** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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**FORM 10-Q**

 

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

 

**COMMISSIONFILE NUMBER: 0-51552**

 

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**FEDERALSERVICES ACQUISITION CORPORATION**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                                    | ** ** | **11-3747850**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State  or other jurisdiction ofincorporation  or organization) |       | (I.R.S.  EmployerIdentification  No.) |

 

**900 ThirdAvenue, 33rd FloorNew York, New York, 10022-4775**

(Addressof principal executive office)

 

**(646) 403-9765**

(Registrant’stelephone number, including area code)

 

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Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months and (2) has been subject to such filing requirements forthe past 90 days.    Yes  x    No  o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct.     Large Accelerated Filer  o     AcceleratedFiler  o    Non-accelerated Filer x

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes  x    No  o

 

Thenumber of shares of the issuer’s Common Stock, $0.0001 par value, outstandingas of July 31, 2006 was 26,250,000.

##### ** **

##### ** **

##### ****

##### ** **

**TABLE OFCONTENTS**

 
| **PART I – FINANCIAL INFORMATION** | ** **                                                                                                                                                                                                                                                                                        | ** ** |
|-----------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                    |                                                                                                                                                                                                                                                                                              |       |   |
| **Item 1.**                             | **Financial Statements**                                                                                                                                                                                                                                                                          |       |   |
|                                    | Condensed  Balance Sheets as of June 30, 2006 (unaudited) and as of December 31, 2005                                                                                                                                                                                                             |       |   |
|                                    | Condensed Statements of Operations (unaudited) for the  three months ended June 30, 2006, for the six months ended June 30, 2006, for  the period from April 12, 2005 (date of inception) through June 30, 2005 and  for the period from April 12, 2005 (date of inception) through June 30, 2006 |       |   |
|                                    | Condensed Statements of Changes in Stockholders’  Equity for the period from April 12, 2005 (date of inception) through  December 31, 2005 and (unaudited) for the six months ended June 30, 2006                                                                                            |       |   |
|                                    | Condensed Statements of Cash Flows (unaudited) for the  six months ended June 30, 2006, for the period from April 12, 2005 (date of  inception) through June 30, 2005 and for the period from April 12, 2005 (date  of inception) through June 30, 2006                                           |       |   |
|                                    | Notes to Unaudited Financial Statements                                                                                                                                                                                                                                                           |       |   |
|                                    |                                                                                                                                                                                                                                                                                              |       |   |
| **Item 2.**                        | **Management’s Discussion and  Analysis of Financial Condition and Results of Operation**                                                                                                                                                                                                    |       |   |
| **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  Vote by Securities Holders**                                                                                                                                                                                                                                          |       |   |
| **Item 5.**                        | **Other Information**                                                                                                                                                                                                                                                                             |       |   |
| **Item 6.**                        | **Exhibits**                                                                                                                                                                                                                                                                                      |       |   |
| ** **                              |                                                                                                                                                                                                                                                                                              |       |
| **SIGNATURES**                          |                                                                                                                                                                                                                                                                                              |       |

 

2

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**Federal Services Acquisition Corporation**

(adevelopment stage company)

**Condensed Balance Sheets**

 
| ** **                                                                                                                                                                    | ** ** | **June 30, 2006** | ** **  | **December 31, 2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|-------------|---------------------------------|------------|
| ** **                                                                                                                                                                    | ** ** | **(Unaudited)**             | ** **  | ** **                      | ** ** |
| **ASSETS**                                                                                                                                                                    | ** ** | ** **                  | ** **  | ** **                      | ** ** |
| Current assets:                                                                                                                                                               |       |                        |        |                            |       |
| Cash and cash equivalents                                                                                                                                                     |       | $                           | 1,299,534   |                            | $          | 1,855,394 |   |
| Prepaid expenses                                                                                                                                                              |       | 25,616                      |        | 72,122                          |       |
| Prepaid income tax                                                                                                                                                            |       | 66,004                      |        | 0                               |       |
|                                                                                                                                                                          |       |                        |        |                            |       |
| Total current assets                                                                                                                                                          |       | 1,391,154                   |        | 1,927,516                       |       |
|                                                                                                                                                                          |       |                        |        |                            |       |
| Short-term investments held in Trust  Account (including interest receivable of $611,123 and $39,444, respectively)  (fair value $119,010,275 and $117,709,036, respectively) |       | 119,010,275                 |        | 117,709,036                     |       |
| Cash and cash equivalents held in trust  fund                                                                                                                                 |       | 264,419                     |        | 281,348                         |       |
|                                                                                                                                                                          |       |                        |        |                            |       |
| Deferred income tax benefit                                                                                                                                                   |       | 410,705                     |        | 34,629                          |       |
| Deferred acqusition costs                                                                                                                                                     |       | 614,625                     |        | 0                               |       |
|                                                                                                                                                                          |       |                        |        |                            |       |
| Total assets                                                                                                                                                                  |       | $                           | 121,691,178 |                            | $          | 119,952,529 |   |
| ** **                                                                                                                                                                    | ** ** | ** **                  | ** **  | ** **                      | ** ** |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                 | ** ** | ** **                  | ** **  | ** **                      | ** ** |
| Current liabilities:                                                                                                                                                          |       |                        |        |                            |       |
| Accrued expenses                                                                                                                                                              |       | $                           | 923,951     |                            | $          | 34,289 |   |
| Income tax payable—current                                                                                                                                               |       | 19,412                      |        | 356,000                         |       |
| Deferred income tax                                                                                                                                                           |       | 275,738                     |        | 15,714                          |       |
|                                                                                                                                                                          |       |                        |        |                            |       |
| Total current liabilities                                                                                                                                                     |       | 1,219,101                   |        | 406,003                         |       |
|                                                                                                                                                                          |       |                        |        |                            |       |
| Common Stock, subject to possible  redemption 4,197,900 shares                                                                                                                |       | 23,424,282                  |        | 23,424,282                      |       |
| Interest income attributable to common  stock subject to possible redemption (net of taxes of $294,871 and $64,000,  respectively)                                            |       | 378,808                     |        | 97,996                          |       |
|                                                                                                                                                                          |       |                        |        |                            |       |
| Total common stock, subject to possible  redemption                                                                                                                           |       | 23,803,090                  |        | 23,522,278                      |       |
|                                                                                                                                                                          |       |                        |        |                            |       |
| COMMITMENTS AND CONTINGENCIES (Note I)                                                                                                                                        | ** ** | ** **                  | ** **  | ** **                      | ** ** |
|                                                                                                                                                                          |       |                        |        |                            |       |
| STOCKHOLDERS’ EQUITY:                                                                                                                                                    | ** ** | ** **                  | ** **  | ** **                      | ** ** |
| Preferred stock—$.0001 par value; 1,000,000  shares authorized; 0 issued and outstanding                                                                                 |       |                        |        |                            |       |
| Common stock—$.0001 par value, 100,000,000  shares authorized; 26,250,000 issued and outstanding (which includes  4,197,900 shares subject to possible redemption)       |       | 2,625                       |        | 2,625                           |       |
| Additional paid-in capital                                                                                                                                                    |       | 95,747,698                  |        | 95,747,698                      |       |
| Retained earnings accumulated during the  development stage                                                                                                                   |       | 918,664                     |        | 273,925                         |       |
|                                                                                                                                                                          |       |                        |        |                            |       |
| Total stockholders’ equity                                                                                                                                               |       | 96,668,987                  |        | 96,024,248                      |       |
|                                                                                                                                                                          |       |                        |        |                            |       |
|                                                                                                                                                                          |       | $                           | 121,691,178 |                            | $          | 119,952,529 |   |

 

See notes to condensed financialstatements

 

3

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**Federal Services Acquisition Corporation**

(adevelopment stage company)****

**Condensed Statements of Operations**

**(Unaudited)**

 
| ** **                                                                                                                                         | ** ** | **For the Three Months  ended June 30, 2006** | ** ** | **For the Six Months ended  June 30, 2006** | ** ** | **For the period from April  12, 2005 (date of  inception) through June  30, 2005** | ** ** | **For the period from April  12, 2005 (date of  inception) through June  30, 2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|
| Expenses:                                                                                                                                          |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Operating costs                                                                                                                                    |       | $                                                                           | 283,424    |                                                                      | $          | 893,621                                                                                                                               |       | $                                                                                                                                     | (1,000     | ) | $ | 1,026,782 |   |
| Other income:                                                                                                                                      |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Bank interest                                                                                                                                      |       | 11,233                                                                      |       | 24,217                                                                    |       | 44                                                                                                                                    |       | 33,000                                                                                                                                |       |
| Interest on cash  and short term investments held in trust                                                                                         |       | 1,382,968                                                                   |       | 2,559,696                                                                 |       | 0                                                                                                                                     |       | 3,370,080                                                                                                                             |       |
|                                                                                                                                               |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Total other  income                                                                                                                                |       | 1,394,201                                                                   |       | 2,583,913                                                                 |       | 44                                                                                                                                    |       | 3,403,080                                                                                                                             |       |
|                                                                                                                                               |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| **Income  (loss) before provision for taxes**                                                                                                      |       | 1,110,777                                                                   |       | 1,690,292                                                                 |       | (956                                                                                                                                  | )          | 2,376,298                                                                                                                             |       |
| (Provision)  benefit for income taxes                                                                                                              |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Current                                                                                                                                            |       | (366,797                                                                    | )          | (880,793                                                                  | )          | 0                                                                                                                                     |       | (1,213,793                                                                                                                            | )          |
| Deferred                                                                                                                                           |       | (134,384                                                                    | )          | 116,052                                                                   |       | 0                                                                                                                                     |       | 134,967                                                                                                                               |       |
|                                                                                                                                               |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| **Net  income (loss)**                                                                                                                             |       | 609,596                                                                     |       | 925,551                                                                   |       | (956                                                                                                                                  | )          | 1,297,472                                                                                                                             |       |
| Interest income  attributable to common stock subject to possible redemption (net of taxes of  $124,736, $230,871, $0, and $294,871, respectively) |       | (151,719                                                                    | )          | (280,812                                                                  | )          | 0                                                                                                                                     |       | (378,808                                                                                                                              | )     |
| Net income (loss)  allocable to common stockholders not subject to possible redemption                                                             |       | $                                                                           | 457,877    |                                                                      | $          | 644,739                                                                                                                               |       | $                                                                                                                                     | (956       | ) | $ |  918,664 |   |
|                                                                                                                                               |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Weighted average  number of shares outstanding                                                                                                     |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| —basic                                                                                                                                        |       | 26,250,000                                                                  |       | 26,250,000                                                                |       | 5,250,000                                                                                                                             |       |                                                                                                                                  |       |
|                                                                                                                                               |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| —diluted                                                                                                                                      |       | 30,548,025                                                                  |       | 30,412,162                                                                |       | 5,250,000                                                                                                                             |       |                                                                                                                                  |       |
|                                                                                                                                               |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Net income per  share                                                                                                                              |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| —basic                                                                                                                                        |       | $                                                                           |  0.02 |                                                                      | $          |  0.04                                                                                                                            |       | $                                                                                                                                     |  0.00 |   |   |   |
|                                                                                                                                               |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| —diluted                                                                                                                                      |       | $                                                                           |  0.02 |                                                                      | $          |  0.03                                                                                                                            |       | $                                                                                                                                     |  0.00 |   |   |   |
|                                                                                                                                               |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Weighted average  number of shares outstanding exclusive of shares subject to possible  redemption                                                 |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| —basic                                                                                                                                        |       | 22,052,100                                                                  |       | 22,052,100                                                                |       | 5,250,000                                                                                                                             |       |                                                                                                                                  |       |
|                                                                                                                                               |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| —diluted                                                                                                                                      |       | 26,350,125                                                                  |       | 26,214,262                                                                |       | 5,250,000                                                                                                                             |       |                                                                                                                                  |       |
|                                                                                                                                               |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Net income per  share not subject to possible redemption                                                                                           |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| —basic                                                                                                                                        |       | $                                                                           |  0.02 |                                                                      | $          | 0.03                                                                                                                                  |       | $                                                                                                                                     |  0.00 |   |   |   |
|                                                                                                                                               |       |                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| —diluted                                                                                                                                      |       | $                                                                           |  0.02 |                                                                      | $          | 0.02                                                                                                                                  |       | $                                                                                                                                     |  0.00 |   |   |   |   |
|                                                                                                                                                    |            |                                                                             |            |                                                                           |            |                                                                                                                                       |            |                                                                                                                                       |            |  |  |  |  |  |  |  |  |  |

 

Seenotes to condensed financial statements

 

4

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**Federal Services Acquisition Corporation**

(adevelopment stage company)

**Condensed Statements of Changes inStockholders’ EquityFor the period from April 12, 2005 (date of inception) through June 30, 2006**

 
| ** **                                                                                                                                                       | ** ** | ** **            | ** ** | ** **  | ** ** | ** **      | ** ** | **Income**          | ** ** | ** **  | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|-----------------|------------|---------------------|------------|-------------|------------|
| ** **                                                                                                                                                       | ** ** | ** **            | ** ** | ** **  | ** ** | ** **      | ** ** | **Accumulated**     | ** ** | ** **  | ** ** |
| ** **                                                                                                                                                       | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional**  | ** ** | **During the** | ** ** | ** **  | ** ** |
| ** **                                                                                                                                                       | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Development** | ** ** | ** **          | ** ** |
| ** **                                                                                                                                                       | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**     | ** ** | **Stage**           | ** ** | **Total**   | ** ** |
|                                                                                                                                                             |       |                  |       |        |       |            |       |                |       |        |       |
| **Balance—April 12, 2005 (date of  inception)**                                                                                                        |       |                  |       |        |       |            |       |                |       |        |       |
| ** **                                                                                                                                                       |       |                  |       |        |       |            |       |                |       |        |       |
| Initial capital from founding stockholders                                                                                                                       |       | 5,250,000             |       | $           | 525        |            | $          | 5,475               |       | $           |       |   | $ | 6,000 |   |
| Sale of 21,000,000 units (including  4,197,900 shares of common stock subject to possible redemption), net of  underwriters’ discount and offering expenses |       | 21,000,000            |       | 2,100       |       | 119,166,505     |       |                |       | 119,168,605 |       |
| Reclassification as a result of 4,197,900  shares of common stock being subject to possible redemption                                                           |       |                  |       |        |       | (23,424,282     | )          |                |       | (23,424,282 | )          |
| Accretion of trust fund relating to common  stock subject to possible redemption                                                                                 |       |                  |       |        |       |            |       | (97,996             | )          | (97,996     | )          |
| Net income for the period                                                                                                                                        |       |                  |       |        |       |            |       | 371,921             |       | 371,921     |       |
| **Balance—December 31, 2005**                                                                                                                               |       | 26,250,000            |       | 2,625       |       | 95,747,698      |       | 273,925             |       | 96,024,248  |       |
|                                                                                                                                                             |       |                  |       |        |       |            |       |                |       |        |       |
| Accretion of trust fund relating to common  stock subject to possible redemption                                                                                 |       |                  |       |        |       |            |       | (280,812            | )          | (280,812    | )          |
| Net income for the period                                                                                                                                        |       |                  |       |        |       |            |       | 925,551             |       | 925,551     |       |
|                                                                                                                                                             |       |                  |       |        |       |            |       |                |       |        |       |
| **Balance—June 30, 2006 (Unaudited)**                                                                                                                       |       | 26,250,000            |       | $           | 2,625      |            | $          | 95,747,698          |       | $           | 918,664    |   | $ | 96,668,987 |   |
|                                                                                                                                                                  |            |                       |            |             |            |                 |            |                     |            |             |            |  |  |  |  |  |

 

Seenotes to condensed financial statements

 

5

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**Federal Services Acquisition Corporation**

(adevelopment stage company)****

**Condensed Statements of Cash Flows**

**(Unaudited)**
| ** **                                                                         | ** ** | **For the Six Months  ended June 30, 2006** | ** ** | **For the period from April  12, 2005 (date of  inception) through June  30, 2005** | ** ** | **For the period from April  12, 2005 (date of  inception) through June  30, 2006** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Cash flows from operating activities:**                                          |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
|                                                                               |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Net income (loss)                                                                  |       | $                                                                         | 925,551    |                                                                                                                                  | $          | (956                                                                                                                                  | )          | $ | 1,297,472 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Deferred income tax                                                                |       | (116,052                                                                  | )          | 0                                                                                                                                     |       | (134,967                                                                                                                              | )          |
| Changes in:                                                                        |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Interest receivable                                                                |       | (571,679                                                                  | )          | 0                                                                                                                                     |       | (611,123                                                                                                                              | )          |
| Prepaid expenses                                                                   |       | 46,506                                                                    |       | 0                                                                                                                                     |       | (25,616                                                                                                                               | )          |
| Accrued expenses                                                                   |       | 889,662                                                                   |       | 1,000                                                                                                                                 |       | 923,951                                                                                                                               |       |
| Income taxes payable—current                                                  |       | (402,592                                                                  | )          | 0                                                                                                                                     |       | (46,592                                                                                                                               | )          |
|                                                                               |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Net cash provided by operating activities                                          |       | 771,396                                                                   |       | 44                                                                                                                                    |       | 1,403,125                                                                                                                             |       |
|                                                                               |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| **Cash flows from investing activities:**                                          |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Purchase of U.S. government securities held  in Trust fund                         |       | (236,619,372                                                              | )          | 0                                                                                                                                     |       | (471,468,030                                                                                                                          | )          |
| Maturities of U.S. government securities  held in Trust fund                       |       | 235,889,812                                                               |       | 0                                                                                                                                     |       | 353,068,878                                                                                                                           |       |
| Cash held in Trust Fund                                                            |       | 16,929                                                                    |       | 0                                                                                                                                     |       | (264,419                                                                                                                              | )          |
| Deferred acquisition costs                                                         |       | (614,625                                                                  | )          | 0                                                                                                                                     |       | (614,625                                                                                                                              | )          |
|                                                                               |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Net cash used in investing activities                                              |       | 1,327,256                                                                 |       | 0                                                                                                                                     |       | 119,278,196                                                                                                                           |       |
|                                                                               |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| **Cash flows from financing activities:**                                          |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Proceeds from public offering, net of  expenses                                    |       | 0                                                                         |       | 0                                                                                                                                     |       | 119,168,605                                                                                                                           |       |
| Proceeds from notes payable to stockholders                                        |       | 0                                                                         |       | 154,000                                                                                                                               |       | 154,000                                                                                                                               |       |
| Repayment of notes to stockholders                                                 |       | 0                                                                         |       | 0                                                                                                                                     |       | (154,000                                                                                                                              | )          |
| Payments of deferred offering costs                                                |       | 0                                                                         |       | (103,494                                                                                                                              | )          | 0                                                                                                                                     |       |
| Proceeds from sale of common stock to  founders                                    |       | 0                                                                         |       | 6,000                                                                                                                                 |       | 6,000                                                                                                                                 |       |
|                                                                               |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Net cash provided by financing activities                                          |       | 0                                                                         |       | 56,506                                                                                                                                |       | 119,174,605                                                                                                                           |       |
|                                                                               |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| **Net (decrease) increase in cash and cash  equivalents**                          |       | (555,860                                                                  | )          | 56,550                                                                                                                                |       | 1,299,534                                                                                                                             |       |
| Cash and cash equivalents—beginning of  period                                |       | 1,855,394                                                                 |       | 0                                                                                                                                     |       | 0                                                                                                                                     |       |
|                                                                               |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Cash and cash equivalents—end of period                                       |       | $                                                                         | 1,299,534  |                                                                                                                                  | $          | 56,550                                                                                                                                |       | $ | 1,299,534 |   |
|                                                                               |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| **Supplemental Disclosure of noncash  activities:**                                |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Cash paid during the period for:                                                   |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Income taxes                                                                       |       | $                                                                         | 1,283,385  |                                                                                                                                  | $          | 0                                                                                                                                     |       | $ | 1,283,385 |   |
| Non-cash activities:                                                               |       |                                                                      |       |                                                                                                                                  |       |                                                                                                                                  |       |
| Reclassification of common stock subject to  possible redemption                   |       | $                                                                         | 0          |                                                                                                                                  | $          | 0                                                                                                                                     |       | $ | 23,424,282 |   |
| Accretion of trust fund relating to common  stock subject to possible redemption   |       | 280,812                                                                   |       | 0                                                                                                                                     |       | 378,808                                                                                                                               |       |

 

Seenotes to condensed financial statements

 

6

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**FEDERAL SERVICES ACQUISITION CORPORATION**

**(a development stage company)**

 

**Notes to Condensed FinancialStatements**

**June 30, 2006**

 

**NOTE A—BASIS OF PRESENTATION**

 

Inthe opinion of management, the accompanying unaudited condensed financialstatements contain all adjustments necessary to present fairly the financialposition of Federal Services Acquisition Corporation (the “Company”) and itsresults of operations and cash flows for the interim period presented. Suchfinancial statements have been condensed in accordance with the applicableregulations of the Securities and Exchange Commission and, therefore, do notinclude all disclosures required by accounting principles generally accepted inthe United States of America. These financial statements should be read inconjunction with Federal Services Acquisition Corporation’s audited financialstatements for the period from April 12, 2005 (Date of Inception) to December31, 2005 included on Form 10-K filed on March 31, 2006. The results of theCompany’s operations for the interim period are not necessarily indicative ofthe operating results for the full year.

 

**NOTE B—ORGANIZATION AND BUSINESS OPERATIONS**

 

TheCompany was incorporated in Delaware on April 12, 2005. The Company wasformed to serve as a vehicle for the acquisition of an operating business inthe federal services and defense industries through a merger, capital stockexchange, asset acquisition, stock purchase or other similar businesscombination. The Company has neither engaged in any operations nor generatedrevenue to date. The Company is considered to be in the development stage andis subject to the risks associated with activities of development stagecompanies.

 

Theregistration statement for the Company’s initial public offering (“Offering”)was declared effective on October 19, 2005.  The Company consummated theoffering on October 25, 2005 and received net proceeds of $119,169,000. The Company’smanagement has broad discretion with respect to the specific application of thenet proceeds of the Offering, although substantially all of the net proceeds ofthe Offering are intended to be generally applied toward consummating abusiness combination with (or acquisition of) an operating business in thefederal services and defense industries (“Business Combination”). Nonetheless,there is no assurance that the Company will be able to successfully effect aBusiness Combination. As of June 30, 2006, an amount of $119,274,694 includinginterest receivable of $611,123 of the net proceeds is being held in a trustaccount (“Trust Account”) and is invested in U.S. government securities, andcash or cash equivalents until the earlier of (i) the consummation of its firstBusiness Combination or (ii) the distribution of the Trust Account to theCompany’s public stockholders. The remaining proceeds may be used to pay forbusiness, legal and accounting due diligence on prospective acquisitions andcontinuing general and administrative expenses. The Company, after signing adefinitive agreement for the acquisition of a target business, will submit suchtransaction for stockholder approval. In the event that public stockholders of20% or more of the outstanding stock (excluding, for this purpose, those sharesof common stock issued prior to the Offering) vote against the BusinessCombination and exercise their conversion rights, the Business Combination willnot be consummated.

 

Inthe event that the Company does not consummate a Business Combination within18 months from the date of the consummation of the Offering, or24 months from the consummation of the Offering if certain extensioncriteria have been satisfied (the “Acquisition Period”), the proceeds held in theTrust Account will be distributed to the Company’s public stockholders,excluding the Founders (defined in the following sentence) to the extent oftheir stock acquired prior to the Offering. However, the persons who werestockholders prior to the Offering (the “Founders”) will participate in anyliquidation distribution with 

 

7

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respectto any shares of the common stock acquired in connection with or following theOffering. In the event of such distribution, it is likely that the per sharevalue of the residual assets remaining available for distribution (includingTrust Account assets) will be less than the initial public offering price perunit in the Offering (assuming no value is attributed to the Warrants containedin the Units offered in the Offering as discussed in Note D).

 

Publicstockholders owning less than 20% of the shares sold in the Offering who voteagainst a Business Combination and exercise their conversion rights will beentitled to convert their stock into a pro rata share of the Trust Account,including any interest earned on their portion of the Trust Account (net oftaxes payable), if the Business Combination is approved and consummated. TheFounders cannot convert their stock into a pro rata share of the Trust Accountunder these circumstances, because they have agreed to vote their stock inaccordance with the majority of the shares of common stock voted by the publicstockholders. Public stockholders who convert their stock will retain anywarrants they hold.

 

TheFounders will be entitled to registration rights pursuant to an agreementsigned as a part of the Offering. The holders of the majority of these sharesare entitled to make up to two demands that the Company register these shares. Theholders of the majority of these shares can elect to exercise theseregistration rights at any time after the date on which their shares of commonstock are released from escrow (see below). In addition, these stockholdershave certain “piggy-back” registration rights on registration statements filedsubsequent to such date. The Company will bear the expenses incurred inconnection with the filing of any such registration statement.

 

Uponconsummation of the Offering, the Founders placed the shares they owned into anescrow account. These shares will not be transferable during the escrow periodand will not be released from escrow until the earliest of:

 

•                           three years following the date of theOffering;

•                           liquidation; and

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

 

Duringthe escrow period, the holders of these shares will not be able to sell ortransfer their securities except to their spouses and children or trustsestablished for their benefit, but will retain all other rights as stockholders,including, without limitation, the right to vote their shares of common stockand the right to receive cash dividends, if declared. If dividends are declaredand payable in shares of common stock, such dividends will also be placed inescrow. If the Company is unable to effect a Business Combination andliquidates, none of the Founders will receive any portion of the liquidationproceeds with respect to common stock owned by them.

 

**NOTE C—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

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

TheCompany considers all highly liquid investments with original maturities ofthree months or less to be cash equivalents. The Company had cash deposits inexcess of the federally insured limits at June 30, 2006.

 

**[2]   Earnings per common share:**

Basicincome per share is based on the weighted average number of common sharesoutstanding during the period. Diluted income per share reflects the potentialdilution assuming common shares were issued upon the exercise of outstandingin-the-money warrants and the proceeds thereof were used to purchase treasuryshares at the average market price during the period.

 

8

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**[3]    Use of estimates:**

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the amounts in the financial statementsand accompanying notes. Actual results could differ from those estimates.

 

**[4]    Fair value of financialinstruments:**

Thecarrying amounts of the Company’s financial assets, including cash and cashequivalents and short term investments, approximate fair value because of theirshort term maturities.

 

**[5]    Income taxes:**

Deferredincome taxes are provided for the differences between the bases of assets andliabilities for financial reporting and income tax purposes. Deferred taxassets and liabilities are measured using tax rates in effect for the year inwhich those temporary differences are expected to be recovered or settled. Avaluation allowance is established when necessary to reduce deferred tax assetsto the amount expected to be realized.

 

**[6]    NewAccounting Pronouncement:**

The Financial AccountingStandards Board (“FASB”) has issued interpretation No. 48, “Accounting forUncertainty in Income Taxes—An Interpretation of FASB Statement No. 109” (“FIN48”), regarding accounting for, and disclosure of, uncertain tax positions. FIN48 clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with FASB Statement No. 109, “Accountingfor Income Taxes.” FIN 48 prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return. FIN 48 also providesguidance on derecognition, classification, interest and penalties, accountingin interim periods, disclosure, and transition. FIN 48 is effective for fiscalyears beginning after December 15, 2006. The Company is currently evaluatingthe impact FIN 48 will have on its results of operations and financial position.The cumulative effect of applying the provisions of FIN 48, if any, will bereported as an adjustment to the opening balance of retained earningsaccumulated during the development stage on January 1, 2007.

 

**NOTE D—INITIAL PUBLIC OFFERING**

 

OnOctober 25, 2005, the Company sold 21,000,000 Units (“Units”).  Each Unitconsisted of one share of the Company’s common stock, $.0001 par value, and twowarrants (“Warrants”). Each Warrant entitles the holder to purchase from theCompany one share of common stock at an exercise price of $5.00.  EachWarrant is exercisable on the later of (a) the completion of a BusinessCombination or (b) October 19, 2006 and expires October 19, 2009, or earlierupon redemption.  The Warrants are redeemable at a price of $.01 perWarrant upon 30 days notice after the Warrants become exercisable, only inthe event that the last sale price of the common stock is at least $8.50 pershare for any 20 trading days within a 30 trading day period ending on thethird day prior to the date on which notice of redemption is given.

 

Inconnection with the Offering, the Company paid CRT Capital Group LLC anunderwriter’s discount of 5% of the gross proceeds of the Offering.

 

**NOTE E—INVESTMENTS HELD IN TRUST**

 

Themanagement of the Company intends to hold till maturity the investments held inthe Trust Account, which consist principally of short-term Treasury Bills. Thesebills are purchased at a discount and the Company accretes interest incomewhich is equivalent to the difference between the purchase price and the marketprice.

 

9

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**NOTE F—INCOME TAXES**

 

Theprovision for income taxes and the deferred tax liability (benefit) for thethree months and the six months ending June 30, 2006, respectively, consists ofthe following:

 
| ** **                             | ** ** | **For the Three Months  ending June 30, 2006** | ** ** | **For the Six Months  ending June 30, 2006** | ** ** |
|----------------------------------------|------------|------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| Current                                |       |                                                                         |       |                                                                       |       |
|                                   |       |                                                                         |       |                                                                       |       |
| Federal                                |       | $                                                                            | 229,831    |                                                                       | $          | 551,893 |   |
| State and local                        |       | 136,966                                                                      |       | 328,900                                                                    |       |
| Total current income tax               |       | 366,797                                                                      |       | 880,793                                                                    |       |
|                                   |       |                                                                         |       |                                                                       |       |
| Deferred tax provision (benefit)       |       |                                                                         |       |                                                                       |       |
| Federal                                |       | 84,203                                                                       |       | (75,094                                                                    | )          |
| State and local                        |       | 50,181                                                                       |       | (40,958                                                                    | )          |
| Total deferred tax provision (benefit) |       | 134,385                                                                      |       | (116,052                                                                   | )          |
|                                        |            |                                                                              |            |                                                                            |            |  |  |

 

Provisionshave been made for deferred taxes based on differences between the tax basis ofassets and liabilities using currently enacted rates and regulations.

 

Deferredtax assets and liabilities at June 30, 2006 and December 31, 2005 consist ofthe following:

 
| ** **                                                 | ** ** | **As of  June 30,  2006** | ** ** | **As of  December 31,  2005** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------------------|------------|
| Deferred tax assets – start up costs                  |       | $                                   | 410,705    |                                    | $          | 34,629 |   |
| Deferred tax liability – accrued interest  receivable |       | (275,738                            | )          | (15,714                                 | )          |
|                                                       |       |                                |       |                                    |       |
| Net deferred tax benefit                                   |       | $                                   | 134,967    |                                    | $          | 18,915 |   |

 

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

 

**NOTE G—NOTES PAYABLE TO STOCKHOLDERS**

 

TheCompany issued two $77,000 non-interest bearing unsecured promissory notes totwo of the Founders of the Company on April 18, 2005.   Thenotes were repaid in the accordance with their terms on October 25, 2005 fromthe proceeds of the Offering.

 

**NOTE H—RELATED PARTY TRANSACTION**

 

TheCompany has agreed to pay CM Equity Management, L.P., a company where certainof the Founders serve in executive capacities, an administrative fee of $7,500per month for office space and general and administrative services from October19, 2005 through the effective date of the acquisition of a target business. Forthe three months and six months ended June 30, 2006, the amount paid tothis entity was $22,500 and $45,000, respectively. For the period frominception to June 30, 2006, the amount paid to this entity was $63,145.

 

Twoof the Founders have agreed with the Company and the underwriters that if theCompany liquidates prior to the consummation of a Business Combination, theymay be personally liable to ensure that the proceeds of the Trust Account arenot reduced by the claims of vendors or others entities that are owed money bythe Company for services rendered or products sold to the Company or the claimsof prospective target businesses.

 

10

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**NOTE I—COMMITMENTS**

 

TheCompany has a commitment to pay to CRT Capital Group LLC a 2% fee of the grossoffering proceeds, or $2,520,000, payable upon the Company’s consummation of aBusiness Combination.

 

TheCompany has engaged CRT Capital Group LLC, the underwriter, on a non-exclusivebasis, as their agent for the solicitation of the exercise of the warrants. TheCompany has agreed to pay CRT Capital Group LLC a commission equal to 2% of theexercise price for each warrant exercised more than one year from October 19,2005 if the exercise was solicited by CRT Capital Group LLC.

 

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

 

AtJune 30, 2006, 42,000,000 shares of common stock were reserved for issuanceupon exercise of redeemable warrants.

 

**NOTE K—FOUNDERS**

 

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

** **

**NOTE L—PROPOSED ACQUISITION OF ADVANCED TECHNOLOGYSYSTEMS, INC.**

 

OnApril 19, 2006, the Company entered into a Stock Purchase Agreement (the“Stock Purchase Agreement”) with Advanced Technology Systems, Inc.(“ATS”), the holders of all of the outstanding shares of ATS, and ClaudeRumsey, as shareholders’ representative, pursuant to which we will acquire (the“Acquisition”) all of the issued and outstanding shares of ATS and, indirectlythrough ATS, all of the outstanding shares of ATS’ wholly owned subsidiaries.

 

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

 

**NOTE M—DEFERRED ACQUISITION COSTS**

 

Asof June 30, 2006, the Company had accumulated $614,625 in deferred costsrelated to the proposed acquisition of ATS. These charges will be capitalized contingent upon the completion of theAcquisition following the required approval by the Company’s stockholders andthe fulfillment of certain other conditions. If the Acquisition is not completed these charges will be recorded asexpenses.

 

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**Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operations.**

 

***FORWARD-LOOKING STATEMENTS***

 

*This Quarterly Report on Form 10-Qand the documents incorporated by reference into the Quarterly Report on Form10-Q include forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933 and Section 21E of the Securities Exchange Act of1934. These forward-looking statements can be identified by the use offorward-looking terminology, including the words “believes,” “estimates,” “anticipates,”“expects,” “intends,” “may,” “will” or “should,” or, in each case, theirnegative or other variations or comparable terminology. Such statementsinclude, but are not limited to, any statements relating to our ability toconsummate any acquisition or other business combination and any otherstatements that are not historical facts. These statements are based onmanagement’s current expectations, but actual results may differ materially dueto various factors, including, but not limited to:*

 

•                  *our being a developmentstage company with no operating history;*

•                  *our dependence on keypersonnel, some of whom may or may not join us following a businesscombination;*

•                  *risks that the acquisitionof ATS or another business combination may not be completed due to failure ofthe conditions to closing of the acquisition being satisfied or other factors;*

•                  *our personnel allocatingtheir time to other businesses and potentially having conflicts of interestwith our business;*

•                  *our potentially beingunable to obtain additional financing to complete a business combination;*

•                  *the ownership of oursecurities being concentrated;*

•                  *risks associated with thefederal services industry;*

•                  *risks associated with thedefense industry; and*

•                  *those other risks anduncertainties detailed in the Company’s filings with the Securities andExchange Commission.*

 

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

 

*These forward-looking statementsare subject to numerous risks, uncertainties and assumptions about us. Theforward-looking events we discuss in this Quarterly Report on Form 10-Q speakonly as of the date of such statement and might not occur in light of theserisks, uncertainties and assumptions. We undertake no obligation and disclaimany obligation to publicly update or revise any forward-looking statements,whether as a result of new information, future events or otherwise.*

 

*Unless otherwise provided in thisQuarterly Report on Form 10-Q, references to “the Company,” “the Registrant,” “we,”“us” and “our” refer to Federal Services Acquisition Corporation.*

 

**MANAGEMENT’SDISCUSSION AND ANALYSIS**

**OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

We are a “blank check” company organized under thelaws of the State of Delaware on April 12, 2005 and were formed for thepurpose of acquiring, through a merger, capital stock exchange, assetacquisition, stock purchase or other similar business combination, an operatingbusiness in the federal 

 

12

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services and defenseindustries. We intend to use the trust account funds, together with anyadditional financing arrangements that we undertake, to effect a businesscombination.

 

We have neither engaged in any operations norgenerated any revenues nor incurred any debt or expenses during the periodended June 30, 2006, other than in connection with our public offering and,thereafter, certain legal and other expenses related to pursuing acquisitionsof target businesses. Our entire activity since inception has been to preparefor and consummate our initial public offering and to identify and investigatetarget businesses for a business combination.

 

Our net proceeds from the sale of our units, afterdeducting offering expenses of approximately $531,000 and underwritingdiscounts of $6,300,000, were approximately $119,169,000. Of this amount,$117,180,000, was placed in trust and the remaining $1,989,000 was not placedin trust. We will use substantially all of the net proceeds of our offering toacquire a target business, including identifying and evaluating prospectiveacquisition candidates, selecting the target business, and structuring,negotiating and consummating the business combination. To the extent that ourcapital stock is used in whole or in part as consideration to effect a businesscombination, the proceeds held in the trust account as well as any other netproceeds not expended will be used to finance the operations of the targetbusiness. We believe that the funds available to us outside of the trustaccount will be sufficient to allow us to operate for at least the next 15months, assuming that a business combination is not consummated during thattime. For the three and the six months ended June 30, 2006, respectively, wehave incurred the following expenses:

 

•                  $177,727 and $663,327 for legal, accounting,travel and other expenses attendant to the due diligence investigations,structuring, and negotiating of a business combination;

 

•                  $22,500 and $45,000 for administrativeservices and support ($7,500 per month);

 

•                  $22,541 and $64,681 of expenses for legal andaccounting fees relating to our SEC reporting obligations;

 

•                  $30,060 and $60,120 for franchise taxes;

 

•                  $21,192 and $42,151 for director and officerliability insurance premiums; and

 

•                  $9,404 and $18,342 for miscellaneousexpenses.

 

As of June 30, 2006, we had accumulated $614,625 indeferred costs related to the proposed acquisition of Advanced TechnologySystems, Inc.  These charges will becapitalized contingent upon the completion of the acquisition following therequired approval by our stockholders and the fulfillment of certain otherconditions.  If the acquisition is notcompleted these charges will be recorded as expenses.

 

For the three months and the six months ended June30, 2006, respectively, we have earned interest from the proceeds held in thetrust account in the amount of $1,382,968 and $2,559,696 (including accruedinterest of $611,123). For the three months and the six months ended June 30,2006, respectively, we have earned interest from the funds not placed in thetrust account of $11,233 and $24,217.

 

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

 

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

 

On October 25, 2005, we used $85,000 of our generalworking capital to pay premiums associated with our directors and officers’liability insurance. As of June 30, 2006, $25,616 of this amount represents theprepaid portion for the cost of such insurance through October 19, 2006.

 

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

 

13

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As of June 30, 2006, $119,274,694, includinginterest receivable of $611,123, was held in trust and we had $1,299,534 of theavailable funds remaining and available to us for our activities in connectionwith identifying and conducting due diligence of a suitable businesscombination, and for general corporate matters.

 

**Critical Accounting Policies**

 

The preparation of financial statements and relateddisclosures in conformity with generally accepted accounting principles in theUnited States requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities, disclosure of contingent assetsand liabilities at the date of the financial statements, and revenues andexpenses during the periods reported. Actual results could materially differfrom those estimates.

 

**Proposed Acquisition of Advanced Technology Systems,Inc.**

 

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

 

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

 

The Acquisition is expected to be consummated duringthe fall of 2006, after the required approval by our stockholders and thefulfillment of certain other conditions. For additional information on theAcquisition, please see our Current Report on Form 8-K filed with theSecurities and Exchange Commission on April 20, 2006 and our preliminary proxystatement filed with the Securities and Exchange Commission on July 28, 2006.

 

**Item 3. Quantitative and Qualitative Disclosures aboutMarket Risk.**

 

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

 

**Item 4. Controls and Procedures.**

 

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

 

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There has not been any change in our internalcontrol over financial reporting (as defined in Rule 13a-15(f) or 15d – 15(f)of the Securities Exchange Act of 1934, as amended) in connection with theevaluation required by Rule 13a-15(d) under the Exchange Act that occurred duringthe quarter ended June 30, 2006, that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

**Item 1. Legal Proceedings.**

 

Not applicable.

 

**Item 1A. Risk Factors.**

 

In addition to our risk factors contained in ourAnnual Report on Form 10-K for the fiscal year ended December 31, 2005, filedwith the Securities and Exchange Commission on March 31, 2006, you shouldconsider the following risk factors relating to the business and our proposedacquisition of ATS:

 

**Risks Associated with the Acquisition of ATS**

** **

***Wemay not be able to consummate the acquisition, or another business combination,within the required time frame, in which case, we would be forced to liquidate.***

*** ***

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

 

***Ifwe are forced to liquidate before a business combination, our publicstockholders will receive less than $6.00 per share upon distribution of thetrust account, and our warrants will expire worthless.***

*** ***

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

 

***Certainof our key personnel may join us following the acquisition and may beunfamiliar with the requirements of operating a public company, which mayadversely affect our operations, including significantly reducing our revenuesand net income, if any.***

*** ***

Our ability tosuccessfully effect the acquisition of ATS will be completely dependent uponthe efforts of our key personnel. Upon the completion of the acquisition, ourcurrent Chairman and Chief Executive Officer, Joel R. Jacks, and our currentPresident, Treasurer and Secretary, Peter M. Schulte, will resign as officers butwill remain members of our board of directors. Dr. Edward H. Bersoff willbecome our Chairman, President and Chief Executive Officer, Stuart R. Lloydwill become our Executive Vice President and Chief Financial Officer, and LeonC. Perry, the Senior Vice President and Chief Operating Officer of ATS willcontinue in that role. Dr. Bersoff and Mr. Lloyd each havesignificant public company experience. The members of the management of ATS whowill remain with us following the closing of the acquisition do not have suchexperience and are unfamiliar with the requirements of operating a publiccompany under U.S. securities laws, which could cause us to expend time andresources helping them become familiar with such laws. This could 

 

15

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be expensive andtime-consuming and could lead to various regulatory issues that may adverselyaffect our operations, including significantly reducing our revenues and netincome, if any.

 

***Weexpect to incur significant costs associated with the acquisition, whether ornot the acquisition is completed, which costs will significantly reduce theamount of cash available to be used to consummate a business combination.***

*** ***

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

 

***Asa result of the acquisition, our stockholders will be solely dependent on asingle business.***

*** ***

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

 

***If the acquisition’s benefits do not meet theexpectations of financial or industry analysts, the market price of our commonstock may decline.***

*** ***

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

 

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

 

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

 

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

 

***Our directors may have certain conflicts indetermining to recommend the acquisition of ATS since certain of theirinterests, and certain interests of their affiliates and associates, aredifferent from, or in addition to, the interests of our stockholders.***

*** ***

Members of our board of directors have interests in and arising from theacquisition of ATS that are different from, or in addition to, your interestsas a stockholder which could result in a real or perceived conflict ofinterest. These interests include the fact that certain of the shares of commonstock owned by them, or their affiliates and associates, would become worthlessif the acquisition is not approved and we otherwise fail to consummate abusiness combination prior to our liquidation date. Such shares, as of June 30,2006, had a market value of approximately $28,245,000. Similarly, the warrantsowned by such directors, affiliates and associates to purchase 3,699,528 shares of common stock, with an aggregate market value of $1,627,792 asof June 30, 2006, would expire worthless. If the acquisition is approved,Messrs. Jacks and Schulte will continue to serve as members of our boardof directors after the acquisition, and will be compensated for such services.Furthermore, Dr. Bersoff, who currently serves as our Vice Chairman, willbecome our Chairman, President and Chief Executive Officer, and be compensatedin such capacity.

 

 

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***Weplan to issue shares of our common stock to complete the acquisition of ATS,which will reduce the equity interest of our stockholders.***

*** ***

Our Amended and RestatedCertificate of Incorporation authorizes the issuance of up to 100.0 millionshares of common stock, par value $0.0001 per share, and 1.0 million shares ofpreferred stock, par value $0.0001 per share. We currently have 31,750,000authorized but unissued shares of our common stock available for issuance(after appropriate reservation for the issuance of shares upon full exercise ofour outstanding warrants) and all of the 1.0 million shares of preferred stockavailable for issuance. As set forth in the stock purchase agreement, certainATS shareholders have elected to receive a portion of the purchase price forthe acquisition in shares of our common stock. Such shareholders will receivean aggregate of 173,913 shares of our common stock on the closing date. Theissuance of such shares will reduce the equity interest of our stockholders ona pro rata basis.

 

***If our initial stockholders and certain ATSshareholders exercise their registration rights, it may have an adverse effecton the market price of our common stock.***

*** ***

Our initial stockholders are entitled to demand that we register theresale of their shares of common stock in certain circumstances. If our initialstockholders exercise their registration rights with respect to all of theirshares of common stock, then there will be an additional 5,250,000 shares ofcommon stock eligible for trading in the public market. We have also grantedregistration rights to those shareholders of ATS who will receive 173,913shares of our common stock upon closing of the acquisition pursuant to thestock purchase agreement. The presence of this additional number of shares ofcommon stock eligible for trading in the public market may have an adverseeffect on the market price of our common stock.

 

**Risks Related to Our Business and OperationsFollowing the Acquisition**

** **

***Theloss or impairment of ATS’ relationship with the U.S. government and itsagencies could adversely affect ATS business.***

*** ***

ATS derivedapproximately 90% of its total revenue in fiscal 2005 from contracts with theU.S. government and government-sponsored enterprises. ATS expects that U.S.government contracts will continue to be a significant source of revenue forthe foreseeable future. If ATS or any of its partners was suspended orprohibited from contracting with the U.S. government generally or any agency orrelated entity, if ATS’ reputation or relationship with government agencies wasimpaired, or if the U.S. government or any agency or related entity ceaseddoing business with them or significantly decreased the amount of business itdoes with them, ATS’ business, prospects, financial condition and operatingresults could be significantly impaired.

 

***Changesby the U.S. government in its spending priorities may cause a reduction in thedemand for the products or services that we may ultimately offer, which couldadversely affect our business.***

*** ***

Changes in the U.S.government budgetary priorities could directly affect ATS’ financialperformance. Government expenditures tend to fluctuate based on a variety ofpolitical, economic and social factors. A significant decline in governmentexpenditures, or a shift of expenditures away from programs ATS supports, or achange in U.S. government contracting policies causing its agencies to reducetheir expenditures under contracts, to exercise their right to terminatecontracts at 

 

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any time withoutpenalty, not to exercise options to renew contracts or to delay or not enterinto new contracts, could adversely affect ATS’ business, prospects, financialcondition or operating results.

 

***ATSis required to comply with complex procurement laws and regulations, and thecost of compliance with these laws and regulations and penalties and sanctionsfor any non-compliance could adversely affect ATS’ business.***

*** ***

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

 

***TheU.S. government may reform its procurement or other practices in a manneradverse to ATS.***

*** ***

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

 

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

*** ***

A significant portion ofATS’ contracts and task orders with the U.S. government are awarded through acompetitive bidding process. ATS expects that much of the business it will seekin the foreseeable future will continue to be awarded through competitivebidding. Budgetary pressures and changes in the procurement process have causedmany government clients to increasingly purchase goods and services throughindefinite delivery/indefinite quantity, or ID/IQ, contracts, GSA schedulecontracts and other government-wide acquisition contracts, or GWACs. Thesecontracts, some of which are awarded to multiple contractors, have increasedcompetition and pricing pressure, requiring ATS to make sustained post-awardefforts to realize revenue under each such contract. Competitive biddingpresents a number of risks, including without limitation:

 

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

 

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

 

•       the need toaccurately estimate the resources and cost structure that will be required toservice any contract ATS is awarded; and

 

•       the expenseand delay that may arise if ATS’ or its partners’ competitors protest orchallenge contract awards made to ATS or its partners pursuant to competitivebidding, and the risk that 

 

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any such protest orchallenge could result in the resubmission of bids on modified specifications,or in termination, reduction or modification of the awarded contract.

 

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

 

***Restrictionson or other changes to the U.S. government’s use of service contracts may harmATS’ operating results.***

*** ***

ATS derives asignificant amount of its revenue from service contracts with the U.S.government. The U.S. government may face restrictions from new legislation,regulations or government union pressures, on the nature and amount of servicesthe government may obtain from private contractors. Any reduction in thegovernment’s use of private contractors to provide federal services wouldadversely impact ATS’ business.

 

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

*** ***

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

 

***Aportion of ATS’ business depends upon obtaining and maintaining requiredsecurity clearances, and its failure to do so could result in termination ofcertain of its contracts or cause it to be unable to bid or rebid on certaincontracts.***

*** ***

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

 

Obtaining andmaintaining security clearances for employees involves a lengthy process, andit is difficult to identify, recruit and retain employees who already holdsecurity clearances. If ATS’ employees are unable to obtain or retain securityclearances or if such employees who hold security clearances terminate theiremployment with ATS, the customer whose work requires cleared employees couldterminate the contract or decide not to renew it upon its expiration. To theextent ATS is not able to engage employees with the required securityclearances for a particular contract, 

 

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ATS may not be able tobid on or win new contracts, or effectively re-bid on expiring contracts, whichcould adversely affect ATS’ business.

 

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

 

***ATSmay not receive the full amounts authorized under the contracts included in itsbacklog, which could reduce its revenue in future periods.***

*** ***

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

 

***Withoutadditional Congressional appropriations, some of the contracts included in ATS’backlog will remain unfunded which could significantly harm ATS’ prospects.***

*** ***

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

 

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

*** ***

ATS is a primecontractor under several GSA contracts, Blanket Purchase Agreements, and GWACschedule contracts. ATS’ ability to continue to provide services under thesecontracts will continue to be important to ATS’ business because of themultiple opportunities for new engagements each contract provides. If ATS wereto lose its position as prime contractor on one or more of these contracts, ATScould lose substantial revenues and our operating results could be adverselyaffected. ATS’ GSA contracts and other GWACs have an initial term of five ormore years, with multiple options exercisable at the government client’sdiscretion to extend the contract for one or more years. There can be no assurancesthat government clients will continue to exercise the options remaining on ATS’current contracts, nor can ATS be assured that future clients will exerciseoptions on any contracts ATS may receive in the future.

 

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***U.S.government contracts often contain provisions that are unfavorable, which couldadversely affect ATS’ business.***

*** ***

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

 

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

 

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

 

•       reduce ormodify contracts or subcontracts;

 

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

 

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

 

•       claimintellectual property rights in products provided by ATS; and

 

•       suspend orbar ATS from doing business with the federal government or with a governmentalagency.

 

***Themarkets ATS competes in are highly competitive, and many of the companies ATScompetes against have substantially greater resources.***

*** ***

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

 

***ATS’failure to attract and retain qualified employees, including its seniormanagement team, may adversely affect its business.***

*** ***

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

 

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

*** ***

ATS depends on the expertise, experience and continued services of itssenior management employees, especially Leon C. Perry, its Senior VicePresident and Chief Operating Officer. 

 

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Mr. Perry has acquired specialized knowledge and skills withrespect to ATS and its operations and most decisions concerning the business ofATS will be made or significantly influenced by him. The loss of Mr. Perryor other senior management employees of ATS, or an inability to attract orretain other key individuals, could materially adversely affect ATS’ business.If Mr. Perry or other senior management were to leave ATS following theacquisition, we could face substantial difficulty in hiring qualifiedsuccessors and could experience a loss in productivity while any successorobtains the necessary training and experience. ATS will seek to compensate andincentivize key executives, as well as other employees, through competitivesalaries and bonus plans, but there can be no assurance that these programswill allow ATS to retain key employees or hire new key employees.

 

***If ATS is unable to fund its capital expenditures,ATS may not be able to continue to develop new offerings and***services, which would have a material adverse effect on its business.

*** ***

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

 

***Future acquisitions by us or ATS would subject usand ATS to additional business, operating and industry risks, the impact ofwhich cannot presently be evaluated, and could adversely impact our or ATS’capital structure.***

*** ***

We plan to pursue other acquisition opportunities following the closingof the ATS acquisition in an effort to take advantage of the platform we expectATS to constitute. Although we are often engaged in preliminary discussionswith acquisition candidates, as of the date of this proxy statement we have nobinding commitments or agreements to enter into any acquisition. Following theacquisition of ATS, we will not be limited to any particular industry or typeof business that we may acquire. Accordingly, there is no current basis for youto evaluate the possible merits or risks of the particular business or assetsthat we may acquire, or of the industry in which such business operates. Inaddition, the financing of any acquisition completed by us after the ATSacquisition could adversely impact our capital structure as any such financingwould likely include the issuance of additional equity securities and/or theborrowing of additional funds.

*** ***

***Members of our board of directors may haveconflicts of interest that could hinder our ability to make acquisitions.***

*** ***

One of our growth strategies following completion of the acquisition ofATS will be to make selective acquisitions of complementary businesses. Two ofour directors, Messrs. Jacks and Schulte, are principals of CM Equity Partners,a sponsor of private equity funds. Some of these funds are focused on investments in, among other things, businesses inthe federal services sector. Messrs. Jacks and Schulte also serve on the boardsof a number of CM Equity portfolio companies and, with Dr. Bersoff, are membersof the board of directors of ICF International, Inc., a diversified federalservices business that plans to grow in part through acquisitions. It ispossible that CM Equity Partners and related funds and portfolio companies andICF International, Inc. could be interested in acquiring businesses that wewould also be interested in, and that these relationships could hinder ourability to carry out our acquisition strategy. None of CM Equity Partners, Mr.Jacks, Mr. Schulte nor ICF International, Inc. is an investor or potentialinvestor in ATS (except, in the case of Messrs. Jacks and Schulte, throughdirect or indirect ownership of FSAC stock and warrants).

 

***ATSmay be unable to protect or enforce its intellectual property rights.***

*** ***

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

 

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***ATSmay be harmed by intellectual property infringement claims.***

*** ***

ATS may become subjectto claims from our employees and third parties who assert that intellectualproperty that ATS uses in delivering services and business solutions to itsclients infringe upon intellectual property rights of such employees or thirdparties. ATS’ employees develop much of the intellectual property that it usesto provide its services and business solutions to its clients, but ATS alsolicenses technology from other vendors. If ATS’ vendors, its employees, orthird parties assert claims that ATS or its clients are infringing on theirintellectual property, ATS could incur substantial costs to defend thoseclaims. In addition, if any of these infringement claims is ultimatelysuccessful, ATS could be required to:

 

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

 

•       obtain alicense or additional licenses from its vendors or other third parties; and

 

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

 

Any of these outcomescould further adversely affect ATS’ operating results.

 

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

*** ***

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

 

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

 

•       fluctuationsin revenue earned on contracts;

 

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

 

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

 

•       additionsand departures of key personnel;

 

•       changes inATS’ staff utilization rates;

 

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

 

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

 

•       contract mixand the extent of use of subcontractors;

 

•       changes inpolicy and budgetary measures that adversely affect government contracts; and

 

•       anyseasonality of ATS’ business.

 

Therefore,period-to-period comparisons of ATS’ operating results may not be a goodindication of ATS’ future performance. ATS’ quarterly operating results may notmeet the expectations of securities analysts or investors, which in turn mayhave an adverse affect on the market price of our common stock.

 

Furthermore, reductionsin revenue in a particular quarter could lead to lower profitability in thatquarter because a relatively large amount of ATS’ expenses are fixed in theshort-term. ATS may incur significant operating expenses during the start-upand early stages of large contracts and may not receive corresponding paymentsor revenue in that same quarter. ATS may also incur significant orunanticipated expenses or both when contracts expire, are terminated, or arenot renewed. In addition, payments due to ATS from government agencies anddepartments may be delayed due to 

 

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billing cycles, as aresult of failures of governmental budgets to gain Congressional andadministration approval in a timely manner, and for other reasons.

 

***Ifsubcontractors on ATS’ prime contracts are able to secure positions as primecontractors, ATS may lose revenue.***

*** ***

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

 

***If***ATS’subcontractors fail to perform their contractual obligations, its performanceas a prime contractor and its ability to obtain future business could bematerially and adversely impacted.

*** ***

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

 

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

 

***ATS***sometimes incurscosts before a contract is executed or appropriately modified. To the extent asuitable contract or modification is not later signed and these costs are notreimbursed, its revenues and profits will be reduced.

*** ***

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

 

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

*** ***

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

 

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**RisksRelated to our Limited Experience as a Public Company and our Capital Structure**

 

***Wehave not had operations, and ATS has never operated as a public company.Fulfilling our obligations incident to being a public company after acquiringATS will be expensive and time consuming.***

*** ***

Both we, as a companywithout operations, and ATS, as a private company, have maintained relativelysmall finance and accounting staffs. Neither we nor ATS currently has aninternal audit group. Although we have maintained disclosure controls andprocedures and internal control over financial reporting as required under thefederal securities laws with respect to our very limited activities, we havenot been required to maintain and establish such disclosure controls andprocedures and internal control as will be required with respect to a businesssuch as ATS with substantial operations. Under the Sarbanes-Oxley Act of 2002and the related rules and regulations of the SEC, as well as therules of the Nasdaq National Market, we will need to implement additional corporategovernance practices and adhere to a variety of reporting requirements andcomplex accounting rules. Compliance with these obligations will requiresignificant management time, place significant additional demands on ourfinance and accounting staff and on our financial, accounting and informationsystems, and increase our insurance, legal and financial compliance costs. Wemay also need to hire additional accounting and financial staff withappropriate public company experience and technical accounting knowledge.

 

***Section 404of the Sarbanes-Oxley Act of 2002 will require us to document and test ourinternal controls over financial reporting for fiscal 2007 and beyond and willrequire an independent registered public accounting firm to report on ourassessment as to the effectiveness of these controls. Any delays or difficultyin satisfying these requirements could adversely affect our future results ofoperations and our stock price.***

*** ***

Section 404 of theSarbanes-Oxley Act of 2002 will require us to document and test theeffectiveness of our internal controls over financial reporting in accordancewith an established internal control framework and to report on our conclusionas to the effectiveness of our internal controls. It will also require an independentregistered public accounting firm to test our internal controls over financialreporting and report on the effectiveness of such controls for our fiscal yearending December 31, 2007 and subsequent years. An independent registeredpublic accounting firm will also be required to test, evaluate and report onthe completeness of our assessment. It may cost us more than we expect tocomply with these control- and procedure-related requirements.

 

We may in the futurediscover areas of our internal controls that need improvement, particularlywith respect to ATS or other businesses that we may acquire in the future. Wecannot be certain that any remedial measures we take will ensure that weimplement and maintain adequate internal controls over our financial processesand reporting in the future. Any failure to implement required new or improvedcontrols, or difficulties encountered in their implementation could harm ouroperating results or cause us to fail to meet our reporting obligations. If weare unable to conclude that we have effective internal controls over financialreporting, or if our independent auditors are unable to provide us with anunqualified report regarding the effectiveness of our internal controls overfinancial reporting as of December 31, 2007 and in future periods asrequired by Section 404, investors could lose confidence in thereliability of our financial statements, which could result in a decrease inthe value of our common stock. Failure to comply with Section 404 couldpotentially subject us to sanctions or investigations by the SEC, the NasdaqNational Market or other regulatory authorities.

 

***If we are unable tomaintain a current prospectus relating to the common stock underlying ourwarrants, our warrants are not required to be settled for cash and,accordingly, may be worthless.***

*** ***

Ourwarrants will be exercisable and we will not be obligated to issue shares ofcommon stock unless, at the time a holder seeks to exercise such warrant, aprospectus relating to the common stock issuable upon exercise of the warrantis current and the common stock has been registered or qualified or deemed tobe exempt under the securities laws of the state of residence of the holder ofthe warrants. Under the terms of the warrant agreement between ContinentalStock Transfer & Trust Company, as warrant agent, and us, we have agreed touse our best efforts to maintain a current prospectus relating to the commonstock issuable upon exercise of our warrants until the expiration of ourwarrants. However, we cannot assure warrant 

 

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holdersthat we will be able to do so. The warrant agreement does not provide that weare required to net-cash settle the warrants if we are unable to maintain acurrent prospectus.  If the prospectus relating to the common stockissuable upon exercise of the warrants is not current, or if the common stockis not qualified or exempt from qualification in the jurisdictions in which theholders of the warrants reside, our warrants may not be exercisable before theyexpire. Thus, our warrants may be deprived of any value, the market for ourwarrants may be limited or non-existent and the warrants may expire worthless.

 

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

 

Not applicable.

 

**Item 3.  Defaults Upon SeniorSecurities.**

 

Not applicable.

 

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

 

Not applicable.

 

**Item 5.  Other Information.**

 

Not applicable.

 

**Item 6.  Exhibits.**

 
| 3.1  |   | Amended  and Restated Certificate of Incorporation (incorporated by reference to  exhibit of same number in our Annual Report on Form 10-K filed with the  Securities and Exchange Commission on March 31, 2006)                                                   |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2  |   | By-laws  (incorporated by reference to exhibit of same number in our Annual Report on  Form 10-K filed with the Securities and Exchange Commission on March 31,  2006)                                                                                             |
| 4.1  |   | Specimen  Unit Certificate (incorporated by reference to exhibit of same number in our  Annual Report on Form 10-K filed with the Securities and Exchange Commission  on March 31, 2006)                                                                           |
| 4.2  |   | Specimen  Common Stock Certificate (incorporated by reference to exhibit of same number  in our Annual Report on Form 10-K filed with the Securities and Exchange  Commission on March 31, 2006)                                                                   |
| 4.3  |   | Specimen  Warrant Certificate (incorporated by reference to exhibit of same number in  our Annual Report on Form 10-K filed with the Securities and Exchange  Commission on March 31, 2006)                                                                        |
| 4.4  |   | Warrant  Agreement between Continental Stock Transfer & Trust Company  and the Company (incorporated by reference to exhibit of same number in our  Annual Report on Form 10-K filed with the Securities and Exchange Commission  on March 31, 2006) |
| 31.1 |   | Certification  of Principal Executive Officer pursuant to Rule 13a-14(a)/15(d)-19(a) of the  Securities Exchange Act of 1934, as amended                                                                                                                           |
| 31.2 |   | Certification  of Principal Financial Officer pursuant to Rule 13a-14(a)/15(d)-19(a) of the  Securities Exchange Act of 1934, as amended                                                                                                                           |
| 32.1 |   | Certification  of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002                                                                                                                                                           |
| 32.2 |   | Certification  of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002                                                                                                                                                           |

 

26

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##### **SIGNATURES**

 

 

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

 

 
|                   | Federal  Services Acquisition Corporation |
|------------------------|-------------------------------------------|
|                   |                                      |   |
|                   | By:                                       | /s/  Joel R. Jacks |   |
|                   |                                      | Chairman  of the Board and |
|                   |                                      | Chief  Executive Officer |
|                   |                                      |   |
|                   | By:                                       | /s/  Peter M. Schulte |   |
|                   |                                      | President  and |
|                   |                                      | Chief  Financial Officer |
| Date:  August 10, 2006 |                                      |   |

 

27

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