**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

** **

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**FORM 10-Q**

** **

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**(Markone)**
| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                        |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                    |
| ** ** | ** ** | **FOR THE QUARTERLY PERIOD ENDED MARCH 31,  2008.**                                                                                                                      |
| ** ** | ** ** | ** **                                                                                                                                                                    |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                       |
| ** ** | ** ** | ** **                                                                                                                                                                    |
| ** ** | ** ** | **FOR THE TRANSITION PERIOD FROM             TO             .** |

 

**COMMISSION FILE NUMBER: 0-51552**

** **

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**ATS CORPORATION**

(Exactname of registrant as specified in its charter)

 

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

 

**7915 Jones Branch Drive**

**McLean, Virginia 22102**

(Addressof principal executive offices)

 

**(703) 506-0088**

(Registrant’stelephone number, including area code)

 

**Not Applicable**

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

 

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

 

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

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

 

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

Yes  o   No  x

 

The number of shares of the issuer’s common stock,$0.0001 par value, outstanding as of May 12, 2008 was 19,277,427.

 

 

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** **

**ATS CORPORATION**

** **

**TABLE OF CONTENTS**

 
| **PART I — FINANCIAL  INFORMATION** |   |
|-----------------------------------------------|--------|
|                                          |   |   |   |
| Item 1.                                       |   | Financial  Statements | 3 |
|                                          |   |   |   |
|                                          |   | Consolidated  Balance Sheets as of March 31, 2008 (unaudited) and as of  December 31, 2007 (audited) | 3 |
|                                          |   |   |   |
|                                          |   | Consolidated  Statements of Operations (unaudited) for the three months ended  March 31, 2008 and March 31, 2007 | 4 |
|                                          |   |   |   |
|                                          |   | Consolidated  Statements of Cash Flows (unaudited) for the three months ended  March 31, 2008 and March 31, 2007 | 5 |
|                                          |   |   |   |
|                                          |   | Notes to  Consolidated Financial Statements | 6 |
|                                          |   |   |   |
| Item 2.                                  |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 9 |
|                                          |   |   |   |
| Item 3.                                  |   | Quantitative  and Qualitative Disclosures about Market Risk | 15 |
|                                          |   |   |   |
| Item 4.                                  |   | Controls and  Procedures | 15 |
|                                          |   |   |   |
| **PART II — OTHER  INFORMATION**    |   |
|                                          |   |   |   |
| Item 1.                                  |   | Legal Proceedings | 16 |
|                                          |   |   |   |
| Item 1A.                                      |   | Risk Factors | 16 |
|                                          |   |   |   |
| Item 2.                                       |   | Unregistered  Sales of Equity Securities and Use of Proceeds | 16 |
|                                          |   |   |   |
| Item 3.                                  |   | Defaults  upon Senior Securities | 17 |
|                                          |   |   |   |
| Item 4.                                       |   | Submission  of Matters to a Vote of Security Holders | 17 |
|                                          |   |   |   |
| Item 5.                                  |   | Other Information | 17 |
|                                          |   |   |   |
| Item 6.                                  |   | Exhibits | 17 |
|                                          |   |   |   |
| **SIGNATURES**                                | 18     |

 

2

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**ATS CORPORATION**

 

**PART I — FINANCIAL INFORMATION**

 

**ITEM 1. — FINANCIALSTATEMENTS**

** **

**CONSOLIDATEDBALANCE SHEETS**

 
| ** **                                                                                                                  | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                                                                                  | ** ** | **2008**           | ** **  | **2007**              | ** ** |
| ** **                                                                                                                  | ** ** | **(unaudited)**    | ** **  | **(audited)**         | ** ** |
| ** **                                                                                                                  | ** ** | ** **         | ** **  | ** **            | ** ** |
| **ASSETS**                                                                                                                  |       |               |        |                  |       |
| **Current  assets**                                                                                                         | ** ** | ** **         | ** **  | ** **            | ** ** |
| Cash                                                                                                                        |       | $                  | 965,988     |                  | $          | 1,901,977 |   |
| Accounts  receivable, net                                                                                                   |       | 37,444,641         |        | 31,191,784            |       |
| Prepaid expenses                                                                                                            |       | 861,852            |        | 923,803               |       |
| Income taxes  receivable                                                                                                    |       | 722,004            |        | 3,493,319             |       |
| Other current  assets                                                                                                       |       | 35,652             |        | 16,663                |       |
| Deferred income  taxes, current                                                                                             |       | 1,934,467          |        | 1,335,965             |       |
|                                                                                                                        |       |               |        |                  |       |
| **Total  current assets**                                                                                                   |       | 41,964,604         |        | 38,863,511            |       |
|                                                                                                                        |       |               |        |                  |       |
| **Property  and equipment, net**                                                                                            |       | 1,257,576          |        | 1,501,409             |       |
| **Goodwill**                                                                                                                |       | 107,608,943        |        | 107,600,686           |       |
| **Intangible  assets, net**                                                                                                 |       | 19,775,380         |        | 21,446,868            |       |
| **Restricted  cash**                                                                                                        |       | 1,292,205          |        | 1,278,489             |       |
| **Other  assets**                                                                                                           |       | 370,051            |        | 259,353               |       |
|                                                                                                                        |       |               |        |                  |       |
| **Total  assets**                                                                                                           |       | $                  | 172,268,759 |                  | $          | 170,950,316 |   |
|                                                                                                                        |       |               |        |                  |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                              |       |               |        |                  |       |
| **Current  liabilities:**                                                                                                   |       |               |        |                  |       |
| Current portion  of long-term debt                                                                                          |       | $                  | 2,670,191   |                  | $          | 2,820,191 |   |
| Capital leases –  current portion                                                                                      |       | 87,889             |        | 96,558                |       |
| Accounts payable  and accrued expenses                                                                                      |       | 8,599,831          |        | 8,634,665             |       |
| Accrued salaries  and related taxes                                                                                         |       | 3,736,075          |        | 4,425,966             |       |
| Accrued vacation                                                                                                            |       | 2,761,756          |        | 2,479,540             |       |
| Income taxes  payable                                                                                                       |       | 229,467            |        | 1,926,225             |       |
| Deferred revenue                                                                                                            |       | 1,746,958          |        | 2,164,574             |       |
| Deferred rent –  current portion                                                                                       |       | 62,477             |        | 80,984                |       |
|                                                                                                                        |       |               |        |                  |       |
| **Total  current liabilities**                                                                                              |       | 19,894,644         |        | 22,628,703            |       |
| **Long-term  debt**–**net of current portion**                                                                         |       | 49,334,983         |        | 45,604,958            |       |
| **Capital  leases**–**net of current portion**                                                                         |       | 66,086             |        | 87,078                |       |
| **Deferred  rent**–**net of current portion**                                                                          |       | 82,950             |        | 94,069                |       |
| **Other  long-term liabilities ($1,800,391 and $678,678 at fair value, respectively)**                                      |       | 1,846,367          |        | 724,654               |       |
| **Deferred  income taxes**                                                                                                  |       | 5,722,671          |        | 6,475,540             |       |
|                                                                                                                        |       |               |        |                  |       |
| **Total  liabilities**                                                                                                      |       | 76,947,701         |        | 75,615,002            |       |
| **Commitments  and contingencies**                                                                                          |       | —             |        | —                |       |
| ** **                                                                                                                  |       |               |        |                  |       |
| **Shareholders’  equity:**                                                                                             |       |               |        |                  |       |
| **Preferred  stock $.001 par value, 1,000,000 shares authorized, and no shares issued and  outstanding**                    |       | —             |        | —                |       |
| **Common  stock $.001 par value, 100,000,000 shares authorized,**                                                           |       |               |        |                  |       |
| **27,607,682 and 27,529,010  shares issued, respectively, and 19,264,927 and 19,186,255 shares  outstanding, respectively** |       | 2,761              |        | 2,753                 |       |
| **Additional  paid-in capital**                                                                                             |       | 129,794,646        |        | 129,384,746           |       |
| **Treasury  stock, at cost**                                                                                                |       | (30,272,007        | )           | (30,272,007           | )          |
| **Accumulated  deficit**                                                                                                    |       | (3,087,379         | )           | (3,362,407            | )          |
| **Accumulated  other comprehensive loss (net of $683,428 and $260,907 tax benefit,  respectively)**                         |       | (1,116,963         | )           | (417,771              | )          |
|                                                                                                                        |       |               |        |                  |       |
| **Total  shareholders’ equity**                                                                                        |       | 95,321,058         |        | 95,335,314            |       |
|                                                                                                                        |       |               |        |                  |       |
| **Total  liabilities and shareholders’ equity**                                                                        |       | $                  | 172,268,759 |                  | $          | 170,950,316 |   |

 

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

 

3

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**ATSCORPORATION**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

 
| ** **                                         | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                         | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** **                                         | ** ** | **(unaudited)**                                      | ** ** | **(unaudited)** | ** ** |
| ** **                                         | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **Revenue**                                        |       | $                                                    | 34,876,525 |   | $ | 23,477,720 |   |
| ** **                                         | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **Operating  costs and expenses**                  | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Direct costs                                       |       | 22,268,641                                           |       | 16,464,217 |   |
| Selling, general  and administrative expenses      |       | 9,449,681                                            |       | 5,970,982 |   |
| Depreciation and  amortization                     |       | 2,042,608                                            |       | 926,162 |   |
| **Total  operating costs and expenses**            |       | 33,760,930                                           |       | 23,361,361 |   |
| ** **                                         | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **Operating  income**                              |       | 1,112,595                                            |       | 116,359 |   |
| ** **                                         | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **Other  (expense) income**                        | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Interest, net                                      |       | (804,407                                             | )          | 143,451 |   |
| Loss on warrant  liabilities                       |       | —                                               |       | (6,930,000 | ) |
| Other income                                       |       | 70,877                                               |       | 735 |   |
|                                               |       |                                                 |       |   |   |
| **Income  (loss) before income taxes**             |       | 379,065                                              |       | (6,669,455 | ) |
|                                               |       |                                                 |       |   |   |
| **Income  tax expense**                            |       | 104,036                                              |       | 102,711 |   |
|                                               |       |                                                 |       |   |   |
| **Net  income (loss)**                             |       | $                                                    | 275,029    |   | $ | (6,772,166 | ) |
|                                               |       |                                                 |       |   |   |
| **Weighted  average number of shares outstanding** | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **—basic**                                    |       | 19,242,698                                           |       | 20,307,248 |   |
| **—diluted**                                  |       | 19,242,698                                           |       | 20,307,248 |   |
| ** **                                         | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **Net  income (loss) per share**                   | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **—basic**                                    |       | $                                                    | 0.01       |   | $ | (0.33 | ) |
| **—diluted**                                  |       | $                                                    | 0.01       |   | $ | (0.33 | ) |

 

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

 

4

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**ATSCORPORATION**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 
| ** **                                                                                                               | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** **                                                                                                               | ** ** | **(unaudited)**                                      | ** ** | **(unaudited)** | ** ** |
| **Cash  flows from operating activities**                                                                                | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Net income  (loss)                                                                                                       |       | $                                                    | 275,029    |   | $ | (6,772,166 | ) |
| Adjustments to  reconcile net income (loss) to net cash (used in) operating activities:                                  |       |                                                 |       |   |   |
| Depreciation and  amortization                                                                                           |       | 2,042,608                                            |       | 892,569 |   |
| Stock-based  compensation                                                                                                |       | 323,895                                              |       | 600,670 |   |
| Deferred income  taxes                                                                                                   |       | (774,136                                             | )          | (1,947,134 | ) |
| Deferred rent                                                                                                            |       | (29,626                                              | )          | — |   |
| Gain on disposal  of equipment                                                                                           |       | (1,058                                               | )          | — |   |
| Loss on warrant  liabilities                                                                                             |       | —                                               |       | 6,930,000 |   |
| Bad debt                                                                                                                 |       | 164,787                                              |       | — |   |
| Miscellaneous  income                                                                                                    |       | (1,433                                               | )          | — |   |
|                                                                                                                     |       |                                                 |       |   |   |
| Changes in  assets and liabilities, net of effects of acquisitions and adjustments  related to other comprehensive loss: |       |                                                 |       |   |   |
| Accounts  receivable                                                                                                     |       | (6,417,644                                           | )          | (1,519,877 | ) |
| Prepaid expenses  and other current assets                                                                               |       | 42,962                                               |       | (3,586,206 | ) |
| Restricted cash                                                                                                          |       | (13,716                                              | )          | (12,899 | ) |
| Other assets                                                                                                             |       | (110,698                                             | )          | 284,248 |   |
| Accrued interest  payable and receivable                                                                                 |       | 17,283                                               |       | — |   |
| Accounts payable  and other accrued expenses                                                                             |       | (41,997                                              | )          | (251,351 | ) |
| Accrued salaries  and related taxes                                                                                      |       | (689,891                                             | )          | (5,033,944 | ) |
| Accrued vacation                                                                                                         |       | 282,216                                              |       | 285,065 |   |
| Income taxes  payable and receivable                                                                                     |       | 919,843                                              |       | 1,432,229 |   |
| Other current  liabilities                                                                                               |       | (417,616                                             | )          | (47,222 | ) |
| Other long-term  liabilities                                                                                             |       | —                                               |       | (113,221 | ) |
|                                                                                                                     |       |                                                 |       |   |   |
| **Net  cash used in operating activities**                                                                               |       | (4,429,192                                           | )          | (8,859,239 | ) |
|                                                                                                                     |       |                                                 |       |   |   |
| **Cash  flows from investing activities**                                                                                | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Purchase of  property and equipment                                                                                      |       | (130,748                                             | )          | (10,308 | ) |
| Proceeds from  disposals of equipment                                                                                    |       | 4,519                                                |       | — |   |
| Acquisitions of  businesses – net of cash acquired                                                                  |       | (18,377                                              | )          | (80,356,399 | ) |
| Sale of U.S.  government securities held in trust fund                                                                   |       | —                                               |       | 121,024,475 |   |
| Release of cash  held in trust fund                                                                                      |       | —                                               |       | 1,332 |   |
|                                                                                                                     |       |                                                 |       |   |   |
| **Net  cash (used in) provided by investing activities**                                                                 |       | (144,606                                             | )          | 40,659,100 |   |
|                                                                                                                     |       |                                                 |       |   |   |
| **Cash  flows from financing activities**                                                                                | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Net borrowings  on lines-of-credit                                                                                       |       | 4,375,858                                            |       | — |   |
| Payments on  notes payable                                                                                               |       | (795,833                                             | )          | — |   |
| Payments on  capital leases                                                                                              |       | (28,229                                              | )          | (13,203 | ) |
| Proceeds from  stock issued regarding Employee Stock Purchase Plan                                                       |       | 86,013                                               |       | — |   |
| Payments to  repurchase treasury stock                                                                                   |       | —                                               |       | (30,272,007 | ) |
|                                                                                                                     |       |                                                 |       |   |   |
| **Net  cash provided by (used in) financing activities**                                                                 |       | 3,637,809                                            |       | (30,285,210 | ) |
| ** **                                                                                                               | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **Net  (decrease) increase in cash**                                                                                     |       | (935,989                                             | )          | 1,514,651 |   |
|                                                                                                                     |       |                                                 |       |   |   |
| **Cash,****beginning of period**                                                                                         |       | 1,901,977                                            |       | 213,395 |   |
|                                                                                                                     |       |                                                 |       |   |   |
| **Cash,****end of period**                                                                                               |       | $                                                    | 965,988    |   | $ | 1,728,046 |   |
| ** **                                                                                                               |       |                                                 |       |   |   |
| **Supplemental  disclosures:**                                                                                           |       |                                                 |       |   |   |
| Cash paid or  received during the period for:                                                                            |       |                                                 |       |   |   |
| Income taxes  paid                                                                                                       |       | $                                                    | 1,308,333  |   | $ | 569,866 |   |
| Income tax  refunds                                                                                                      |       | 1,350,000                                            |       | — |   |
| Interest paid                                                                                                            |       | 821,284                                              |       | 5,427 |   |
| Interest  received                                                                                                       |       | 34,160                                               |       | 153,349 |   |
| Non-cash  financing activities and adjustment to other comprehensive loss:                                               |       |                                                 |       |   |   |
| Issuance of  stock related to acquisition of businesses                                                                  |       | —                                               |       | 1,200,000 |   |
| Notes payable  issued related to acquisition of businesses                                                               |       | —                                               |       | 86,857 |   |
| Unrealized other  comprehensive loss on interest rate swap – net of tax                                             |       | (699,192                                             | )          | — |   |
|                                                                                                                          |            |                                                      |            |  |  |  |  |  |  |

 

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

 

5

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**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**NOTE 1****3⁄4BASISOF PRESENTATION**

 

*Principlesof Consolidation* - The consolidated financial statementsinclude the accounts of ATS Corporation and its subsidiary (the “Company”).  All material intercompany accounts, transactions,and profits are eliminated in consolidation. The 2007 financial statements reflect the results of operations ofacquired companies from the date acquired.

 

The accompanyingconsolidated financial statements of the Company have been prepared bymanagement in accordance with the instructions to Form 10-Q of theSecurities and Exchange Commission. These statements include all adjustments considered necessary bymanagement to present a fair statement of the consolidated balance sheets,results of operations, and cash flows. The results reported in these financial statements should not beregarded as necessarily indicative of results that may be expected for theentire year.  These financial statementsshould be read in conjunction with the audited consolidated financialstatements, including the notes thereto, contained in the Company’s 2007 AnnualReport on Form 10-K.

 

*AccountingEstimates* – The Company’s financial statements have beenprepared in conformity with accounting principles generally accepted in theUnited States of America (“GAAP”).  Thepreparation of the financial statements requires management to make estimatesand judgements that affect the reported amounts of assets and liabilities andthe disclosure of contingencies at the date of the financial statements, aswell as the reported amounts of revenues and expenses during the reportingperiod.  Estimates have been prepared onthe basis of the most current and best available information and actual resultscould differ materially from those estimates.

 

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

 

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

 

**Adoptionof New Accounting Standards**

 

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

 

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

 

6

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**StandardsIssued But Not Yet Effective**

 

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

 

In December 2007,the FASB issued SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements—An Amendment of ARB No. 51*(“SFAS 160”).SFAS 160 establishes new accounting and reporting standards for the non-controllinginterest in a subsidiary and for the deconsolidation of a subsidiary.SFAS 160 is effective for fiscal years beginning on or after December 15,2008 and early adoption is prohibited. Adoption of this statement is not expected to have a material impact onthe Company’s consolidated financial position or results of operations when itbecomes effective in 2009, but may significantly affect the accounting fornoncontrolling (or minority) interests from that date forward.

 

In March 2008, the FASB issued Statement SFAS No. 161,*Disclosure about Derivative Instruments and HedgingActivities — An Amendment of FASB Statement No. 133* (“SFAS No. 161”). SFAS No. 161 requires more disclosures about an entity’s derivativeand hedging activities in order to improve the transparency of financialreporting.  SFAS No. 161 is effective for financial statementsissued for fiscal years and interim periods beginning after November 15,2008, with early application encouraged.  This Statement encourages,but does not require, comparative disclosures for earlier periods at initialadoption.  The Company will adopt the provisions of SFAS No. 161on January 1, 2009, which is not expected to have a material impact on theCompany’s consolidated financial statements.

 

**NOTE 3****3⁄4RESTRICTEDCASH**

 

The Company is required to maintain $1,200,000 ondeposit with a financial institution to support a bonding requirement for oneof ATSI’s state contracts.  This amount,and accumulated interest earned thereon, are reflected in restricted cash inthe accompanying consolidated balance sheets.

 

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

 

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

 

A $1.8 million and $0.7 million liability areincluded in other long-term liabilities, as of March 31, 2008 and December 31,2007, respectively, related to this interest rate swap, which is recorded atfair market value based upon an extrapolation of forward rates for theremaining term of the interest rate swap. A $0.6 million loss related to a change in market value for thisderivative, net of a tax benefit of $0.5 million, was recorded in othercomprehensive loss for the three months ended March 31, 2008.

 

7

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

 

In December 2004, the FASB issued SFAS No. 123(R),Share Based Payment, which requires that compensation costs related toshare-based payment transactions be recognized in financial statements. Underthe fair value recognition provisions of SFAS No. 123(R), the Company recognizesstock-based compensation based upon the fair value of the stock-based awardstaking into account the effects of the employees expected exercise andpost-vesting employment termination behavior.

 
| **Compensation Related to Options and Restricted  Stock and selling expenses** | ** ** | **March 31, 2008** | ** ** | **March 31, 2007** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| Non-qualified stock option expense                                                                      |       | $                            | 41,668     |                         | $          | 600,670 |   |
| Restricted stock                                                                                                       |       | 282,227                      |       | _                            |       |
| Total  stock-based compensation expense                                                                                |       | $                            | 323,895    |                         | $          | 600,670 |   |

 

The fair value of options granted during the periodended March 31, 2008 has been estimated as of the date of grant using theBlack-Scholes option pricing model with the following assumptions:

 
| ** **                | ** ** | **Three Months  Ended March 31,** | ** ** |
|---------------------------|------------|--------------------------------------------------|------------|
| ** **                | ** ** | **2008**                                         | ** ** |
| Expected  dividend yield  |       | 0                                                | %          |
| Expected  volatility      |       | 38                                               | %          |
| Risk free  interest rate  |       | 4.4                                              | %          |
| Expected life of  options |       | 5.8 years                                        |       |
| Forfeiture rate           |       | 4                                                | %          |

 

**NOTE 6****3⁄4INCOMETAXES**

 

The Company’s effective tax rates are based upon theestimated effective tax rate applicable for the full fiscal year which is38.62%.

 

**NOTE 7****3⁄4INCOME(LOSS) PER SHARE**

 

Basic and diluted earnings per share information ispresented in accordance with SFAS No. 128, Earnings Per Share.  Basic earnings per share is calculated bydividing the net income attributable to common stockholders by the weighted-averagecommon shares outstanding during the period. Diluted earnings per share is calculated by dividing net incomeattributable to common stockholders by the weighted average common sharesoutstanding which includes common stock equivalents.  The Company’s common stock equivalentsinclude stock options, restricted stock units, and warrants.    The weighted average shares outstanding forthe three months ending March 31, 2008 and 2007 exclude warrants and stockoptions to purchase approximately 37,415,423 and 42,755,754 shares,respectively, because such options or warrants have an exercise price in excessof the average market price of the Company’s common stock during the period.

 

**NOTE 8****3⁄4SEGMENTACCOUNTING**

 

The Company has only one reportable segment.

 

**NOTE 9****3⁄4SUBSEQUENTEVENT**

 

*Warrant Exchange Offer* - On April 8, 2008, the Company announced an offer, to holders ofall 36,380,195 outstanding, publicly-traded warrants, that would permit theexercise of the warrants on amended terms, for a limited time.  The offer modified the terms of the warrantsto allow holders to receive one share of common stock for every 12.5 warrants 

 

8

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surrendered, without paying a cash exerciseprice.  In addition, for each 10 warrantsa holder tenders in the cashless exercise, the holder may also exercise oneadditional warrant by paying a reduced cash exercise price of $2.25 for oneshare of common stock.

 

If all of the outstanding warrants are tenderedwithout payment of a cash exercise price, a maximum of 2,910,415 shares ofcommon stock would be issued in exchange. If the maximum number of outstanding warrants were tendered inconjunction with the cash exercise option, a maximum of 5,953,122 shares ofcommon stock would be issued in exchange and the Company would receive $7.4million in cash.  These amounts aretheoretical maximums, without consideration for the actual distribution ofspecific amounts of warrants outstanding and the fact that no fractional shareswill be issued.

 

The offer commenced on April 8, 2008, and wasextended on May 2, 2008 until May 16, 2008.  Upon termination of the offer, the originalterms of the warrants will be reinstituted and the warrants will expire on October 19,2009, unless earlier redeemed according to their original terms.

 

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

 

***FORWARD-LOOKING STATEMENTS***

 

Someof the statements in this Quarterly Report on Form 10-Q constituteforward-looking statements.  Thesestatements involve known and unknown risks, uncertainties, and other factorsthat may cause our actual results, levels of activity, performance orachievements to be materially different from any future results, levels ofactivity, performance or achievements expressed or implied by suchforward-looking statements.  In somecases, you can identify these statements by forward-looking words such as “anticipate,”“believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,”“should,” “will,” and “would” or similar words. You should read statements that contain these words carefully becausethey discuss our future expectations, contain projections of our future resultsof operations or of our financial position, or state other forward-lookinginformation.  The factors described inour filings with the SEC, as well as any cautionary language in this QuarterlyReport on Form 10-Q, provide examples of risks, uncertainties and eventsthat may cause our actual results to differ materially from the expectations wedescribe in our forward-looking statements, including but not limited to:

 

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

 

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

 

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

 

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

 

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

 

Additional factors that may affect our results arediscussed in our Annual Report on Form 10-K for the year ended December 31,2007 under “Item 1A. Risk Factors.” Although we believe the expectations reflected in the forward-lookingstatements are reasonable, we cannot guarantee future results, levels ofactivity, 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 theseforward-looking statements, even if our situation changes in the future.

 

The terms “we” and “our” as used throughout thisQuarterly Report on Form 10-Q refer to ATS Corporation and itsconsolidated subsidiary, unless otherwise indicated.

 

9

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**Overview**

 

ATS Corporation (“ATSC” or the “Company”) wasorganized as a “blank check” company under the laws of the State of Delaware onApril 12, 2005 and was formed for the purpose of acquiring, through amerger, capital stock exchange, asset acquisition, stock purchase or othersimilar business combination, an operating business in the federal services anddefense industries. The Company acquired four companies in 2007.  Their results are included in the results ofoperations for 2007 from the dates of acquisition.  Calendar year 2008 is the first full yearthat ATSC is an operating company with the acquisitions fully integrated intoits operations.

 

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

 

Our diverse customer base consists primarily of U.S.government agencies. For the quarter ended March 31, 2008, ATSC generatedapproximately 44% of our revenues from federal civilian agencies, 29% fromdefense and homeland security agencies, 24% from commercial customers,including government-sponsored enterprises, and 3% from state and localcustomers. ATSC’s largest clients in the quarter ended March 31, 2008 werethe U.S. Department of Housing and Urban Development (“HUD”), Fannie Mae, andthe U.S. Coast Guard, representing approximately 18%, 10% and 9%, respectively,of our total revenue.

 

We derive substantially all of our revenues from feesfor consulting services.  We generatethese fees from contracts with various payment arrangements, including time andmaterials contracts and fixed-price contracts. During the three months ended March 31, 2008, revenues from timeand materials and fixed-price contracts were approximately 65% and 35%,respectively, of total revenues.  Wetypically issue monthly invoices to our clients for services rendered.  We recognize revenues on time and materialscontracts based on actual hours delivered at the contracted billable hourlyrate plus the cost of materials incurred. We recognize revenues on fixed-price contracts using thepercentage-of-completion method based on costs we incurred in relation to totalestimated costs.  However, if thecontract is primarily for services. we recognize revenues on a straight-linebasis over the term of the contract.  Werecognize cost-type contracts to the extent of costs incurred plus aproportionate amount of fee earned.

 

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

 

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

 

In the three months ended March 31, 2008, wederived approximately 26% of our revenues through relationships with primecontractors, who contract directly with the end-client and subcontract with us.

 

Our most significant expense is direct cost, whichconsists primarily of project personnel salaries and benefits, and directexpenses incurred to complete projects. The number of consulting personnel assigned to a project will varyaccording to the size, complexity, duration, and demands of the project.  As of March 31, 2008, we had 553personnel that worked on our contracts.

 

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

 

10

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**Contract Backlog**

 

We define backlog as the future revenue we expect toreceive from our existing contracts and other current engagements.  We generally include in backlog the estimatedrevenue represented by contract options that have been priced, though notexercised.  We do not include anyestimate of revenue relating to potential future delivery orders that may beawarded under our General Services Administration Multiple Award Schedulecontracts, other Indefinite Delivery/Indefinite Quantity  (“IDIQ”) contracts, or other contractvehicles that are also held by a large number of firms, an order under whichpotential further delivery orders or task orders may be issued by any of alarge number of different agencies and are likely to be subject to acompetitive bidding process.  Our backlogas at March 31, 2008, was approximately $197.2 million, of which $87.3million was funded.

 

**Recent Events**

 

**Warrant Exchange Offer**

 

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

 

If all of the outstanding warrants are tenderedwithout payment of a cash exercise price, a maximum of 2,910,415 shares ofcommon stock would be issued in exchange. If the maximum number of outstanding warrants were tendered inconjunction with the cash exercise option, a maximum of 5,953,122 shares ofcommon stock would be issued in exchange and the Company would receive $7.4million in cash.  These amounts aretheoretical maximums, without consideration for the actual distribution ofspecific amounts of warrants outstanding and the fact that no fractional shareswill be issued.

 

The offer commenced on April 8, 2008, and wasextended on May 2, 2008 until May 16, 2008.  Upon termination of the offer, the originalterms of the warrants will be reinstituted and the warrants will expire on October 19,2009, unless earlier redeemed according to their original terms.

 

11

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**Results of Operations (unaudited)**

 

Results of operations forthe three months ended March 31, 2008 compared with the three months endedMarch 31, 2007 are presented below.

 

The following tables setforth certain financial data as dollars and as a percentage of revenues.

 
| ** **                                         | ** ** | **For the Three** | ** ** | ** ** | ** ** | **For the Three** | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|------------|------------|-----------------------------|------------|------------|------------|
| ** **                                         | ** ** | **Months Ended**       | ** ** | ** ** | ** ** | **Months Ended**       | ** ** | ** ** | ** ** |
| ** **                                         | ** ** | **March 31,**          | ** ** | ** ** | ** ** | **March 31,**          | ** ** | ** ** | ** ** |
| ** **                                         | ** ** | **2008**                    | ** ** | **%**      | ** ** | **2007**                    | ** ** | **%**      | ** ** |
|                                               |       |                        |       |       |       |                        |       |       |       |
| **Revenue**                                        |       | $                           | 34,876,525 |       |       |                        | $          | 23,477,720 |       |   |   |
| ** **                                         | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** |
| **Operating  costs and expenses**                  | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Direct costs                                       |       | 22,268,641                  |       | 63.8       | %          | 16,464,217                  |       | 70.1       | %          |
| Selling, general  and administrative expenses      |       | 9,449,681                   |       | 27.1       | %          | 5,970,982                   |       | 25.5       | %          |
| Depreciation and  amortization                     |       | 2,042,608                   |       | 5.9        | %          | 926,162                     |       | 3.9        | %          |
|                                               |       |                        |       |       |       |                        |       |       |       |
| **Total  operating costs and expenses**            |       | 33,760,930                  |       | 96.8       | %          | 23,361,361                  |       | 99.5       | %          |
| ** **                                         | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** |
| **Operating  income**                              |       | 1,112,595                   |       | 3.2        | %          | 116,359                     |       | 0.5        | %          |
| ** **                                         | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** |
| **Other  (expense) income**                        | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Interest, net                                      |       | (804,407                    | )          | (2.3       | )%         | 143,451                     |       | 0.6        | %          |
| Loss on warrant  liabilities                       |       | —                      |       | —     |       | (6,930,000                  | )          | (29.5      | )%         |
| Other income                                       |       | 70,877                      |       | 0.2        | %          | 735                         |       | —     |       |
|                                               |       |                        |       |       |       |                        |       |       |       |
| **Income  (loss) before income taxes**             |       | 379,065                     |       | 1.1        | %          | (6,669,455                  | )          | (28.4      | )%         |
|                                               |       |                        |       |       |       |                        |       |       |       |
| **Income  tax expense**                            |       | 104,036                     |       | 0.3        | %          | 102,711                     |       | 0.4        | %          |
|                                               |       |                        |       |       |       |                        |       |       |       |
| **Net  Income (Loss)**                             |       | $                           | 275,029    |       | 1.3        | %                           | $          | (6,772,166 | )          | (28.8 | )% |
|                                               |       |                        |       |       |       |                        |       |       |       |
| **Weighted  average number of shares outstanding** | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** |
| **—basic**                                    |       | 19,242,698                  |       |       |       | 20,307,248                  |       |       |       |
| **—diluted**                                  |       | 19,242,698                  |       |       |       | 20,307,248                  |       |       |       |
| ** **                                         | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** |
| **Net  income (loss) per share**                   | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** |
| **—basic**                                    |       | $                           | 0.01       |       |       |                        | $          | (0.33      | )          |   |   |
| **—diluted**                                  |       | $                           | 0.01       |       |       |                        | $          | (0.33      | )          |   |   |

 

***Revenue***– Revenue increased by $11.4 million, or 48%, to $34.9 million for the threemonths ended March 31, 2008.  Thefirst quarter was strongly influenced by the acquisitions in 2007.  Revenue from commercial contracts increased$2.2 million to $8.3 million, or 36%. Revenue from the civilian and defense divisions increased $9.2 millionto $26.6 million, or 53%.  Growth withexisting customers combined with revenue from new sources such as the UnitedStates Air Force and the United States Coast Guard have driven this increase.

 

12

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***Directcosts –***Direct costs were 63.8% and 70.1% of revenue forthe periods ended March 31, 2008 and 2007, an improvement of 6.3%.  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 incurredin response to specific client tasks and may vary from period to period.  The single largest component of direct costs,direct labor, was $11.4 million and $7.0 million for the periods ended March 31,2008 and 2007, respectively.  Thisincrease was attributable to three full months of operations in the firstquarter 2008 compared to two and one-half months in the first quarter 2007, aswell as the effect of additional acquisitions in 2007.  Overall margins for the first quarter 2008 inthe commercial division improved 1.5% over 2007 to 33.3% from 31.8%  This is attributable to higher marginsassociated with acquired commercial business in 2007.  Higher margins in the defense division arealso driving this margin improvement.

 

***Selling,general and administrative (“SG&A”) expenses –***Componentsof SG&A are marketing, bid and proposal costs, indirect labor and theassociated fringe benefits, facilities costs and other discretionaryexpenses.  As a percentage of revenue,SG&A expenses were 27.1% and 25.5% for the periods ended March 31,2008 and 2007, respectively. Approximately 0.7% of this 1.6% increase was related to increased legalfees.  See Part II, Item 1concerning legal proceedings.  Also, thebusiness development function has been enhanced to address the expanded marketspresented by the acquisitions made in 2007.

 

***Depreciationand amortization –***Amortization expenses increased to5.9% of revenue for the three months ended March 31, 2008 compared to 3.9%for the period ended March 31, 2007. This was directly related to additional intangible amortization expenseassociated with acquisitions in  2007.

 

***Interest,net –***The net change in interest (expense) income was$0.9 million for the three months ended March 31, 2008 compared with March 31,2007.  This is a result of liquidatinginvestments we held prior to the acquisition of Advanced Technology Systems,Inc, and borrowings to finance other acquisitions made in 2007, as well asinterest on notes with the former owners of the acquired companies.

 

**FinancialCondition, Liquidity and Capital Resources**

 

**FinancialCondition. **Total assets increased $1.3 million to $172.3million as of March 31, 2008 compared to $171.0 million as of December 31,2007.  This was primarily due to anincrease in trade accounts receivable of $6.2 million and decreases in incometaxes receivable of $2.8 million and net intangible assets of $1.7million.  The increase in trade accountsreceivable was due to issues related to the integration of acquired companies.

 

Ourtotal liabilities increased $1.3 million to $76.9 million as of March 31,2008 from $75.6 million as of December 31, 2007.  This was primarily caused by increasedborrowings under our lines of credit of $4.4 million and decreases in taxespayable of $1.9 million and deferred taxes of $0.8 million.

 

**Liquidityand Capital Resources. **Our primary liquidity needs are to financethe costs of operations, acquire capital assets and to make selective strategicacquisitions.  We expect to meet ourshort-term requirements through funds generated from operations and from our$50 million line of credit facility.   As of March 31, 2008, we had an outstanding balance of $45.4million on the line of credit.  As notedabove, there was a large increase in accounts receivable in the firstquarter.  The balance is expected todecline now that these integration efforts have been completed, thus reducingthe outstanding balance on the line of credit. This line of credit is considered adequate to meet the operationsliquidity and capital requirements, as well as support our strategicacquisitions.

 

Netcash used by operating activities was $4.4 million for the three months ended March 31,2008.  Cash used by operating activitieswas primarily driven by working capital changes, which were principally changesin accounts receivable as discussed above.

 

Netcash used by investing activities was $0.1 million for the three months ended March 31,2008.

 

Netcash provided by financing activities was $3.6 million for the three monthsended March 31, 2008.  This was usedto fund most of the working capital growth during the first quarter.

 

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

 

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OnMay 12, 2008, ATSC and its lenders modified the terms of the Company’s creditagreement, effective March 31, 2008. The facility is a three-year, secured facility that permits continuouslyrenewable borrowings of up to $50.0 million, with an expiration date of June 4,2010. The interest rate is based on LIBOR plus the applicable rate ranging from200 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 ofthe facility, based on its consolidated leverage ratio, as defined in theagreement.  Any outstanding balancesunder the facility are due in full June 4, 2010.  The amended agreement places certainrestrictions on the Company’s ability to make acquisitions.  It also requires the Company to reduce theprincipal amount on its loan outstanding by between 50% to 100% of the net cashproceeds from the sale or issuance of equity interests, other than the warrantexercise program currently in process.

 

**Off-BalanceSheet Arrangements**

 

Asof the three months ended March 31, 2008, we did not have any off-balancesheet arrangements.

 

***Contractual Obligations***

 

*The following table summarizes our contractual obligationsas of March 31, 2008 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 |       | $                                 | 1,851      |                              | $          | 46,433                             |       | $                                   | —     |      | $          | — |   | $ | 48,284 |   |
| Capital Leases              |       | 78                                |       | 95                                |       | —                             |       | —                              |       | 173       |       |
| Operating Leases            |       | 1,997                             |       | 4,528                             |       | 5,267                              |       | 8,445                               |       | 20,237    |       |
| Total                       |       | $                                 | 3,926      |                              | 51,056     |                               | $          | 5,267                               |       | $         | 8,445      |   | $ | 68,694 |   |
|                             |            |                                   |            |                                   |            |                                    |            |                                     |            |           |            |  |  |  |  |  |

 

***Recent Accounting Pronouncements***

 

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

 

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

 

**StandardsIssued But Not Yet Effective.  **InDecember 2007, the FASB issued SFAS No. 141(R)—*BusinessCombinations*(“SFAS No. 141(R)”).  SFAS No. 141(R) replaces FASBStatement No. 141—*Business Combinations*.The new statement retains the fundamental requirements that the acquisition (orpurchase) method of accounting be used for all 

 

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business combinations and expands the definition of abusiness, thus increasing the number of transactions which may qualify asbusiness combinations. Contingent consideration will be measured at fair valueat the acquisition date, with changes in fair value recognized in earnings, andtransaction-related expenses and restructuring costs will be expensed asincurred. Changes in acquired tax contingencies will be recognized in earningsif outside the purchase price allocation period (generally one year or less).Adjustments to finalize purchase price allocations will be shown as revised infuture financial statements to reflect the adjustments as if they had beenrecorded 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) again could be recognized, or in the event of a change in control of an existinginvestment a gain or loss could be recognized. SFAS No. 141(R) willbe applied prospectively to business acquisitions with acquisition dates on orafter January 1, 2009. The Company is currently assessing the impact ofadopting SFAS No. 141(R) on its consolidated financial statements.

 

In December 2007,the FASB issued SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements–An Amendment of ARB No. 51*(“SFAS 160”).SFAS 160 establishes new accounting and reporting standards for thenon-controlling interest in a subsidiary and for the deconsolidation of asubsidiary. SFAS 160 is effective for fiscal years beginning on or after December 15,2008 and early adoption is prohibited. Adoption of this statement is not expected to have a material impact onthe Company’s consolidated financial position or results of operations when itbecomes effective in 2009, but may significantly affect the accounting fornoncontrolling (or minority) interests from that date forward.

 

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

** **

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

 

We are exposed to certainfinancial market risks, the most predominant being fluctuations in interestrates for a portion of our borrowings under our credit facility.  As of March 31, 2008, we had anoutstanding balance of $45.4 million under our variable interest rate line ofcredit.  In November 2007, we hedgedthe interest rate risk on $35 million of this debt by executing an interestrate swap as discussed in Note 4 of the financial statements.

 

**Item 4. Controls and Procedures.**

 

Our management performed an assessment, under thesupervision and with the participation of our Chief Executive Officer(principal executive officer) and our Chief Financial Officer (principalfinancial officer) of the effectiveness of the design and operation of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) or15d-15(e) of the Securities Exchange Act of 1934, as amended) as of March 31,2008 and have concluded that these controls and procedures are effective toensure that information required to be disclosed by the Company is recorded,processed, summarized, and reported within the time periods specified in theSecurities and Exchange Commission’s (the “SEC”) rules and forms.  The forms of certification are required inaccordance with Section 302 of the Sarbanes – Oxley Act of 2002.

 

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

 

**Changesin Internal Control Over Financial Reporting**

 

During the three monthsended March 31, 2008, no change occurred in the Company’s internal controlover financial reporting that materially affected, or is likely to materiallyaffect, the Company’s internal control over financial reporting.

 

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**PART II — OTHER INFORMATION**

 

**Item 1. Legal Proceedings.**

 

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

 

We are a defendant in *Maximus, Inc. vs. Advanced Technology Systems, Inc.*,pending in the Connecticut Superior Court, Hartford District.  The lawsuit asserts breach of contract andother claims related to a subcontract between Maximus and Advanced TechnologySystems, Inc. (“ATSI”) associated with a prime contract between Maximus and theState of Connecticut.  The case was filedin August 2007 and is in the preliminary stages of discovery.  We have filed our answer and counterclaims,and Maximus’ response to our counterclaims is due May 24, 2008.  In addition, based on the claims asserted inthe lawsuit, we have made an indemnification demand against the sellingshareholders of ATSI under the stock purchase agreement governing thetransaction in which the Company (then Federal Services AcquisitionCorporation) acquired ATSI.  That demandis subject to the dispute resolution process provided for in the stock purchaseagreement.  This has been submitted toarbitration.

 

**Item 1A. Risk Factors.**

 

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

 

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

 

The Company did notrepurchase any equity securities this period.

 

**RecentSales of Unregistered Securities**

 

On January 16, 2007,in connection with the closing of the acquisition of ATSI, the Company issued173,913 shares of common stock, valued at $1.0 million for purposes of thetransaction, to the selling shareholders of ATSI. These shares constituted aportion of the transaction consideration. The issuance of the shares was exemptas a private placement pursuant to Section 4(2) of the Securities Actof 1933.

 

On March 1, 2007, inconnection with the closing of the acquisition of RISI, the Company issued46,296 shares of common stock, valued at $0.2 million for purposes of thetransaction, to the selling shareholders of RISI. The Company also issued a subordinatednote to the selling shareholders, valued at $0.1 million. These shares and noteconstituted a portion of the transaction consideration. The issuance of theshares was exempt as a private placement pursuant to Section 4(2) ofthe Securities Act of 1933.

 

On September 1,2007, in connection with the closing of the acquisition of PMG, the Companyissued 134,408 shares of common stock, valued at $0.5 million for purposesof the transaction, to the selling shareholders of PMG. The Company also issuedtwo subordinated notes to the selling stockholders, valued at $2.25 million.  These shares and notes constituted a portionof the transaction consideration. The issuance of the shares and notes wasexempt as a private placement pursuant to Section 4(2) of theSecurities Act of 1933.

 

On November 9, 2007,in connection with the closing of the acquisition of NSS, the Company issued845,812 shares of common stock, valued at $3.05 million for purposes of thetransaction, to the selling shareholders of NSS.  The Company also issued five subordinatednotes to the selling shareholders, valued at $5.5 million.  These shares and notes constituted a portionof the transaction consideration.  Theissuance of the shares and notes was exempt as a private placement pursuant to Section 4(2) ofthe Securities Act of 1933, as amended.

 

In lieu of cash for directorfee compensation, a total of 11,462 shares of unregistered stock, valued atapproximately $42,650, were issued to six directors of the Company on July 20,2007, a total of 11,619 shares of unregistered stock, valued at approximately$42,650, were issued to six directors of the Company on October 16, 2007,and a total of 9,999 shares of unregistered stock, valued at approximately$36,000 were issued to six directors of the Company on January 11, 2008,and a 

 

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total of 62,606 shares of unregistered stock valued at approximately$144,000 were issued to five directors of the Company on May 7, 2008.  The issuances of these shares are exemptunder Section 4(2) of the Securities Act of 1933, as amended.

 

**Item 3.  Defaults upon SeniorSecurities.**

 

Not applicable.

 

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

 

Nothing was broughtbefore the security holders for consideration during the quarter ended March 31,2008.  The Company, however, held a meetingof the security holders on Wednesday May 7, 2008.  At this meeting, Joesph Saponaro and PeterSchulte were re-elected as directors of ATSC, the 2007 Employee Stock PurchasePlan was approved and Grant Thornton LLP was appointed as the external auditorfor 2008.

 

**Item 5.  Other Information.**

 

On May 12, 2008, ATSCorporation, a Delaware corporation (“ATS”), with Bank of America, N.A., aslenders’ agent and their other lenders and the guarantors listed on thesignature page thereto, modified their existing credit agreement byentering into an Amendment No. 3 to Credit Agreement (the “Third Amendment”),  Capitalized terms used in this summary havethe same meanings assigned to them in the Third Amendment.  The following primary changes were madepursuant to such Third Amendment:  (i) amendmentof the financial covenants to revise the required Consolidated Leverage Ratios,the required minimum Consolidated EBITDA, the required Consolidated AssetCoverage Ratio, and the required Consolidated Fixed Charge Coverage Ratios; (ii) inclusionof a requirement of the Lenders’ consent to acquisitions, if the pro formaConsolidated Leverage Ratio exceeds 2.50 to 1.00; (iii) inclusion of a newrequirement that, depending on the Consolidated Leverage Ratio, either 50% or100% of the Net Cash Proceeds from ATS’ sale of Equity Interests shall beapplied to prepay the Loans (provided, however, that this prepaymentrequirement does not apply to either proceeds from the sale of the ATS EarlyWarrant Exercise Program effective as of April 8, 2008, or sales orissuances of Equity Interests to ATS); (iv)  adjustmentof the due date forthe accounts receivable aging report and accounts payable aging report from ATSto 30 days after the end of each month; and (v) modification of theinterest rate applicable to loans outstanding under the Third Amendment (withinterest continuing to be based on LIBOR, but with increments ranging from 200basis points to 350 basis points, depending on the Consolidated LeverageRatio).  This description of the ThirdAmendment is qualified in its entirety by the full text of the Third Amendmentattached as Exhibit 10.1 to this Quarterly Report on Form 10-Q and isincorporated by reference.

 

**Item 6.  Exhibits.**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                  |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                                                       |
| 10.1                |       | Amendment No. 3 to Credit Agreement                                                                                                         |
| 31.1                |       | Certification of Principal Executive Officer  pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act  of 1934, as amended |
| 31.2                |       | Certification of Principal Financial Officer  pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act  of 1934, as amended |
| 32.1                |       | Certification of Principal Executive Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                     |
|                |       |                                                                                                                                             |
| 32.2                |       | Certification of Principal Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                     |

 

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#####  

##### **SIGNATURES**

 

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

 
|                          |   | ATS Corporation |
|--------------------------|--------|-----------------|
|                     |   |            |   |   |
|                     |   | By:             |   | /s/ Edward H. Bersoff |
|                     |   |            |   | Chairman of the Board and |
|                     |   |            |   | Chief Executive Officer |
|                     |   |            |   |   |
|                     |   | By:             |   | /s/ Pamela A. Little |
|                     |   |            |   | Chief Financial Officer |
| Date: May 12,  2008 |   |            |   |   |

 

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