating to our SEC reporting obligations;

•       $30,060 and $90,180 for franchise taxes;

•       $21,424 and $63,575 for director and officer liabilityinsurance premiums; and

•       $6,473 and $24,815 for miscellaneous expenses.

As of September 30, 2006, we had accumulated$1,154,976 in deferred costs related to the proposed acquisition of AdvancedTechnology Systems, Inc.  Thesecharges will be capitalized contingent upon the completion of the acquisitionfollowing the required approval by our stockholders and the fulfillment ofcertain other conditions.  If theacquisition is not completed these charges will be recorded as expenses.

For the three months and the nine months endedSeptember 30, 2006, respectively, we have earned interest from the proceedsheld in the trust account in the amount of $1,439,747 and $3,999,443 (includingaccrued interest of $168,319). For the three months and the nine months endedSeptember 30, 2006, respectively, we have earned interest from the funds notplaced in the trust account of $9,016 and $33,233.

As a result of recording changes in the fair value ofwarrants to purchase common stock associated with the units sold in our initialpublic offering, the Company has reported a net gain for the three and ninemonths ended September 30, 2006.

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

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

On October 25, 2005, we used $85,000 of our generalworking capital to pay premiums associated with our directors and officers’liability insurance. As of September 30, 2006, $4,192 of this amount representsthe prepaid portion for the cost of such insurance through October 19, 2006.

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

As of September 30, 2006, $120,079,692, includinginterest receivable of $168,319, was held in trust and we had $1,033,477 of theavailable funds remaining and available to us for our activities in connectionwith identifying and conducting due diligence of a suitable businesscombination, and for general corporate matters.

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**CriticalAccounting Policies**

Webelieve the following critical accounting polices involved the most significantjudgments and estimates used in the preparation of our financial statements.

*Cash and CashEquivalents.*   Weconsider all highly liquid investments with original maturities of three monthsor less to be cash equivalents. We had cash deposits in excess of the federallyinsured limits at September 30, 2006.

*Earnings percommon share.**  **Basic income per share is based on theweighted average number of common shares outstanding during the period. Dilutedincome per share reflects the potential dilution assuming common shares wereissued upon the exercise of outstanding in-the-money warrants and the proceedsthereof were used to purchase treasury shares at the average market priceduring the period.*

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

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

*Accounting for Warrantsand Derivative Instruments.*   Statement of Financial Accounting Standard No. 133,or SFAS No. 133, “*Accounting for Derivative Instruments andHedging Activities*,” as amended, requires all derivatives to berecorded on the balance sheet at fair value. However, paragraph 11(a) of SFASNo. 133 provides that contracts issued or held by a reporting entity that areboth (1) indexed to its own stock and (2) classified as stockholders’ equity inits statement of financial position are not treated as derivative instruments.Emerging Issues Task Force 00-19, or EITF 00-19, “*Accountingfor Derivative Financial Instruments Indexed to and Potentially Settled in, aCompany’s Own Stock*,” provides criteria for determining whetherfreestanding contracts that are settled in a company’s own stock, includingcommon stock warrants, should be designated as either an equity instrument, anasset or as a liability under SFAS No. 133. Under the provisions of EITF 00-19,a contract designated as an asset or a liability must be carried at fair valueon a company’s balance sheet, with any changes in fair value recorded in acompany’s results of operations. A contract designated as an equity instrumentis included within equity, and no fair value adjustments are required fromperiod to period. In accordance with EITF 00-19, the warrants to purchasecommon stock included in the units and sold in our initial public offering areseparately accounted for as liabilities. The agreements related to the warrantsprovides for us to register and maintain the registration of the sharesunderlying the securities and is silent as to the penalty to be incurred in theabsence of our ability to deliver registered shares to the holders uponexercise of the securities. Under EITF 00-19, registration of the common stockunderlying the warrants is not within the our control and, as a result, we mustassume that it could be required to settle the securities on a net-cash basis,thereby necessitating the treatment of the potential settlement obligation as aliability. The fair value of these securities are presented on our balancesheet as “warrant liabilities,” and the unrealized changes in the values ofthese derivatives are shown in our statement of operations as “Gain (loss) onwarrant liability.”

Fairvalues for traded securities and derivatives are based on quoted market prices.Where market prices are not readily available, fair values are determined usingmarket based pricing models incorporating readily observable market data andrequiring judgment and estimates. The warrants sold in our initial publicoffering are publicly traded, and consequently the fair value of these warrantsis estimated as the market price of a warrant at each reporting period. To theextent that the market prices of our warrants and units increase or decrease,our derivative liabilities will also increase or decrease with a correspondingimpact on our statement of operations.

*Income Taxes.*   Deferred income taxesare provided for the differences between the bases of assets and liabilitiesfor financial reporting and income tax purposes. Deferred tax assets andliabilities are measured using tax rates in effect for the year in which thosetemporary differences are expected to be recovered or settled. A valuationallowance is established when necessary to reduce deferred tax assets to theamount expected to be realized.

*New AccountingPronouncement.*   The Financial Accounting Standards Board (“FASB”)has issued interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes—An Interpretation of FASB Statement No. 109” (“FIN 48”), regardingaccounting for, and disclosure of, uncertain tax positions. FIN 48 clarifiesthe accounting for uncertainty in income taxes recognized in an enterprise’sfinancial statements in accordance with FASB Statement No. 109, “Accounting forIncome Taxes.” FIN 48 prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return. FIN 48 also providesguidance on derecognition, 

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classification,interest and penalties, accounting in interim periods, disclosure, andtransition. FIN 48 is effective for fiscal years beginning after December 15,2006. We are currently evaluating the impact FIN 48 will have on its results ofoperations and financial position. The cumulative effect of applying theprovisions of FIN 48, if any, will be reported as an adjustment to the openingbalance of retained earnings accumulated during the development stage onJanuary 1, 2007.

**Proposed Acquisition of AdvancedTechnology Systems, Inc.**

On April 19, 2006, we entered into a StockPurchase Agreement (the “Stock Purchase Agreement”) with Advanced TechnologySystems, Inc. (“ATS”), the holders of all of the outstanding shares ofATS, and Claude Rumsey, as shareholders’ representative, pursuant to which wewill acquire (the “Acquisition”) all of the issued and outstanding shares ofATS and, indirectly through ATS, all of the outstanding shares of ATS’ whollyowned subsidiaries.

ATS provides systems integration and applicationdevelopment, IT infrastructure management and strategic IT consulting servicesto U.S. federal government agencies. As part of its complete systemslife-cycle approach, ATS offers its clients an integrated full-service ITinfrastructure outsourcing solution that allows an agency to focus on its coremission while reducing costs and maintaining system uptime.

The Acquisition is expected to be consummated duringlate 2006, after the required approval by our stockholders and the fulfillmentof certain other conditions. For additional information on the Acquisition,please see our Current Report on Form 8-K filed with the Securities andExchange Commission on April 20, 2006 and our preliminary proxy statement filedwith the Securities and Exchange Commission on October 6, 2006.

**Item 3. Quantitative and QualitativeDisclosures about Market Risk.**

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

**Item 4.Controls and Procedures.**

Our management carried out an evaluation, with the participationof our Chief Executive Officer (principal executive officer) and our ChiefFinancial Officer (principal financial officer) of the effectiveness of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) or 15d — 15(e)of the Securities Exchange Act of 1934, as amended) as of September 30, 2006.Based upon that evaluation, our Chief Executive Officer and Chief FinancialOfficer have concluded that our disclosure controls and procedures wereeffective to ensure that information required to be disclosed by us in reportsthat we file or submit under the Securities Exchange Act of 1934, as amended,is recorded, processed, summarized and reported, within the time periodsspecified in the rules and forms of the Securities and Exchange Commission.

There has not been any change in our internal controlover financial reporting (as defined in Rule 13a-15(f) or 15d — 15(f) of theSecurities Exchange Act of 1934, as amended) in connection with the evaluationrequired by Rule 13a-15(d) under the Exchange Act that occurred during thequarter ended September 30, 2006, that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

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**PART II — OTHER INFORMATION**

**Item 1.Legal Proceedings.**

Not applicable.

**Item 1A.Risk Factors.**

*Carefully consider the following risk factors, together withall of the other information included in this document. As our operations willbe those of ATS upon completion of the acquisition, the risk factors thatrelate to the business and operations of ATS also apply to us as the successorto ATS’ business.*

**Risks Associated with the Acquisition of ATS**

***We may not be able to consummatethe acquisition, or another business combination, within the required timeframe, in which case, we would be forced to liquidate.***

We must complete abusiness combination with a fair market value of at least 80% of our net assetsat the time of acquisition by April 25, 2007 (or by October 25, 2007if a letter of intent, agreement in principle or a definitive agreement hasbeen executed by April 25, 2007 and the business combination relative theretohas not been consummated by such date). If we fail to consummate theacquisition within the required time frame, we will be forced to liquidate.

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

If we are unable tocomplete the acquisition or another business combination and are forced toliquidate our assets, the per share liquidation value will be less than $6.00because of the expenses related to our initial public offering, our operatingexpenses and the costs of performing due diligence for the acquisition,negotiating the stock purchase agreement and otherwise seeking a businesscombination. Furthermore, the warrants will expire worthless if we liquidatebefore the completion of a business combination.

***Certain of our key personnel mayjoin us following the acquisition and may be unfamiliar with the requirementsof operating a public company, which may adversely affect our operations,including significantly reducing our revenues and net income, if any.***

Our ability tosuccessfully effect the acquisition of ATS will be completely dependent uponthe efforts of our key personnel. Upon the completion of the acquisition, ourcurrent Chairman and Chief Executive Officer, Joel R. Jacks, and our currentPresident, Treasurer and Secretary, Peter M. Schulte, will resign as officersbut will remain members of our board of directors. Dr. Edward H. Bersoffwill become our Chairman, President and Chief Executive Officer, Stuart R.Lloyd will become our Executive Vice President and Chief Financial Officer, andLeon C. Perry, the Senior Vice President and Chief Operating Officer of ATSwill continue in that role. Dr. Bersoff and Mr. Lloyd each havesignificant public company experience. The members of the management of ATS whowill remain with us following the closing of the acquisition do not have suchexperience and are unfamiliar with the requirements of operating a publiccompany under U.S. securities laws, which could cause us to expend time andresources helping them become familiar with such laws. This could be expensiveand time-consuming and could lead to various regulatory issues that mayadversely affect our operations, including significantly reducing our revenuesand net income, if any.

***We expect to incur significantcosts associated with the acquisition, whether or not the acquisition iscompleted, which costs will significantly reduce the amount of cash availableto be used to consummate a business combination.***

We expect to incursignificant costs associated with the acquisition, whether or not theacquisition is completed. By incurring these costs, we will significantlyreduce the amount of cash available to be used for consummating a businesscombination.

***As a result of the acquisition, ourstockholders will be solely dependent on a single business.***

As a result of theacquisition, our stockholders will be solely dependent upon the performance ofATS and its business. ATS will remain subject to a number of risks that relategenerally to the federal services industry and other risks. See “Risks Relatedto our Business and Operations Following the Acquisition.”

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***If theacquisition’s benefits do not meet the expectations of financial or industryanalysts, the market price of our common stock may decline.***

The market price of our common stock may decline asa result of the acquisition if:

·  we donot achieve the perceived benefits of the acquisition as rapidly as, or to theextent anticipated by, financial or industry analysts; or

·  theeffect of the acquisition on our financial results is not consistent with theexpectations of financial or industry analysts.

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

***Inits evaluation of the acquisition, our board of directors considered, amongmany factors, the purchase price as a function of adjusted EBITDA, as definedin the stock purchase agreement. EBITDA is not a recognized term undergenerally accepted accounting principles, and adjusted EBITDA is not directlycomparable to EBITDA as reflected in other transaction multiples.***

EBITDA (earnings beforeinterest, taxes, deprecation and amortization) is not a recognized term undergenerally accepted accounting principles and does not purport to be analternative to net income as a measure of operating performance or to cashflows from operating activities as a measure of liquidity.  In evaluating the acquisition, our board ofdirectors considered, among many factors, the purchase price as a multiple ofadjusted EBITDA, as defined in the stock purchase agreement. The definition ofadjusted EBITDA used in the stock purchase agreement does not reflect alloperating costs that we will incur following the closing and will be differentfrom the definition of EBITDA likely to be used in our future debtagreements.  Moreover, adjusted EBITDA,as defined in the stock purchase agreement and used in the analysis of theacquisition by our board of directors, is not directly comparable to EBITDA asreflected in other transaction multiples.

***Ourdirectors may have certain conflicts in determining to recommend theacquisition of ATS since certain of their interests, and certain interests oftheir affiliates and associates, are different from, or in addition to, yourinterests as a stockholder.***

Membersof our board of directors have interests in and arising from the acquisition ofATS that are different from, or in addition to, your interests as a stockholderwhich could result in a real or perceived conflict of interest. These interestsinclude the fact that certain of the shares of common stock owned by them, ortheir affiliates and associates, would become worthless if the acquisition isnot approved and we otherwise fail to consummate a business combination priorto our liquidation date. Such shares, as of September 30, 2006, had a marketvalue of approximately $28,887,070. Similarly, the warrants owned by suchdirectors, affiliates and associates to purchase 3,759,528 shares of commonstock, with an aggregate market value of $1,315,835 as of September 30, 2006,would expire worthless. If the acquisition is approved, Messrs. Jacks andSchulte will continue to serve as members of our board of directors after theacquisition, and will be compensated for such services. Furthermore,Dr. Bersoff, who currently serves as our Vice Chairman, will become ourChairman, President and Chief Executive Officer, and be compensated in suchcapacity.

***Membersof our board of directors may have conflicts of interest that could hinder ourability to make acquisitions.***

Oneof our growth strategies following completion of the acquisition of ATS will beto make selective acquisitions of complementary businesses. Two of ourdirectors, Messrs. Jacks and Schulte, are principals of CM Equity Partners, asponsor of private equity funds. Some of these funds are focused on investmentsin, among other things, businesses in the federal services sector. Messrs.Jacks and Schulte also serve on the boards of a number of CM Equity portfoliocompanies and, with Dr. Bersoff, are members of the board of directors of ICFInternational, Inc., a diversified federal services business that plans to growin part through acquisitions. It is possible that CM Equity Partners andrelated funds and portfolio companies and ICF International, Inc. could beinterested in acquiring businesses that we would also be interested in, andthat these relationships could hinder our ability to carry out our acquisitionstrategy. None of CM Equity Partners, Mr. Jacks, Mr. Schulte nor ICFInternational, Inc. is an investor or potential investor in ATS (except, in thecase of Messrs. Jacks and Schulte, through direct or indirect ownership of FSACstock and warrants).

***We plan to issue shares of ourcommon stock to complete the acquisition of ATS, which will reduce the equityinterest of our stockholders.***

Our Amended and RestatedCertificate of Incorporation authorizes the issuance of up to 100.0 millionshares of common stock, par value $0.0001 per share, and 1.0 million shares ofpreferred stock, par value $0.0001 per share. We currently have 31,750,000authorized but unissued shares of our common stock available for issuance(after appropriate reservation for the issuance of shares upon full exercise ofour outstanding warrants) and all of the 1.0 million shares of preferred stockavailable 

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for issuance. As setforth in the stock purchase agreement, certain ATS shareholders have elected toreceive a portion of the purchase price for the acquisition in shares of ourcommon stock. Such shareholders will receive an aggregate of 173,913 shares ofour common stock on the closing date. The issuance of such shares will reducethe equity interest of our stockholders on a pro rata basis.

***Ifthird parties bring claims against us or if ATS has breached any of itsrepresentations, warranties or covenants set forth in the stock purchaseagreement, we may not be adequately indemnified for any losses arisingtherefrom.***

Although the stockpurchase agreement provides that the ATS shareholders will indemnify us forlosses arising from a breach of the representations, warranties and  covenants by ATS set forth in the stockpurchase agreement, such indemnification is limited, in general terms, to anaggregate amount of $11.5 million (with a deductible of $375,000). Inaddition, with some exceptions, the survival period for claims under the stock purchaseagreement is limited to the period ending April 30, 2008. We will be preventedfrom seeking indemnification for most claims above the aggregate threshold orarising after the applicable survival period.

**Risks Related to Our Business and Operations Following the Acquisition**

***The loss or impairment of ATS’relationship with the U.S. government and its agencies could adversely affectATS business.***

ATS derived approximately90% of its total revenue in fiscal 2005 from contracts with the U.S. governmentand government-sponsored enterprises. ATS expects that U.S. governmentcontracts will continue to be a significant source of revenue for theforeseeable future. If ATS or any of its partners was suspended or prohibitedfrom contracting with the U.S. government generally or any agency or relatedentity, if ATS’ reputation or relationship with government agencies wasimpaired, or if the U.S. government or any agency or related entity ceaseddoing business with them or significantly decreased the amount of business itdoes with them, ATS’ business, prospects, financial condition and operatingresults could be significantly impaired.

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

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

***ATS is required to comply withcomplex procurement laws and regulations, and the cost of compliance with theselaws and regulations and penalties and sanctions for any non-compliance couldadversely affect ATS’ business.***

ATS is required to complywith laws and regulations relating to the administration and performance ofU.S. government contracts, which affect how ATS does business with itscustomers and imposes added costs on its business. If a government review orinvestigation uncovers improper or illegal activities, ATS may be subject tocivil and criminal penalties and administrative sanctions, includingtermination of contracts, forfeiture of profits, suspension of payments, finesand suspension or debarment from doing business with U.S. government agencies,any of which could materially adversely affect ATS’ business, prospects,financial condition or operating results.

***The U.S. government may reform itsprocurement or other practices in a manner adverse to ATS.***

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

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***Government contracts are usuallyawarded through a competitive bidding process that entails risks not present inother circumstances.***

Asignificant portion of ATS’ contracts and task orders with the U.S. governmentare awarded through a competitive bidding process. ATS expects that much of thebusiness it will seek in the foreseeable future will continue to be awardedthrough competitive bidding. Budgetary pressures and changes in the procurementprocess have caused many government clients to increasingly purchase goods andservices through indefinite delivery/indefinite quantity, or ID/IQ, contracts,GSA schedule contracts and other government-wide acquisition contracts, orGWACs. These contracts, some of which are awarded to multiple contractors, haveincreased competition and pricing pressure, requiring ATS to make sustainedpost-award efforts to realize revenue under each such contract. Competitivebidding presents a number of risks, including without limitation:

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

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

·  theneed to accurately estimate the resources and cost structure that will berequired to service any contract ATS is awarded; and

·  theexpense and delay that may arise if ATS’ or its partners’ competitors protestor challenge contract awards made to ATS or its partners pursuant tocompetitive bidding, and the risk that any such protest or challenge couldresult in the resubmission of bids on modified specifications, or intermination, reduction or modification of the awarded contract.

If ATS is unable toconsistently win new contract awards over any extended period, ATS’ businessand prospects will be adversely affected and that could cause ATS’ actualresults to be adversely affected. In addition, upon the expiration of acontract, if the client requires further services of the type provided by thecontract, there is frequently a competitive rebidding process. There can be noassurance that we will win any particular bid, or that we will be able toreplace business lost upon expiration or completion of a contract, and thetermination or non-renewal of any of our significant contracts could cause ouractual results could be adversely affected.

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

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

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

U.S. government agencies,including the Defense Contract Audit Agency, or the DCAA, routinely audit andinvestigate government contracts and government contractors’ incurred costs,administrative processes and systems. These agencies review ATS’ performance oncontracts, pricing practices, cost structure and compliance with applicablelaws, regulations and standards. They also review ATS’ compliance withgovernment regulations and policies and the adequacy of ATS’ internal controlsystems and policies, including ATS’ purchasing, property, estimating,compensation and management information systems. Any costs found to beimproperly allocated to a specific contract will not be reimbursed, and anysuch costs already reimbursed must be refunded. Moreover, if any of theadministrative processes and systems is found not to comply with requirements,ATS may be subjected to increased government scrutiny and approval that coulddelay or otherwise adversely affect ATS’ ability to compete for or performcontracts. Therefore, an unfavorable outcome to an audit by the DCAA or anothergovernment agency could cause actual results to be adversely affected anddiffer materially from those anticipated. If a government investigationuncovers improper or illegal activities, ATS may be subject to civil andcriminal penalties and administrative sanctions, including termination ofcontracts, forfeitures of profits, suspension of payments, fines and suspensionor debarment from doing business with the U.S. government. In addition, ATScould suffer serious reputational harm if allegations of impropriety were madeagainst ATS. Each of these results could cause actual results being adverselyaffected.

***A portion of ATS’ business dependsupon obtaining and maintaining required security clearances, and its failure todo so could result in termination of certain of its contracts or cause it to beunable to bid or rebid on certain contracts.***

Some U.S. governmentcontracts require ATS’ employees to maintain various levels of securityclearances, and ATS may be required to maintain certain facility securityclearances complying with U.S. government requirements.

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Obtaining and maintainingsecurity clearances for employees involves a lengthy process, and it isdifficult to identify, recruit and retain employees who already hold securityclearances. If ATS’ employees are unable to obtain or retain securityclearances or if such employees who hold security clearances terminate theiremployment with ATS, the customer whose work requires cleared employees couldterminate the contract or decide not to renew it upon its expiration. To theextent ATS is not able to engage employees with the required securityclearances for a particular contract, ATS may not be able to bid on or win newcontracts, or effectively re-bid on expiring contracts, which could adverselyaffect ATS’ business.

In addition, ATS expectsthat some of the contracts on which it will bid will require it to demonstrateits ability to obtain facility security clearances and perform work withemployees who hold specified types of security clearances. A facility securityclearance is an administrative determination that a particular facility iseligible for access to classified information or an award of a classifiedcontract. A contractor or prospective contractor must meet certain eligibilityrequirements before it can be processed for facility security clearance.Contracts may be awarded prior to the issuance of a facility security clearance,and in such cases the contractor is processed for facility security clearanceat the appropriate level and must meet the eligibility requirements for accessto classified information. ATS’ ability to obtain and maintain facilitysecurity clearances has a direct impact on its ability to compete for andperform U.S. government contracts the performance of which require access toclassified information. We do not expect potential acquisitions to endanger ATS’facility clearances. However, to the extent that any acquisition or mergercontemplated by ATS might adversely impact its eligibility for facilitysecurity clearance, the U.S. government could revoke ATS’ facility securityclearance if ATS was unable to adequately address concerns regarding potentialunauthorized access to classified information.

***ATS may not receive the fullamounts authorized under the contracts included in its backlog, which couldreduce its revenue in future periods.***

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

***Without additional Congressionalappropriations, some of the contracts included in ATS’ backlog will remainunfunded which could significantly harm ATS’ prospects.***

Although many of ATS’U.S. government contracts require performance over a period of years, Congressoften appropriates funds for these contracts for only one year at a time. As aresult, ATS’ contracts typically are only partially funded at any point duringtheir term, and all or some of the work intended to be performed under thecontracts will remain unfunded pending subsequent Congressional appropriationsand the obligation of additional funds to the contract by the procuring agency.Nevertheless, ATS estimates its share of the contract values, including valuesbased on the assumed exercise of options relating to these contracts, incalculating the amount of its backlog. Because ATS may not receive the fullamount it expects under a contract, ATS’ estimate of its backlog may beinaccurate.

***Lossof ATS’ GSA contracts or GWACs would impair ATS’ ability to attract newbusiness.***

ATS is a prime contractorunder several GSA contracts, Blanket Purchase Agreements, and GWAC schedulecontracts. ATS’ ability to continue to provide services under these contractswill continue to be important to ATS’ business because of the multipleopportunities for new engagements each contract provides. If ATS were to loseits position as prime contractor on one or more of these contracts, ATS couldlose substantial revenues and our operating results could be adverselyaffected. ATS’ GSA contracts and other GWACs have an initial term of five ormore years, with multiple options exercisable at the government client’sdiscretion to extend the contract for one or more years. There can be noassurances that government clients will continue to exercise the optionsremaining on ATS’ current contracts, nor can ATS be assured that future clientswill exercise options on any contracts ATS may receive in the future.

***U.S. government contracts oftencontain provisions that are unfavorable, which could adversely affect ATS’business.***

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

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

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

·  reduceor modify contracts or subcontracts;

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

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

·  claimintellectual property rights in products provided by ATS; and

·  suspendor bar ATS from doing business with the federal government or with agovernmental agency.

***The markets ATS competes in arehighly competitive, and many of the companies ATS competes against havesubstantially greater resources.***

The markets in which ATSoperates include a large number of participants and are highly competitive.Many of ATS’ competitors may compete more effectively than ATS can because theyare larger, better financed and better known companies than ATS. In order tostay competitive in our industry, ATS must also keep pace with changingtechnologies and client preferences. If ATS is unable to differentiate ourservices from those of our competitors, ATS’ revenue may be adversely affected.In addition, ATS’ competitors have established relationships among themselvesor with third parties to increase their ability to address client needs. As aresult, new competitors or alliances among competitors may emerge and competemore effectively than ATS can. There is also a significant industry trendtowards consolidation, which may result in the emergence of companies who arebetter able to compete against ATS. The results of these competitive pressurescould cause ATS’ business to be adversely affected.

***ATS’ failure to attract and retainqualified employees, including its senior management team, may adversely affectits business.***

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

***ATS is dependent upon key personnel whose loss mayhave an adverse impact on ATS’ business.***

ATSdepends on the expertise, experience and continued services of its seniormanagement employees, especially Leon C. Perry, its Senior Vice President andChief Operating Officer. Mr. Perry has acquired specialized knowledge andskills with respect to ATS and its operations and most decisions concerning thebusiness of ATS will be made or significantly influenced by him. The loss ofMr. Perry or other senior management employees of ATS, or an inability toattract or retain other key individuals, could materially adversely affect ATS’business. If Mr. Perry or other senior management were to leave ATSfollowing the acquisition, we could face substantial difficulty in hiringqualified successors and could experience a loss in productivity while anysuccessor obtains the necessary training and experience. ATS will seek tocompensate and incentivize key executives, as well as other employees, throughcompetitive salaries and bonus plans, but there can be no assurance that theseprograms will allow ATS to retain key employees or hire new key employees.

***Ourfuture debt will include covenants that restrict our activities and create therisk of defaults, which could impair the value of your stock.***

The debt financingarrangements we put into place in connection with the acquisition will likelycontain a number of significant covenants that, among other things, restrictour ability to dispose of assets; incur additional indebtedness; make capitalexpenditures; pay dividends; create liens on assets; enter into leases,investments and acquisitions; engage in mergers and consolidations; engage incertain transactions with affiliates; and otherwise restrict corporateactivities (including change of control and asset sale transactions). Inaddition, our financing arrangements will likely require us to maintainspecified financial ratios and comply with financial tests, some of which maybecome more restrictive over time. The failure to fulfill the requirements ofdebt covenants, if not cured through performance or an amendment of thefinancing arrangements, could have the consequences of a default described inthe risk factor below. There is no assurance that we will be able to fulfillour debt covenants, maintain these ratios, or comply with these financial testsin the future, nor is there any assurance that we will not be in default underour financial arrangements in the future.

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***Adefault under our debt could lead to a bankruptcy or other financialrestructuring that would significantly adversely affect the value of our stock.***

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

A default under our debtcould lead to the bankruptcy, insolvency, financial restructuring orliquidation of our company. In any such event stockholders would be entitled toshare ratably in our assets available for distribution only after the paymentin full to the holders of all of our debt and other liabilities. There can beno assurance that, in any such bankruptcy, insolvency, financial restructuringor liquidation, stockholders would receive any distribution whatsoever.

***If ATSis unable to fund its capital expenditures, ATS may not be able to continue todevelop new offerings and***services, which would have amaterial adverse effect on its business.

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

***Futureacquisitions by us or ATS would subject us and ATS to additional business,operating and industry risks, the impact of which cannot presently beevaluated, and could adversely impact our or ATS’ capital structure.***

Weplan to pursue other acquisition opportunities following the closing of the ATSacquisition in an effort to take advantage of the platform we expect ATS toconstitute. Although we are often engaged in preliminary discussions with acquisitioncandidates, as of the date of this proxy statement we have no bindingcommitments or agreements (including agreements in principle, letters of intentand non-binding term sheets) to enter into any acquisition. Following theacquisition of ATS, we will not be limited to any particular industry or typeof business that we may acquire. Accordingly, there is no current basis for youto evaluate the possible merits or risks of the particular business or assetsthat we may acquire, or of the industry in which such business operates. Inaddition, the financing of any acquisition completed by us after the ATSacquisition could adversely impact our capital structure as any such financingwould likely include the issuance of additional equity securities and/or theborrowing of additional funds.

***ATS may be unable to protect orenforce its intellectual property rights.***

The protection of ATS’trade secrets, proprietary know-how, technological innovations, otherproprietary information and other intellectual property protections in the U.S.and other countries may be critical to our success. ATS may rely on acombination of copyright, trademark, trade secret laws and contractualrestrictions to protect any proprietary technology or other rights ATS may haveor may acquire. Despite ATS’ efforts, it may not be able to preventmisappropriation of those proprietary rights or deter independent developmentof technologies that compete with ATS. Litigation may be necessary in thefuture to enforce ATS’ intellectual property rights, to protect ATS’ tradesecrets, or to determine the validity and scope of the proprietary rights ofothers. It is also possible that third parties may claim ATS has infringedtheir patent, trademark, copyright or other proprietary rights. Claims orlitigation, with or without merit, could result in substantial costs anddiversions of resources, either of which could have a material adverse effecton ATS’ competitive position and business.

***ATS may be harmed by intellectualproperty infringement claims.***

ATSmay become subject to claims from our employees and third parties who assertthat intellectual property that ATS uses in delivering services and businesssolutions to its clients infringe upon intellectual property rights of suchemployees or third parties. ATS’ employees develop much of the intellectualproperty that it uses to provide its services and business solutions to itsclients, but ATS also licenses technology from other vendors. If ATS’ vendors,its employees, or third parties assert claims that ATS or its clients areinfringing on their intellectual property, ATS could incur substantial costs todefend those claims. In addition, if any of these infringement claims isultimately successful, ATS could be required to:

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

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

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

Any of these outcomes could further adversely affectATS’ operating results.

***ATS’ quarterly revenue,***operating results and profitability could be volatile.

ATS’ quarterly revenue, operating results andprofitability may fluctuate significantly and unpredictably in the future.

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

·  fluctuationsin revenue earned on contracts;

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

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

·  additionsand departures of key personnel;

·  changesin ATS’ staff utilization rates;

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

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

·  contractmix and the extent of use of subcontractors;

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

·  anyseasonality of ATS’ business.

Therefore, period-to-periodcomparisons of ATS’ operating results may not be a good indication of ATS’future performance. ATS’ quarterly operating results may not meet theexpectations of securities analysts or investors, which in turn may have anadverse affect on the market price of our common stock.

Furthermore, reductionsin revenue in a particular quarter could lead to lower profitability in thatquarter because a relatively large amount of ATS’ expenses are fixed in theshort-term. ATS may incur significant operating expenses during the start-upand early stages of large contracts and may not receive corresponding paymentsor revenue in that same quarter. ATS may also incur significant orunanticipated expenses or both when contracts expire, are terminated, or are notrenewed. In addition, payments due to ATS from government agencies anddepartments may be delayed due to billing cycles, as a result of failures ofgovernmental budgets to gain Congressional and administration approval in atimely manner, and for other reasons.

***If subcontractors on ATS’ primecontracts are able to secure positions as prime contractors, ATS may loserevenue.***

For each of the pastseveral years, as the GSA Schedule contracts have increasingly been used ascontract vehicles, ATS has received substantial revenue from government clientsrelating to work performed by other firms acting as subcontractors to ATS. Insome cases, companies that have not held GSA Schedule contracts have approachedATS in its capacity as a prime contractor, seeking to perform services as ATS’subcontractor for a government client. Some of the providers that are currentlyacting as subcontractors to ATS may in the future secure positions as primecontractors upon renewal of a GSA Schedule contract. If one or more of its currentsubcontractors is awarded prime contractor status in the future, it couldreduce or eliminate ATS’ revenue for the work they were performing assubcontractors to it. Revenue derived from work performed by ATS’subcontractors for fiscal year 2004 and fiscal year 2005 represented 21% and28% of ATS’ gross revenue, respectively.

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

ATS’ performance ofgovernment contracts may involve the issuance of subcontracts to othercompanies upon which it relies to perform all or a portion of the work ATS isobligated to deliver to its clients. A failure by one or more of ATS’ subcontractorsto satisfactorily deliver on a timely basis the agreed-upon supplies and/orperform the agreed-upon services may materially and adversely affect itsability to perform its obligations as a prime contractor.

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

***ATS***sometimes incurs costs before a contract is executed orappropriately modified. To the extent a suitable contract or modification isnot later signed and these costs are not reimbursed, its revenues and profitswill be reduced.

When circumstanceswarrant, ATS sometimes incur expenses and performs work without a signedcontract or appropriate modification to an existing contract to cover suchexpenses or work. When ATS does so, it is working “at-risk,” and there is achance that the subsequent contract or modification will not ensue, or if itdoes, that it will not allow ATS to be paid for the expenses already incurredor work already performed or both. In such cases, ATS has generally beensuccessful in obtaining the required contract or modification, but any failureto do so in the future could adversely affect operating results.

***If ATS is unable to manage ATS’growth, ATS’ business may be adversely affected.***

Sustaining ATS’ growthmay place significant demands on ATS’ management, as well as on ATS’administrative, operational and financial resources. If ATS sustainssignificant growth, ATS must improve its operational, financial and managementinformation systems and expand, motivate and manage its workforce. If ATS isunable to do so, or if new systems that ATS implements to assist in managingany future growth do not produce the expected benefits, ATS’ business,prospects, financial condition or operating results could be adverselyaffected.

**Risks Related toOur Capital Structure and Our Limited Experience as a Public Company**

***Becausewe do not currently intend to pay dividends on our common stock, stockholderswill benefit from an investment in our common stock only if it appreciates invalue.***

We have never declared orpaid any cash dividends on our common stock. We currently intend to retain allfuture earnings, if any, for use in the operations and expansion of ourbusiness. As a result, we do not anticipate paying cash dividends in theforeseeable future. Any future determination as to the declaration and paymentof cash dividends will be at the discretion of our board of directors and willdepend on factors our board of directors deems relevant, including amongothers, our results of operations, financial condition and cash requirements,business prospects, and the terms of our credit facilities and other financingarrangements. It is likely that the debt financing arrangements we put intoplace in connection with the acquisition will prohibit us from declaring orpaying dividends without the consent of our lenders. Accordingly, realizationof a gain on stockholders’ investments will depend on the appreciation of theprice of our common stock. There is no guarantee that our common stock willappreciate in value or even maintain the price at which stockholders purchasedtheir shares.

***If ourinitial stockholders and certain ATS shareholders exercise their registrationrights, it may have an adverse effect on the market price of our common stock.***

Ourinitial stockholders are entitled to demand that we register the resale oftheir shares of common stock in certain circumstances. If our initialstockholders exercise their registration rights with respect to all of theirshares of common stock purchased prior to our public offering, then there willbe an additional 5,250,000 shares of common stock eligible for trading in thepublic market. We have also granted registration rights to those shareholdersof ATS who will receive 173,913 shares of our common stock upon closing of theacquisition pursuant to the stock purchase agreement. The presence of thisadditional number of shares of common stock eligible for trading in the publicmarket may have an adverse effect on the market price of our common stock.

***Ouroutstanding warrants may have an adverse effect on the market price of ourcommon stock.***

In connection with ourinitial public offering, we issued warrants to purchase 42,000,000 shares ofcommon stock. As of September 30, 2006, our officers and directors and/or certainof their affiliates held warrants to purchase 3,759,528 shares of common stockat $5.00 per share. The sale, or even the possibility of sale, of the sharesunderlying the warrants could have an adverse effect on the market price forour securities or on our ability to obtain future public financing. If and tothe extent these warrants are exercised, you may experience dilution to yourholdings.

***Ifwe are unable to maintain a current prospectus relating to the common stockunderlying our warrants, our warrants may be worthless.***

Our warrants will beexercisable and we will not be obligated to issue shares of common stockunless, at the time a holder seeks to exercise such warrant, a prospectusrelating to the common stock issuable upon exercise of the warrant is currentand 

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the common stock has beenregistered or qualified or deemed to be exempt under the securities laws of thestate of residence of the holder of the warrants. Under the terms of thewarrant agreement between Continental Stock Transfer & Trust Company, aswarrant agent, and us, we have agreed to use our reasonable best efforts tomaintain a current prospectus relating to the common stock issuable uponexercise of our warrants until the expiration of our warrants. However, wecannot assure warrant holders that we will be able to do so. The warrantagreement does not provide that we are required to net-cash settle the warrantsif we are unable to maintain a current prospectus.  If the prospectus relating to the commonstock issuable upon exercise of the warrants is not current, or if the commonstock is not qualified or exempt from qualification in the jurisdictions inwhich the holders of the warrants reside, our warrants may not be exercisablebefore they expire. Thus, our warrants may be deprived of any value, the marketfor our warrants may be limited or non-existent and the warrants may expireworthless.

***Thewarrant agreement governing our warrants permits us to redeem the warrantsafter they become exercisable, and it is possible that we could redeem thewarrants at a time when a prospectus is not current, resulting in the warrantholder receiving less than fair value of the warrant or the underlying commonstock.***

Under section 6 of thewarrant agreement governing our outstanding warrants, we have the right toredeem outstanding warrants, at any time after they become exercisable andprior to their expiration, at the price of $0.01 per warrant, provided that thelast sales price of our common stock has been at least $8.50 per share on eachof 20 trading days within any 30 trading day period ending on the thirdbusiness day prior to the date on which notice of redemption is given.  Section 6 of the warrant agreement does notrequire, as a condition to giving notice of redemption, that we have in effecta current prospectus relating to the common stock issuable upon exercise of ourwarrants.  Thus, it is possible that wecould issue a notice of redemption of the warrants at a time when holders ofour warrants were unable to exercise their warrants and thereafter immediatelyresell the underlying common stock under a current prospectus. Under suchcircumstances, rather than face redemption at a nominal price per warrant,warrant holders could be forced to sell the warrants or the underlying commonstock for less than fair value.

***Wemay experience volatility in results of operations due to how we are requiredto account for our warrants.***

Under EITF No. 00-19, “Accountingfor Derivative Financial Instruments Indexed to, and Potentially Settled in, aCompany’s Own Stock,” or EITF No. 00-19, the fair value of the warrants issuedas part of the units issued in our initial public offering must be reported asa liability. Our warrant agreement provides for us to attempt to register theshares underlying the warrants and units and is silent as to the penalty to beincurred in the absence of our ability to deliver registered shares to thewarrant holders. Under EITF No. 00-19, we are required to assume that thissituation could give rise to us ultimately having to net cash settle thewarrants, thereby necessitating the treatment of the warrants as a liability.Further, EITF No. 00-19 requires us to record the warrant liability at eachreporting date at its then estimated fair value, with any changes beingrecorded through our statement of operations as other income/expense. Thewarrants will continue to be reported as a liability until such time as theyare exercised, expire or we are otherwise able to modify the applicableagreement to clarify or modify the provisions which require this treatment. Asa result, we could experience volatility in our results of operations due tochanges that occur in the value of the warrant liability at each reportingdate.

***Oursecurities are quoted on the Over-the-Counter Bulletin Board, which may limitthe liquidity and price of our securities more than if our securities werequoted or listed on the Nasdaq market.***

Our securities are quotedon the Over-the-Counter Bulletin Board, a NASD-sponsored and operatedinter-dealer automated quotation system for equity securities not included inthe Nasdaq market. Quotation of our securities on the Over-the-Counter BulletinBoard will limit the liquidity and price of our securities more than if oursecurities were quoted or listed on Nasdaq. Although we intend to apply forlisting of our common stock on Nasdaq, we cannot assure you that we willsatisfy the applicable listing requirements.

***Failureto complete the acquisition could negatively impact the market price of ourcommon stock and may make it more difficult for us to attract anotheracquisition candidate, resulting, ultimately, in the disbursement of the trustproceeds, causing some investors to experience a loss on their investment.***

Ifthe acquisition is not completed for any reason, we may be subject to a numberof material risks, including:

·  themarket price of our common stock may decline to the extent that the currentmarket price of our common stock reflects a market assumption that theacquisition will be consummated;

·  costsrelated to the acquisition, such as legal and accounting fees and the costs ofthe fairness opinion, must be paid even if the acquisition is not completed;and

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·  chargeswill be made against earnings for transaction-related expenses, which could behigher than expected.

Such decreased marketprice and added costs and charges of the failed acquisition, together with thehistory of failure in consummating an acquisition, may make it more difficultfor us to attract another acquisition candidate, resulting, ultimately, in thedisbursement of the trust proceeds, causing investors to experience a loss ontheir investment. As discussed herein, if the acquisition is not consummated,it is more likely than not that we will be forced to dissolve and liquidate.

***If20% or more of the holders of our common stock issued in our public offeringdecide to vote against the acquisition and opt to convert their shares to cash,we may be forced to dissolve and liquidate, stockholders may receive less than $5.71 pershare and our warrants may expire worthless.***

Under the terms of ourAmended and Restated Certificate of Incorporation, if 20% or more of sharesissued in our initial public offering decide to vote against the acquisitionand opt to convert their shares to cash, we may ultimately be forced todissolve and liquidate. Although we will continue to search to acquire anoperating company in the federal services sector, our Amended and RestatedCertificate of Incorporation requires us to liquidate if we do not complete abusiness combination by April 25, 2007, or October 25, 2007 if we enter into aletter of intent, an agreement in principle or a definitive agreement tocomplete a business combination prior to April 25, 2007, but are unable tocomplete such business combination by such date. We signed a definitiveagreement with ATS on April 19, 2006, and therefore have until October 25, 2007to complete the acquisition of ATS. If we do not consummate the acquisition ofATS by October 25, 2007, we will be forced to dissolve and liquidate inaccordance with the provisions of Delaware law.

In any liquidation, thenet proceeds of our initial public offering held in the trust account, plus anyinterest earned thereon, will be distributed on a pro rata basis to the holdersof our common stock issued in our public offering. If we are forced toliquidate our assets, the per-share liquidation will be the$117,180,000 deposited in the trust account at the time of the initialpublic offering, plus interest and less taxes accrued thereon through the dateof any liquidation. As of September 30, 2006, and assuming we had expended allof the funds not in the trust account, the per share liquidation price wasapproximately $5.71 ($5.72 less $0.01 per share which is accrued for taxes), or$0.29 less than the price ($6.00 per unit) that we sold each unit for in ourinitial public offering. The proceeds deposited in the trust account could,however, become subject to the claims of our creditors which could be prior tothe claims of our public stockholders. We cannot assure you that the actualper-share liquidation price will not be less than $5.71, plus interest (net oftaxes payable), due to claims of creditors. Furthermore, there will be nodistribution with respect to our outstanding warrants and, accordingly, thewarrants will expire worthless.

***UnderDelaware law, our dissolution requires the approval of the holders of amajority of our outstanding stock, without which we will not be able todissolve and liquidate and distribute our assets to our public stockholders.***

Pursuant to Delaware law,our dissolution requires the affirmative vote of stockholders owning a majorityof our then outstanding common stock. Soliciting the vote of our stockholderswill require the preparation of preliminary and definitive proxy statements,which will need to be filed with the Securities and Exchange Commission andcould be subject to their review. This process could take a substantial amountof time, ranging from 40 days to several months.

As a result, thedistribution of our assets to the public stockholders could be subject to aconsiderable delay. Furthermore, we may need to postpone the stockholders’meeting, resolicit our stockholders or amend our plan of dissolution andliquidation to obtain the required stockholder approval, all of which wouldfurther delay the distribution of our assets and result in increased costs. Ifwe are not able to obtain approval from a majority of our stockholders, we willnot be able to dissolve and liquidate and we will not be able to distributefunds from our trust account to holders of our common stock sold in our initialpublic offering and these funds will not be available for any other corporatepurpose. In the event we seek stockholder approval for a plan of dissolutionand liquidation and do not obtain such approval, we will nonetheless continueto pursue stockholder approval for our dissolution. However, we cannot predictwhether our stockholders will approve our dissolution in a timely manner orwill ever approve our dissolution. As a result, we cannot provide our initialstockholders with assurances of a specific timeframe for the dissolution anddistribution.

***Ourstockholders may be held liable for claims by third parties against us to theextent of distributions received by them.***

Under the DelawareGeneral Corporation Law, stockholders may be held liable for claims by thirdparties against a corporation to the extent of distributions received by themin a dissolution. If we complied with certain procedures set forth in Section280 of the Delaware General Corporation Law intended to ensure that we makereasonable provision for all claims against us, including a 60-day noticeperiod during which any third-party claims can be brought against us, a 90-dayperiod during which we may reject any claims brought, and an additional 150-daywaiting period before any liquidating distributions are made to stockholders,any liability of a stockholder with respect to a liquidating distribution wouldbe limited to the lesser 

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of such stockholder’s prorata share of the claim or the amount distributed to the stockholder, and anyliability of the stockholder would be barred after the third anniversary of thedissolution. However, it is our intention to make liquidating distributions toour stockholders as soon as reasonably possible after dissolution and,therefore, we do not intend to comply with those procedures. As such, ourstockholders could potentially be liable for any claims to the extent ofdistributions received by them in a dissolution and any such liability of ourstockholders will likely extend beyond the third anniversary of suchdissolution. Accordingly, we cannot assure you that third parties will not seekto recover from our public stockholders amounts owed to them by us.

***Ifthird parties bring claims against us, the proceeds held in the trust accountcould be reduced and the per share liquidation price received by stockholderscould be less than $5.71  per share.***

Our placing of funds inthe trust account may not protect those funds from third party claims againstus. Pursuant to Sections 280 and 281 of the Delaware General Corporation Law,upon our dissolution we will be required to adopt a plan that will provide forour payment, based on facts known to us at such time, of (i) all existingclaims, (ii) all pending claims and (iii) all claims that may be potentiallybrought against us within the subsequent 10 years. Although we intend to paythose amounts from our funds not held in trust, we cannot assure you thosefunds will be sufficient to cover such claims and obligations. Although we havesought to have vendors, prospective target businesses or other entities withwhich we do business execute valid and enforceable agreements waiving anyright, title, interest or claim of any kind in or to any monies held in thetrust account for the benefit of our public stockholders, not all have executedsuch agreements. Those parties who have not entered into such agreements mayhave claims they will attempt to assert, and those who have may claim that thewaiver is unenforceable or assert claims based on fraudulent inducement, breachof fiduciary responsibility or other similar claims.

As of September 30, 2006,we had liabilities of approximately $1.3 million. Creditors with claims in theamount of approximately $1.0 million have executed agreements with us waivingtheir rights, if any, to any funds held in the trust account.  We have not received a waiver letter fromContinental Stock Transfer and Trust Company, our escrow agent and warrantagent, the State of Delaware, Eisner LLP, our independent auditor, and certainmiscellaneous service providers, with aggregate claims in the amount ofapproximately $224,000. As a result of obtaining the waiver letters, we believethe claims that could be made against the trust account are limited. To the extentthat creditors, even those who have executed a waiver of claims against thetrust account, or ATS bring a claim and attempt to have it satisfied out of thetrust account, the proceeds available to our stockholders from the trustaccount could be reduced.

Messrs. Jacks and Schultehave agreed, pursuant to an agreement with us and CRT, the underwriter of ourinitial public offering, that, if we liquidate prior to the consummation of abusiness combination, they may be personally liable to ensure that the proceedsof the trust account are not reduced by the claims of vendors or other entitiesthat are owed money by us for services rendered or products sold to us or theclaims of prospective target businesses. We cannot assure you, however, thatthey will be able to satisfy those obligations.

Additionally, if we areforced to file a bankruptcy case or an involuntary bankruptcy case is filedagainst us which is not dismissed, the proceeds held in the trust account couldbe subject to applicable bankruptcy law, and may be included in our bankruptcyestate and subject to the claims of third parties with priority over the claimsof our stockholders. To the extent any bankruptcy claims deplete the trustaccount, we cannot assure you we will be able to return to our publicstockholders at least $5.71 per share.

***We have not had operations, and ATShas never operated as a public company. Fulfilling our obligations incident tobeing a public company after acquiring ATS will be expensive and time consuming.***

Both we, as a companywithout operations, and ATS, as a private company, have maintained relativelysmall finance and accounting staffs. Neither we nor ATS currently has aninternal audit group. Although we have maintained disclosure controls andprocedures and internal control over financial reporting as required under thefederal securities laws with respect to our very limited activities, we havenot been required to maintain and establish such disclosure controls andprocedures and internal control as will be required with respect to a businesssuch as ATS with substantial operations. Under the Sarbanes-Oxley Act of 2002and the related rules and regulations of the SEC, as well as therules of Nasdaq, we will need to implement additional corporate governancepractices and adhere to a variety of reporting requirements and complexaccounting rules. Compliance with these obligations will require significantmanagement time, place significant additional demands on our finance andaccounting staff and on our financial, accounting and information systems, andincrease our insurance, legal and financial compliance costs. We may also needto hire additional accounting and financial staff with appropriate publiccompany experience and technical accounting knowledge.

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***Section 404 of theSarbanes-Oxley Act of 2002 will require us to document and test our internalcontrols over financial reporting for fiscal 2007 and beyond and will requirean independent registered public accounting firm to report on our assessment asto the effectiveness of these controls. Any delays or difficulty in satisfyingthese requirements could adversely affect our future results of operations andour stock price.***

Section 404 of theSarbanes-Oxley Act of 2002 will require us to document and test theeffectiveness of our internal controls over financial reporting in accordancewith an established internal control framework and to report on our conclusionas to the effectiveness of our internal controls. It will also require anindependent registered public accounting firm to test our internal controlsover financial reporting and report on the effectiveness of such controls forour fiscal year ending December 31, 2007 and subsequent years. Anindependent registered public accounting firm will also be required to test,evaluate and report on the completeness of our assessment. It may cost us morethan we expect to comply with these control- and procedure-relatedrequirements.

We may in thefuture discover areas of our internal controls that need improvement,particularly with respect to ATS or other businesses that we may acquire in thefuture. We cannot be certain that any remedial measures we take will ensurethat we implement and maintain adequate internal controls over our financialprocesses and reporting in the future. Any failure to implement required new orimproved controls, or difficulties encountered in their implementation couldharm our operating results or cause us to fail to meet our reportingobligations. If we are unable to conclude that we have effective internalcontrols over financial reporting, or if our independent auditors are unable toprovide us with an unqualified report regarding the effectiveness of ourinternal controls over financial reporting as of December 31, 2007 and infuture periods as required by Section 404, investors could lose confidencein the reliability of our financial statements, which could result in adecrease in the value of our common stock. Failure to comply withSection 404 could potentially subject us to sanctions or investigations bythe SEC, the Nasdaq National Market or other regulatory authorities.

**Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.**

Not applicable.

**Item3.  Defaults Upon Senior Securities.**

Not applicable.

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

Not applicable.

**Item5.  Other Information.**

Not applicable.

**Item6.  Exhibits.**
| 3.1 |   | Amended and Restated Certificate of Incorporation  (incorporated by reference to exhibit of same number in our Annual Report on  Form 10-K filed with the Securities and Exchange Commission on March 31,  2006)                                                  |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2 |   | By-laws (incorporated by reference to exhibit of  same number in our Annual Report on Form 10-K filed with the Securities and  Exchange Commission on March 31, 2006)                                                                                             |
| 4.1 |   | Specimen Unit Certificate (incorporated by reference  to exhibit of same number in our Annual Report on Form 10-K filed with the  Securities and Exchange Commission on March 31, 2006)                                                                           |
| 4.2 |   | Specimen Common Stock Certificate (incorporated by  reference to exhibit of same number in our Annual Report on Form 10-K filed  with the Securities and Exchange Commission on March 31, 2006)                                                                   |
| 4.3 |   | Specimen Warrant Certificate (incorporated by  reference to exhibit of same number in our Annual Report on Form 10-K filed  with the Securities and Exchange Commission on March 31, 2006)                                                                        |
| 4.4 |   | Warrant Agreement between Continental Stock  Transfer & Trust Company and the Company (incorporated by reference  to exhibit of same number in our Annual Report on Form 10-K filed with the  Securities and Exchange Commission on March 31, 2006) |

 

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| 10.1 |   | First Amendment to Stock Purchase Agreement dated  September 30, 2006, by and among Federal Services Acquisition Corporation,  Advanced Technology Systems, Inc., the holders of all of the outstanding  shares of Advanced Technology Systems, Inc. and Claude Rumsey, as  shareholders’ representative (incorporated by reference to exhibit of same  number in our Current Report on Form 8-K filed with the Securities and  Exchange Commission on October 4, 2006) |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1 |   | Certification of Principal Executive Officer  pursuant to Rule 13a-14(a)/15(d)-19(a) of the Securities Exchange Act of  1934, as amended                                                                                                                                                                                                                                                                                                                                     |
| 31.2 |   | Certification of Principal Financial Officer pursuant  to Rule 13a-14(a)/15(d)-19(a) of the Securities Exchange Act of 1934, as  amended                                                                                                                                                                                                                                                                                                                                     |
| 32.1 |   | Certification of Principal Executive Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                      |
| 32.2 |   | Certification of Principal Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                      |

 

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##### **SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the Registrant has duly caused the reportto be signed on its behalf by the undersigned, thereunto duly authorized.
|                         |   | Federal Services Acquisition Corporation |
|-------------------------|--------|------------------------------------------|
|                    |   |                                     |   |   |
|                    |   | By:                                      |   | /s/ Joel R. Jacks |
|                    |   |                                     |   | Chairman of the Board and |
|                    |   |                                     |   | Chief Executive Officer |
|                    |   |                                     |   |   |
|                    |   | By:                                      |   | /s/ Peter M. Schulte |
|                    |   |                                     |   | President and |
|                    |   |                                     |   | Chief Financial Officer |
| Date: October 24,  2006 |   |                                     |   |   |

 

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