UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM 10-Q







(Mark
one)


x
              
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934FOR
      THE QUARTERLY PERIOD ENDED MARCH 31, 2009.o
              
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934FOR
      THE TRANSITION PERIOD FROM
                 TO
                  .





COMMISSION
FILE NUMBER: 0-51552









ATS
CORPORATION


(Exact
name of registrant as specified in its charter)





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





7925
Jones Branch Drive


McLean,
Virginia 22102


(Address
of principal executive offices)





(571)
766-2400


(Registrant’s
telephone number, including area code)


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







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





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





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





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


Yes  
o
   No   x





The
number of shares of the issuer’s common stock, $0.0001 par value, outstanding as
of May 11, 2009 was 22,672,019.













ATS
CORPORATION





TABLE
OF CONTENTS





PART I
      — FINANCIAL INFORMATIONItem
      1.
                    
                    Financial
      Statements
                    3Consolidated
      Balance Sheets as of March 31, 2009 (unaudited) and as of
      December 31, 2008 (audited)
                    3Consolidated
      Statements of Operations (unaudited) for the three-month periods ended
      March 31, 2009 and March 31, 2008
                    4Consolidated
      Statements of Cash Flows (unaudited) for the three-month periods ended
      March 31, 2009 and March 31, 2008
                    5Notes
      to Consolidated Financial Statements
                    6Item 2.
                    
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    13Item 3.
                    
                    Quantitative
      and Qualitative Disclosures about Market Risk
                    19Item 4.
                    
                    Controls
      and Procedures
                    19PART II
      — OTHER INFORMATIONItem 1.
                    
                    Legal
      Proceedings
                    19Item
      1A.
                    
                    Risk
      Factors
                    19Item
      2.
                    
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    20Item 3.
                    
                    Defaults
      upon Senior Securities
                    20Item
      4.
                    
                    Submission
      of Matters to a Vote of Security Holders
                    20Item 5.
                    
                    Other
      Information
                    20Item 6.
                    
                    Exhibits
                    20SIGNATURES
                    21


2





ATS
CORPORATION





PART I — FINANCIAL
INFORMATION





ITEM 1. — FINANCIAL
STATEMENTS





CONSOLIDATED BALANCE
SHEETS





March 31,
                  
                  
                  December 31,2009
                  
                  
                  2008(unaudited)
                  
                  
                  (audited)ASSETSCurrent
      assetsCash
                  
                  $
                  43,713
                  
                  
                  $
                  364,822Accounts
      receivable, net
                  
                  
                  23,503,582
                  
                  
                  
                  29,268,647Prepaid
      expenses
                  
                  
                  632,619
                  
                  
                  
                  537,974Income
      taxes receivable, net
                  
                  
                  42,244
                  
                  
                  
                  —Other
      current assets
                  
                  
                  2,603
                  
                  
                  
                  22,771Deferred
      income taxes, current
                  
                  
                  1,093,822
                  
                  
                  
                  1,321,890Total
      current assets
                  
                  
                  25,318,583
                  
                  
                  
                  31,516,104Property
      and equipment, net
                  
                  
                  3,561,355
                  
                  
                  
                  3,712,340Goodwill
                  
                  
                  59,128,648
                  
                  
                  
                  59,128,648Intangible
      assets, net
                  
                  
                  7,754,383
                  
                  
                  
                  8,304,686Restricted
      cash
                  
                  
                  1,320,361
                  
                  
                  
                  1,316,530Other
      assets
                  
                  
                  359,725
                  
                  
                  
                  387,897Deferred
      income taxes
                  
                  
                  2,018,885
                  
                  
                  
                  2,003,348Total
      assets
                  
                  $
                  99,461,940
                  
                  
                  $
                  106,369,553LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Current
      portion of long-term debt
                  
                  $
                  2,583,333
                  
                  
                  $
                  2,583,333Capital
      leases – current portion
                  
                  
                  65,899
                  
                  
                  
                  86,334Accounts
      payable and accrued expenses
                  
                  
                  8,162,937
                  
                  
                  
                  10,224,266Accrued
      salaries and related taxes
                  
                  
                  2,909,640
                  
                  
                  
                  2,999,576Accrued
      vacation
                  
                  
                  2,452,113
                  
                  
                  
                  2,220,865Income
      taxes payable, net
                  
                  
                  —
                  
                  
                  
                  600,121Deferred
      revenue
                  
                  
                  2,319,089
                  
                  
                  
                  1,745,352Deferred
      rent – current portion
                  
                  
                  382,507
                  
                  
                  
                  379,520Total
      current liabilities
                  
                  
                  18,875,518
                  
                  
                  
                  20,839,367Long-term debt
       – net of current
      portion
                  
                  
                  28,996,796
                  
                  
                  
                  34,492,558Capital leases – net of current
      portion
                  
                  
                  188
                  
                  
                  
                  745Deferred rent – net of current
      portion
                  
                  
                  2,793,850
                  
                  
                  
                  2,842,171Other
      long-term liabilities (at fair value)
                  
                  
                  2,166,566
                  
                  
                  
                  2,283,256Total
      liabilities
                  
                  
                  52,832,918
                  
                  
                  
                  60,458,097Shareholders’
      equity:Preferred
      stock $.001 par value, 1,000,000 shares authorized, and no shares issued
      and outstanding
                  
                  
                  —
                  
                  
                  
                  —Common
      stock $.001 par value, 100,000,000 shares authorized, 30,724,615 and
      27,529,010 shares issued, respectively
                  
                  
                  3,093
                  
                  
                  
                  3,087Additional
      paid-in capital
                  
                  
                  130,932,218
                  
                  
                  
                  130,767,038Treasury
      stock, at cost, 8,342,755 shares held
                  
                  
                  (30,272,007
                  )
                  
                  
                  (30,272,007
                  )Accumulated
      deficit
                  
                  
                  (52,765,233
                  )
                  
                  
                  (53,190,822
                  )Accumulated
      other comprehensive loss (net of tax benefit of $338,606 and $260,907,
      respectively)
                  
                  
                  (1,269,049
                  )
                  
                  
                  (1,395,840
                  )Total
      shareholders’ equity
                  
                  
                  46,629,022
                  
                  
                  
                  45,911,456Total
      liabilities and shareholders’ equity
                  
                  $
                  99,461,940
                  
                  
                  $
                  106,369,553




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


3





ATS
CORPORATION


CONSOLIDATED STATEMENTS OF
OPERATIONS





Three Months
                    Ended March 31,2009
                    (unaudited)
                  
                  
                  2008
                    (unaudited)Revenue
                  
                  $
                  27,156,514
                  
                  
                  $
                  34,873,525Operating
      costs and expensesDirect
      costs
                  
                  
                  18,195,737
                  
                  
                  
                  22,268,641Selling,
      general and administrative expenses
                  
                  
                  6,492,515
                  
                  
                  
                  9,449,681Depreciation
      and amortization
                  
                  
                  784,127
                  
                  
                  
                  2,042,608Total
      operating costs and expenses
                  
                  
                  25,472,379
                  
                  
                  
                  33,760,930Operating
      income
                  
                  
                  1,684,135
                  
                  
                  
                  1,112,595Other
      (expense) incomeInterest,
      net
                  
                  
                  (774,080
                  )
                  
                  
                  (804,407
                  )Other
      income
                  
                  
                  —
                  
                  
                  
                  70,877Income
      before income taxes
                  
                  
                  910,055
                  
                  
                  
                  379,065Income
      tax expense
                  
                  
                  484,466
                  
                  
                  
                  104,036Net
      income
                  
                  $
                  425,589
                  
                  
                  $
                  275,029Weighted
      average number of shares outstanding—basic
                  
                  
                  22,542,200
                  
                  
                  
                  19,242,698—diluted
                  
                  
                  22,542,200
                  
                  
                  
                  19,242,698Net
      income per share—basic
                  
                  $
                  0.02
                  
                  
                  $
                  0.01—diluted
                  
                  $
                  0.02
                  
                  
                  $
                  0.01





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


4




ATS
CORPORATION


CONSOLIDATED STATEMENTS OF CASH
FLOWS


Three Months Ended
                            March 31,2009
                          
                          
                          2008(unaudited)
                          
                          
                          (unaudited)Cash flows from operating activitiesNet
      income
                          
                          $
                          425,589
                          
                          
                          $
                          275,029Adjustments
      to reconcile net income to net cash from operating
    activities:Depreciation
      and amortization
                          
                          
                          781,688
                          
                          
                          
                          2,042,608Stock-based
      compensation
                          
                          
                          105,219
                          
                          
                          
                          323,895Deferred
      income taxes
                          
                          
                          274,106
                          
                          
                          
                          (774,136
                          )Deferred
      rent
                          
                          
                          (45,334
                          )
                          
                          
                          (29,626
                          )Gain
      on disposal of equipment
                          
                          
                          —
                          
                          
                          
                          (2,491
                          )Provision
      for bad debt
                          
                          
                          123,871
                          
                          
                          
                          164,787Changes
      in assets and liabilities, net of adjustments related to other
      comprehensive loss:Accounts
      receivable
                          
                          
                          5,641,195
                          
                          
                          
                          (6,417,644
                          )Prepaid
      expenses and other current assets
                          
                          
                          (94,646
                          )
                          
                          
                          42,962Restricted
      cash
                          
                          
                          (3,831
                          )
                          
                          
                          (13,716
                          )Other
      assets
                          
                          
                          48,340
                          
                          
                          
                          (110,698
                          )Accounts
      payable and other accrued expenses
                          
                          
                          (1,609,749
                          )
                          
                          
                          (41,997
                          )Accrued
      salaries and related taxes
                          
                          
                          (89,936
                          )
                          
                          
                          (689,891
                          )Accrued
      vacation
                          
                          
                          231,248
                          
                          
                          
                          282,216Accrued
      interest
                          
                          
                          13,616
                          
                          
                          
                          17,283Income
      taxes payable and receivable
                          
                          
                          (749,051
                          )
                          
                          
                          919,843Other
      current liabilities
                          
                          
                          163,753
                          
                          
                          
                          (417,616
                          )Net
      cash provided by (used in) operating activities
                          
                          
                          5,216,078
                          
                          
                          
                          (4,429,192
                          )Cash
      flows from investing activitiesPurchase
      of property and equipment
                          
                          
                          (80,400
                          )
                          
                          
                          (130,748
                          )Proceeds
      from disposals of equipment
                          
                          
                          —
                          
                          
                          
                          4,519Payment
      on acquired businesses
                          
                          
                          —
                          
                          
                          
                          (18,377
                          )Net
      cash used in investing activities
                          
                          
                          (80,400
                          )
                          
                          
                          (144,606
                          )Cash
      flows from financing activitiesBorrowings
      on lines of credit
                          
                          
                          14,027,500
                          
                          
                          
                          19,925,444Payments
      on lines of credit
                          
                          
                          (18,877,448
                          )
                          
                          
                          (15,549,586
                          )Payments
      on notes payable
                          
                          
                          (645,813
                          )
                          
                          
                          (795,833
                          )Payments
      on capital leases
                          
                          
                          (20,992
                          )
                          
                          
                          (28,229
                          )Proceeds
      from stock issued pursuant to Employee Stock Purchase Plan
                          
                          
                          59,966
                          
                          
                          
                          86,013Net
      cash (used in) provided by financing activities
                          
                          
                          (5,456,787
                          )
                          
                          
                          3,637,809Net
      decrease in cash
                          
                          
                          (321,109
                          )
                          
                          
                          (935,989
                          )Cash,
      beginning of period
                          
                          
                          364,822
                          
                          
                          
                          1,901,977Cash,
      end of period
                          
                          $
                          43,713
                          
                          
                          $
                          965,988Supplemental
      disclosures:Cash
      paid or received during the period for:Income
      taxes paid
                          
                          $
                          962,600
                          
                          
                          $
                          1,308,333Income
      tax refunds
                          
                          
                          3,189
                          
                          
                          
                          1,350,000Interest
      paid
                          
                          
                          823,657
                          
                          
                          
                          821,284Interest
      received
                          
                          
                          7,980
                          
                          
                          
                          34,160Non-cash
      investing and financing activities and adjustment to other comprehensive
      loss:Unrealized
      other comprehensive loss on interest rate swap, net of tax
                          
                          
                          (71,578
                          )
                          
                          
                          (699,192
                          )


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


5





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1 3⁄4
BASIS OF
PRESENTATION





Principles of Consolidation -
The consolidated financial statements include the accounts of ATS Corporation
(“ATSC”) and its subsidiary Advanced Technology Systems, Inc. (“ATSI”)
(collectively, the “Company”). All material intercompany accounts, transactions,
and profits are eliminated in consolidation.





The
accompanying consolidated financial statements of the Company have been prepared
by management in accordance with the instructions to Form 10-Q of the
Securities and Exchange Commission. These statements include all adjustments
considered necessary by management to present a fair statement of the
consolidated balance sheets, results of operations, and cash flows. Certain
information and note disclosures normally included in the annual financial
statements have been condensed or omitted pursuant to those instructions,
although the Company believes that the disclosures made are adequate to make the
information presented not misleading. Therefore, these financial statements
should be read in conjunction with the audited consolidated financial
statements, including the notes thereto, contained in the Company’s 2008 Annual
Report on Form 10-K. The results reported in these financial statements
should not be regarded as necessarily indicative of results that may be expected
for the entire year.





Accounting Estimates – The
Company’s financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America (“US GAAP”). The
preparation of the financial statements requires management to make estimates
and judgments that affect the reported amounts of assets and liabilities and the
disclosure of contingencies at the date of the financial statements, as well as
the reported amounts of revenues and expenses during the reporting period.
Estimates have been prepared on the basis of the most current and best available
information and actual results could differ materially from those
estimates.





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





NOTE 2 3⁄4
RECENT ACCOUNTING
PRONOUNCEMENTS





Adoption
of New Accounting Standards





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements
(“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. Specifically, this
Statement sets forth a definition of fair value, and establishes a hierarchy
prioritizing the inputs to valuation techniques, giving the highest priority to
quoted prices in active markets for identical assets and liabilities and the
lowest priority to unobservable inputs. The provisions of SFAS No. 157 are
generally required to be applied on a prospective basis, except to certain
financial instruments accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, for which the provisions of SFAS
No. 157 should be applied retrospectively. In February 2008, the FASB
issued Staff Position FAS 157-2, Effective Date of FASB Statement
No. 157, which defers the implementation for the non-recurring
nonfinancial assets and liabilities from fiscal years beginning after
November 15, 2007 to fiscal years beginning after November 15, 2008.
The disclosure requirements of SFAS No. 157, which took effect on
January 1, 2008, are presented in Note 4. On January 1, 2009, the
Company implemented the previously-deferred provisions of SFAS No. 157 for
nonfinancial assets and liabilities recorded at fair value as required. The
implementation did not have a material effect on the Company’s consolidated
financial position or results of operations.


6





In
December 2007, the FASB issued SFAS No. 141(R) — Business Combinations (“SFAS
No. 141(R)”). SFAS No. 141(R) replaces FASB Statement
No. 141— Business
Combinations. The new statement retains the fundamental requirements that
the acquisition (or purchase) method of accounting be used for all business
combinations and expands the definition of a business, thus increasing the
number of transactions which may qualify as business combinations. Contingent
consideration will be measured at fair value at the acquisition date, with
changes in fair value recognized in earnings, and transaction-related expenses
and restructuring costs will be expensed as incurred. Changes in acquired tax
contingencies will be recognized in earnings if outside the purchase price
allocation period (generally one year or less). Adjustments to finalize purchase
price allocations will be shown as revised in future financial statements to
reflect the adjustments as if they had been recorded on the acquisition date.
Also, in the event of a bargain purchase (acquisition of a business at below
fair market value of net assets acquired), a gain could be recognized, or in the
event of a change in control of an existing investment, a gain or loss could be
recognized. SFAS No. 141(R) will be applied prospectively to business
acquisitions with acquisition dates on or after January 1, 2009. There is
no current impact as we have made no acquisitions since January 1,
2009.





SFAS No.
162 — In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles (SFAS 162). SFAS 162 identifies a consistent
framework, or hierarchy, for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with GAAP for
nongovernmental entities (the Hierarchy). The Hierarchy within SFAS 162 is
consistent with that previously defined in the American Institute of Certified
Public Accountants (AICPA) Statement on Auditing Standards No. 69, The Meaning
of “Present Fairly in Conformity With Generally Accepted Accounting Principles”
(SAS 69). SFAS 162 is effective 60 days following the SEC’s approval of the
Public Company Accounting Oversight Board amendments to the AICPA’s Auditing
section No. 411, The Meaning of “Present Fairly in Conformity With Generally
Accepted Accounting Principles.” SFAS 162 did not have a material effect because
we utilize the guidance within SAS 69.





Standards
Issued But Not Yet Effective





Other new
pronouncements issued but not yet effective until after December 31, 2008 are
not expected to have a significant effect on the Company’s consolidated
financial position or results of operations.





NOTE 3 3⁄4
RESTRICTED
CASH





The
Company is required to maintain $1.2 million on deposit with a financial
institution to support a bonding requirement for one of the ATSI state
contracts. This amount, and accumulated interest of $120,361 and $116,530 earned
thereon as of March 31, 2009 and December 31, 2008, respectively, is reflected
in restricted cash in the accompanying consolidated balance sheets.





NOTE 4 3⁄4
FAIR VALUE OF FINANCIAL
INSTRUMENTS





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





The
Company accounts for its interest rate swap agreement as a cash flow hedge under
the provisions of SFAS No. 133. The Company has determined that the swap is
95.8% effective for the variable rate debt. Accordingly, the fair value of the
interest rate swap agreement of $2,167,000 and $2,283,000 is included in other
long-term liabilities, as of March 31, 2009 and December 31, 2008,
respectively, related to this interest rate swap. This valuation method, which
is consistent with the second highest level of the valuation hierarchy described
in SFAS No. 157, Fair Value
Measurements, is fair market value based upon an extrapolation of forward
rates for the remaining term of the interest rate swap. A change in market value
of $117,000 related to a change in market value for this derivative, net of a
tax benefit of $45,000, was recorded in other comprehensive loss for the three
months ended March 31, 2009. Hedge ineffectiveness of $55,000 was recognized for
the three-month period ended March 31, 2009 in accordance with management’s
estimation of effectiveness.


7





NOTE 5 3⁄4
STOCK PLANS AND STOCK-BASED
COMPENSATION





Under the
fair value recognition provisions of SFAS No. 123(R),Share Based Payment, the
Company recognizes stock-based compensation based upon the fair value of the
stock-based awards taking into account the effects of the employees’ expected
exercise and post-vesting employment termination behavior. A summary of the
components of the stock-based compensation expense recognized during the
three-month periods ended March 31, 2009 and 2008 is as follows:





Compensation Related to
                            Options and RestrictedStock
                          
                          Three Months
                            Ended
                            March 31, 2009
                          
                          
                          Three Months
                            Ended
                            March 31, 2008Non-qualified stock option expense
                          
                          $
                          37,000
                          
                          
                          $
                          42,000Restricted
      stock
                          
                          
                          74,000
                          
                          
                          
                          282,000Forfeitures
      in excess of estimate
                          
                          
                          (6,000
                          )
                          
                          
                          —Total
      stock-based compensation expense
                          
                          $
                          105,000
                          
                          
                          $
                          324,000





Stock-based
compensation for the three-month period ended March 31, 2009 was $105,000
consisting of $111,000 in stock option and restricted stock expense, offset by
$6,000 in forfeitures due to adjustments for actual forfeitures.





Stock
Options - The Company estimates the fair value of options as of the date
of grant using the Black-Scholes option pricing model. A total of 110,000
options were granted during the three-month period ended March 31, 2009. No
options were granted during the three-month period ended March 31,
2008.  The fair value of options granted during the three-month period
ended March 31, 2009 has been estimated as of the date of grant using the
Black-Scholes option pricing model with the following assumptions:





Three Months
                            Ended March 31, 2009Expected dividend yield
                          
                          
                          —
                          %Expected
      volatility
                          
                          
                          55.3
                          %Risk
      free interest rate
                          
                          
                          2.9
                          %Expected
      life of options
                          
                          6.3
      yearsForfeiture
      rate
                          
                          
                          4.25
                          %


8





The
average fair value of options granted during the three months ended March 31,
2009 was $0.78. As of March 31, 2009, there was $476,320 of unrecognized
compensation expense related to unvested options. This cost is expected to be
recognized over a weighted-average period of 3.3 years. The table below provides
stock option information for the three months ended March 31, 2009:





Number of
                    Shares
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price Per
                    Share
                  
                  
                  Weighted-
                    Average
                    Remaining
                    Contractual
                    Life in Years
                  
                  
                  Aggregate
                    Intrinsic
                    Value of
                    In-the-
                    Money
                    OptionsOptions
      outstanding at January 1, 2009
                  
                  
                  394,500
                  
                  
                  $
                  3.16
                  
                  
                  
                  8.97
                  
                  
                  $
                  —
                  (1)Options
      granted
                  
                  
                  110,000
                  
                  
                  
                  1.40
                  
                  
                  
                  9.76
                  
                  
                  
                  5,500
                  (2)Options
      expired
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Options
      forfeited
                  
                  
                  (26,000
                  )
                  
                  
                  2.44
                  
                  
                  
                  8.98
                  
                  
                  
                  —Options
      outstanding at March 31, 2009
                  
                  
                  478,500
                  
                  
                  $
                  2.79
                  
                  
                  
                  8.95
                  
                  
                  $
                  5,500
                  (2)Options
      exercisable at March 31, 2009
                  
                  
                  73,625
                  
                  
                  $
                  4.14
                  
                  
                  
                  8.26
                  
                  
                  $
                  —
                  (2)





(1)
Intrinsic value represents the excess of the closing stock price on the last
trading day of the preceding period, which was $1.40 as of December 31, 2008,
over the exercise price, multiplied by the number of options.


(2)
Intrinsic value represents the excess of the closing stock price on the last
trading day of the period, which was $1.65 as of March 31, 2009, over the
exercise price, multiplied by the number of options.





The
following table summarizes information about stock options outstanding at March
31, 2009:





Options Outstanding
                      
                      Options ExercisableWeighted-average
                      
                      Weighted-
                      
                      
                      
                      Weighted-Remaining
                      
                      average
                      
                      
                      
                      averageExercise
                      
                      Number
                      
                      Life in
                      
                      Exercise
                      
                      Number
                      
                      ExercisePrices
                      
                      Outstanding
                      
                      Years
                      
                      Price
                      
                      Exercisable
                      
                      Price$
                      1.40
                      
                      
                      110,000
                      
                      9.76
                      
                      $
                      1.40
                      
                      —
                      
                      $
                      —2.15
                      
                      
                      149,000
                      
                      9.17
                      
                      $
                      2.15
                      
                      —
                      
                      
                      —3.40
                      
                      
                      80,000
                      
                      8.72
                      
                      
                      3.40
                      
                      20,000
                      
                      
                      3.403.50
                      
                      
                      30,000
                      
                      8.61
                      
                      
                      3.50
                      
                      7,500
                      
                      
                      3.503.67
                      
                      
                      30,000
                      
                      8.50
                      
                      
                      3.67
                      
                      7,500
                      
                      
                      3.673.75
                      
                      
                      4,500
                      
                      8.30
                      
                      
                      3.75
                      
                      1,125
                      
                      
                      3.754.32
                      
                      
                      15,000
                      
                      7.92
                      
                      
                      4.32
                      
                      7,500
                      
                      
                      4.324.88
                      
                      
                      60,000
                      
                      7.90
                      
                      
                      4.88
                      
                      30,000
                      
                      
                      4.88478,500
                      
                      8.95
                      
                      $
                      2.79
                      
                      73,625
                      
                      $
                      4.14


9


Restricted
Shares – Pursuant to the 2006 Omnibus Incentive Compensation Plan, during
the three-month period ended March 31, 2009, the Company granted 142,000
restricted shares valued at $199,000. Such shares vest ratably over a five-year
period. The table below provides additional restricted share information for the
three months ended March 31, 2009:




Three months
                    Ended March 31, 2009No. of
                    Shares
                  
                  Weighted
                    Average Grant
                    Date Fair
                    ValueUnvested
      at January 1, 2009
                  
                  
                  407,865
                  
                  
                  $
                  3.38Granted
                  
                  
                  142,000
                  
                  
                  
                  1.40Vested
                  
                  
                  (13,151
                  )
                  
                  
                  3.65Forfeited
                  
                  
                  —
                  
                  
                  
                  —Unvested
      at March 31, 2009
                  
                  
                  536,714
                  
                  
                  $
                  2.85





NOTE 6 3⁄4
EMPLOYEE STOCK PURCHASE
PLAN





The
Company adopted the 2007 Employee Stock Purchase Plan (the “Plan”) in July 2007.
The Plan was subsequently approved by the shareholders in May 2008. The Plan
provides employees and management with an opportunity to acquire or increase
ownership interest in the Company through the purchase of shares of the
Company’s common stock at periodic intervals, namely four month offering periods
during which payroll deductions are made and shares are subsequently purchased
at a discount. The Company initially reserved an aggregate of 150,000 shares of
Common Stock exclusively for issuance under the Plan. Additionally, the Company
may automatically increase the shares registered under this Plan on an annual
basis pursuant to the Plan’s “evergreen” provision. This provision allows the
Company to annually increase its registered Plan shares by the lesser of the
following: (i) 100,000 shares, (ii) 1% of the Company’s outstanding shares on
January 1 of such year, or (iii) a lesser amount as determined by the Board.
Accordingly, in the first quarter of 2009, the Company registered an additional
100,000 shares under the Plan.





The Plan
is a qualified plan under Section 423 of the Internal Revenue Code and, for
financial reporting purposes and is considered non-compensatory under SFAS
No. 123R Share Based Payment. Accordingly, there is no stock-based
compensation expense associated with shares acquired under the Plan for the
three-month period ended March 31, 2009. As of March 31, 2009, participants have
purchased 175,453 shares under the Plan at a weighted average price per share of
$1.89. During the three months ended March 31, 2009, 49,972 shares were
purchased at a price per share of $1.20.





NOTE 7 3⁄4
EARNINGS (LOSS) PER
SHARE





Basic and
diluted earnings per share information is presented in accordance with SFAS
No. 128, Earnings Per Share. Basic earnings per share is calculated by
dividing the net income/ (loss) attributable to common stockholders by the
weighted-average common shares outstanding during the period. Diluted earnings
per share is calculated by dividing net income attributable to common
stockholders by the weighted average common shares outstanding which includes
common stock equivalents. The Company’s common stock equivalents include stock
options, restricted stock, and warrants. The weighted average shares outstanding
for the three months ended March 31, 2009 and 2008 excludes unvested restricted
shares and excludes warrants and stock options to purchase approximately
4,006,524 and 37,415,423 shares, respectively, because such common stock
equivalents have an exercise price in excess of the average market price of the
Company’s common stock during the period, or would be
anti-dilutive.





NOTE 8 3⁄4
SEGMENT
ACCOUNTING





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


10


NOTE 9 3⁄4
WARRANTS





On March
31, 2009, the Company had 2,980,175 outstanding warrants that will expire on
October 19, 2009, unless earlier exercised.





NOTE 10 3⁄4
GOODWILL
VALUATION




Goodwill
represents the excess of purchase price over the fair value of net assets
acquired because of various business acquisitions. In accordance with SFAS No.
142, “Goodwill and Other Intangible Assets,” goodwill must be recorded at the
reporting unit level. Reporting units are defined as one level below an
operating segment. We have identified one reporting unit and one operating
segment. SFAS No. 142 prohibits the amortization of goodwill, but requires that
it be tested for impairment at least annually (at any time during the year, but
at the same time each year), or more frequently if events or circumstances
change, such as adverse changes in the business climate, that would more likely
than not reduce the reporting unit’s fair value below its carrying
amount.





The
Company evaluates goodwill for impairment annually in the third fiscal quarter
or more frequently depending on specific events or when evidence of potential
impairment exists.  The annual impairment test is based on several
factors requiring judgment. Principally, a significant decrease in expected cash
flows or changes in general market conditions may indicate potential impairment
of recorded goodwill. Management has concluded that there were no triggering
events that would indicate  an impairment during the quarter ended
March 31, 2009. The Company will continue to monitor the recoverability of the
carrying value of its goodwill and other long-lived assets.




As of
both March 31, 2009 and December 31, 2008, goodwill was $59.1 million. As of
March 31, 2009 and December 31, 2008, our net basis in intangible assets was
$7.8 and $8.3 million, respectively.




NOTE 11 3⁄4
LEGAL
PROCEEDINGS





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





We are a
defendant in Maximus, Inc. vs.
Advanced Technology Systems, Inc., pending in the Connecticut Superior
Court, Complex Litigation Docket. The lawsuit asserts breach of contract and
other claims related to a subcontract between Maximus and ATSI associated with a
prime contract between Maximus and the State of Connecticut. Based on the
complaint filed in the suit, Maximus seeks damages in excess of $3.5 million.
The case was filed in August 2007.





We have
answered the complaint denying Maximus’ claims and have asserted counterclaims.
In January of 2009, the case was consolidated for discovery purposes with an
action brought by the State of Connecticut against Maximus relating to the prime
contract. Discovery has commenced, although at a hearing conducted on March 9,
2009, further depositions were delayed until September 4, 2009 in order to give
the State of Connecticut sufficient time to review documents received from
Maximus. Trial, which had been scheduled for July 2010, is now anticipated to
occur during the first quarter of 2011. Based on the claims asserted in the
lawsuit, we have made an indemnification demand against the former principal
owners of ATSI under the stock purchase agreement governing the transaction in
which the Company (then Federal Services Acquisition Corporation) acquired
ATSI.





Following
the indemnification demand, the former principal owners of ATSI brought an
arbitration against us with the American Arbitration Association claiming that
the former owners do not owe us any indemnification obligations for the Maximus
lawsuit or the Maximus subcontract. At our request, the arbitration was stayed
pending the outcome of the Maximus lawsuit described above.





We have
also asserted other claims against the former principal owners of ATSI based on
the stock purchase agreement governing the transaction, and the former ATSI
owners have asserted certain counterclaims against us. Part of our claims
against the former ATSI owners are covered by escrowed funds while all of the
claims made by the former ATSI owners against us relate to the escrowed funds.
These claims are currently the subject of an ad hoc arbitration. An arbitration
hearing was held the week of March 23, 2009. Post closing briefs were filed
April 13, 2009 and reply briefs were filed on May 4, 2009. The Company is
awaiting the outcome of the arbitration.





ATSI has
asserted claims against the former principal owners of Number Six Software under
the Agreement and Plan of Merger and Reorganization dated October 12, 2007. The
amount of this claim is approximately $0.8 million.


11


NOTE 12 3⁄4
LONG TERM
DEBT





Long term
debt consisted of the following:





March 31,
                    2009
                  
                  December 31,
                    2008Bank
      Financing
                  
                  $
                  27,705,110
                  
                  
                  $
                  32,555,058Notes
      payable
                  
                  
                  3,875,020
                  
                  
                  
                  4,520,833Total
      long-term debt
                  
                  $
                  31,580,130
                  
                  
                  $
                  37,075,891Less
      current portion
                  
                  
                  (2,583,333
                  )
                  
                  
                  (2,583,333
                  )Long-term
      debt, net of current portion
                  
                  $
                  28,996,797
                  
                  
                  $
                  34,492,558




At March
31, 2009, the aggregate maturities of long term debt were as
follows:





Twelve-months Ending March
    31,2010
                  
                  $
                  2,583,3332011
                  
                  
                  28,996,797Total
      long-term debt
                  
                  $
                  31,580,130




Bank
Financing





ATSC has
a credit facility with Bank of America, N.A. (“the Credit Agreement”) which
provides for borrowing up to $50 million.





The
Facility is a three-year, secured facility that permits continuously renewable
borrowings of up to $50.0 million, with an expiration date of June 4, 2010. The
Company pays a fee in the amount of .20% to .375% on the unused portion of the
Facility, based on its consolidated leverage ratio, as defined. Any outstanding
balances under the Facility are due in full June 4, 2010.





Borrowings
under the Facility bear interest at rates based on 30 day LIBOR plus applicable
margins based on the leverage ratio as determined quarterly. As of March 31,
2009, the effective interest rate, excluding the effect of amortization of debt
financing costs, for the outstanding borrowings under the Facility was
4.65%.





The
Company entered into a forward interest rate swap agreement in November 2007
under which it exchanged floating-rate interest payments for fixed-rate interest
payments. The agreement covers debt totaling $35.0 million and provides for swap
payments through December 1, 2010 with such swaps being settled on a monthly
basis. The fixed interest rate provided by the agreement is 4.47%.





As of
March 31, 2009, the outstanding debt balance was $27.7 million. Due to
anticipated transactions, the company expects the outstanding debt balance to
approach $35 million for much of the remaining nine months of 2009 and exceed
$35 million for 2010.  The anticipated effectiveness as measured
against the borrowing stream is 95.8% effective thru the term of the
SWAP.  It continues to be probable that the company will be exposed to
LIBOR interest rate risk associated with future LIBOR based or fixed rate debt
which has embedded LIBOR based risk and the company maintains its hedge with a
counterparty that has the financial strength to honor the hedge obligation, Bank
of America.


12


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





FORWARD-LOOKING
STATEMENTS





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





·
              risks related to the government
      contracting industry, including possible changes in government spending
      priorities;





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





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





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





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


13




Additional
factors that may affect our results are discussed in our Annual Report on
Form 10-K for the year ended December 31, 2008 under “Item 1A. Risk
Factors.” Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
Quarterly Report on Form 10-Q. We undertake no obligation to update these
forward-looking statements, even if our situation changes in the
future.




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





Overview





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





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





Our
diverse customer base consists primarily of U.S. government agencies. For the
quarter ended March 31, 2009, we generated approximately 49% of our revenue from
federal civilian agencies, 35% from defense and homeland security agencies, 16%
from commercial customers, including government-sponsored enterprises. Our
largest clients in the quarter ended March 31, 2009 were the U.S. Department of
Housing and Urban Development (“HUD”), the Pension Benefit Guarantee
Corporation, Fannie Mae, and the Undersecretary of Defense, representing
approximately 21%, 8%, 7% and 7%, respectively, of total revenue.





We derive
substantially all of our revenues from fees for consulting services. We generate
these fees from contracts with various payment arrangements, including time and
materials contracts and fixed-price contracts. During the three months ended
March 31, 2009, revenue from time and materials and fixed-price contracts
were approximately 69% and 31% respectively, of total revenue. We typically
issue monthly invoices to our clients for services rendered. We recognize
revenue on time and materials contracts based on actual hours delivered at the
contracted billable hourly rate plus the cost of materials incurred. We
recognize revenue on fixed-price contracts using the percentage-of-completion
method based on costs we incurred in relation to total estimated cost. However,
if the contract is primarily for services, we recognize revenue on a
straight-line basis over the term of the contract.





On
occasion, we enter into contracts that include the delivery of a combination of
two or more of our service offerings. Typically, such multiple-element
arrangements incorporate the design, development, or modification of systems and
an ongoing obligation to manage, staff, maintain, host, or otherwise run
solutions and systems provided to the client. Such contracts are divided into
separate units of accounting, and the total arrangement fee is allocated to each
unit based on its relative fair value. In accordance with our revenue
recognition policy, revenue is recognized separately for each element. If
evidence of the fair value of each element does not exist, all revenue must be
deferred until such evidence exists, or all elements have been delivered, or
evidence of fair value exists for the undelivered elements.





The fees
under certain government contracts may be increased or decreased in accordance
with cost or performance incentive provisions that measure actual performance
against targets or other criteria. Such incentive fee awards or penalties are
included in revenue at the time the amounts can be reasonably determined.
Provisions for anticipated contract losses are recognized at the time they
become known.





In the
three months ended March 31, 2009, we derived approximately 77% of our revenue
was derived from contracts for which we were the prime contractor and 23% of our
revenue as subcontractors to other prime contractors, who contract directly with
the end-client and subcontract with us.


14





Our most
significant expense is direct cost, which consists primarily of project
personnel salaries and benefits, and direct expenses incurred to complete
projects. The number of consulting personnel assigned to a project will vary
according to the size, complexity, duration, and demands of the project. As of
March 31, 2009, we had 501 personnel who worked on our contracts.





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





Goodwill
Valuation




Goodwill
represents the excess of purchase price over the fair value of net assets
acquired because of various business acquisitions. In accordance with SFAS No.
142, “Goodwill and Other Intangible Assets,” goodwill must be recorded at the
reporting unit level. Reporting units are defined as one level below an
operating segment. We have identified one reporting unit and one operating
segment. SFAS No. 142 prohibits the amortization of goodwill, but requires that
it be tested for impairment at least annually (at any time during the year, but
at the same time each year), or more frequently if events or circumstances
change, such as adverse changes in the business climate, that would more likely
than not reduce the reporting unit’s fair value below its carrying
amount.




The
Company evaluates goodwill for impairment annually in the third fiscal quarter
or more frequently depending on specific events or when evidence of potential
impairment exists.  The annual impairment test is based on several
factors requiring judgment. Principally, a significant decrease in expected cash
flows or changes in general market conditions may indicate potential impairment
of recorded goodwill. Management has concluded there were no triggering events
that would indicate an impairment during the quarter ended March 31, 2009. The
Company will continue to monitor the recoverability of the carrying value of its
goodwill and other long-lived assets.





As of
both March 31, 2009 and December 31, 2008, goodwill was $59.1 million. As of
March 31, 2009 and December 31, 2008, our net basis in intangible assets was
$7.8 and $8.3 million, respectively.





Contract
Backlog





We define
backlog as the future revenue we expect to receive from our existing contracts
and other current engagements. We generally include in backlog the estimated
revenue represented by contract options that have been priced, though not
exercised. We do not include any estimate of revenue relating to potential
future delivery orders that may be awarded under our General Services
Administration Multiple Award Schedule contracts, other Indefinite
Delivery/Indefinite Quantity (“IDIQ”) contracts, or other contract vehicles that
are also held by a large number of firms, an order under which potential further
delivery orders or task orders may be issued by any of a large number of
different agencies and are likely to be subject to a competitive bidding
process. Our backlog as of March 31, 2009, was approximately $179.2 million, of
which $55.9 million was funded.





Recent
Events





None.


15




Results
of Operations (unaudited)





Results
of operations for the three-month period ended March 31, 2009 compared with the
three-month period ended March 31, 2008 are presented below.





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




For the Three
                      
                      
                      
                      
                      
                      For the ThreeMonths Ended
                      
                      
                      
                      
                      
                      Months EndedMarch 31,
                      
                      
                      
                      
                      
                      March 31,2009
                      
                      
                      %
                      
                      
                      2008
                      
                      
                      %Revenue
                      
                      $
                      27,156,514
                      
                      
                      
                      
                      
                      $
                      34,873,525Operating
      costs and expensesDirect
      costs
                      
                      
                      18,195,737
                      
                      
                      
                      67.0
                      %
                      
                      
                      22,268,641
                      
                      
                      
                      63.9
                      %Selling,
      general and administrative expenses
                      
                      
                      6,492,515
                      
                      
                      
                      23.9
                      %
                      
                      
                      9,449,681
                      
                      
                      
                      27.1
                      %Depreciation
      and amortization
                      
                      
                      784,127
                      
                      
                      
                      2.9
                      %
                      
                      
                      2,042,608
                      
                      
                      
                      5.9
                      %Total
      operating costs and expenses
                      
                      
                      25,472,379
                      
                      
                      
                      93.8
                      %
                      
                      
                      33,760,930
                      
                      
                      
                      96.8
                      %Operating
      income
                      
                      
                      1,684,135
                      
                      
                      
                      6.2
                      %
                      
                      
                      1,112,595
                      
                      
                      
                      3.2
                      %Other
      (expense) incomeInterest
      (expense) income, net
                      
                      
                      (774,080
                      )
                      
                      
                      (2.9
                      )%
                      
                      
                      (804,407
                      )
                      
                      
                      (2.3
                      )%Other
      (expense) income
                      
                      
                      —
                      
                      
                      
                      0.0
                      %
                      
                      
                      70,877
                      
                      
                      
                      0.2
                      %Income
      (loss) before income taxes
                      
                      
                      910,055
                      
                      
                      
                      3.4
                      %
                      
                      
                      379,065
                      
                      
                      
                      1.1
                      %Income
      tax expense (benefit)
                      
                      
                      484,466
                      
                      
                      
                      1.8
                      %
                      
                      
                      104,036
                      
                      
                      
                      0.3
                      %Net
      Income (loss)
                      
                      $
                      425,589
                      
                      
                      
                      1.6
                      %
                      
                      $
                      275,029
                      
                      
                      
                      0.8
                      %Weighted
      average number of shares outstanding—basic
                      
                      
                      22,542,200
                      
                      
                      
                      
                      
                      
                      
                      19,242,698—diluted
                      
                      
                      22,542,200
                      
                      
                      
                      
                      
                      
                      
                      19,242,698Net
      income (loss) per share—basic
                      
                      $
                      0.02
                      
                      
                      
                      
                      
                      
                      $
                      0.01—diluted
                      
                      $
                      0.02
                      
                      
                      
                      
                      
                      
                      $
                      0.01





Comparison
of the three months ended March 31, 2009 to the three months ended March 31,
2008.





Revenue -
Revenue decreased by $7.7 million, or 22.1%, to $27.2 million for the three
months ended March 31, 2009. Revenue from commercial contracts decreased by $3.8
million to $4.5 million, or 45.8%. This decline resulted from the down-turn in
the business climate that began in the fourth quarter of 2008 and continued into
the first quarter of 2009.  Fannie Mae and IBM showed significant
decreases in the first quarter 2009, these are expected to be temporary
reductions. Revenue from civilian and defense customers decreased $3.9 million
to $22.7 million, or 14.7%. The most significant reduction was with the US Coast
Guard , which decreased revenue by $1.7 million as a result of a large contract
being converted to a small-business set-aside which caused the Company to assume
a subcontractor role currently limited to approximately 30% of the total
contract value.


16




Direct costs
- Direct costs were 67.0% and 63.9% of revenue for the three-month
periods ended March 31, 2009 and 2008 respectively, an increase of 3.1%. Direct
costs are comprised of direct labor, fringe on this labor, subcontract labor
costs and material and other direct costs (“ODCs”). Material and ODCs are
incurred in response to specific client tasks and may vary from period to
period. The single largest component of direct costs, direct labor, was $9.3
million and $11.4 million for the three-month periods ended March 31, 2009 and
2008, respectively. Overall margins for the first quarter 2009 decreased 3.1%
from 36.1% to 33.0% primarily due to increased loss provisions during the
three-month period ended March 31, 2009 on two fixed price contracts: one
contract with a local government, and the other with the FBI, both scheduled to
end during the 2009 year.  Also, higher fringe costs in the first
quarter are expected to decrease throughout the year.





Selling, general
and administrative (“SG&A”) expenses - The components of SG&A are
marketing, bid and proposal costs, indirect labor and the associated fringe
benefits, facilities costs and other discretionary expenses. As a percentage of
revenue, SG&A expenses were 23.9% and 27.1% for the three-month periods
ended March 31, 2009 and 2008, respectively. Reduced spending in the first
quarter of 2009 is attributable to cost reduction efforts that began in the
second half of 2008 and continue into this calendar year.  As a result
of these efforts, the following major cost categories show the following
reductions in the first quarter 2009 as compared with first quarter 2008:
salaries and related fringe benefits of $1.9 million and building rent and
utilities expenses $0.6 million.





Depreciation and
amortization - Depreciation and amortization expense decreased to 2.9% of
revenue for the three months ended March 31, 2009 compared to 5.9% for the
three-month period ended March 31, 2008. This decrease is primarily related to a
reduction of amortization resulting from the intangible asset impairment
valuation taken during September 2008.





Interest, net
- The net interest expense remained $0.8 million for the three-month
period ended March 31, 2009, as it was for the three-month period ended March
31, 2008. Although we recorded significant decreases to our long-term debt
balance made possible by our positive operating cash flows, our interest expense
remained approximately the same due to the higher interest rates on the LIBOR
monthly floating rate plus applicable rate based on our consolidated leverage
ratio and also the swap ineffectiveness entry.





Income
taxes - The Company reported an income tax expense of $0.5 million and
$0.1 million for the three-month periods ended March 31, 2009 and 2008,
respectively. The effective tax rates were 53.2% and 27.4% for the three-month
periods ended March 31, 2009 and 2008, respectively. The effective rate for the
three-month period ended March 31, 2009 was affected by variances in book-tax
differences which increased the effective rate. The impact of these variances on
the effective tax rate is expected to decrease during the year.





Financial
Condition, Liquidity and Capital Resources





Financial Condition. Total
assets decreased to $99.6 million as of March 31, 2009 from $106.4 million as of
December 31, 2008. This decrease was primarily driven by a $5.8 million
decrease in our accounts receivable related to increased collection efforts and
the resulting decrease in days sales outstanding, as well as a decrease in
overall revenues for the quarter. Additionally, other components of total assets
that changed significantly include:  net intangible assets decreased
by $0.6 million and cash decreased by $0.3 million.





Our total
liabilities decreased $7.7 million to $52.8 million as of March 31, 2009 from
$60.5 million as of December 31, 2008. Significant changes within total
liabilities included a decrease to the revolving credit facility of $4.8 million
due to favorable cash collections, decreases in accounts payable and accrued
expenses of $2.1 million, and a decrease in income taxes payable of $0.6
million, offset by a $0.6 million increase in deferred revenue.


17




Liquidity and Capital
Resources. Our primary liquidity needs are to finance the costs of
operations, acquire capital assets and to make selective strategic acquisitions.
We expect to meet our short-term requirements through funds generated from
operations and from our $50 million line of credit facility. As of March 31,
2009, we had an outstanding balance of $27.7 million on our credit facility. As
noted above, there has been a significant decrease in this debt due to positive
cash flow from operations. The balance is expected to increase slightly to over
$30 million for the balance of the year to meet the requirements of anticipated
growth. The credit facility is considered adequate to meet the operations
liquidity and capital requirements.





Net cash
generated by operating activities was $5.2 million for the three-months ended
March 31, 2009, compared to cash used in operating activities of $4.4 million
for the same period in 2008. Cash generated by operating activities was
primarily driven by ongoing operations, specifically collecting receivables,
which were utilized to pay down the balance on our line of credit facility as
discussed above, as well as accounts payable and other expenses. Depreciation
and amortization were also lower due to the effect of the asset impairment
recorded in September of 2008.





Net cash
used in investing activities was less than $0.1 million for the three-months
ended March 31, 2009, compared to just over $0.1 million used in the same period
in 2008, primarily as a result of reduced capital expenditures.





Net cash
used in financing activities was $5.5 million for the three months ended March
31, 2009, compared to cash provided by financing activities of $3.6 million in
the same period in 2008. The cash was primarily used to pay down the credit
facility and the notes payable from acquisitions in 2007.





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





ATSC has
a credit facility which is a three-year, secured facility that permits
continuously renewable borrowings of up to $50.0 million, with an expiration
date of June 4, 2010 the “Agreement”. The interest rate is based on LIBOR
plus the applicable rate ranging from 200 to 350 basis points depending on the
Company’s consolidated leverage ratio. The Company pays a fee in the amount of
..20% to .375% on the unused portion of the facility, based on its consolidated
leverage ratio, as defined in the Agreement. Any outstanding balances under the
facility are due on the expiration date. The Agreement places certain
restrictions on the Company’s ability to make acquisitions. It also requires the
Company to reduce the principal amount on its loan outstanding by between 50% to
100% of the net cash proceeds from the sale or issuance of equity interests.
 At March 31, 2009, the Company is in compliance with its covenant
agreements.





Off-Balance
Sheet Arrangements





For the
three months ended March 31, 2009, we did not have any off-balance sheet
arrangements.





Contractual
Obligations





The
following table summarizes our contractual obligations as of March 31, 2009 that
require us to make future cash payments.





Less than
                      One Year
                    
                    
                    One to Three
                      Years
                    
                    
                    Three to Five
                      Years
                    
                    
                    More than
                      Five Years
                    
                    
                    Total(in thousands)Long-Term
      Debt Obligations
                    
                    $
                    2,583
                    
                    
                    $
                    28,997
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    31,580Capital
      Leases, including interest
                    
                    
                    72
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    72Operating
      Leases
                    
                    
                    2,354
                    
                    
                    
                    3,750
                    
                    
                    
                    3,556
                    
                    
                    
                    7,991
                    
                    
                    
                    17,651Total
                    
                    $
                    5,009
                    
                    
                    $
                    32,747
                    
                    
                    $
                    3,556
                    
                    
                    $
                    7,991
                    
                    
                    $
                    49,303




18




Recent
Accounting Pronouncements





See Note
2 of the March 31, 2009 Interim Financial Statements.





Standards
Issued But Not Yet Effective





Other new
pronouncements issued but not yet effective until after December 31, 2008 are
not expected to have a significant effect on the Company’s consolidated
financial position or results of operations.





Item 3. Quantitative and Qualitative
Disclosures about Market Risk.





We are
exposed to certain financial market risks, the most predominant being
fluctuations in interest rates for a portion of our borrowings under our credit
facility. As of March 31, 2009, we had an outstanding balance of $27.7 million
under our variable interest rate line of credit. In November 2007, we
hedged the interest rate risk on such debt by executing an interest rate swap as
discussed in Note 4 of the note to consolidated financial
statements.





Item 4. Controls and
Procedures.





Our
management performed an assessment, under the supervision and with the
participation of our Chief Executive Officer (principal executive officer) and
our Chief Financial Officer (principal financial officer), of the effectiveness
of the design and operation of 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 March 31, 2009 and have concluded that these
controls and procedures are effective to ensure that information required to be
disclosed by the Company is recorded, processed, summarized, and reported within
the time periods specified in the Securities and Exchange Commission’s (the
“SEC”) rules and forms. The forms of certification are required in
accordance with Section 302 of the Sarbanes - Oxley Act of
2002.





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





Changes
in Internal Control Over Financial Reporting





During
the three months ended March 31, 2009, no change occurred in the Company’s
internal control over financial reporting that materially affected, or is likely
to materially affect, the Company’s internal control over financial
reporting.





PART II — OTHER
INFORMATION





Item 1. Legal
Proceedings.





See Note
11of the March 31, 2009 Interim Financial Statements.





Item 1A. Risk
Factors.




See Part
I, Item 1A, “Risk Factors,” of the Company’s 2008 Form 10-K for a detailed
discussion of the risk factors affecting the Company.




19


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





On
February 17, 2009, the Company announced a repurchase program pursuant to which
the Company is authorized to purchase up to the lesser of (i) $3.0 million of
common stock or (ii) 2.0 million shares of common stock, in the open market from
time to time over a twelve-month period, subject to certain
limitations.  The Company did not repurchase any equity securities
during this period, either pursuant to this repurchase plan or
otherwise.





Recent
Sales of Unregistered Securities





None.





Item 3.  Defaults upon Senior
Securities.





Not
applicable.





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





None.




Item 5.  Other
Information.





None.





Item 6. 
Exhibits.





Exhibit
                Number
              
              Description31.1
              
              Certification
      of Principal Executive Officer pursuant to
      Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934,
      as amended31.2
              
              Certification
      of Principal Financial Officer pursuant to
      Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934,
      as amended32.1
              
              Certification
      of Principal Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
              
              Certification
      of Principal Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002




20




SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





ATS
      CorporationBy:
                      /s/ Edward H. BersoffChairman
      of the Board andChief
      Executive OfficerBy:
                      /s/ Pamela A. LittleChief
      Financial OfficerDate:
      May 11, 2009




21