**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

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** **

**FORM 10-Q**

** **

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**(Mark one)**

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

 

**FOR THEQUARTERLY PERIOD ENDED JUNE 30, 2007.**

** **

**OR**

 

**o**                                 TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

**COMMISSIONFILE NUMBER: 0-51552**

 

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**ATS CORPORATION**

(Exact name of registrant as specified in its charter)

 

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

 

**7915 Jones Branch Drive**

**McLean, Virginia 22102**

(Address of principal executive offices)

 

**(703) 506-0088**

(Registrant’s telephone number, including area code)

 

**Not Applicable**

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

 

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Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of 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. (check one):

Large AcceleratedFiler  o   Accelerated Filer  x   Non-acceleratedFiler  o

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

The number of shares of the issuer’s Common Stock,$0.0001 par value, outstanding as of August 7, 2007 was 18,137,454.

 

 

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**TABLE OF CONTENTS**
| **PART I — FINANCIAL  INFORMATION** |   |                                                                                                                                                                                                    |   |
|------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| ** **                               |   |                                                                                                                                                                                                    |   |
| Item  1.                                 |   | Financial  Statements                                                                                                                                                                                   |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
|                                     |   | Consolidated  Balance Sheets as of June 30, 2007 (unaudited) and as of December 31,  2006 (successor)                                                                                              |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
|                                     |   | Consolidated Statements of Operations (unaudited) for  the three and six months ended June 30, 2007 and 2006 (successor) and  for the three and six months ended April 30, 2006 (predecessor) |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
|                                     |   | Consolidated Statements of Cash Flows (unaudited) for  the six months ended June 30, 2007 and 2006 (successor) and for the six  months ended April 30, 2006 (predecessor)                     |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
|                                     |   | Notes  to Condensed Unaudited Financial Statements                                                                                                                                                      |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
| Item 2.                             |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                                                                                             |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
| Item 3.                             |   | Quantitative and Qualitative Disclosures about Market  Risk                                                                                                                                             |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
| Item 4.                             |   | Controls and Procedures                                                                                                                                                                                 |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
| **PART  II — OTHER INFORMATION**    |   |                                                                                                                                                                                                    |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
| Item 1.                             |   | Legal  Proceedings                                                                                                                                                                                      |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
| Item  1A.                                |   | Risk  Factors                                                                                                                                                                                           |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
| Item 2.                             |   | Unregistered Sales of Equity Securities and Use of  Proceeds                                                                                                                                            |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
| Item 3.                             |   | Defaults upon Senior Securities                                                                                                                                                                         |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
| Item 4.                                  |   | Submission of Matters to a Vote of Security Holders                                                                                                                                                     |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
| Item 5.                             |   | Other  Information                                                                                                                                                                                      |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
| Item 6.                             |   | Exhibits                                                                                                                                                                                                |   |   |   |
|                                     |   |                                                                                                                                                                                                    |   |   |   |
| **SIGNATURES**                           |   |                                                                                                                                                                                                    |   |   |   |

 

 

2

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**PART I: FINANCIAL INFORMATION**

**ITEM 1: FINANCIAL STATEMENTS**

**ATSCorporation**Consolidated Balance Sheet
| ** **                                        | ** ** | **June 30,** | ** **      | **December 31,** | ** ** |
|---------------------------------------------------|------------|-------------------|-----------------|-----------------------|------------|
| ** **                                        | ** ** | **2007**          | ** **      | **2006**              | ** ** |
| ** **                                        | ** ** | **(unaudited)**   | ** **      | **(audited)**         | ** ** |
|                                              |       |              |            |                  |       |
| ***Assets***                                      |       |              |            |                  |       |
|                                              |       |              |            |                  |       |
| **Current Assets**                                |       |              |            |                  |       |
| Cash                                              |       | $                 | 226,275         |                  | $          | 213,395 |   |
| Accounts  receivable                              |       | 28,093,176        |            | —                |       |
| Prepaid expenses  and other current assets        |       | 1,029,390         |            | 136,006               |       |
| Income tax  receivable                            |       | 1,524,086         |            | —                |       |
| Other current  assets                             |       | 2,580             |            | —                |       |
| Deferred income  taxes, current                   |       | 1,111,515         |            | —                |       |
|                                              |       |              |            |                  |       |
| **Total Current Assets**                          |       | 31,987,022        |            | 349,401               |       |
|                                              |       |              |            |                  |       |
| **Short term investments held in  Trust account** |       | —            |            | 121,024,475           |       |
|                                              |       |              |            |                  |       |
| **Restricted Cash**                               |       | 1,246,488         |            | —                |       |
|                                              |       |              |            |                  |       |
| **Cash and cash equivalents held  in trust fund** |       | —            |            | 1,332                 |       |
|                                              |       |              |            |                  |       |
| **Property and equipment, net**                   |       | 1,445,232         |            | —                |       |
|                                              |       |              |            |                  |       |
| **Goodwill**                                      |       | 64,598,536        |            | —                |       |
|                                              |       |              |            |                  |       |
| **Intangible assets, net**                        |       | 15,575,516        |            | —                |       |
|                                              |       |              |            |                  |       |
| **Deferred acquisition costs**                    |       | —            |            | 1,361,215             |       |
|                                              |       |              |            |                  |       |
| **Other assets**                                  |       | 51,070            |            | —                |       |
|                                              |       |              |            |                  |       |
| **Deferred income tax benefit**                   |       | —            |            | 502,744               |       |
|                                              |       |              |            |                  |       |
| **Total Assets**                                  | ** ** | **$**             | **114,903,864** | ** **            | **$**      | **123,239,167** |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

3

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**ATSCorporation**Consolidated Balance Sheet — Continued
| ** **                                                                                                                                                                                                                                    | ** ** | **June 30,** | ** **      | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-----------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                    | ** ** | **2007**          | ** **      | **2006**              | ** ** |
| ** **                                                                                                                                                                                                                                    | ** ** | **(unaudited)**   | ** **      | **(audited)**         | ** ** |
|                                                                                                                                                                                                                                          |       |              |            |                  |       |
| ***Liabilities  and Stockholders’ Equity***                                                                                                                                                                                              |       |              |            |                  |       |
| Capital leases - current portion                                                                                                                                                                                                              |       | $                 | 80,963          |                  | $          | — |   |
| Accounts payable and accrued expenses                                                                                                                                                                                                         |       | 7,343,583         |            | 942,146               |       |
| Accrued salaries and related taxes                                                                                                                                                                                                            |       | 4,447,035         |            | —                |       |
| Accrued vacation                                                                                                                                                                                                                              |       | 2,693,129         |            | —                |       |
| Income taxes payable                                                                                                                                                                                                                          |       | —            |            | 310,606               |       |
| Warrant liabilities                                                                                                                                                                                                                           |       | —            |            | 13,860,000            |       |
| Other current liabilities                                                                                                                                                                                                                     |       | 434,451           |            | —                |       |
| Deferred income taxes - current portion                                                                                                                                                                                                       |       | 17,509            |            | 40,489                |       |
|                                                                                                                                                                                                                                          |       |              |            |                  |       |
| **Total  Current Liabilities**                                                                                                                                                                                                                |       | 15,016,670        |            | 15,153,241            |       |
|                                                                                                                                                                                                                                          |       |              |            |                  |       |
| **Notes  Payable**                                                                                                                                                                                                                            |       | 86,857            |            | —                |       |
|                                                                                                                                                                                                                                          |       |              |            |                  |       |
| **Capital  leases - net of current portion**                                                                                                                                                                                                  |       | 127,925           |            | —                |       |
|                                                                                                                                                                                                                                          |       |              |            |                  |       |
| **Other  long term liabilities**                                                                                                                                                                                                              |       | 325,694           |            | —                |       |
|                                                                                                                                                                                                                                          |       |              |            |                  |       |
| **Deferred  income taxes - net of current portion**                                                                                                                                                                                           |       | 5,831,542         |            | —                |       |
|                                                                                                                                                                                                                                          |       |              |            |                  |       |
| **Total  Liabilities**                                                                                                                                                                                                                        |       | 21,388,688        |            | 15,153,241            |       |
|                                                                                                                                                                                                                                          |       |              |            |                  |       |
| Common stock,  subject to possible redemption 4,197,900   shares                                                                                                                                                                              |       | —            |            | 23,424,282            |       |
|                                                                                                                                                                                                                                          |       |              |            |                  |       |
| Interest income  attributable to common stock subject to possible redemptions (net of taxes of  $0 and $561,204, respectively)                                                                                                                |       | —            |            | 702,752               |       |
|                                                                                                                                                                                                                                          |       |              |            |                  |       |
| Total common  stock subject to possible redemption                                                                                                                                                                                            |       | —            |            | 24,127,034            |       |
|                                                                                                                                                                                                                                          |       |              |            |                  |       |
| **Commitments  and Contingencies**                                                                                                                                                                                                            |       |              |            |                  |       |
|                                                                                                                                                                                                                                          |       |              |            |                  |       |
| **Stockholders’  Equity**                                                                                                                                                                                                                |       |              |            |                  |       |
| Common stock - $.0001 par value; 100,000,000 shares authorized;  26,480,209 and 26,250,000 issued; 18,137,454 and 26,250,000 outstanding,  respectively (which includes 0 and 4,197,900 shares subject to possible  redemption, respectively) |       | 2,648             |            | 2,625                 |       |
| Additional paid in capital                                                                                                                                                                                                                    |       | 127,240,752       |            | 81,467,698            |       |
| Treasury Stock, at cost 8,342,755 and 0 shares                                                                                                                                                                                                |       | (30,272,007       | )               | —                |       |
| Retained Earnings (deficit)                                                                                                                                                                                                                   |       | (3,456,217        | )               | 2,488,569             |       |
|                                                                                                                                                                                                                                          |       |              |            |                  |       |
| **Total  Stockholders’ Equity**                                                                                                                                                                                                          |       | 93,515,176        |            | 83,958,892            |       |
|                                                                                                                                                                                                                                          |       |              |            |                  |       |
| **Total  Liabilities and Stockholders’ Equity**                                                                                                                                                                                          | ** ** | **$**             | **114,903,864** | ** **            | **$**      | **123,239,167** | ** ** |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

4

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**ATSCorporation**Consolidated Statements of Operations
| ** **                                                                              | ** ** | **Successor**     | ** **  | **Successor**     | ** ** | ** **        | ** ** | **Predecessor**   | ** **     |
|-----------------------------------------------------------------------------------------|------------|-------------------|-------------|-------------------|------------|-------------------|------------|-------------------|----------------|
| ** **                                                                              | ** ** | **ATS Corp** | ** **  | **ATS Corp** | ** ** | **ATS Corp** | ** ** | **ATS Corp** | ** **     | ** ** | ** ** | **ATS I** | ** ** | **ATS I** | ** ** |
| ** **                                                                              | ** ** | **3 months** | ** **  | **3 months** | ** ** | **6 months** | ** ** | **6 months** | ** **     | ** ** | ** ** | **3 months** | ** ** | **6 months** | ** ** |
| ** **                                                                              | ** ** | **ending**        | ** **  | **ending**        | ** ** | **ending**        | ** ** | **ending**        | ** **     | ** ** | ** ** | **ending** | ** ** | **ending** | ** ** |
| ** **                                                                              | ** ** | **6/30/2007**     | ** **  | **6/30/2006**     | ** ** | **6/30/2007**     | ** ** | **6/30/2006**     | ** **     | ** ** | ** ** | **4/30/2006** | ** ** | **4/30/2006** | ** ** |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| **Contract Revenue**                                                                    |       | $                 | 26,247,681  |              | $          | —            |       | $                 | 49,725,401     |   | $ | — |   |   |   | $ | 30,128,753 |   | $ | 56,183,094 |   |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| **Operating Costs and Expenses**                                                        |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| Cost  of Services                                                                       |       | 18,705,377        |        | —            |       | 35,169,594        |       | —            |           |   |   | 22,110,952 |   | 40,299,066 |   |
| Selling,  general and administrative                                                    |       | 6,179,367         |        | 283,424           |       | 12,155,875        |       | 893,621           |           |   |   | 6,692,318 |   | 13,308,189 |   |
| Depreciation  and Amortization                                                          |       | 138,255           |        | —            |       | 279,556           |       | —            |           |   |   | 191,000 |   | 420,000 |   |
| Amortization  of Intangible Assets                                                      |       | 945,149           |        | —            |       | 1,724,484         |       | —            |           |   |   | 7,292 |   | 29,167 |   |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| **Total operating costs and  expenses**                                                 |       | 25,968,148        |        | 283,424           |       | 49,329,509        |       | 893,621           |           |   |   | 29,001,562 |   | 54,056,422 |   |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| **Operating Income (Loss)**                                                             |       | 279,533           |        | (283,424          | )          | 395,892           |       | (893,621          | )              |   |   | 1,127,191 |   | 2,126,672 |   |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| **Other Income (Expense)**                                                              |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| Interest  Income (expense), net                                                         |       | 7,537             |        | 1,394,201         |       | 150,988           |       | 2,583,913         |           |   |   | (134,045 | ) | (184,892 | ) |
| Gain  (Loss) on warrant liabilities                                                     |       | —            |        | 11,760,000        |       | (6,930,000        | )          | 840,000           |           |   |   | — |   | — |   |
| Other  income                                                                           |       | 9,019             |        | —            |       | 9,754             |       | —            |           |   |   | 7,959 |   | 15,895 |   |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| **Income (Loss) Before Income  Taxes**                                                  |       | 296,089           |        | 12,870,777        |       | (6,373,366        | )          | 2,530,292         |           |   |   | 1,001,105 |   | 1,957,675 |   |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| **Income Tax (Benefit) Expense**                                                        |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| Current                                                                                 |       | 171,461           |        | 366,797           |       | 274,172           |       | 880,793           |           |   |   | 431,301 |   | 813,489 |   |
| Deferred                                                                                |       | —            |        | 134,384           |       | —            |       | (116,052          | )              |   |   | — |   | — |   |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| **Income (Loss) from Continuing  Operations**                                           |       | 124,628           |        | 12,369,596        |       | (6,647,538        | )          | 1,765,551         |           |   |   | 569,804 |   | 1,144,186 |   |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| **Loss from Discontinued  Operations**                                                  |       | —            |        | —            |       | —            |       | —            |           |   |   | (192,531 | ) | (570,908 | ) |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| **Net Income (Loss)**                                                                   | ** ** | **$**             | **124,628** |              | **$**      | **12,369,596**    | ** ** | **$**             | **(6,647,538** | **)** | **$** | **1,765,551** | ** ** | ** ** | ** ** | **$** | **377,273** | ** ** | **$** | **573,278** | ** ** |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| Interest income  attributable to common stock subject  to possible redemption.          |       | —            |        | (151,719          | )          | —            |       | (280,812          | )              |   |   | — |   | — |   |
| Gain on derivative  liabilities attributed to warrants                                  |       | —            |        | (11,760,000       | )          | —            |       | (840,000          | )              |   |   | — |   | — |   |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| Net income (loss)  allocable to common stockholders  not subject to possible redemption |       | $                 | 124,628     |              | $          | 457,877           |       | $                 | (6,647,538     | ) | $ | 644,739 |   |   |   | $ | 377,273 |   | $ | 573,278 |   |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| Weighted average number  of shares outstanding                                          |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| —basic                                                                             |       | 18,133,828        |        | 26,250,000        |       | 19,214,534        |       | 26,250,000        |           |   |   | 19,219,700 |   | 19,213,700 |   |
| —diluted                                                                           |       | 18,440,030        |        | 30,548,025        |       | 19,214,534        |       | 30,412,162        |           |   |   | 19,706,766 |   | 19,700,766 |   |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| Weighted average shares  outstanding exclusive of                                       |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| shares  subject to possible redemption                                                  |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| —basic                                                                             |       | 18,133,828        |        | 22,052,100        |       | 19,214,534        |       | 22,052,100        |           |   |   | 19,219,700 |   | 19,213,700 |   |
| —diluted                                                                           |       | 18,440,030        |        | 26,350,125        |       | 19,214,534        |       | 26,214,262        |           |   |   | 19,706,766 |   | 19,700,766 |   |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| Basic net income (loss)  per share                                                      |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| —Continuing  operations                                                            |       | $                 | 0.01        |              | $          | 0.47              |       | $                 | (0.35          | ) | $ | 0.07 |   |   |   | $ | 0.03 |   | $ | 0.06 |   |
| —Discontinued  operations                                                          |       | $                 | —      |              | $          | —            |       | $                 | —         |   | $ | — |   |   |   | $ | (0.01 | ) | $ | (0.03 | ) |
| —Net  income (loss)                                                                |       | $                 | 0.01        |              | $          | 0.47              |       | $                 | (0.35          | ) | $ | 0.07 |   |   |   | $ | 0.02 |   | $ | 0.03 |   |
| —Net  income (loss)not subject to possible redemption                              |       | $                 | 0.01        |              | $          | 0.02              |       | $                 | (0.35          | ) | $ | 0.03 |   |   |   | $ | 0.02 |   | $ | 0.03 |   |
|                                                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| Diluted net income  (loss) per share                                                    |       |              |        |              |       |              |       |              |           |   |   |   |   |   |   |
| —Continuing  operations                                                            |       | $                 | 0.01        |              | $          | 0.40              |       | $                 | (0.35          | ) | $ | 0.06 |   |   |   | $ | 0.03 |   | $ | 0.06 |   |
| —Discontinued  operations                                                          |       | $                 | —      |              | $          | —            |       | $                 | —         |   | $ | — |   |   |   | $ | (0.01 | ) | $ | (0.03 | ) |
| —Net  income (loss)                                                                |       | $                 | 0.01        |              | $          | 0.40              |       | $                 | (0.35          | ) | $ | 0.06 |   |   |   | $ | 0.02 |   | $ | 0.03 |   |
| —Net income (loss)not  subject to possible redemption                              |       | $                 | 0.01        |              | $          | 0.02              |       | $                 | (0.35          | ) | $ | 0.02 |   |   |   | $ | 0.02 |   | $ | 0.03 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

 

5

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**ATSCorporation**Consolidated Statements of Cash Flows
| ** **                                                                   | ** ** | **(Successor)**           | ** ** | ** **                | ** ** | **(Predecessor)** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|-------------------|------------|
| ** **                                                                   | ** ** | **For the Six** | ** ** | **For the Six** | ** ** | ** **        | ** ** | **For the Six** | ** ** |
| ** **                                                                   | ** ** | **Months Ended**     | ** ** | **Months Ended**     | ** ** | ** **        | ** ** | **Months Ended** | ** ** |
| ** **                                                                   | ** ** | **June 30,**         | ** ** | **June 30,**         | ** ** | ** **        | ** ** | **April 30,** | ** ** |
| ** **                                                                   | ** ** | **2007**                  | ** ** | **2006**                  | ** ** | ** **        | ** ** | **2006** | ** ** |
|                                                                         |       |                      |       |                      |       |              |       |   |   |
| **Cash Flows from Operating  Activities**                                    | ** ** | ** **                |       |                      |       |              |       |   |   |
| Net income (loss)                                                            |       | $                         | (6,647,538 | )                         | $          | 1,765,551         |       |   |   | $ | 573,278 |   |
| Adjustments to  reconcile net income (loss) to net cash (used in)            |       |                      |       |                      |       |              |       |   |   |
| provided by  operating activities:                                           |       |                      |       |                      |       |              |       |   |   |
| Depreciation and  amortization                                               |       | 279,556                   |       | —                    |       |              |       | 450,820 |   |
| Amortization of  intangibles                                                 |       | 1,724,484                 |       | —                    |       |              |       | — |   |
| Deferred income  taxes                                                       |       | (1,816,378                | )          | (116,052                  | )          |              |       | (1,055,675 | ) |
| Deferred rent                                                                |       | —                    |       | —                    |       |              |       | (154,328 | ) |
| Loss on disposal  of equipment                                               |       | —                    |       | —                    |       |              |       | 58,232 |   |
| Stock-based  compensation                                                    |       | 709,519                   |       | —                    |       |              |       | — |   |
| Interest on  notes payable                                                   |       | 1,354                     |       | —                    |       |              |       | — |   |
| (Gain) Loss on  derivative liabilities attributable to warrants              |       | 6,930,000                 |       | (840,000                  | )          |              |       | — |   |
| Changes in assets and  liabilities, net of effects of acquisitions:          |       |                      |       |                      |       |              |       |   |   |
| Accounts  receivable                                                         |       | (6,497,779                | )          | —                    |       |              |       | (1,385,619 | ) |
| Interest  receivable                                                         |       | —                    |       | (571,679                  | )          |              |       | — |   |
| Prepaid expenses                                                             |       | (496,748                  | )          | 46,506                    |       |              |       | (7,897 | ) |
| Prepaid supplies                                                             |       | (487                      | )          | —                    |       |              |       | 381,311 |   |
| Other current  assets                                                        |       | (2,580                    | )          | —                    |       |              |       | — |   |
| Income taxes  payable (receivable)                                           |       | 689,421                   |       | (402,592                  | )          |              |       | (1,175,353 | ) |
| Other assets                                                                 |       | 286,426                   |       | —                    |       |              |       | (454,758 | ) |
| Accounts payable  and accrued expenses                                       |       | (387,770                  | )          | 889,662                   |       |              |       | (1,474,515 | ) |
| Accrued salaries  and related taxes                                          |       | (4,473,193                | )          | —                    |       |              |       | (611,766 | ) |
| Accrued vacation                                                             |       | 404,518                   |       | —                    |       |              |       | (136,543 | ) |
| Other current  liabilities                                                   |       | (76,985                   | )          | —                    |       |              |       | — |   |
| Other long-term  liabilities                                                 |       | (234,328                  | )          | —                    |       |              |       | — |   |
|                                                                         |       |                      |       |                      |       |              |       |   |   |
| **Net Cash (Used in) Provided by  Operating Activities**                     |       | (9,608,508                | )          | 771,396                   |       |              |       | (4,992,813 | ) |
|                                                                         |       |                      |       |                      |       |              |       |   |   |
| **Cash Flows from Investing  Activities**                                    |       |                      |       |                      |       |              |       |   |   |
| Purchase of  property and equipment                                          |       | (325,836                  | )          | —                    |       |              |       | (166,533 | ) |
| Proceeds from  sale of ATSI                                                  |       | —                    |       | —                    |       |              |       | — |   |
| Sale of U.S.  government securities held in Trust fund                       |       | 121,024,475               |       | —                    |       |              |       | — |   |
| Purchase of U.S.  government securities held in Trust fund                   |       | —                    |       | (236,619,372              | )          |              |       | — |   |
| Maturities of  U.S. government securities held in Trust fund                 |       | —                    |       | 235,889,812               |       |              |       | — |   |
|  Purchase of Advanced Technology Systems  Inc., net of cash received    |       | (79,396,068               | )          | —                    |       |              |       | — |   |
|  Purchase of Reliable Integration Services,  Inc., net of cash received |       | (997,849                  | )          | —                    |       |              |       | — |   |
| Purchase of Stock  Purchase Warrants                                         |       | (350,722                  | )          |                      |       |              |       |   |   |
| Deferred  acquisition costs                                                  |       | —                    |       | (614,625                  | )          |              |       | — |   |
| Release of cash  held in Trust Fund                                          |       | 1,332                     |       | 16,929                    |       |              |       | — |   |
| Restricted cash                                                              |       | (28,706                   | )          | —                    |       |              |       | — |   |
|                                                                         |       |                      |       |                      |       |              |       |   |   |
| **Net Cash Provided by (Used in)  Investing Activities**                     |       | 39,926,626                |       | (1,327,256                | )          |              |       | (166,533 | ) |
|                                                                         |       |                      |       |                      |       |              |       |   |   |
| **Cash Flows from Financing  Activities**                                    |       |                      |       |                      |       |              |       |   |   |
| Net borrowings  on line-of-credit                                            |       | —                    |       | —                    |       |              |       | 3,857,330 |   |
| Payments on  notes payable                                                   |       | —                    |       | —                    |       |              |       | (43,082 | ) |
| Payments on  capital leases                                                  |       | (33,231                   | )          | —                    |       |              |       | (16,995 | ) |
| Payments to repurchase  treasury stock                                       |       | (30,272,007               | )          | —                    |       |              |       | (4,662 | ) |
|                                                                         |       |                      |       |                      |       |              |       |   |   |
| **Net Cash (Used in) Provided by  Financing Activities**                     |       | (30,305,238               | )          | —                    |       |              |       | 3,792,591 |   |
| ** **                                                                   |       |                      |       |                      |       |              |       |   |   |
| **Net Increase (Decrease) in Cash**                                          |       | 12,880                    |       | (555,860                  | )          |              |       | (1,366,755 | ) |
|                                                                         |       |                      |       |                      |       |              |       |   |   |
| **Cash, beginning of period**                                                |       | 213,395                   |       | 1,855,394                 |       |              |       | 1,366,755 |   |
|                                                                         |       |                      |       |                      |       |              |       |   |   |
| **Cash, end of period**                                                      |       | $                         | 226,275    |                      | $          | 1,299,534         |       |   |   | $ | — |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

6

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**NOTE A****3⁄4BASISOF PRESENTATION**

The Consolidated Financial Statements are for thethree-and six-month periods ended June 30, 2007 and 2006 for ATS Corporation(the “Successor Company” or the “Company”) and are for the three-and six-monthperiods ended April 30, 2006 for Advanced Technology Systems, Inc. (the “PredecessorCompany” or “ATSI”).  The Company hasincluded the results of operations for the acquisition of ATSI from theacquisition date of January 15, 2007 through June 30, 2007.

Except for the consolidated balance sheet of theCompany as of December 31, 2006 which was derived from audited financialstatements, the accompanying consolidated financial statements are unaudited.In the opinion of management, all adjustments necessary for a fair statement ofsuch financial position and results of operations have been included. All suchadjustments are of a normal recurring nature. Interim results are notnecessarily indicative of results for a full year.

The consolidated financial statements and notes are presentedas required by Form 10-Q and do not contain certain information included in theCompany’s annual financial statements and notes. These financial statementsshould be read in conjunction with the Company’s audited financial statementsand the notes thereto filed with the Securities and Exchange Commission (“SEC”)in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2006. The interim financial statements of ATSI have also beenpresented in accordance with the requirements of Form 10-Q. Such informationshould be read in conjunction with the ATSI consolidated financial statementsfor the year ended October 31, 2006 included in the ATS Corporation Form 10-Kfor the year ended December 31, 2006.

Certain amounts in prioryears have been reclassified to conform to the current period presentation.

**NOTE B****3⁄4RECENTACCOUNTING PRONOUNCEMENTS**

In September 2006, the Financial Accounting StandardsBoard (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No.157, *Fair Value Measurements*(SFAS No. 157)*.*SFAS No. 157* *defines fair value, establishes a framework formeasuring fair value in generally accepted accounting principles and expandsdisclosures about fair value measurements*.*Specifically,this Statement sets forth a definition of fair value, and establishes ahierarchy prioritizing the inputs to valuation techniques, giving the highestpriority to quoted prices in active markets for identical assets andliabilities and the lowest priority to unobservable inputs. The provisions ofSFAS No. 157 are generally required to be applied on a prospective basis,except to certain financial instruments accounted for under SFAS No. 133, *Accounting for Derivative Instruments and HedgingActivities*, for which the provisions of SFAS No. 157 should beapplied retrospectively. SFAS No. 157 is effective for financial statementsissued for fiscal years beginning after November 15, 2007, and interimperiods within those fiscal years.  TheCompany is evaluating the effect, if any, on its financial position or resultsof operations.

In February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets and Financial Liabilities —Including an amendment of FASB Statement No. 115*(SFAS No. 159).SFAS No. 159 permits an entity, at specified election dates, tochoose to measure certain financial instruments and other items at fair value.The objective of SFAS No. 159 is to provide entities with the opportunity tomitigate volatility in reported earnings caused by measuring related assets andliabilities differently, without having to apply complex hedge accountingprovisions. SFAS No. 159 is effective for accounting periodsbeginning after November 15, 2007. The Company is currently assessing theimpact of adopting SFAS No. 159 on the consolidated financial statements.

**NOTE C****3⁄4RESTRICTEDCASH**

The Company is required to maintain $1,200,000 ondeposit with a financial institution to support a bonding requirement for oneof ATSI’s state contracts.  Such amountis reflected in restricted cash in the accompanying consolidated balance sheet.

**NOTE D****3⁄4INVESTMENTSHELD IN TRUST**

The Company held certain investments in a trustaccount consisting principally of short-term treasury bills.  All such investments held in the Trust fundwere disposed as of March 31, 2007.

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

Successor — Basic and diluted net loss per shareinformation is presented in accordance with SFAS No. 128, *Earnings PerShare*.  Basic loss per shareis calculated by dividing the net loss attributable to common stockholders bythe weighted-average common shares outstanding during the period.  Diluted loss per share is calculated bydividing net loss attributable to common stockholders by the weighted averagecommon shares outstanding, which includes common stock equivalents.  The Company’s common stock equivalentsinclude stock options, restricted stock units, and warrants.  For the three months ended June 30, 2007 and2006, a total of 41,658,967 and 42,000,000 common stock equivalents,respectively, were excluded from the calculation of diluted loss per share astheir impact would have been anti-dilutive. For the six months ended June 30, 2007 and 2006, a total of 41,979,501and 42,000,000 common stock equivalents, respectively, were excluded from thecalculation of diluted loss per share as their impact would have beenanti-dilutive.  The diluted loss pershare from the period from November 1, 2006 through January 15, 2007 for thePredecessor did not include the effect of 447,100 stock options as the impactwould have been anti-dilutive.

Weighted average common shares are calculated asfollows:
| **  **                                                                            | ** ** | **(Successor)**             | ** ** | **(Successor)**             | ** ** | ** **                | ** ** | **(Predecessor)**         | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|---------------------------|------------|---------------------------|------------|
| **  **                                                                            | ** ** | **For the Three** | ** ** | **For the Three** | ** ** | **For the Six** | ** ** | **For the Six** | ** ** | ** ** | ** ** | **For the Three** | ** ** | **For the Six** | ** ** |
| **  **                                                                            | ** ** | **Months Ended**       | ** ** | **Months Ended**       | ** ** | **Months Ended**     | ** ** | **Months Ended**     | ** ** | ** ** | ** ** | **Months Ended** | ** ** | **Months Ended** | ** ** |
| **  **                                                                            | ** ** | **June 30,**           | ** ** | **June 30,**           | ** ** | **June 30,**         | ** ** | **June 30,**         | ** ** | ** ** | ** ** | **April 30,** | ** ** | **April 30,** | ** ** |
| **  **                                                                            | ** ** | **2007**                    | ** ** | **2006**                    | ** ** | **2007**                  | ** ** | **2006**                  | ** ** | ** ** | ** ** | **2006** | ** ** | **2006** | ** ** |
| Income (Loss)  from Continuing Operations                                                   |       | 124,628                     |       | 12,369,596                  |       | (6,647,538                | )          | 1,765,551                 |       |   |   | 569,804 |   | 1,144,186 |   |
| Loss from  Discontinued Operations                                                          |       | —                      |       | —                      |       | —                    |       | —                    |       |   |   | (192,531 | ) | (570,908 | ) |
| Income (Loss)                                                                               |       | $                           | 124,628    |                        | $          | 12,369,596                |       | $                         | (6,647,538 | ) | $ | 1,765,551 |   |   |   | $ | 377,273 |   | $ | 573,278 |   |
| Interest income  attributable to common stock subject to possible redemption                |       | —                      |       | (151,719                    | )          | —                    |       | (280,812                  | )          |   |   | — |   | — |   |
| Gain on  derivative liabilities attributed to warrants                                      |       |                   |       | (11,760,000                 | )          |                 |       | (840,000                  | )          |   |   |   |   |   |   |
| Net income (loss)  allocable to common stockholders not subject to possible redemption      |       | $                           | 124,628    |                        | $          | 457,877                   |       | $                         | (6,647,538 | ) | $ | 644,739 |   |   |   | $ | 377,273 |   | $ | 573,278 |   |
| Weighted average  shares outstanding exclusive of shares subject to redemption—basic   |       | 18,133,828                  |       | 22,052,100                  |       | 19,214,534                |       | 22,052,100                |       |   |   | 19,219,700 |   | 19,213,700 |   |
| Shares from  assumed conversion of options, warrants and restricted stock                   |       | 306,202                     |       | 4,298,025                   |       | —                    |       | 4,162,162                 |       |   |   | 487,066 |   | 487,066 |   |
| Weighted average  shares outstanding exclusive of shares subject to redemption—diluted |       | 18,440,030                  |       | 26,350,125                  |       | 19,214,534                |       | 26,214,262                |       |   |   | 19,706,766 |   | 19,700,766 |   |
| Basic income  (loss) per share—basic                                                   |       | $                           | 0.01       |                        | $          | 0.02                      |       | $                         | (0.35      | ) | $ | 0.03 |   |   |   | $ | 0.02 |   | $ | 0.03 |   |
| Basic income (loss) per  share—diluted                                                 |       | $                           | 0.01       |                        | $          | 0.02                      |       | $                         | (0.35      | ) | $ | 0.02 |   |   |   | $ | 0.02 |   | $ | 0.03 |   |

                                                

**NOTE F****3⁄4EMPLOYEESTOCK-BASED COMPENSATION**

In December 2004, the FASB issued SFASNo. 123(R), *Share Based Payment,* whichrequires that compensation costs related to share-based payment transactions berecognized in financial statements. Under the fair value recognition provisionsof SFAS No. 123(R), the Company recognizes stock-based compensation basedupon the fair value of the stock-based awards taking into account the effectsof the employees’ expected exercise and post-vesting employment terminationbehavior.  For the three and six monthsended June 30, 2007, the Company recognized $109,000 ($.01 per basic anddiluted share) and $710,000 ($.03 per basic and diluted share) of stock-basedcompensation expense, respectively, as general and administrative expense.  The Company did not grant any stock-basedawards to employees prior to fiscal year 2007.

The fair value of options granted during the periodended June 30, 2007 has been estimated as of the date of grant using theBlack-Scholes option pricing model with the following assumptions:

|                           | ** ** | **Six Months  Ended  June 30,** | ** ** |
|---------------------------|------------|-------------------------------------------|------------|
| ** **                | ** ** | **2007**                                  | ** ** |
| Expected  dividend yield  |       | 0%                                        |       |
| Expected  volatility      |       | 37%                                       |       |
| Risk free  interest rate  |       | 4.7%                                      |       |
| Expected life of  options |       | 5.6 years                                 |       |
| Forfeiture rate           |       | 4%                                        |       |

 

8

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Effective November 1, 2006,ATSI was required to adopt the provisions of SFAS No.123(R).  However, no options were granted from theadoption date through January 15, 2007. In connection with the sale of ATSI to ATS Corporation, ATSI wasrequired to redeem 447,100 outstanding stock options for approximately $1.6million.  A liability to cover suchcompensation expense was recorded on January 15, 2007 and paid in January 2007.

On January 12, 2007, thestockholders of the Company approved the ATS Corporation 2006 Omnibus IncentiveCompensation Plan (the “Plan”). Under the Plan, the Company reserved 1.5million shares of the Company’s common stock for issuance to employees anddirectors through incentive stock options, or non-qualified stock options orthrough restricted stock units. During the three months and six months endedJune 30, 2007, the Board of Directors authorized the issuance of 4,500 and544,500 stock options, respectively.  Thestock options have vesting periods up to four years.

The following table summarizes information about stockoptions outstanding at June 30, 2007:
| ** **   | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|--------------|------------|------------------------------|------------|------------------------------|------------|
| ** **   | ** ** | ** **                   | ** ** | **Weighted-**                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Range**    | ** ** | ** **                   | ** ** | **average**                  | ** ** | **Weighted-** | ** ** | ** ** | ** ** | **Weighted-** | ** ** |
| **of**       | ** ** | ** **                   | ** ** | **Remaining**                | ** ** | **average** | ** ** | ** ** | ** ** | **average** | ** ** |
| **Exercise** | ** ** | **Number**                   | ** ** | **Life in**             | ** ** | **Exercise** | ** ** | **Number** | ** ** | **Exercise** | ** ** |
| **Price**    | ** ** | **Outstanding**              | ** ** | **Years**                    | ** ** | **Price** | ** ** | **Exercisable** | ** ** | **Price** | ** ** |
| $3.65        |       | 15,000                       |       | 9.76                         |       | $ | 3.65 |   | — |   | $ | — |   |
| $3.85        |       | 4,500                        |       | 9.84                         |       | 3.85 |   | — |   | — |   |
| $4.32        |       | 15,000                       |       | 9.68                         |       | 4.32 |   | — |   | — |   |
| $4.88        |       | 210,000                      |       | 9.66                         |       | 4.88 |   | — |   | — |   |
| $4.95        |       | 300,000                      |       | 9.56                         |       | 4.95 |   | 300,000 |   | 4.95 |   |
|         |       | 544,500                      |       | 9.53                         |       | $ | 4.87 |   | 300,000 |   | $ | 4.95 |   |

 

The weighted average grant date fair value of optionsgranted during the three months and six months ended June 30, 2007 was $1.90and $2.07, respectively.  As of June 30,2007, there was $494,346 of unrecognized compensation expense related tounvested options.  This cost is expectedto be recognized over a weighted-average period of 3.9 years.  The fair value of options vested during thethree-month and six-month periods were approximately $0 and $591,000,respectively.

Pursuant to the Plan on May 4, 2007, the Companygranted 60,000 restricted shares valued at approximately $231,000 to anemployee.  The agreement provided for animmediate vesting of 10,000 shares with the remaining shares vesting ratablyover four years.  In addition, during thesix months ended June 30, 2007 the Company granted 255,534 restricted sharesvalued at approximately $1,035,000 to certain directors of the Company.  Such shares vest ratably over a five-yearperiod.

**NOTE G****3⁄4ACCOUNTINGFOR WARRANTS AND DERIVATIVE INSTRUMENTS**

On October 25, 2005,the Company consummated its initial public offering of 21,000,000 units. Eachunit consisted of one share of common stock and two redeemable common stockpurchase warrants. Each warrant entitles the holder to purchase from theCompany one share of its common stock at an exercise price of $5.00. Thewarrant agreement provides for the Company to register the shares underlyingthe warrants and was silent as to the penalty to be incurred in the absence ofthe Company’s ability to deliver registered shares to the warrant holders uponwarrant exercise. The warrants expire on October 19, 2009.

Emerging Issues Task ForceIssue 00-19, or EITF 00-19, “*Accounting forDerivative 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 EITF00-19, a contract designated as an asset or a liability must be carried at fairvalue on a company’s balance sheet, with any changes in fair value recorded ina company’s results of operations. A contract classified as an equityinstrument is included within equity, and no fair value adjustments arerequired from period to period.

Fair values for tradedsecurities and derivatives are based on quoted market prices. Where marketprices are not readily available, as was the case with the Company’s warrantson the date of issuance, fair value is determined using methods requiringjudgment and estimates. Utilizing such methods, the fair value of the warrantliability at October 20, 2005 (the date of issuance) was determined to be$0.34 per warrant. At the date of issuance, the Company allocated the unitprice between the share of common stock and the warrants issued based uponrelative fair value determined, among other things, by reference to theunderlying cash held in the Trust fund. The warrants included in the units soldin the Company’s initial public offering began to be publicly traded on the Over-the-CounterBulletin Board on December 5, 

9

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2005, and consequently thefair value of the warrants was reflected as the market price of a warrant ateach reporting period. The warrants were accounted for as a liability under theEITF 00-19.  As such, to the extent thatthe market price of the Company’s warrants increased or decreased, a gain orloss was recorded to reflect such change in fair value.

On March 14, 2007, theCompany entered into a warrant clarification agreement to expressly state that,in the event a warrant would expire unexercised and without value andunredeemed on the expiration date, under no circumstances would the Company berequired to net cash settle the warrants.  This agreement modified theclassification of the warrants from a liability to equity.  The Companyrecognized a loss of $6,930,000 representing the change in fair value of thewarrant liability from December 31, 2006 through March 14, 2007.  The fairvalue of the warrants at March 14, 2007 of $20,790,000 was reclassified toadditional paid in capital.

**NOTE H—COMMON STOCK REDEMPTION**

Following the consummationof the acquisition of ATSI, the Company announced and implemented a commonstock and warrant repurchase program.  Through June 30, 2007, the Companypaid approximately $13.5 million in cash to redeem 2,811,400 shares of commonstock at an average price of $4.80 per share and approximately $351,000 in cashto repurchase 870,533 warrants.

On January 16, 2007,the Company announced that it would repurchase 2,625,000 shares of the Company’scommon stock from the founders at $0.011 per share. This program was completedin January 2007.

On January 16, 2007,the Company announced that it would repurchase shares of those shareholdersthat voted against the acquisition of ATSI and requested that their shares(2,906,355) be redeemed at the then per share trust value of $5.77 per share.This program was completed in January 2007.

**NOTE I****3⁄4INCOMETAXES**

The Company and ATSI’s effective tax rates are basedupon the effective tax to be applicable to the full fiscal year.  As of June 30, 2007, the Company had a netdeferred tax liability of approximately $4.7 million.

Effective January 1, 2007, the Company was required toadopt FASB Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes* (FIN 48).  FIN48 prescribes a more-likely-than-not threshold of financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return.  This interpretation alsoprovides guidance on derecognition of income tax assets and liabilities,classification of current and deferred tax assets and liabilities, accountingfor interest and penalties associated with tax positions, accounting for incometaxes in interim periods and income tax disclosures.  Since inception and through January 1, 2007,the adoption date of this standard, the Company was in essence a “blank check”company with no substantive operations. The Company recognizes accrued interest and penalties related touncertain tax positions in income tax expense. The Company files its taxreturns as prescribed by the tax laws of the jurisdictions in which itoperates. The Company is currently under audit by the Internal Revenue Service(“IRS”). The Company’s 2004 through 2006 tax years are still subject toexamination by the IRS. Various state jurisdiction tax years remain open toexamination. Management has concluded that the adoption of FIN 48 had nomaterial effect on its financial position or results of operations.

Management is in the process of evaluating the varioustax positions associated with the acquisitions of ATSI and Reliable IntegrationServices, Inc. (RISI) and is of the opinion that any deferred tax liabilitiesthat would ultimately result from uncertain tax positions related to these entitieswould be covered by indemnification provisions provided in the acquisitionagreements or would result in an adjustment to goodwill.

**NOTE J-SEGMENT ACCOUNTING**

The Company reviewed its services by unit to determineif any unit of the business is subject to risks and returns that are differentthan those of other units in the Company. Based on this review, the Company has determined that all units of theCompany are providing comparable services to its clients, and the Company hasonly one reportable segment.

10

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**NOTE K****3⁄4ACQUISITIONS**

***ATSI***

Effective the close of business of January 15, 2007,the Company acquired all of the outstanding capital stock of ATSI, a providerof systems integration services and application development to the U.S.government, for $81.9 million in cash, and 173,913 shares valued atapproximately $1,000,000 as of the closing date. The Company was organized toeffect a business combination with an operating business in the federalservices and defense industries.  ATSI isactive primarily in the growing U.S. government information technology servicesmarket. ATSI designs, develops and integrates enterprise-wide informationtechnology solutions, including custom software applications that address theU.S. government’s need to improve system efficiency, track human and financialcapital, and reduce system downtime. Management believes that ATSI provides astrong federal services platform from which the Company can grow, has strongcore competencies that the Company can build upon, and provides opportunitiesto create increased stockholder value. The stock purchase agreement providesfor a working capital adjustment to the extent the net working capital on theclosing date varies from the target amount as defined in the agreement.  Based on a determination of net workingcapital at the acquisition date, the Company has recorded a receivable forapproximately $3.5 million, included in other current assets on the June 31,2007 consolidated balance sheet that it expects to receive from funds that wereplaced in escrow to cover any purchase price adjustments and indemnificationclaims.

Aspart of the ATSI transaction on January 15, 2007, the Company agreed that theformer shareholders of ATSI could benefit from earn out opportunities ifcertain adjusted earnings thresholds are achieved during subsequent periods.These earn out opportunities had two components, each dependent on ATSIachieving certain levels of trailing 12-month EBITDA, as defined in the stockpurchase agreement. One component of the earn out, up to an aggregate of$15.0 million, was dependent on ATSI achieving certain levels of adjustedEBITDA during the 12-month trailing periods ended October 31, 2006 andApril 30, 2007. The second component of the earn out, up to an aggregateof $24.0 million, was dependent on the award of a large U.S. Air Forcecontract that ATSI bid on, which ATSI was notified on March 26, 2007, thatit did not receive. Based on the financial results to date the Company does notanticipate any payout under the earn out provisions of the January 15, 2007transaction with ATSI.  The Companyfunded the cash portion of the ATSI purchase price with the proceeds of itsinitial public offering.

Inconnection with the acquisition of ATSI, holders of 2,906,355 shares of commonstock voted against the acquisition and perfected their right to convert theirshares of common stock into $5.77 of cash per share. An aggregate of$16,769,668 was paid to such dissenting stockholders.

Underthe purchase method of accounting, the preliminary purchase price has beenallocated to the net tangible and intangible assets acquired and liabilitiesassumed, based upon preliminary estimates, which assume that historical costapproximates fair value of the assets and liabilities of ATSI. As such, managementestimates that a substantial portion of the excess purchase price will beallocated to non-amortizable intangible assets. These estimates are subject tochange upon the finalization of the valuation of certain assets and liabilitiesand may be adjusted in accordance with the provisions of SFAS No. 141, *Business Combinations*. Management has preliminarily estimated that the transaction will resultin $63.5 million of goodwill that is not expected to be deductible for incometax purposes. Additionally, management estimated that approximately $17.0million of the purchase price is allocable to customer-related intangibleassets, which include customer contracts, backlog, and non-contractual customerrelationships (including trade name recognition).  Such intangible assets will be amortized overperiods ranging from three to six years based upon factors such as customerrelationships and contract periods.

 

11

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Thetotal purchase price paid, including transaction costs of approximately $4.2million, has been preliminarily allocated as follows:

| (in thousands):                                                                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Cash                                                                                                 |       | $          | 76,635     |       |
| Common stock (173,913  shares valued on the date of the purchase agreement—April 19, 2006) |       | 1,000      |       |
| Transaction costs                                                                                    |       | 4,274      |       |
| Total purchase  price                                                                                |       | $          | 81,909     |       |
| Purchase price  allocation:                                                                          |       |       |       |
| Current assets                                                                                       |       | $          | 24,160     |       |
| Property and equipment                                                                               |       | 1,382      |       |
| Intangible assets                                                                                    |       | 17,000     |       |
| Goodwill                                                                                             |       | 63,541     |       |
| Other assets                                                                                         |       | 1,781      |       |
| Total assets acquired                                                                                |       | 107,864    |       |
| Current liabilities                                                                                  |       | 18,587     |       |
| Long-term liabilities                                                                                |       | 1,128      |       |
| Deferred tax liability  from acquisition intangibles                                                 |       | 6,240      |       |
| Total liabilities  assumed                                                                           |       | 25,955     |       |
| Net assets acquired                                                                                  |       | $          | 81,909     |       |

 

Thepreliminary estimated value and the weighted-average amortization period ofeach of the components of the customer-related intangible assets are asfollows:

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

 

Theresults of operations for ATSI have been included in the ConsolidatedStatements of Income from the acquisition date through June 30, 2007.

***RISI***

OnMarch 1, 2007, the Company acquired Reliable Integration Services, Inc. (“RISI”),a 37-employee network systems integrator serving U.S. government defense andcivilian agencies, for approximately $1.3 million as set forth below.Management believes that RISI’s client base and work product complements ATSI’sclient base and work product and provides opportunities for both companies tocross sell their services.

Underthe purchase method of accounting, the preliminary purchase price has beenallocated to the net tangible and intangible assets acquired and liabilitiesassumed, based upon preliminary estimates, which assume that historical costapproximates fair value of the assets and liabilities of RISI. As such,management estimates that a substantial portion of the excess purchase pricewill be allocated to non-amortizable intangible assets. These estimates aresubject to change upon the finalization of the valuation of certain assets andliabilities and may be adjusted in accordance with the provisions of SFASNo. 141, *Business Combinations*.

Theresults of operations for RISI are included in the consolidated statements ofoperations from the acquisition date through June 30, 2007.

12

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Thetotal purchase price paid, including transaction costs of $70,000, has beenpreliminarily allocated as follows:

| (in thousands):                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|
| Cash                                                 |       | $          | 933        |       |
| Common stock (46,296  shares issued)                 |       | 200        |       |
| Promissory note                                      |       | 86         |       |
| Transaction costs                                    |       | 69         |       |
| Total purchase  price                                |       | $          | 1,288      |       |
| Purchase price  allocation:                          |       |       |       |
| Current assets                                       |       | $          | 671        |       |
| Property and equipment                               |       | 16         |       |
| Intangible assets                                    |       | 300        |       |
| Goodwill                                             |       | 1,058      |       |
| Other assets                                         |       | 7          |       |
| Total assets acquired                                |       | $          | 2,052      |       |
| Current liabilities                                  |       | 648        |       |
| Deferred tax liability  from acquisition intangibles |       | 116        |       |
| Total liabilities  assumed                           |       | 764        |       |
| Net assets acquired                                  |       | $          | 1,288      |       |

 

Managementhas preliminarily estimated that the transaction will result in $1.1 million ofgoodwill.  Management is currentlyanalyzing the deductibility of goodwill on future income taxes. Approximately$300,000 of the purchase price is expected to be allocated to acquiredcustomer-related intangible assets, that include customer contracts, backlog,and non-contractual customer relationships (including trade name recognition),and will be amortized over periods ranging from three to six years based uponfactors such as expected customer relationships and contract periods.

Thepreliminary estimated value and the weighted-average amortization period of eachof the components of the customer-related intangible assets are as follows:

|                                                                            | ** ** | **Estimated Value   (in thousands)** | ** ** | **Weighted-Average   Amortization Period** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------|------------|
| Customer contracts                                                         |       | $                                                   | 173        |                                                 | 6 years    |   |
| Backlog                                                                    |       | 102                                                 |       | 3.5 years                                            |       |
| Non-contractual  customer relationships (including trade name recognition) |       | 25                                                  |       | 3 years                                              |       |
| Total / Average                                                            |       | $                                                   | 300        |                                                 | 4.9 years  |   |

 

**NOTE L****3⁄4DISCONTINUEDOPERATIONS**

***Advanced Technology Systems International,Inc.***

In August 2005, ATSI adopteda formal plan for the sale of Advanced Technology Systems International, Inc. (“ATSII”),which had a history of operating losses.  On November 30, 2005, pursuantto the terms of a stock purchase agreement entered into by and between ATSI,ATSII, New Technology Management, Inc. (NTMI) and NTMI Acquisition Corporation,ATSI sold all of the outstanding common stock of ATSII.

The following represents theresults of  operations of ATSII:

|                   | ** ** | **Six Months Ended  April 30, 2006** | ** ** |
|-------------------|------------|----------------------------------------------------------|------------|
|              | ** ** | ** **                                               | ** ** |
| Revenue           |       | $                                                        | 234,386    |   |
| Loss before taxes |       | (66,588                                                  | )          |
| Net loss          |       | (39,952                                                  | )          |
|                   |            |                                                          |            |  |

 

13

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*** ***

***Pyramid***

In January 2006, managementdecided to discontinue the operations of the Pyramid Products Solutions Group.The following represents the results of the operations of Pyramid:

|                   | ** ** | **Six Months Ended  April 30, 2006** | ** ** |
|-------------------|------------|----------------------------------------------------------|------------|
| Revenue           |       | $                                                        | 510,531    |   |
| Loss before taxes |       | (877,373                                                 | )          |
| Net loss          |       | (530,622                                                 | )          |
|                   |            |                                                          |            |  |

 

**NOTE M****3⁄4COMMITMENTS**

# *Changein Control Agreements*

Prior to theacquisition, ATSI’s Board of Directors approved Retention Agreements to key employeeswhich authorized the payment of bonuses if the employee continued employmentthrough the date of the ATS Corporation acquisition.  As further describedin Note K, as of the close of business on January 15, 2007, ATSI was acquiredby the Company. As a condition of the Retention Agreements, certain keyemployees received approximately $3,705,000 in bonuses upon the closing of thetransaction.  These bonuses were recorded in overhead expense in ATSI’sconsolidated statements of operations for the period from November 1, 2006through January 15, 2007.

***Employment Agreement***

On March 19, 2007,the Company entered into an employment agreement with its Chairman, Presidentand Chief Executive Officer who had been serving in that capacity since January16, 2007. The employment agreement was filed as part of a current report onForm 8-K on March 21, 2007. The employment agreement specifies annual salaryand incentive compensation for the terms of the agreement.  The agreementalso provides for between twelve and eighteen months’ salary and 50% of anyincentive compensation targets if the employee is terminated other than forcause.

On May 4, 2007,the Company entered into a letter agreement with its Senior Vice President ofFinance who became the Chief Financial Officer on May 22, 2007. The terms ofthe letter agreement were filed as part of a current report on Form 8-K on May22, 2007.  No employment agreement hasbeen signed to date.

# *PhantomStock Option Plan*

In December 2004,ATSI’s subsidiary, Appix, Inc. (Appix), adopted the Appix Phantom Stock Plan(the Phantom Stock Plan).  Under the Phantom Stock Plan, a committee ofthe Board of Directors of Appix could award up to 2,000,000 phantom stock unitsto eligible participants.  The value of the units was determined basedupon a formula that is defined in the agreement.  The units were alsosubject to a vesting schedule as defined in the Phantom Stock Plan, and becameimmediately exercisable in the event of a change in control of Appix orATSI.  Units issued under the Phantom Stock Plan were also subject tocertain termination and cancellation provisions.

As furtherdescribed in Note K, as of the close of business on January 15, 2007, ATSI wasacquired by the Company. As a condition of the stock purchase agreement, alloutstanding phantom stock units were repurchased for approximately$276,000.  Such compensation expense was recorded in general andadministrative expense in ATSI’s statements of operations for the period fromNovember 1, 2006 through January 15, 2007.

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

***FORWARD-LOOKING STATEMENTS***

Some of the statements in this Quarterly Report onForm 10-Q constitute forward-looking statements.  These statements involve known and unknownrisks, uncertainties, and other factors that may cause our actual results,levels of activity, performance or achievements to be materially different fromany future results, levels of activity, performance or achievements expressedor implied by such forward-looking statements. In some cases, you can identify these statements by forward-lookingwords such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,”“may,” “plan,” “potential,” “should,” “will,” and “would” or similar words.  You should read statements that contain thesewords carefully because they discuss our future expectations, containprojections of our future results of operations or of our financial position,or state other forward-looking information. The factors described in our filings with the SEC, as well as anycautionary language in this Quarterly Report on Form 10-Q, provide examples ofrisks, uncertainties and events that may cause our actual results to differmaterially from the expectations we describe in our forward-looking statements,including but not limited to:

·                  risks related to the governmentcontracting industry, including possible changes in government spendingpriorities;

14

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·                  risks related to our business,including our dependence on contracts with U.S. Federal Government agencies anddepartments and continued good relations, and being successful in competitivebidding, with those customers;

·                  uncertainties as to whether revenuescorresponding to our contract backlog will actually be received;

·                  risks related to the implementationof our strategic plan, including the ability to make acquisitions and theperformance and future integration of acquired businesses; and

·                  other risks and uncertaintiesdisclosed in our filings with the Securities and Exchange Commission.

Additional factors thatmay affect our results are discussed in our Annual Report on Form 10-K for theyear ended December 31, 2006 under “Item 1A. Risk Factors.”  Although we believe the expectationsreflected in the forward-looking statements are reasonable, we cannot guaranteefuture results, levels of activity, performance, or achievements.  You should not place undue reliance on theseforward-looking statements, which apply only as of the date of this QuarterlyReport on Form 10-Q.  We undertake noobligation to update these forward-looking statements, even if our situationchanges in the future.

The terms the “Company,” “we”and “our” as used throughout this Quarterly Report on Form 10-Q refer to ATSCorporation and its consolidated subsidiaries, unless otherwise indicated.

15

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**Overview**

ATS Corporation (“ATS”) was organized as a “blankcheck” company under the laws of the State of Delaware on April 12, 2005and was formed for the purpose of acquiring, through a merger, capital stockexchange, asset acquisition, stock purchase or other similar businesscombination, an operating business in the federal services and defenseindustries. As of the close of business on January 15, 2007, we acquired all of the outstanding capital stock ofAdvanced Technology Systems, Inc. (“ATSI”), a provider of systems integrationand application development to the U.S. government, for (a) $84.0 million incash, reduced by a working capital adjustment, the repayment of outstandingindebtedness of ATSI and an aggregate of $8.395 million of escrowed funds, and(b) 173,913 shares of our common stock. The terms of the agreement provided that the former shareholders of ATSIcould benefit from certain earn out opportunities if certain adjusted EBITDAthresholds were achieved.  Based on thefinancial results to date, the Company does not anticipate any payout under theearn out provisions.   In addition, onMarch 1, 2007, we acquired all of the outstanding capital stock of ReliableIntegration Services, Inc. (“RISI”), a network systems integrator provider servingU.S. government defense and civilian agencies, for $1.3 million in the form ofcash, promissory notes and the assumption of debt, plus 46,296 shares of ourcommon stock.

ATS (www.atsva.com) is a professional servicesfirm serving both the Federal Government and state and local governmentagencies, specializing in systems integration and application development;information technology infrastructure management to support its clients’program or system objectives through the design and implementation of customizedsolutions;  strategic information technologyconsulting (business process redesign); and network management.

Our diverse customer base consists primarily of U.S.government agencies. The following schedule presents the breakdown by agencyand customer for the three- and six-month periods ended June 30, 2007. ATS’largest clients in the six months ended June 30, 2007 were the U.S. Departmentof Housing and Urban Development and Fannie Mae, representingapproximately  23% and 17%, respectively,of its total revenue.  For the threemonths ended June 30, 2007, the percentages were 24% for the U.S.Department of Housing and Urban Development and 18% for Fannie Mae.              
| ** **                                 | ** ** | **For the 3 Months** | ** ** | **For the 6 Months** | ** ** |
|--------------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| REVENUE BY CLIENT                | ** ** | **Ended 6/30/07**              | ** ** | **Ended 6/30/07**              | ** ** |
| **Defense and Intelligence**               |       | 22.4                                | %          | 22.4                                | %          |
| **Civilian Agencies**                      |       | 46.2                                | %          | 46.0                                | %          |
| **State/Local Government and  Commercial** |       | 31.4                                | %          | 31.6                                | %          |
| **Total**                                  |       | 100.0                               | %          | 100.0                               | %          |

 

We derive substantially all of our revenues from feesfor consulting services.  We generatethese fees from contracts with various payment arrangements, including time andmaterials contracts, fixed-price contracts and cost-reimbursablecontracts.  During the three and sixmonths ended June 30, 2007, revenues from these contract types wereapproximately 55%, 40% and 5%, respectively, of total revenues.  We typically issue invoices monthly to manageoutstanding accounts receivable balances. We recognize revenues on time and materials contracts based on actualhours delivered at the contracted billable hourly rates plus the cost ofmaterials incurred.  We recognizerevenues on fixed-price contracts using the percentage-of-completion methodbased on costs we incurred in relation to total estimated costs.  However, if the contract has a serviceelement, we recognize revenues on a straight-line basis over the term of thecontract.  We recognize cost-typecontracts to the extent of costs incurred plus a proportionate amount of fee earned.

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

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

16

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In the three and six months ended June 30, 2007, wederived revenue as a prime contractor and subcontractor as depicted in thetable below.

|                                               | ** ** | **For the 3 Months** | ** ** | **For the 6 Months** | ** ** |
|-----------------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| **REVENUE BY PRIME/SUB CONTRACTOR** | ** ** | **Ended 6/30/07**              | ** ** | **Ended 6/30/07**              | ** ** |
| **PRIME**                                     |       | 79                                  | %          | 78                                  | %          |
| **SUB**                                       |       | 21                                  | %          | 22                                  | %          |
| **TOTAL**                                     |       | 100                                 | %          | 100                                 | %          |

 

Our most significant expense is direct costs, whichconsist primarily of project personnel salaries and benefits, and directexpenses incurred to complete projects. The number of consulting personnel assigned to a project will varyaccording to the size, complexity, duration, and demands of the project.  As of June 30, 2007, we had 442 personnel whoworked on our contracts.

General and administrative expenses consist primarilyof costs associated with our executive management, finance and administrativegroups, human resources, sales and marketing personnel, and costs associatedwith marketing and bidding on future projects, unassigned consulting personnel,personnel training, occupancy costs, depreciation and amortization, travel andall other branch and corporate costs.

Investment and other income consist primarily ofinterest income earned on our cash, cash equivalents and marketable securities.

**ContractBacklog**

We define backlog as the future revenue we expect toreceive from our contracts and other engagements.  We generally include in backlog the estimatedrevenue represented by contract options that have been priced, though notexercised.  We do not include anyestimate of revenue relating to potential future delivery orders that might beawarded under our General Services Administration Multiple Award Schedulecontracts, other Indefinite Delivery/Indefinite Quantity  (IDIQ) contracts, or other contract vehiclesthat are also held by a large number of firms, an order which potential furtherdelivery orders or task orders might be issued by any of a large number ofdifferent agencies and are likely to be subject to a competitive biddingprocess.  At June 30, 2007, our backlogwas approximately $127.5 million, of which $41.5 million was funded.

**RecentEvents**

On January 16, 2007, we announced that the board ofdirectors of the Company had approved the repurchase of up to $15 million ofeither the Company’s common stock or its warrants.  Through June 30, 2007, the Company hadrepurchased a total of 2,811,400 shares of common stock for a total ofapproximately $13.5 million and 870,533 warrants for approximately $351,000.

**Resultsof Operations**

We acquired ATSI as of close of business on January15, 2007, and acquired RISI on March 1, 2007. Prior to our acquisition of the ATSI business, we had no operations andgenerated no revenue.  Accordingly, weare presenting three comparisons, two for the successor company and one for thepredecessor company.  The first of thetwo successor company comparisons compares our results for the three monthsended June 30, 2007 to the three months ended June 30, 2006. The results forthe three months ended June 30, 2006 only reflect the results of ATS, which hadno operations during the quarter.

The second comparison for the successor companycompares the results for the six months ended June 30, 2007 to the six monthsended June 30, 2006.  For the periodended June 30, 2007, these results reflect 5.5 months of revenues and expensesfor ATSI and 4 months of revenues and expenses for RISI, which correspond tothe dates these companies were acquired during the first quarter.  The results for the six months ended June 30,2006 only reflect the results of ATS, which had no operations during theperiod.

The predecessor comparison we are providing is that ofATSI for the three-and six-month periods ending April 30, 2006 which correspondto the first two quarters of the predecessor company’s prior fiscal year.

17

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The followingtables set forth certain financial data as dollars and as a percentage ofrevenues.

 
| ** **                                    | ** ** | **Successor**     | ** ** | **Successor**     | ** ** | ** **        | ** ** | **Predecessor**   | ** ** |
|-----------------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                    | ** ** | **ATS Corp** | ** ** | **ATS Corp** | ** ** | **ATS Corp** | ** ** | **ATS Corp** | ** ** | ** ** | ** ** | **ATS I** | ** ** | **ATS I** | ** ** |
| ** **                                    | ** ** | **3 months** | ** ** | **3 months** | ** ** | **6 months** | ** ** | **6 months** | ** ** | ** ** | ** ** | **3 months** | ** ** | **6 months** | ** ** |
| ** **                                    | ** ** | **ending**        | ** ** | **ending**        | ** ** | **ending**        | ** ** | **ending**        | ** ** | ** ** | ** ** | **ending** | ** ** | **ending** | ** ** |
| ** **                                    | ** ** | **6/30/2007**     | ** ** | **6/30/2006**     | ** ** | **6/30/2007**     | ** ** | **6/30/2006**     | ** ** | ** ** | ** ** | **4/30/2006** | ** ** | **4/30/2006** | ** ** |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Statement  of Income:**                     |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Revenue**                                   |       | $                 | 26,248     |              | $          | —            |       | $                 | 49,725     |   | $ | — |   |   |   | $ | 30,129 |   | $ | 56,183 |   |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Operating  Costs and Expenses**             |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| Cost of services                              |       | 18,705            |       | —            |       | 35,170            |       | —            |       |   |   | 22,111 |   | 40,299 |   |
| Selling, general and administrative           |       | 6,179             |       | 283               |       | 12,156            |       | 894               |       |   |   | 6,692 |   | 13,308 |   |
| Depreciation and amortization                 |       | 138               |       | —            |       | 280               |       | —            |       |   |   | 191 |   | 420 |   |
| Amortization of intangible assets             |       | 945               |       | —            |       | 1,724             |       | —            |       |   |   | 7 |   | 29 |   |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Total  operating costs and expenses**       |       | 25,968            |       | 283               |       | 49,329            |       | 894               |       |   |   | 29,001 |   | 54,056 |   |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Operating  Income**                         |       | 280               |       | (283              | )          | 396               |       | (894              | )          |   |   | 1,127 |   | 2,127 |   |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Other  Income (Expense)**                   |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| Interest Income (expense), net                |       | 8                 |       | 1,394             |       | 151               |       | 2,584             |       |   |   | (134 | ) | (185 | ) |
| Gain (Loss) on warrant liabilities            |       | —            |       | 11,760            |       | (6,930            | )          | 840               |       |   |   | — |   | — |   |
| Other income                                  |       | 9                 |       | —            |       | 10                |       | —            |       |   |   | 8 |   | 16 |   |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Income  (Loss) Before Income Taxes**        |       | 296               |       | 12,871            |       | (6,373            | )          | 2,530             |       |   |   | 1,001 |   | 1,958 |   |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Income  Tax (Benefit) Expense**             |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| Current                                       |       | 171               |       | 367               |       | 274               |       | 881               |       |   |   | 431 |   | 813 |   |
| Deferred                                      |       | —            |       | 134               |       | —            |       | (116              | )          |   |   | — |   | — |   |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Income  (Loss) from Continuing Operations** |       | 125               |       | 12,370            |       | (6,647            | )          | 1,766             |       |   |   | 570 |   | 1,144 |   |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Loss  from Discontinued Operations**        |       | —            |       | —            |       | —            |       | —            |       |   |   | (193 | ) | (571 | ) |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Net  Income (Loss)**                        | ** ** | **$**             | **125**    |              | **$**      | **12,370**        |       | **$**             | **(6,647** | **)** | **$** | **1,766** | ** ** | ** ** | ** ** | **$** | **378** | ** ** | **$** | **574** | ** ** |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **As a  Percentage of Revenue:**              | ** ** | ** **        | ** ** | ** **        | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Revenue**                                   |       | 100.0             | %          | —            |       | 100.0             | %          | —            |       |   |   | 100.0 | % | 100.0 | % |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Operating  Costs and Expenses**             |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| Cost of Services                              |       | 71.3              | %          | —            |       | 70.7              | %          | —            |       |   |   | 73.4 | % | 71.7 | % |
| Selling, general and administrative           |       | 23.5              | %          | —            |       | 24.4              | %          | —            |       |   |   | 22.2 | % | 23.7 | % |
| Depreciation and Amortization                 |       | 0.5               | %          | —            |       | 0.6               | %          | —            |       |   |   | 0.6 | % | 0.7 | % |
| Amortization of Intangible Assets             |       | 3.6               | %          | —            |       | 3.5               | %          | —            |       |   |   | 0.0 | % | 0.1 | % |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Total  operating costs and expenses**       |       | 98.9              | %          | —            |       | 99.2              | %          | —            |       |   |   | 96.3 | % | 96.2 | % |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Operating  Income**                         |       | 1.1               | %          | —            |       | 0.8               | %          | —            |       |   |   | 3.7 | % | 3.8 | % |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Other  Income (Expense)**                   |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| Interest Income (expense), net                |       | 0.0               | %          | —            |       | 0.3               | %          | —            |       |   |   | -0.4 | % | -0.3 | % |
| Gain (Loss) on warrant liabilities            |       | 0.0               | %          | —            |       | -13.9             | %          | —            |       |   |   | 0.0 | % | 0.0 | % |
| Other income                                  |       | 0.0               | %          | —            |       | 0.0               | %          | —            |       |   |   | 0.0 | % | 0.0 | % |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Income  (Loss) Before Income Taxes**        |       | 1.13              | %          | —            |       | -12.82            | %          | —            |       |   |   | 3.32 | % | 3.48 | % |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Income  Tax (Benefit) Expense**             |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| Current                                       |       | 0.7               | %          | —            |       | 0.6               | %          | —            |       |   |   | 1.4 | % | 1.4 | % |
| Deferred                                      |       | 0.0               | %          | —            |       | 0.0               | %          | —            |       |   |   | 0.0 | % | 0.0 | % |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Income  (Loss) from Continuing Operations** |       | 0.5               | %          | —            |       | -13.4             | %          | —            |       |   |   | 1.9 | % | 2.0 | % |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Loss  from Discontinued Operations**        |       | 0.0               | %          | —            |       | 0.0               | %          | —            |       |   |   | -0.6 | % | -1.0 | % |
|                                          |       |              |       |              |       |              |       |              |       |   |   |   |   |   |   |
| **Net Income (Loss)**                         | ** ** | **0.5**           | **%**      | —            |       | **-13.4**         | **%**      | —            | ** ** | ** ** | ** ** | **1.3** | **%** | **1.0** | **%** |

 

 

18

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Our revenues andoperating results may be subject to significant variation from quarter toquarter depending on a number of factors, including the progress of contracts,revenue earned on contracts, the number of billable days in a quarter, thetiming of the pass-through of other direct costs, the commencement andcompletion of contracts during any particular quarter, the schedule of thegovernment agencies for awarding contracts, the term of each contract that wehave been awarded, and general economic conditions.  Because a significant portion of ourexpenses, such as personnel and facilities costs, are fixed in the short term,successful contract performance and variation in the volume of activity, aswell as in the number of contracts commenced or completed during any quarter,may cause significant variations in operating results from quarter to quarter.

The FederalGovernment’s fiscal year ends September 30. If the budget for the next fiscal year has not been approved by thatdate, our clients may have to suspend engagements that we are working on untila budget has been approved.  Suchsuspensions may cause us to realize lower revenues in the fourth calendarquarter of the year.  Further, a changein presidential administrations and in senior government officials maynegatively affect the rate at which the Federal Government purchasestechnology.

As a result of thefactors above, period-to-period comparisons of our revenues and operatingresults may not be meaningful.  Youshould not rely on these comparisons as indicators of future performance as noassurances can be given that quarterly results will not fluctuate, causing amaterial adverse effect on our operating results and financial condition.

**Resultsof Operations for the Successor Company for the Three Months ended June 30,2007 compared with the Three Months Ended June 30, 2006.**

*Revenuesand cost of services.*The Company had no operating revenuesor cost of services in the three months ended June 30, 2006, compared to $26.2million of revenues and $18.7 million of cost of services in the three monthsended June 30, 2007.

*Selling,general and administrative expenses.*  Selling, general and administrative expensesof $300,000 for the three months ended June 30, 2006 were related to the pursuitof potential acquisition candidates. For the three months ended June 30, 2007,the $6.2 million of selling and administrative expenses were related to theoperations of ATSI and RISI.

*Depreciationand amortization.* There was no depreciation expense in the three months ended June 30,2006. For the three months ended June 30, 2007, the $100,000 of depreciationexpense was related to ATSI and RISI operations.

*Amortizationof intangible assets.* There was no amortization of intangibleassets in the three months ended June 30, 2006. For the three months ended June30, 2007, the $900,000 of amortization expense was related to the recording ofintangible assets after the acquisitions of ATSI and RISI.

*Interestincome (expense). *Interestincome was $7,500 and $1.4 million for the three months ended June 30, 2007 and2006, respectively. The interest for the period ended June 30, 2006 wasprimarily related to earnings on funds that were held in trust until theCompany consummated an acquisition, which occurred on January 15, 2007.

*Gain(Loss) on warrant liabilities.*  For the three months ended June 30, 2006, werecognized a gain of $11.8 million from the change in the fair value of thewarrant liability.  Because the warrantagreement, until March 14, 2007, was silent as to whether we were required tonet cash settle the warrants if we were unable to deliver common stock to thewarrants holders, we were required to mark the warrants to market asliabilities and therefore recognize gains or losses on the increase or decreasein the fair market value of the warrants as reflected in the three months endedJune 30, 2006.  Effective March 14, 2007,the warrant agreement was clarified to state that we are not required to netcash settle the instruments if we are unable to deliver shares of common stockto the warrant holders.  As aresult,  we are no longer required tomark the liability to fair value and the liability was reclassified in thefirst quarter of 2007 to additional paid in capital.

* Income (loss) before income tax.*  For the three months ended June 30, 2007,income before tax was $300,000 as compared to $12.9 million for the threemonths ended June 30, 2006 of which $11.8 million was attributed to the changein fair value of the warrant liability.

*Provisionfor income taxes.*   Ourincome tax expense for the quarters ended June 30, 2007 and June 30, 2006 was $170,000  and $500,000, respectively.  The effective tax rate for the three monthsended June 30, 2007 was 57.9% compared with 3.89% for the same period in 2006due to the non deductibility of the loss from change in fair value of the warrantliability and amortization expenses.

19

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**Resultsof Operations for the Successor Company for the Six Months Ended June 30, 2007compared with the Six Months Ended June 30, 2006.**

*Revenuesand cost of services.*The Company had no operating revenuesor cost of services in the six months ended June 30, 2006, compared to $49.7million of revenues and $35.2 million in cost of services in the six monthsended June 30, 2007.

*Selling,general and administrative expenses.*  Selling, general and administrative expensesof $900,000 for the six months ended June 30, 2006 were related to the pursuitof potential acquisition candidates. For the six months ended June 30, 2007,the $12.2 million of selling and administrative expenses were related to theoperations of ATSI and RISI.

*Depreciationand amortization.* There was no depreciation expense in the six months ended June 30, 2006.For the six months ended June 30, 2007, the $300,000 of depreciation expensewas related to ATSI and RISI operations.

*Amortizationof intangible assets.* There was no amortization of intangibleassets in the six months ended June 30, 2006. For the six months ended June 30,2007, the $1.7 million of amortization expense reflects the amortization ofintangible assets resulting from the acquisitions of ATSI and RISI.

*Interestincome (expense). *Interestincome was $150,000 in the six months ended June 30, 2007, and $2.6 million forthe six months ended June 30, 2006. The interest income for the period endedJune 30, 2006 was primarily related to earnings on funds that were held intrust until the Company consummated an acquisition, which occurred on January15, 2007.

*Gain(Loss) on warrant liabilities.*  There was a loss on warrant liabilities inthe amount of $6.9 million for the six months ended June 30, 2007 and a gainof  $800,000 for the six-month periodended June 30, 2006.  Because the warrantagreement, until March 14, 2007, was silent as to whether we were required tonet cash settle the warrants if we were unable to deliver common stock to thewarrants holders, we were required to mark the warrants to market asliabilities and therefore recognize gains or losses on the increase or decreasein the fair market value of the warrants as reflected in the three months endedJune 30, 2006.  Effective March 14, 2007,the warrant agreement was clarified to state that we are not required to netcash settle the instruments if we are unable to deliver shares of common stockto the warrant holders.  As a result, weare no longer required to mark the liability to fair value and the liabilitywas reclassified in the first quarter of 2007 to additional paid in capital.

*Income(loss) before income tax.* The (loss) before tax for the six months ended June 30, 2007 was $6.4million, primarily due to change in the fair value of the warrant liability.For the six months ended June 30, 2006, income before taxes was $2.5 million, primarily because of the interestincome.

*Provisionfor income taxes.*   Theprovision for income tax was $274,000 for the six months ended June 30, 2007from $765,000 for the six months ended June 30, 2006.

**Resultsof Operations for the Successor Company for the Three Months Ended June 30,2007 Compared with the Three Months Ended April 30, 2006 for the PredecessorCompany.**

*Revenues. *Revenues decreased by 13%to $26.2 million for the three-month period ended June 30, 2007, from $30.1million for the three months ended April 30, 2006.  The decline in revenues between these twoperiods is primarily related to the winding down of one major contract andseveral smaller ones.

20

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*Cost ofservices.*  Cost ofservices decreased by 15% to $18.7 million for the three-month period endedJune 30, 2007, from $22.2 million for the three months ended April 30,2006.  Cost of services did not decreasein proportion to the decrease in revenues primarily due to the increasedcompensation costs during the current year.

*Selling,general and administrative expenses.*  Selling, general and administrative expensesdecreased 7% to $6.2 million in the three-month period ended June 30, 2007 from$6.7 million for the three months ended April 30, 2006.  The primary reasons for this decrease werefactors related to the acquisition of ATSI by ATS.  During the period ending April 30, 2006, ATSIincurred a large amount of expenses relating to its sale and compensation forthe previous owners which did not recur in the three-month period ended June30, 2007.

*Depreciationand amortization.* Depreciation and amortization expense decreased 32% to $130,000 for thethree- month period ended June 30, 2007, from $190,000 for the three monthsended April 30, 2006.  The predecessorcompany used the double declining balance method of depreciating assetswhereas, during the 2007 quarter the successor company valued the assetsacquired in the acquisition of ATSI and RISI at the fair market value as of thedates of acquisition and depreciation was adjusted in the quarter to reflectthe straight line method of depreciation from each acquisition date.

*Amortizationof intangible assets.* Amortization of intangible assetsincreased to $900,000 in the three-month period ended June 30, 2007 from $7,300in the three-month period ended April 30, 2006 because of the amortizationof  intangible assets associated with theacquisitions of ATSI and RISI.

*OperatingIncome (loss).* Operating income decreased 75% to $0.28million for the three-month period ended June 30, 2007 from $1.13 million forthe three months ended April 30, 2006, due to the decrease in revenues andamortization of intangible assets.

*Interestincome (expense). *Interestincome increased to $7,500 in the three months ended June 30, 2007 from anexpense of $0.13 million for the three months ended April 30, 2006, because oflowered borrowings during the 2007 period.

*Provisionfor income taxes.*   Theprovision for income tax decreased by 60% to $170,000 for the three monthsended June 30, 2007 from $430,000 for the three months ended April 30, 2006because of the decrease in income. The effective tax rates for the periodsended June 30, 2007 and April 30, 2006 were 57.9% and 43.0%, respectively.  The increase in the effective tax rate wasdue to to the non deductibility of the loss from change in fair value of the warrantliability and amoritization expenses.

**Resultsof Operations for the Successor Company for the Six Months ended June 30, 2007Compared with the Six Months Ended April 30, 2006 for the Predecessor Company.**

*Revenues. *Revenues decreased by 11%to $49.7 million for the six-month period ended June 30, 2007, from $56.2million for the six months ended April 30, 2006.  The decline in revenue between these twoperiods is primarily related to a winding down of a contract and the fact thatthe period ended June 30, 2007 reflects five and one half months of  revenue as opposed to a full six months ofrevenue for 2006.

*Cost ofservices.*  Cost ofservices decreased by less than 13% to $35.2 million for the six-month periodended June 30, 2007, from $40.3 million for the six months ended April 30,2006.  Cost of services did not decreasein proportion to the decrease in revenues primarily due to the increasedcompensation costs during this period.

*Selling,general and administrative expenses.*  Selling, general and administrative expensesdecreased 8% to $12.2 million in the six-month period ended June 30, 2007 from$13.3 million for the six months ended April 30, 2006.  The primary reasons were factors related tothe acquisition of ATSI by ATS.  ATSI wasrequired to pay $4.7 million in retention bonuses (including associated payrolltaxes),  $1.7 million in payments underan employee stock option plan and phantom stock plan (including dividends), and$0.3 million in legal and accounting fees associated with the transaction.

*Depreciationand amortization.* Depreciation and amortization expense decreased 34% to $280,000 for thesix- month period ended June 30, 2007, from $420,000 for the six months endedApril 30, 2006.  The predecessor companyused the double declining balance method of depreciating assets whereas duringthe 2007 period, the successor company valued the assets acquired in theacquisition of ATSI and RISI at the fair market value as of the dates of acquisitionand depreciation was adjusted in the period to reflect the straight line methodof depreciation from the acquisition dates.

21

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*Amortizationof intangible assets.* Amortization of intangible assetsincreased to $1.7 million in the six-month period ending June 30, 2007 from$.03 million in the six-month period ended April 30, 2006 because of theamortization of the intangible assets associated with the acquisitions of ATSIand RISI.

*Operatingincome (loss).* Operating income decreased 81% to $0.4 million for the six-month periodended June  30, 2007 from  $2.1 million for the six months ended April30, 2006, due to the factors discussed above.

*Interestincome (expense). *Interestincome increased to $0.15 million in the six months ended June 30, 2007 from anexpense of  $0.18 million for the sixmonths ended April 30, 2006, because of lower borrowings during the 2007 period.

*Loss onderivative liabilities attributable to warrants. *For the six months ended June 30,2007, we incurred losses of $6.9 million on the change in fair value of thewarrant liability.

*Provisionfor income taxes.*   Theprovision for income taxes decreased by 66% to $274,000  for the six months ended June 30, 2007 from$813,000 for the six months ended April 30, 2006 because of the decrease inincome.

**FinancialCondition, Liquidity and Capital Resources**

*Financial Condition.*** **Total assets decreased $8.3 million to $114.9 million as of  June 30, 2007 compared to $123.2 million asof December 31, 2006, primarily due to the repurchase of  shares and warrants.  The $121.0 million in short-term investmentsas of December 31, 2006 were used to acquire ATSI and RISI in the first quarterof 2007.

Our total liabilities increased to $21.4 million as of June 30, 2007 from$15.2 million as of December 31, 2006. The increase was due to our acquisitions and offset by the decrease inthe warrant liability.   As the warrantagreement was clarified effective March 14, 2007 to provide that we are notrequired to net cash settle the instruments if we are unable to deliver sharesof common stock to the warrant holders, we are no longer required to mark thewarrants to market and the warrants were classified during the first quarter asstockholders’ equity rather than liabilities.

*Liquidity and Capital Resources. *Our primaryliquidity needs are to finance the costs of operations, acquire capital assetsand to make selective strategic acquisitions. We expect to meet our short-term requirements through funds generatedfrom operations and from a credit facility with Bank of America, which wassigned on June 4, 2007, as further discussed below.  Our cash requirements to fund acquisitionswill also be funded by cash generated from operations and the aforementionedcredit facility.

Net cash used by operating activities was $9.6 million for the six monthsended June 30, 2007, while net cash provided by operating activities for thesame period in 2006 was $800,000.  Netcash used by operating activities of the predecessor was $5.0 million for thesix months ended April 30, 2006.  Cashused by operating activities is primarily driven by net loss, adjusted forworking capital changes, which were principally changes in accounts receivable,current assets and accrued expenses.

22

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Net cash provided by investing activities was $39.9 million for the sixmonths ended June 30, 2007.  During thesix months ended June 30, 2007, we had $121.0 million from the sale of U.S.government securities while investing $79.4 million in the acquisition of ATSIand $1.0 million in the acquisition of RISI which comprised the majority ofthis investing activity.

Net cash used by financing activities was $30.3 million for the sixmonths ended June 30, 2007.  This wasprincipally used to repurchase shares of the Company’s common stock.

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

The Company entered into a Credit Agreement with the Bank of America onJune 4, 2007.  The Agreeement provides a$25.0 million line of credit with the option for the Company to increase theamount available under the credit facility up to $50.0 million.  The credit agreement bears interest at theLIBOR Rate plus between 150 to 225 basis points per annum, depending on theCompany’s ratio of funded debt to EBITDA. Pursuant to the agreement, theCompany is required  to meet certainfinancial covenants as further described. The covenants are an asset coverage ratio of not less than 1.20 to 1.0,a consolidated leverage ratio not to exceed 3.50 to 1.0 and a consolidatedfixed charge coverage ratio of at least 1.20 to 1.0.  The covenants are tested based on thefinancial position of the Company at the end of each calendar quarter.   At June 30, 2007, the Company was incompliance.  As of June 30, 2007, we hadno outstanding balance on the line of credit.

Under some of our fixed-price contracts, we receive advance payments forwork to be performed in future months. If we do not perform the work, the unearned portion of these advanceswill be returned to our clients.  At June30, 2007, our accounts receivable turnover rate, net of advance payments oncontracts, was approximately five times a year.

**Off-BalanceSheet Arrangements**

As of the three and six months ended June 30, 2007, we did not have anyoff-balance sheet arrangements.

**ContractualObligations**

The following table summarizes our contractualobligations as of June 30, 2007 that require us to make future cashpayments.  For contractual obligations,we included payments that we have an unconditional obligation to make.  Excluded from the following table are amountsalready recorded on our balance sheet as liabilities at June 30, 2007.
| ** **                  | ** ** | **Less than  One Year** | ** ** | **One to Three  Years** | ** ** | **Three to Five  Years** | ** ** | **More than  Five Years** | ** ** | **Total** | ** ** |
|-----------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|------------------------------------|------------|-------------------------------------|------------|-----------|------------|
| ** **                  | ** ** | **(in thousands)**           | ** ** |
| Long-Term Debt  Obligations |       | $                                 | —     |                              | $          | 86                                 |       | $                                   | —     |      | $          | — |   | $ | 86 |   |
| Capital Leases              |       | 99                                |       | 142                               |       | —                             |       | —                              |       | 242       |       |
| Operating Leases            |       | 2,858                             |       | 1,807                             |       | 69                                 |       | —                              |       | 4,734     |       |
| Total                       |       | $                                 | 2,957      |                              | $          | 2,035                              |       | $                                   | 69         |      | $          | — |   | $ | 5,061 |   |

 

23

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***Recent Accounting Pronouncements***.

In September 2006,the FASB issued Statement of Financial Accounting Standards No. 157 (SFAS No.157), Fair Value Measurements.  SFAS No.157 provides a new single authoritative definition of fair value and enhanced guidancefor measuring the fair value of assets and liabilities.  It requires additional disclosures related tothe extent to which companies measure assets and liabilities at fair value, theinformation used to measure fair value, and the effect of fair value measurementson earnings.  SFAS No. 157 is effectivefor fiscal years beginning after November 15, 2007, and interim periods withinthose fiscal years.  We are currentlyevaluating what effect, if any, the adoption of SFAS No. 157 will have on ourfinancial position, results of operations, or cash flows.

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities — Including an amendment of FASBStatement No. 115*(SFAS No. 159). SFAS No. 159 permits anentity, at specified election dates, to choose to measure certain financialinstruments and other items at fair value. The objective of SFAS No. 159 is toprovide entities with the opportunity to mitigate volatility in reportedearnings caused by measuring related assets and liabilities differently,without having to apply complex hedge accounting provisions.SFAS No. 159 is effective for accounting periods beginning afterNovember 15, 2007. The Company will adopt SFAS No. 159 for the fiscal year beginningJanuary 1, 2008 and is currently assessing the impact of adopting SFAS No. 159on the consolidated financial statements.

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

We are exposed to certain financial market risks, the most predominantbeing fluctuations in interest rates for borrowings under our creditfacility.  As of June 30, 2007, we had nooutstanding balance under our line of credit. We currently invest our excess funds in an overnight bank sweep account.

**Item 4.Controls and Procedures.**

Our managementperformed an evaluation under the supervision and with the participation of ourChief Executive Officer (principal executive officer) and our Chief FinancialOfficer (principal financial officer) of the effectiveness of our disclosurecontrols and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of theSecurities Exchange Act of 1934, as amended) as of June 30, 2007. Based uponthat evaluation, our Chief Executive Officer and Chief Financial Officer haveconcluded that as of June 30, 2007, the Company’s disclosure controls andprocedures were ineffective.

24

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**Changesin Internal Control Over Financial Reporting**

As noted in ourAnnual Report on Form 10-K for the fiscal year ended December 31, 2006,our management, including our Chief Executive Officer and Chief FinancialOfficer, conducted an assessment of the effectiveness of our internal controlover financial reporting as of December 31, 2006, based on the criteriaset forth in the framework in Internal Control-Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO). Wedetermined that our internal control over financial reporting was ineffectivebecause of the following material weaknesses as described below:

1.      Through December 31,2006, we had no operations, no full-time personnel and very few personnel ofany kind. Our activities from inception in late 2005 and into 2006 focused oncompleting our initial public offering, identifying acquisition candidates andthen completing the acquisition of ATSI. As a result of these factors, we hadneither the resources, nor the personnel, to have in place adequate internalcontrol. The material weaknesses in our internal control over financialreporting relates primarily to our inability to segregate duties.

2.      In addition, welacked documentation of the policies and procedures that were in place.

With thecompletion of the acquisition of ATSI in January 2007, we have additionalpersonnel to address the segregation of duties in our financial reportingprocess.  We are in the process ofaddressing the internal control weaknesses summarized above,  with the goal of eliminating suchdeficiencies by the end of 2007. In addition, the acquisition of ATSI willrequire the development of more robust disclosure controls and procedures,which we also are in the process of developing.

It was determinedduring the audit of ATSI’s fiscal year ended October 31, 2006, that ATSI hadmaterial weaknesses in its internal control. ATSI did not have in place policies or controls that required theaccounting and finance department to review and evaluate contracts that were atrisk to determine the proper revenue recognition.  In addition, ATSI did not have a process inplace to review the collectibility of its accounts receivable on a regularbasis to determine the need, if any, for reserves.  Subsequent to the acquisition of ATSI by theCompany, procedures have been put in place to address these two issues and tomonitor them on a regular basis.

There were noother changes in the Company’s internal control over financial reporting forthe first and second quarter of 2007 that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

**Limitationson the Effectiveness of Controls**

Because of theinherent limitations in all control systems, no assessment of controls canprovide absolute assurance that all control issues and instances of fraud, ifany, within the Company have been detected. These inherent limitations include the realities that judgments indecision-making can be faulty, and that breakdowns can occur because of simpleerror or mistake.  Additionally, controlscan be circumvented by the individual acts of some persons, by collusion of twoor more people, or by management’s override of the control.  The design of any system of controls also isbased in part upon certain assumptions about the likelihood of future events,and there can be no assurance that any design will succeed in achieving itsstated goals under all potential future conditions; over time, controls maybecome inadequate because of changes in conditions, or the degree of compliancewith the policies or procedures may deteriorate.  Because of the inherent limitations in acost-effective control system, misstatements due to error or fraud may occurand not be detected.

 

25

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**PART II — OTHER INFORMATION**

**Item 1.Legal Proceedings.**

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

**Item 1A.Risk Factors.**

There are no material updates to the risk factors previously disclosedin our Form 10-K for the year ended December 31, 2006.  The risks disclosed in our Annual Report onForm 10-K are not the only risks that we encounter. Additional risks anduncertainties not currently known to us or that we currently deem to beimmaterial also may materially adversely affect our business, financialcondition and /or operating results.

**Item 2. Unregistered Sales of Equity Securitiesand Use of Proceeds.**
| **Purchases of Equity Securities by Issuer** | ** ** |
|-----------------------------------------------------------------------|------------|
| **Period**                                                            | ** ** | **Total Number of   Shares/Warrants  Purchased** | ** ** | **Average Price Paid   per Share/Warrant** | ** ** | **Total Number of   Shares Purchased as   Part of Publicly   Announced Plans or   Programs** | ** ** | **Maximum Number   (or Approximate  Dollar Value) of  Shares (or Units)   that May Yet Be   Purchased Under the  Plans or Programs** | ** ** |
| April 1 – 30, 2007                                               |       | 0 |   | $ | 0 |   | 0 |   | 0 |   |
|                                                                  |       |   |   |   |   |   |   |   |   |
| May 1 – 31, 2007                                                 |       | 0 |   | $ | 0 |   | 0 |   | 0 |   |
|                                                                  |       |   |   |   |   |   |   |   |   |
| June 1 – 30, 2007                                                |       | 870,533 |   | .41 |   | 870,533 |   | $ | 149,278 | (1) |
|                                                                  |       |   |   |   |   |   |   |   |   |
| Total                                                                 |       | 870,533 |   | $ | .41 |   | 870,533 |   |   |   |
|                                                                       |            |  |  |  |  |  |  |  |  |  |  |

----

(1)    From June7-28, 2007, the Company repurchased 870,533 stock warrants at $0.41 perwarrant.

On January 16,2007, the Company announced a stock repurchase program of up to $15 million ofeither the Company’s common stock or its warrants, from time to time, subjectto market conditions.  The repurchaseprogram will continue until completion or termination by the Board ofDirectors.

**Recent Sales of UnregisteredSecurities**

OnJanuary 16, 2007, in connection with the closing of the acquisition ofATSI, the Company issued 173,913 shares of common stock, valued at$1.0 million for purposes of the transaction, to the selling shareholdersof ATSI. These shares constituted a portion of the transaction consideration.The issuance of the shares was exempt as a private placement pursuant to Section 4(2)of the Securities Act of 1933.

On March 1,2007, in connection with the closing of the acquisition of RISI, the Companyissued 46,296 shares of common stock, valued at $0.2 million for purposesof the transaction, to the selling shareholders of RISI. These sharesconstituted a portion of the transaction consideration. The issuance of theshares was exempt as a private placement pursuant to Section 4(2) of theSecurities Act of 1933.

In the quarterended June 30, 2007,  the Company granteda total of 315,534 restricted shares valued at $1,266,000 to its members of theBoard of Directors, Chief Executive Officer and Chief Financial Officer  pursuant to the Company’s 2006 OmnibusIncentive Plan.  Although the issuance ofthe shares is exempt under Section 4(2) of the Securities Act of 1933, the Planshares will be registered under the Securities Act shortly.

26

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**Item3.  Defaults Upon Senior Securities.**

Not applicable.

**Item4.  Submission of Matters to a Vote of Security Holders.**

TheAnnual Meeting of Stockholders of the Company was held on June 1, 2007. The following matters were presented to the stockholders and the results of thevote were as follows:

1.                                       Toelect Joel R. Jacks as a Class Two Director for a three-year term.

| Votes For  | ** ** | **Votes Withheld** |
|------------|------------|--------------------|
| 17,271,673 |       | 1,100              |

 

2.                                       Toelect Edward J. Smith as a Class Two Director for a three-year term.

| **Votes For** | ** ** | **Votes  Withheld** |
|---------------|------------|---------------------|
| 17,271,673    |       | 1,100               |

 

3.                                       The appointment of of Grant Thornton,LLP as the Company’s independent registered public accounting firm for thefiscal year 2007 was ratified by the stockholders by the following vote:

| Votes For  | ** ** | **Votes Against** | ** ** | **Abstain** |
|------------|------------|-------------------|------------|-------------|
| 17,272,773 |       | 0                 |       | 0           |

 

 

27

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**Item5.  Other Information.**

Not applicable.

**Item6.  Exhibits.**
| Exhibit  Number | ** ** | **Description**                                                                                                                                                                                         | ** ** | ** ** |
|-----------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** **      | ** ** | ** **                                                                                                                                                                                              |
| 3.1             |       | Second Amended and  Restated Certificate of Incorporation dated January 16, 2007 (incorporated by  reference to Exhibit 3.1 to a Current Report on Form 8-K filed January 19,  2007)                    |
|            |       |                                                                                                                                                                                                    |
| 3.2             |       | By-laws (incorporated  by reference to Exhibit 3.2 to the Registration Statement on Form S-1, as  amended, initially filed May 4, 2005)                                                                 |
|            |       |                                                                                                                                                                                                    |
| 4.1             |       | Specimen Unit  Certificate (incorporated by reference to Exhibit 4.1 to the Registration  Statement on Form S-1, as amended, initially filed May 4, 2005)                                               |
|            |       |                                                                                                                                                                                                    |
| 4.2             |       | Specimen Common Stock  Certificate (incorporated by reference to Exhibit 4.2 to the Registration  Statement on Form S-1, as amended, initially filed on May 4, 2005)                                    |
|            |       |                                                                                                                                                                                                    |
| 4.3             |       | Specimen Warrant  Certificate (incorporated by reference to Exhibit 4.3 to the Registration  Statement on Form S-1, as amended, initially filed on May 4, 2005)                                         |
|            |       |                                                                                                                                                                                                    |
| 4.4             |       | Warrant Agreement  between Continental Stock Transfer & Trust Company and the Company  (incorporated by reference to Exhibit 4.4 in our Annual Report on Form 10-K  filed March 31, 2006)           |
|            |       |                                                                                                                                                                                                    |
| 4.5             |       | Warrant Clarification  Agreement between Continental Stock Transfer & Trust Company and the  Company (incorporated by reference to Exhibit 4.1 to a Current Report on Form  8-K filed June 4, 2007) |
|            |       |                                                                                                                                                                                                    |
| 10.1            |       | Credit Agreement with  Bank of America dated June 4, 2007 (incorporated by reference to Exhibit 10.1  on a Current Report on Form 8-K filed March 21, 2007)                                             |
|            |       |                                                                                                                                                                                                    |
| 10.2            |       | Restricted Share Award  Agreement with Pamela A. Little dated May 4, 2007                                                                                                                               |
|            |       |                                                                                                                                                                                                    |
| 10.3            |       | Restricted Share Award  Agreement with George Troendle dated June 18, 2007                                                                                                                              |
|            |       |                                                                                                                                                                                                    |
| 10.4            |       | Restricted Share Award  Agreement with Ginger Lew dated June 18, 2007                                                                                                                                   |
|            |       |                                                                                                                                                                                                    |
| 10.5            |       | Restricted Share Award  Agreement with Joseph A. Saponaro dated March 29,2007                                                                                                                           |
|            |       |                                                                                                                                                                                                    |
| 10.6            |       | Restricted Share Award  Ageeement with Edward J. Smith dated March 29, 2007                                                                                                                             |
|            |       |                                                                                                                                                                                                    |
| 31.1            |       | Certification of  Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the  Securities Exchange Act of 1934, as amended                                                                  |
|            |       |                                                                                                                                                                                                    |
| 31.2            |       | Certification of  Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the  Securities Exchange Act of 1934, as amended                                                                  |
|            |       |                                                                                                                                                                                                    |
| 32.1            |       | Certification of  Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002                                                                                                |
|            |       |                                                                                                                                                                                                    |
| 32.2            |       | Certification of Principal Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                 |

 

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##### **SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|                       |   | ATS Corporation |
|-----------------------|--------|-----------------|
|                  |   |            |   |   |
|                  |   | By:             |   | /s/ Edward H. Bersoff |
|                  |   |            |   | Chairman of the Board and |
|                  |   |            |   | Chief Executive Officer |
|                  |   |            |   |   |
|                  |   | By:             |   | /s/ Pamela A. Little |
|                  |   |            |   | Chief Financial Officer |
| Date: August 8,  2007 |   |            |   |   |

 

 

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