UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549







FORM 10-Q







(Mark
one)


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





FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009.





 ̈
            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










ATS
CORPORATION


(Exact
name of registrant as specified in its charter)





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





7925
Jones Branch Drive


McLean,
Virginia 22102


(Address
of principal executive offices)





(571)
766-2400


(Registrant’s
telephone number, including area code)


















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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes  ̈  No   ̈





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





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





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


Yes  
o
   No   x





The
number of shares of the issuer’s common stock, $0.0001 par value, outstanding as
of November 9, 2009 was 22,770,421.












ATS
CORPORATION





TABLE
OF CONTENTS





PART I
      — FINANCIAL INFORMATIONItem
      1.
              
              Financial
      Statements
              3Consolidated
      Balance Sheets as of September 30, 2009 (unaudited) and as of
      December 31, 2008 (audited)
              3Consolidated
      Statements of Income (unaudited) for the three and nine-month periods
      ended September 30, 2009 and September 30, 2008
              4Consolidated
      Statements of Cash Flows (unaudited) for the three and nine-month periods
      ended September 30, 2009 and September 30, 2008
              5Notes
      to Consolidated Financial Statements
              6Item 2.
              
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              13Item 3.
              
              Quantitative
      and Qualitative Disclosures about Market Risk
              19Item 4.
              
              Controls
      and Procedures
              19PART II
      — OTHER INFORMATIONItem 1.
              
              Legal
      Proceedings
              20Item
      1A.
              
              Risk
      Factors
              20Item
      2.
              
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              20Item 3.
              
              Defaults
      upon Senior Securities
              20Item
      4.
              
              Submission
      of Matters to a Vote of Security Holders
              20Item 5.
              
              Other
      Information
              20Item 6.
              
              Exhibits
              21SIGNATURES
              22




2


ATS
CORPORATION





PART I — FINANCIAL
INFORMATION





ITEM 1. — FINANCIAL
STATEMENTS





CONSOLIDATED BALANCE
SHEETS





September 30,
                      
                      
                      December 31,2009
                      
                      
                      2008(unaudited)
                      
                      
                      (audited)ASSETSCurrent
      assetsCash
                      
                      $
                      398,866
                      
                      
                      $
                      364,822Accounts
      receivable, net
                      
                      
                      23,062,128
                      
                      
                      
                      29,268,647Prepaid
      expenses
                      
                      
                      717,246
                      
                      
                      
                      537,974Other
      current assets
                      
                      
                      4,775
                      
                      
                      
                      22,771Deferred
      income taxes, current
                      
                      
                      1,009,985
                      
                      
                      
                      1,321,890Total
      current assets
                      
                      
                      25,193,000
                      
                      
                      
                      31,516,104Property
      and equipment, net
                      
                      
                      3,174,644
                      
                      
                      
                      3,712,340Goodwill
                      
                      
                      55,370,011
                      
                      
                      
                      59,128,648Intangible
      assets, net
                      
                      
                      6,653,777
                      
                      
                      
                      8,304,686Restricted
      cash
                      
                      
                      1,323,930
                      
                      
                      
                      1,316,530Other
      assets
                      
                      
                      190,357
                      
                      
                      
                      387,897Deferred
      income taxes
                      
                      
                      2,026,296
                      
                      
                      
                      2,003,348Total
      assets
                      
                      $
                      93,932,015
                      
                      
                      $
                      106,369,553LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Current
      portion of long-term debt
                      
                      $
                      21,205,176
                      
                      
                      $
                      2,583,333Capital
      leases – current portion
                      
                      
                      22,927
                      
                      
                      
                      86,334Accounts
      payable and accrued expenses
                      
                      
                      7,833,839
                      
                      
                      
                      10,224,266Accrued
      salaries and related taxes
                      
                      
                      4,150,549
                      
                      
                      
                      2,999,576Accrued
      vacation
                      
                      
                      2,646,060
                      
                      
                      
                      2,220,865Income
      taxes payable, net
                      
                      
                      775,373
                      
                      
                      
                      600,121Deferred
      revenue
                      
                      
                      1,509,019
                      
                      
                      
                      1,745,352Deferred
      rent – current portion
                      
                      
                      320,498
                      
                      
                      
                      379,520Total
      current liabilities
                      
                      
                      38,463,441
                      
                      
                      
                      20,839,367Long-term debt
       – net of current
      portion
                      
                      
                      458,333
                      
                      
                      
                      34,492,558Capital leases – net of current
      portion
                      
                      
                      —
                      
                      
                      
                      745Deferred rent – net of current
      portion
                      
                      
                      2,700,109
                      
                      
                      
                      2,842,171Other
      long-term liabilities (at fair value)
                      
                      
                      1,695,569
                      
                      
                      
                      2,283,256Total
      liabilities
                      
                      
                      43,317,452
                      
                      
                      
                      60,458,097Shareholders’
      equity:Preferred
      stock $0.0001 par value, 1,000,000 shares authorized, and no shares issued
      and outstanding
                      
                      
                      —
                      
                      
                      
                      —Common stock $0.0001 par value,
      100,000,000 shares authorized, 31,082,865 and 30,867,304 shares
      issued,respectively, and 22,746,232
      and 22,524,549 shares outstanding, respectively
                      
                      
                      3,109
                      
                      
                      
                      3,087Additional
      paid-in capital
                      
                      
                      131,412,907
                      
                      
                      
                      130,767,038Treasury
      stock, at cost, 8,344,633 and 8,342,755 shares held,
      respectively
                      
                      
                      (30,276,223
                      )
                      
                      
                      (30,272,007
                      )Accumulated
      deficit
                      
                      
                      (49,601,646
                      )
                      
                      
                      (53,190,822
                      )Accumulated
      other comprehensive loss (net of tax benefit of $650,251 and $887,416,
      respectively)
                      
                      
                      (923,584
                      )
                      
                      
                      (1,395,840
                      )Total
      shareholders’ equity
                      
                      
                      50,614,563
                      
                      
                      
                      45,911,456Total
      liabilities and shareholders’ equity
                      
                      $
                      93,932,015
                      
                      
                      $
                      106,369,553




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


3


ATS
CORPORATION


CONSOLIDATED STATEMENTS OF
INCOME





Three Months
                                  Ended September 30,
                                
                                
                                Nine Months
                                  Ended September 30,2009
                                  (unaudited)
                                
                                
                                2008
                                  (unaudited)
                                
                                
                                2009
                                  (unaudited)
                                
                                
                                2008
                                  (unaudited)Revenue
                                
                                $
                                32,074,434
                                
                                
                                $
                                32,032,605
                                
                                
                                $
                                89,497,757
                                
                                
                                $
                                100,694,902Operating
      costs and expensesDirect
      costs
                                
                                
                                21,342,643
                                
                                
                                
                                22,551,682
                                
                                
                                
                                59,990,312
                                
                                
                                
                                67,785,098Selling,
      general and administrative expenses
                                
                                
                                6,089,196
                                
                                
                                
                                7,007,507
                                
                                
                                
                                18,908,327
                                
                                
                                
                                24,222,018Depreciation
      and amortization
                                
                                
                                772,275
                                
                                
                                
                                1,505,705
                                
                                
                                
                                2,324,018
                                
                                
                                
                                5,582,615Impairment
      charge
                                
                                
                                —
                                
                                
                                
                                56,772,541
                                
                                
                                
                                —
                                
                                
                                
                                56,772,541Total
      operating costs and expenses
                                
                                
                                28,204,114
                                
                                
                                
                                87,837,435
                                
                                
                                
                                81,222,657
                                
                                
                                
                                154,362,272Operating
      income (loss)
                                
                                
                                3,870,320
                                
                                
                                
                                (55,804,830
                                )
                                
                                
                                8,275,100
                                
                                
                                
                                (53,667,370
                                )Other
      (expense) incomeInterest,
      net
                                
                                
                                (597,742
                                )
                                
                                
                                (896,913
                                )
                                
                                
                                (2,164,426
                                )
                                
                                
                                (2,646,049
                                )Other
      income (loss)
                                
                                
                                60,037
                                
                                
                                
                                (13,458
                                )
                                
                                
                                60,037
                                
                                
                                
                                52,714Income
      (loss) before income taxes
                                
                                
                                3,332,615
                                
                                
                                
                                (56,715,201
                                )
                                
                                
                                6,170,711
                                
                                
                                
                                (56,260,705
                                )Income
      tax expense (benefit)
                                
                                
                                1,340,816
                                
                                
                                
                                (5,759,836
                                )
                                
                                
                                2,581,535
                                
                                
                                
                                (5,647,221
                                )Net
      income (loss)
                                
                                $
                                1,991,799
                                
                                
                                $
                                (50,955,365
                                )
                                
                                $
                                3,589,176
                                
                                
                                $
                                (50,613,484
                                )Weighted
      average number of shares outstanding—basic
                                
                                
                                22,741,726
                                
                                
                                
                                22,381,860
                                
                                
                                
                                22,648,962
                                
                                
                                
                                20,825,206—diluted
                                
                                
                                22,846,549
                                
                                
                                
                                22,381,860
                                
                                
                                
                                22,697,864
                                
                                
                                
                                20,825,206Net
      income (loss) per share—basic
                                
                                $
                                0.09
                                
                                
                                $
                                (2.28
                                )
                                
                                $
                                0.16
                                
                                
                                $
                                (2.43
                                )—diluted
                                
                                $
                                0.09
                                
                                
                                $
                                (2.28
                                )
                                
                                $
                                0.16
                                
                                
                                $
                                (2.43
                                )





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


4


ATS
CORPORATION


CONSOLIDATED STATEMENTS OF CASH
FLOWS




Nine months Ended
                                                  September 30,2009
                                                
                                                
                                                2008(unaudited)
                                                
                                                
                                                (unaudited)Cash
      flows from operating activitiesNet
      income (loss)
                                                
                                                $
                                                3,589,176
                                                
                                                
                                                $
                                                (50,613,484
                                                )Adjustments
      to reconcile net income (loss) to net cash from operating
      activities:Depreciation
      and amortization
                                                
                                                
                                                2,324,018
                                                
                                                
                                                
                                                5,582,615Impairment
      charge
                                                
                                                
                                                —
                                                
                                                
                                                
                                                56,772,541Stock-based
      compensation
                                                
                                                
                                                519,462
                                                
                                                
                                                
                                                618,634Deferred
      income taxes
                                                
                                                
                                                (87,772
                                                )
                                                
                                                
                                                (8,029,350
                                                )Deferred
      rent
                                                
                                                
                                                (201,085
                                                )
                                                
                                                
                                                (23,574
                                                )Gain
      on disposal of equipment
                                                
                                                
                                                —
                                                
                                                
                                                
                                                (2,373
                                                )Provision
      for bad debt
                                                
                                                
                                                432,703
                                                
                                                
                                                
                                                23,781Changes
      in assets and liabilities, net of adjustments related to other
      comprehensive loss:Accounts
      receivable
                                                
                                                
                                                5,773,814
                                                
                                                
                                                
                                                (78,539
                                                )Prepaid
      expenses and other current assets
                                                
                                                
                                                (179,273
                                                )
                                                
                                                
                                                160,306Restricted
      cash
                                                
                                                
                                                (7,400
                                                )
                                                
                                                
                                                (30,192
                                                )Other
      assets
                                                
                                                
                                                215,537
                                                
                                                
                                                
                                                (1,014,469
                                                )Accounts
      payable and other accrued expenses
                                                
                                                
                                                (2,550,401
                                                )
                                                
                                                
                                                639,364Accrued
      salaries and related taxes
                                                
                                                
                                                1,150,973
                                                
                                                
                                                
                                                (596,350
                                                )Accrued
      vacation
                                                
                                                
                                                425,195
                                                
                                                
                                                
                                                144,523Accrued
      interest
                                                
                                                
                                                358,433
                                                
                                                
                                                
                                                240,391Income
      taxes payable and receivable
                                                
                                                
                                                238,095
                                                
                                                
                                                
                                                1,738,485Other
      current liabilities
                                                
                                                
                                                (236,333
                                                )
                                                
                                                
                                                (200,866
                                                )Other
      long-term liabilities
                                                
                                                
                                                —
                                                
                                                
                                                
                                                (45,976
                                                )Net
      cash provided by operating activities
                                                
                                                
                                                11,765,142
                                                
                                                
                                                
                                                5,285,467Cash
      flows from investing activitiesPurchase
      of property and equipment
                                                
                                                
                                                (135,414
                                                )
                                                
                                                
                                                (151,280
                                                )Proceeds
      from disposals of equipment
                                                
                                                
                                                —
                                                
                                                
                                                
                                                21,352Proceeds
      from release of escrows
                                                
                                                
                                                3,758,637
                                                
                                                
                                                
                                                —Acquisitions
      of businesses – net of cash acquired
                                                
                                                
                                                —
                                                
                                                
                                                
                                                155,891Net
      cash provided by investing activities
                                                
                                                
                                                3,623,223
                                                
                                                
                                                
                                                25,963Cash
      flows from financing activitiesBorrowings
      on line of credit
                                                
                                                
                                                45,760,848
                                                
                                                
                                                
                                                47,868,284Payments
      on line of credit
                                                
                                                
                                                (59,947,409
                                                )
                                                
                                                
                                                (53,128,697
                                                )Issuance
      of notes payable
                                                
                                                
                                                139,176
                                                
                                                
                                                
                                                —Payments
      on notes payable
                                                
                                                
                                                (1,364,996
                                                )
                                                
                                                
                                                (2,174,357
                                                )Payments
      on capital leases
                                                
                                                
                                                (64,152
                                                )
                                                
                                                
                                                (74,516
                                                )Proceeds
      from stock issued pursuant to Employee Stock Purchase Plan
                                                
                                                
                                                126,428
                                                
                                                
                                                
                                                211,813Payments
      to repurchase stock
                                                
                                                
                                                (4,216
                                                )
                                                
                                                
                                                —Proceeds
      from exchange of stock for warrants, net of expense
                                                
                                                
                                                —
                                                
                                                
                                                
                                                234,135Net
      cash used by financing activities
                                                
                                                
                                                (15,354,321
                                                )
                                                
                                                
                                                (7,063,338
                                                )Net
      increase (decrease) in cash
                                                
                                                
                                                34,044
                                                
                                                
                                                
                                                (1,751,908
                                                )Cash,
      beginning of period
                                                
                                                
                                                364,822
                                                
                                                
                                                
                                                1,901,977Cash,
      end of period
                                                
                                                $
                                                398,866
                                                
                                                
                                                $
                                                150,069Supplemental
      disclosures:Cash
      paid or received during the period for:Income
      taxes paid
                                                
                                                $
                                                2,436,380
                                                
                                                
                                                $
                                                2,340,704Income
      tax refunds
                                                
                                                
                                                12,148
                                                
                                                
                                                
                                                1,917,399Interest
      paid
                                                
                                                
                                                1,861,649
                                                
                                                
                                                
                                                2,463,804Interest
      received
                                                
                                                
                                                48,256
                                                
                                                
                                                
                                                28,227Non-cash
      investing and financing activities and adjustment to other comprehensive
      loss:Unrealized
      other comprehensive income (loss) on interest rate swap, net of
      tax
                                                
                                                
                                                350,522
                                                
                                                
                                                
                                                201,274





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


5


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1 3⁄4
BASIS OF
PRESENTATION





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





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





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





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





NOTE 2 3⁄4
RECENT ACCOUNTING
PRONOUNCEMENTS





Adoption
of New Accounting Standards





Adoption
of Codification:  United States accounting and reporting
standards have been restructured. On July 1, 2009, effective for interim and
annual periods ending after September 15, 2009, the new FASB Accounting
Standards Codification became effective, superseding existing FASB, AICPA, EITF,
and related literature. The Codification does not change GAAP, it organizes GAAP
into a new research system. References to previous pronouncements have been
updated to reflect the new codification.





ASC 820
Fair Value Measurements and Disclosures (Formerly SFAS
No.157):  ASC 820 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. Specifically, ASC 820 sets forth a
definition of fair value, and establishes a hierarchy prioritizing the inputs to
valuation techniques, giving the highest priority to quoted prices in active
markets for identical assets and liabilities and the lowest priority to
unobservable inputs. The provisions of ASC 820 are generally required to be
applied on a prospective basis, except to certain financial instruments
accounted for under ASC 815 Derivatives and Hedging, for which the provisions of
ASC 820 should be applied retrospectively. The disclosure requirements of ASC
820, which took effect on January 1, 2008, are presented in Note 4. On
January 1, 2009, the Company implemented the previously-deferred provisions
of ASC 820 for nonfinancial assets and liabilities recorded at fair value as
required. The implementation did not have a material effect on the Company’s
consolidated financial position or results of operations.





ASC
805-20-25 Business Combinations (Formerly SFAS No. 141(R):  ASC
805-20-05 requires that the acquisition (or purchase) method of accounting
be used for all business combinations and expands the definition of a business,
thus increasing the number of transactions which may qualify as business
combinations. Contingent consideration will be measured at fair value at the
acquisition date, with changes in fair value recognized in earnings, and
transaction-related expenses and restructuring costs will be expensed as
incurred. Changes in acquired tax contingencies will be recognized in earnings
if outside the purchase price allocation period (generally one year or less).
Adjustments to finalize purchase price allocations have been revised in the
post-acquisition financial statements to reflect the adjustments as if they had
been recorded on the acquisition date. Also, in the event of a bargain purchase
(acquisition of a business at below fair market value of net assets acquired), a
gain could be recognized, or in the event of a change in control of an existing
investment, a gain or loss could be recognized. ASC 805 will be applied
prospectively to business acquisitions with acquisition dates on or after
January 1, 2009. There is no current impact as we have made no acquisitions
since January 1, 2009.


6




RIN
3235-AJ71 Interactive Data to Improve Financial Reporting: The SEC issued
a final rule requiring companies to provide financial statement information in a
form that is intended to improve its usefulness to investors. This final rule
applies to public companies and foreign private issuers that prepare their
financial statements in accordance with generally accepted accounting principles
(GAAP) and foreign private issuers that prepare their financial statements using
International Financial Reporting Standards (IFRS). Companies will provide their
financial statements to the SEC and on their corporate website in interactive
data format using eXtensible Business Reporting Language (XBRL). The interactive
data will be provided as an exhibit to periodic and current reports and
registration statements, as well as to transition reports for a change in fiscal
year. We will be required to submit an interactive data file for our September
30, 2010 quarterly report on Form 10-Q.





ASC
825-10-65 (Formerly FASB Staff Position No. FAS 107-1 and APB
28-1):  ASC 825-10-65 expands the fair value disclosures
required for all financial instruments within the scope of ASC 825 to interim
periods. ASC 825-10-65 also requires entities to disclose in interim periods the
methods and significant assumptions used to estimate the fair value of financial
instruments. ASC 825-10-65 is effective for interim reporting periods ending
after June 15, 2009. The adoption of ASC 825-10-65 has not had a material impact
on our financial position, results of operations or cash flows.





ASC
855-10-05 Subsequent Events (Formerly SFAS No. 165):  ASC
855-10-05 sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. ASC 855-10-05 is effective for interim or
annual periods ending after June 15, 2009. The Company has adopted the
requirements of this pronouncement. Management has evaluated events occurring
from September 30, 2009 through November 9, 2009 to ensure that the impact of
such events has been recorded or disclosed in the interim financial statements
and accompanying notes thereto.





ASU
2009-13 & ASU 2009-14: In September, 2009, the FASB issued Accounting
Standards Update (ASU) 2009-13, Multiple-Deliverable Revenue Arrangements, and
ASU 2009-14, Certain Revenue Arrangements That Include Software Elements – a
consensus of the FASB Emerging Issues Task Force, to amend the existing revenue
recognition guidance. ASU 2009-13 amends ASC 605, Revenue Recognition, 25,
“Multiple-Element Arrangements” (formerly EITF Issue 00-21, “Revenue
Arrangements with Multiple Deliverables”), as follows: modifies criteria used to
separate elements in a multiple-element arrangement, introduces the concept of
“best estimate of selling price” for determining the selling price of a
deliverable, establishes a hierarchy of evidence for determining the selling
price of a deliverable, requires use of the relative selling price method and
prohibits use of the residual method to allocate arrangement consideration among
units of accounting, and expands the disclosure requirements for all
multiple-element arrangements within the scope of ASC 605-25.





ASU
2009-14 amends the scope of ASC 985, Software, 605, “Revenue Recognition”
(formerly AICPA Statement of Position 97-2, Software Revenue Recognition), to
exclude certain tangible products and related deliverables from the scope of
this guidance. Instead, the excluded products and related deliverables must be
evaluated for separation, measurement, and allocation under the guidance of ASC
605-25, as amended by ASU 2009-13.





The
amended guidance is effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15, 2010.
Early adoption is permitted. An entity may elect retrospective application to
all revenue arrangements for all periods presented using the guidance in ASC
250, Accounting Changes and Error Corrections. Entities must adopt the
amendments resulting from both of these ASUs in the same period using the same
transition method, where applicable. Management is reviewing ASU 2009-13 and ASU
2009-14 for applicability to the Company’s revenue recognition
policies.





NOTE 3 3⁄4
RESTRICTED
CASH





The
Company is required to maintain $1.2 million on deposit with a financial
institution to support a bonding requirement for one of the ATSI state
contracts. This amount, and accumulated interest of $123,930 and $116,530 earned
thereon as of September 30, 2009 and December 31, 2008, respectively, is
reflected in restricted cash in the accompanying consolidated balance
sheets.





NOTE 4 3⁄4
FAIR VALUE OF FINANCIAL
INSTRUMENTS





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


7


The
Company accounts for its interest rate swap agreement as a cash flow hedge under
the provisions of ASC 815 Derivatives and Hedging. The Company has determined
that the swap is 89.4% effective for the variable rate debt. Accordingly, the
fair value of the interest rate swap agreement of $1,696,000 and $2,283,000 is
included in other long-term liabilities, as of September 30, 2009 and
December 31, 2008, respectively. The valuation method, which is consistent
with the second highest level of the valuation hierarchy described in ASC 820
Fair Value Measurements and Disclosures, is based upon an extrapolation of
forward rates for the remaining term of the interest rate swap. A change in fair
value of $173,000 for this derivative, net of a tax benefit of $72,000, was
recorded in other comprehensive loss for the three months ended September 30,
2009. A change in fair value of $587,000 for this derivative, net of a tax
benefit of $237,000, was recorded in other comprehensive loss for the nine
months ended September 30, 2009. Hedge ineffectiveness of $15,000 and $198,000
was recognized for the three and nine-month periods ended September 30, 2009 as
a portion of the notional amount exceeds expected borrowings on the Company’s
variable rate debt.





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





The
Company recognizes stock-based compensation based upon the fair value of the
stock-based awards taking into account the effects of the employees’ expected
exercise and post-vesting employment termination behavior. A summary of the
components of the stock-based compensation expense recognized during the three
and nine-month periods ended September 30, 2009 and 2008 is as
follows:





Compensation Related to
                                      Options and Restricted Stock
                                    
                                    Three Months
                                      Ended
                                      September
                                      30, 2009
                                    
                                    
                                    Three Months
                                      Ended
                                      September
                                      30, 2008
                                    
                                    
                                    Nine Months
                                      Ended
                                      September
                                      30, 2009
                                    
                                    
                                    Nine Months
                                      Ended
                                      September
                                      30, 2008Incentive
      stock options
                                    
                                    $
                                    37,000
                                    
                                    
                                    $
                                    33,000
                                    
                                    
                                    $
                                    119,000
                                    
                                    
                                    $
                                    124,000Restricted
      stock
                                    
                                    
                                    119,000
                                    
                                    
                                    
                                    133,000
                                    
                                    
                                    
                                    317,000
                                    
                                    
                                    
                                    628,000Stock
      grants to Directors in lieu of cash
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    114,000
                                    
                                    
                                    
                                    180,000Forfeitures
      in excess of estimate
                                    
                                    
                                    (17,000
                                    )
                                    
                                    
                                    (313,000
                                    )
                                    
                                    
                                    (30,000
                                    )
                                    
                                    
                                    (313,000
                                    )Total
      stock-based compensation expense (benefit)
                                    
                                    $
                                    139,000
                                    
                                    
                                    $
                                    (147,000
                                    )
                                    
                                    $
                                    520,000
                                    
                                    
                                    $
                                    619,000





Stock
Options - The Company estimates the fair value of options as of the date
of grant using the Black-Scholes option pricing model. A total of 5,000 and
317,000 options were granted during the three and nine-month periods ended
September 30, 2009, respectively. A total of 178,500 options were granted during
the three and nine-month periods ended September 30, 2008.  The fair
value of options granted during the nine-month period ended September 30, 2009
have been estimated as of the date of grant using the Black-Scholes option
pricing model with the following assumptions:





Options Granted
                          Nine Months
                          Ended
                          September
                          30, 2009
                        
                        
                        Options Granted
                          Nine Months
                          Ended
                          September
                          30, 2008Expected
      dividend yield
                        
                        
                        —
                        %
                        
                        
                        —
                        %Expected
      volatility
                        
                        
                        55.3
      – 73.7
                        %
                        
                        
                        38.0
      – 38.9
                        %Risk
      free interest rate
                        
                        
                        0.5
      - 2.9
                        %
                        
                        
                        2.99
      - 4.4
                        %Expected
      life of options
                        
                        6.25
      years
                        
                        
                        5.8
      – 6.25yearsForfeiture
      rate
                        
                        
                        4.25
                        %
                        
                        
                        4.0
      – 4.25
                        %


8


The
average fair value per option granted during the nine months ended September 30,
2009 was $0.88. As of September 30, 2009, there was approximately $575,000 of
unrecognized compensation expense related to unvested options. This cost is
expected to be recognized over a weighted-average period of 2.9 years. The table
below provides stock option information for the nine months ended September 30,
2009:





Number of
                                                Shares
                                              
                                              
                                              Weighted
                                                Average
                                                Exercise
                                                Price Per
                                                Share
                                              
                                              
                                              Weighted-
                                                Average
                                                Remaining
                                                Contractual
                                                Life in Years
                                              
                                              
                                              Aggregate
                                                Intrinsic
                                                Value of
                                                In-the-
                                                Money
                                                OptionsOptions
      outstanding atJanuary
      1, 2009
                                              
                                              
                                              394,500
                                              
                                              
                                              $
                                              3.16
                                              
                                              
                                              
                                              9.0
                                              
                                              
                                              $
                                              —
                                              (1)Options
      granted
                                              
                                              
                                              317,000
                                              
                                              
                                              
                                              1.44
                                              
                                              
                                              
                                              9.3
                                              
                                              
                                              
                                              238,760
                                              (2)Options
      expired
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —Options
      forfeited
                                              
                                              
                                              (86,000
                                              )
                                              
                                              
                                              2.41
                                              
                                              
                                              
                                              8.7
                                              
                                              
                                              
                                              26,620
                                              (2)Options
      outstanding atSeptember
      30, 2009
                                              
                                              
                                              625,500
                                              
                                              
                                              $
                                              2.39
                                              
                                              
                                              
                                              8.7
                                              
                                              
                                              $
                                              225,780
                                              (2)Options
      exercisable atSeptember
      30, 2009
                                              
                                              
                                              104,500
                                              
                                              
                                              $
                                              3.48
                                              
                                              
                                              
                                              8.1
                                              
                                              
                                              $
                                              2,980
                                              (2)





(1) No
intrinsic value as the closing stock price on the last trading day of the
preceding period of $1.40 per share as of December 31, 2008, was in excess of
the exercise price of outstanding options.


(2)
Intrinsic value represents the excess of the closing stock price on the last
trading day of the period, which was $2.23 per share as of September 30, 2009,
over the exercise price, multiplied by the number of options.





The
following table summarizes information about stock options outstanding at
September 30, 2009:





Options Outstanding
                              
                              Options ExercisableWeighted-average
                              
                              Weighted-
                              
                              
                              
                              Weighted-Remaining
                              
                              average
                              
                              
                              
                              averageExercise
                              
                              
                              Number
                              
                              Life in
                              
                              Exercise
                              
                              Number
                              
                              ExercisePrice
                              
                              
                              Outstanding
                              
                              Years
                              
                              Price
                              
                              Exercisable
                              
                              Price$
                              1.40
                              
                              
                              
                              80,000
                              
                              9.3
                              
                              $
                              1.40
                              
                              —
                              
                              $
                              —1.50
                              
                              
                              
                              202,000
                              
                              9.6
                              
                              
                              1.50
                              
                              —
                              
                              
                              —2.15
                              
                              
                              
                              149,000
                              
                              8.7
                              
                              
                              2.15
                              
                              37,250
                              
                              
                              2.152.23
                              
                              
                              
                              5,000
                              
                              10.0
                              
                              
                              2.23
                              
                              —
                              
                              
                              —3.40
                              
                              
                              
                              50,000
                              
                              8.2
                              
                              
                              3.40
                              
                              12,500
                              
                              
                              3.403.50
                              
                              
                              
                              30,000
                              
                              8.1
                              
                              
                              3.50
                              
                              7,500
                              
                              
                              3.503.67
                              
                              
                              
                              30,000
                              
                              8.0
                              
                              
                              3.67
                              
                              7,500
                              
                              
                              3.673.75
                              
                              
                              
                              4,500
                              
                              7.8
                              
                              
                              3.75
                              
                              2,250
                              
                              
                              3.754.32
                              
                              
                              
                              15,000
                              
                              7.4
                              
                              
                              4.32
                              
                              7,500
                              
                              
                              4.324.88
                              
                              
                              
                              60,000
                              
                              7.4
                              
                              
                              4.88
                              
                              30,000
                              
                              
                              4.88625,500
                              
                              8.7
                              
                              $
                              2.39
                              
                              104,500
                              
                              $
                              3.48




9


Restricted
Shares – Pursuant to the 2006 Omnibus Incentive Compensation Plan, during
the nine-month period ended September 30, 2009, the Company granted 263,000
restricted shares valued at an aggregate of $391,000. Such shares vest ratably
over three or five-year periods. The table below provides additional restricted
share information for the nine months ended September 30, 2009:




Nine months
                                                          Ended September 30, 2009Number of
                                                          Shares
                                                        
                                                        
                                                        Weighted
                                                          Average Grant
                                                          Date Fair
                                                          ValueUnvested
      at January 1, 2009
                                                        
                                                        
                                                        407,865
                                                        
                                                        
                                                        $
                                                        3.38Granted
                                                        
                                                        
                                                        263,142
                                                        
                                                        
                                                        
                                                        1.49Vested
                                                        
                                                        
                                                        (50,145
                                                        )
                                                        
                                                        
                                                        3.07Forfeited
                                                        
                                                        
                                                        (37,594
                                                        )
                                                        
                                                        
                                                        3.28Unvested
      at September 30, 2009
                                                        
                                                        
                                                        583,268
                                                        
                                                        
                                                        $
                                                        2.56





NOTE 6 3⁄4
EMPLOYEE STOCK PURCHASE
PLAN





The
Company adopted the 2007 Employee Stock Purchase Plan (the “Plan”) in July 2007.
The Plan was subsequently approved by Company stockholders in May 2008. The Plan
provides employees and management with an opportunity to increase their
ownership interest in the Company through the purchase of shares of the
Company’s common stock at periodic intervals, namely four month offering periods
during which payroll deductions are made and shares are subsequently purchased
at a discount of 5% below the minimum trading price during the offering period.
The Company initially reserved an aggregate of 150,000 shares of common stock
exclusively for issuance under the Plan. Additionally, the Company may
automatically increase the shares registered under this Plan on an annual basis
pursuant to the Plan’s “evergreen” provision. This provision allows the Company
to annually increase its registered Plan shares by the lesser of the following:
(i) 100,000 shares, (ii) 1% of the Company’s outstanding shares on January 1 of
such year, or (iii) a lesser amount as determined by the Board. Accordingly, in
the first quarter of 2009, the Company registered an additional 100,000 shares
under the Plan.





The Plan
is a qualified plan under Section 423 of the Internal Revenue Code and, for
financial reporting purposes, is considered non-compensatory under ASC 718
Compensation – Stock Compensation. Accordingly, there is no stock-based
compensation expense associated with shares acquired under the Plan for the
three and nine-month periods ended September 30, 2009 and 2008. During the
nine-month period ended September 30, 2009, participants have purchased 99,943
shares under the Plan at a weighted average price per share of $1.26. During the
three months ended September 30, 2009, no shares were purchased.





NOTE 7 3⁄4
EARNINGS (LOSS) PER
SHARE





Basic
earnings per share is calculated by dividing the net income/ (loss) attributable
to common stockholders by the weighted-average common shares outstanding during
the period. Diluted earnings per share is calculated by dividing net income
attributable to common stockholders by the weighted average common shares
outstanding which includes common stock equivalents. The Company’s common stock
equivalents include stock options, restricted stock, and warrants.





The
weighted average shares outstanding for the three months ended September 30,
2009 and 2008 excludes unvested restricted shares and excludes an aggregate of
approximately 3,500,852 and 3,374,675 warrants and stock options to purchase
shares, respectively, because such common stock equivalents have an exercise
price in excess of the average market price of the Company’s common stock during
the period, which would be anti-dilutive.  The weighted average shares
outstanding for the nine months ended September 30, 2009 and 2008 excludes
unvested restricted shares and excludes an aggregate of approximately 3,556,773
and 18,490,013 warrants and stock options to purchase shares, respectively,
because such common stock equivalents have an exercise price in excess of the
average market price of the Company’s common stock during the period, which
would be anti-dilutive.





NOTE 8 3⁄4
SEGMENT
ACCOUNTING





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


10


NOTE 9 3⁄4
WARRANTS





On
September 30, 2009, the Company had 2,980,175 outstanding warrants, all of which
expired on October 19, 2009.





NOTE 10 3⁄4
GOODWILL
VALUATION




Goodwill
represents the excess of purchase price over the fair value of net assets
acquired because of various business acquisitions. In accordance with ASC 350
Intangibles – Goodwill and Other, goodwill must be recorded at the reporting
unit level. Reporting units are defined as one level below an operating segment.
We have identified one reporting unit and one operating segment. ASC 350
prohibits the amortization of goodwill, but requires that it be tested for
impairment at least annually (at any time during the year, but at the same time
each year), or more frequently if events or circumstances change, such as
adverse changes in the business climate, that would more likely than not reduce
the reporting unit’s fair value below its carrying amount.





The
Company performed its annual impairment test during the third quarter in
connection with the preparation and review of its September 30, 2009 financial
statements. We determined that a discounted cash flow analysis was the most
appropriate valuation methodology to use in our analysis as it reflects ATSC’s
unique business characteristics and forward earnings potential. Based on an
updated outlook for the Company, we concluded that the estimated fair value of
the Company was greater than its balance sheet carrying amount as of the
valuation date. As a result of this analysis, management concluded that goodwill
was not impaired.





As of
September 30, 2009 and December 31, 2008, goodwill was $55.4 million and $59.1
million, respectively. As of September 30, 2009 and December 31, 2008, our net
basis in intangible assets was $6.7 million and $8.3 million, respectively. The
decrease in the goodwill is the result of the award of $3.8 million to ATSI
relating to claims against the former owners for a net working capital deficit
from what was required to be delivered by the previous owners in connection with
their sale of the Company and amounts related to income tax
escrows.




NOTE 11 3⁄4
LEGAL
PROCEEDINGS




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




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




We have
answered the complaint denying Maximus’ claims and have asserted counterclaims.
In January of 2009, the case was consolidated for discovery purposes with an
action brought by the State of Connecticut against Maximus relating to the prime
contract. The parties are in the discovery phase of the case. Trial is scheduled
to commence in July 2011. Based on the claims asserted in the lawsuit, we have
made an indemnification demand against the former principal owners of ATSI under
the stock purchase agreement governing the transaction in which the Company
(then Federal Services Acquisition Corporation) acquired ATSI.




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




We had
also asserted other claims against the former principal owners of ATSI based on
the stock purchase agreement governing the transaction, and the former ATSI
owners asserted certain counterclaims against us. A final award was issued by
the arbitrator on June 26, 2009, under which the Company received $3.8 million
on July 1, 2009.





NOTE 12 3⁄4
EMPLOYMENT
AGREEMENTS





No new
employment agreements were entered into during the three-month period ended
September 30, 2009.





11





NOTE 13 3⁄4
LONG-TERM
DEBT





Long-term
debt consisted of the following:





September 30,
                                                                    2009
                                                                  
                                                                  
                                                                  December 31,
                                                                    2008Bank
      Credit Facility
                                                                  
                                                                  $
                                                                  18,368,497
                                                                  
                                                                  
                                                                  $
                                                                  32,555,058Notes
      payable
                                                                  
                                                                  
                                                                  3,295,012
                                                                  
                                                                  
                                                                  
                                                                  4,520,833Total
      debt
                                                                  
                                                                  $
                                                                  21,663,509
                                                                  
                                                                  
                                                                  $
                                                                  37,075,891Less
      current portion
                                                                  
                                                                  
                                                                  (21,205,176
                                                                  )
                                                                  
                                                                  
                                                                  (2,583,333
                                                                  )Long-term
      debt
                                                                  
                                                                  $
                                                                  458,333
                                                                  
                                                                  
                                                                  $
                                                                  34,492,558




At
September 30, 2009, the aggregate maturities of long-term debt were as
follows:





Twelve-months
      Ending September 30, 2010
                            
                            $
                            21,205,177Three-months
      Ending December 31, 2010
                            
                            
                            458,333Total
      debt
                            
                            $
                            21,663,510





Bank
Financing





The
Company has a credit facility with Bank of America, N.A. (the “Facility”) which
provides for borrowing of up to $50 million. The Facility is a three-year,
secured facility that permits continuously renewable borrowings of up to $50.0
million, with an expiration date of June 4, 2010. The Company pays a fee in the
amount of .20% to .375% on the unused portion of the Facility, based on its
consolidated leverage ratio, as defined in the Facility documentation. Any
outstanding balances under the Facility are due in full June 4, 2010. The
Company is currently in discussion with Bank of America and other lenders
regarding a new facility.





Borrowings
under the Facility bear interest at rates based on 30 day LIBOR plus applicable
margins based on the leverage ratio as determined quarterly. As of September 30,
2009, the effective interest rate, excluding the effect of amortization of debt
financing costs, and payments under the Company interest rate swap agreement was
2.52%.





As
discussed in Note 4, Company entered into a forward interest rate swap agreement
in November 2007 under which it exchanged floating-rate interest payments for
fixed-rate interest payments. The agreement has a notional amount of $35.0
million and provides for swap payments through December 1, 2010 with such swaps
being settled on a monthly basis. The fixed interest rate provided by the swap
agreement is 4.47%.





As of
September 30, 2009, the Company’s aggregate floating rate debt balance was $18.4
million. As discussed in Note 4, the Company accounts for the interest rate swap
agreement as a cash flow hedge with the change in the fair value of the
effective portion of the swap being recorded in other comprehensive income
(loss) and any ineffectiveness is recorded to earnings.  It continues
to be probable that the Company will be exposed to rate variance associated with
future LIBOR based risk or fixed rate debt which has embedded LIBOR based risk
and the Company maintains its hedge with a counterparty that has the financial
strength to honor the hedge obligation, Bank of America. The Company is
currently in discussion with Bank of America and other lenders regarding a new
facility.


12





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





FORWARD-LOOKING
STATEMENTS





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





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





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





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





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





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




13




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




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





Overview





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





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





Our
diverse customer base consists primarily of U.S. government agencies. For the
nine months ended September 30, 2009, we generated approximately 47% of our
revenue from federal civilian agencies, 34% from defense and homeland security
agencies, and 19% from commercial customers, including government-sponsored
enterprises. Our largest clients in the nine months ended September 30, 2009
were the U.S. Department of Housing and Urban Development (“HUD”), Fannie
Mae, the Undersecretary of Defense, and the Pension Benefit Guaranty
Corporation, representing approximately 20%, 9%, 8% and 7%, respectively, of
total revenue.





We derive
substantially all of our revenues from fees for consulting services. We generate
these fees from contracts with various payment arrangements, including time and
materials contracts and fixed-price contracts. During the nine months ended
September 30, 2009, revenue from time and materials and fixed-price
contracts were approximately 69% and 31%, respectively, of total revenue. We
typically issue monthly invoices to our clients for services rendered. We
recognize revenue on time and materials contracts based on actual hours
delivered at the contracted billable hourly rate plus the cost of materials
incurred. We recognize revenue on fixed-price contracts using the
percentage-of-completion method based on costs we incurred in relation to total
estimated cost. However, if the contract is primarily for services such as
maintenance support services, we recognize revenue on a straight-line basis over
the term of the contract.





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





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





In the
nine months ended September 30, 2009, we derived approximately 80% of our
revenue from contracts for which we were the prime contractor and 20% of our
revenue as subcontractors to other prime contractors, who contract directly with
the end-client and subcontract with us.





Our most
significant expense is direct cost, which consists primarily of project
personnel salaries and benefits, and direct expenses incurred to complete
projects. The number of consulting personnel assigned to a project will vary
according to the size, complexity, duration, and demands of the project. As of
September 30, 2009, we had 549 personnel who worked on our
contracts.





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


14





Goodwill
Valuation




Goodwill
represents the excess of purchase price over the fair value of net assets
acquired because of various business acquisitions. In accordance with ASC 350
Intangibles – Goodwill and Other, goodwill must be recorded at the reporting
unit level. Reporting units are defined as one level below an operating segment.
We have identified one reporting unit and one operating segment. ASC 350
prohibits the amortization of goodwill, but requires that it be tested for
impairment at least annually (at any time during the year, but at the same time
each year), or more frequently if events or circumstances change, such as
adverse changes in the business climate, that would more likely than not reduce
the reporting unit’s fair value below its carrying amount.




The
Company performed its annual impairment test during the third quarter in
connection with the preparation and review of its September 30, 2009 financial
statements. We determined that a discounted cash flow analysis was the most
appropriate valuation methodology to use in our analysis as it reflects ATSC’s
unique business characteristics and forward earnings potential. Based on an
updated outlook for the Company, we concluded that the estimated fair value of
the Company was greater than its balance sheet carrying amount as of the
valuation date. As a result of this analysis, management concluded that goodwill
was not impaired.





As of
September 30, 2009 and December 31, 2008, goodwill was $55.4 million and 59.1
million, respectively. As of September 30, 2009 and December 31, 2008, our net
basis in intangible assets was $6.7 million and $8.3 million, respectively. The
change in the goodwill is the result of the award of $3.8 million to ATSI
relating to claims against the former owners for a net working capital deficit
from what was required to be delivered by the former owners in connection with
their sale of the Company and amounts related to accounting method tax
escrows.





Contract
Backlog





We define
backlog as the future revenue we expect to receive from our existing contracts
and other current engagements. We generally include in backlog the estimated
revenue represented by contract options that have been priced, though not
exercised. We do not include any estimate of revenue relating to potential
future delivery orders that may be awarded under our General Services
Administration Multiple Award Schedule contracts, other Indefinite
Delivery/Indefinite Quantity (“IDIQ”) contracts, or other contract vehicles that
are also held by a large number of firms, an order under which potential future
delivery orders or task orders may be issued by any of a large number of
different agencies and are likely to be subject to a competitive bidding
process. Our backlog as of September 30, 2009, was approximately $153.1 million,
of which $51.8 million was funded.





Recent
Events





The
Company has evaluated its operations through November 9, 2009, which is the date
that the interim financial statements for the nine-month period ended September
30, 2009 are to be issued and concluded that there have been no recognizable
subsequent events.


15




Results
of Operations (unaudited)





Results
of operations for the three and nine-month periods ended September 30, 2009
compared with the three and nine-month periods ended September 30, 2008 are
presented below.





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




For the Three
                                                                            
                                                                            
                                                                            %
                                                                            
                                                                            
                                                                            For the Three
                                                                            
                                                                            
                                                                            %
                                                                            
                                                                            
                                                                            For the Nine
                                                                            
                                                                            
                                                                            %
                                                                            
                                                                            
                                                                            For the Nine
                                                                            
                                                                            
                                                                            %Months Ended
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            Months Ended
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            Months Ended
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            Months EndedSeptember
      30,
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            September
      30,
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            September
      30,
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            September
      30,2009
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            2008
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            2009
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            2008Revenue
                                                                            
                                                                            $
                                                                            32,074,434
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            32,032,605
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            89,497,757
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            100,694,902Operating
      costs and expensesDirect
      costs
                                                                            
                                                                            
                                                                            21,342,643
                                                                            
                                                                            
                                                                            
                                                                            66.5
                                                                            %
                                                                            
                                                                            
                                                                            22,551,682
                                                                            
                                                                            
                                                                            
                                                                            70.4
                                                                            %
                                                                            
                                                                            
                                                                            59,990,312
                                                                            
                                                                            
                                                                            
                                                                            67.0
                                                                            %
                                                                            
                                                                            
                                                                            67,785,098
                                                                            
                                                                            
                                                                            
                                                                            67.3
                                                                            %Selling,
      general and administrative expenses
                                                                            
                                                                            
                                                                            6,089,196
                                                                            
                                                                            
                                                                            
                                                                            19.0
                                                                            %
                                                                            
                                                                            
                                                                            7,007,507
                                                                            
                                                                            
                                                                            
                                                                            21.9
                                                                            %
                                                                            
                                                                            
                                                                            18,908,327
                                                                            
                                                                            
                                                                            
                                                                            21.1
                                                                            %
                                                                            
                                                                            
                                                                            24,222,018
                                                                            
                                                                            
                                                                            
                                                                            24.1
                                                                            %Depreciation
      and amortization
                                                                            
                                                                            
                                                                            772,275
                                                                            
                                                                            
                                                                            
                                                                            2.4
                                                                            %
                                                                            
                                                                            
                                                                            1,505,705
                                                                            
                                                                            
                                                                            
                                                                            4.7
                                                                            %
                                                                            
                                                                            
                                                                            2,324,018
                                                                            
                                                                            
                                                                            
                                                                            2.6
                                                                            %
                                                                            
                                                                            
                                                                            5,582,615
                                                                            
                                                                            
                                                                            
                                                                            5.5
                                                                            %Impairment
      charge
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            56,772,541
                                                                            
                                                                            
                                                                            
                                                                            177.2
                                                                            %
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            0.0
                                                                            %
                                                                            
                                                                            
                                                                            56,772,541
                                                                            
                                                                            
                                                                            
                                                                            56.4
                                                                            %Total
      operating costs and expenses
                                                                            
                                                                            
                                                                            28,204,114
                                                                            
                                                                            
                                                                            
                                                                            87.9
                                                                            %
                                                                            
                                                                            
                                                                            87,837,435
                                                                            
                                                                            
                                                                            
                                                                            274.2
                                                                            %
                                                                            
                                                                            
                                                                            81,222,657
                                                                            
                                                                            
                                                                            
                                                                            90.8
                                                                            %
                                                                            
                                                                            
                                                                            154,362,272
                                                                            
                                                                            
                                                                            
                                                                            153.3
                                                                            %Operating
      income
                                                                            
                                                                            
                                                                            3,870,320
                                                                            
                                                                            
                                                                            
                                                                            12.1
                                                                            %
                                                                            
                                                                            
                                                                            (55,804,830
                                                                            )
                                                                            
                                                                            
                                                                            (174.2
                                                                            )%
                                                                            
                                                                            
                                                                            8,275,100
                                                                            
                                                                            
                                                                            
                                                                            9.2
                                                                            %
                                                                            
                                                                            
                                                                            (53,667,370
                                                                            )
                                                                            
                                                                            
                                                                            (53.3
                                                                            )%Other
      (expense) incomeInterest
      (expense) income, net
                                                                            
                                                                            
                                                                            (597,742
                                                                            )
                                                                            
                                                                            
                                                                            (1.9
                                                                            )%
                                                                            
                                                                            
                                                                            (896,913
                                                                            )
                                                                            
                                                                            
                                                                            (2.8
                                                                            )%
                                                                            
                                                                            
                                                                            (2,164,426
                                                                            )
                                                                            
                                                                            
                                                                            (2.4
                                                                            )%
                                                                            
                                                                            
                                                                            (2,646,049
                                                                            )
                                                                            
                                                                            
                                                                            (2.6
                                                                            )%Other
      (expense) income
                                                                            
                                                                            
                                                                            60,037
                                                                            
                                                                            
                                                                            
                                                                            0.2
                                                                            %
                                                                            
                                                                            
                                                                            (13,458
                                                                            )
                                                                            
                                                                            
                                                                            (0.0
                                                                            )%
                                                                            
                                                                            
                                                                            60,037
                                                                            
                                                                            
                                                                            
                                                                            0.1
                                                                            %
                                                                            
                                                                            
                                                                            52,714
                                                                            
                                                                            
                                                                            
                                                                            0.1
                                                                            %Income
      (loss) before income taxes
                                                                            
                                                                            
                                                                            3,332,615
                                                                            
                                                                            
                                                                            
                                                                            10.4
                                                                            %
                                                                            
                                                                            
                                                                            (56,715,201
                                                                            )
                                                                            
                                                                            
                                                                            (177.1
                                                                            )%
                                                                            
                                                                            
                                                                            6,170,711
                                                                            
                                                                            
                                                                            
                                                                            6.9
                                                                            %
                                                                            
                                                                            
                                                                            (56,260,705
                                                                            )
                                                                            
                                                                            
                                                                            (55.9
                                                                            )%Income
      tax expense (benefit)
                                                                            
                                                                            
                                                                            1,340,816
                                                                            
                                                                            
                                                                            
                                                                            4.2
                                                                            %
                                                                            
                                                                            
                                                                            (5,759,836
                                                                            )
                                                                            
                                                                            
                                                                            (18.0
                                                                            )%
                                                                            
                                                                            
                                                                            2,581,535
                                                                            
                                                                            
                                                                            
                                                                            2.9
                                                                            %
                                                                            
                                                                            
                                                                            (5,647,221
                                                                            )
                                                                            
                                                                            
                                                                            (5.6
                                                                            )%Net
      Income (loss)
                                                                            
                                                                            $
                                                                            1,991,799
                                                                            
                                                                            
                                                                            
                                                                            6.2
                                                                            %
                                                                            
                                                                            $
                                                                            (50,955,365
                                                                            )
                                                                            
                                                                            
                                                                            (159.1
                                                                            )%
                                                                            
                                                                            $
                                                                            3,589,176
                                                                            
                                                                            
                                                                            
                                                                            4.0
                                                                            %
                                                                            
                                                                            $
                                                                            (50,613,484
                                                                            )
                                                                            
                                                                            
                                                                            (50.3
                                                                            )%Weighted
      average number of shares outstanding—basic
                                                                            
                                                                            
                                                                            22,741,726
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            22,381,860
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            22,648,962
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            20,825,206—diluted
                                                                            
                                                                            
                                                                            22,846,549
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            22,381,860
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            22,697,864
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            20,825,206Net
      income (loss) per share—basic
                                                                            
                                                                            $
                                                                            0.09
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            (2.28
                                                                            )
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            0.16
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            (2.43
                                                                            )—diluted
                                                                            
                                                                            $
                                                                            0.09
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            (2.28
                                                                            )
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            0.16
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            (2.43
                                                                            )





Comparison
of the three months ended September 30, 2009 to the three months ended September
30, 2008.





Revenue -
Revenue increased by $0.1 million, or 0.1%, to $32.1 million for the three
months ended September 30, 2009 compared to $32.0 million for the three months
ended September 30, 2008. There was $1.8 million in additional revenue with
existing civilian and defense customers, offset by a significant reduction from
the US Coast Guard of $1.7 million as a result of a large contract being
converted to a small-business set-aside. This resulted in revenue from civilian
and defense customers of $25.4 million for the quarter, compared to $25.7
million last year.


16


Direct costs
- Direct costs were 66.5% and 70.4% of revenue for the three-month
periods ended September 30, 2009 and 2008, respectively, a decrease of 3.9%.
Direct costs are comprised of direct labor, fringe on this labor, subcontract
labor costs and material and other direct costs (“ODCs”). Material and ODCs are
incurred in response to specific client tasks and may vary from period to
period. Several large fixed price contracts with the Housing and Urban
Development (HUD) were completed in the quarter with favorable performance
compared to prior estimates.  In addition, favorable performance on a
large fixed price Public Safety program awarded this year combined to improve
gross margins for the quarter.  Gross margin improvements in the
defense and civilian businesses drove the increase in the gross margin for the
third quarter 2009 to 33.5%.





Selling, general
and administrative (“SG&A”) expenses -The components of SG&A are
marketing, bid and proposal costs, indirect labor and the associated fringe
benefits, facilities costs and other discretionary expenses. As a percentage of
revenue, SG&A expenses were 19.0% and 21.9% for the three-month periods
ended September 30, 2009 and 2008, respectively. SG&A expenses decreased
$0.9 million to $6.1 million, or 13.1%. Indirect labor and associated fringe
benefits were the primary factors. This reduction was due to the successful
integration of the indirect functions from our four acquisitions in 2007. This
cost savings was achieved by increased efficiency in the operations of the
combined businesses.





Depreciation and
amortization - Depreciation and amortization expense decreased $0.7
million to $0.8 million or 2.4% of revenue for the three months ended September
30, 2009 compared to 4.7% for the three-month period ended September 30, 2008.
This decrease is primarily related to a reduction of amortization resulting from
the intangible asset impairment charge taken during September 2008.





Interest, net
- The net interest expense decreased to $0.6 million for the three-month
period ended September 30, 2009, compared to $0.9 million the three-month period
ended September 30, 2008, primarily due to payments on our long-term debt made
possible by our positive operating cash flows.





Income
taxes - The Company reported an income tax expense of $1.3 million and
benefit of $5.8 million for the three-month periods ended September 30, 2009 and
2008, respectively. The effective tax rates were 40.2% and 10.2% for the
three-month periods ended September 30, 2009 and 2008, respectively. The
effective rate for the tax benefit for the three-month period ended September
30, 2008 was affected primarily by the impairment charge, which is
non-deductible for tax purposes.





Comparison
of the nine months ended September 30, 2009 to the nine months ended September
30, 2008.





Revenue -
Revenue decreased by $11.2 million, or 11.1%, to $89.5 million for the nine
months ended September 30, 2009. Revenue from commercial contracts decreased by
$4.7 million to $17.2 million, or 21.5%. This decline resulted from the
down-turn in the business climate that began in the fourth quarter of 2008 and
continued into 2009.  Fannie Mae showed significant decreases in the
first six months of 2009, with some improvement in the third
quarter.  Overall, Fannie Mae revenue is $1.8 million less than the
comparable nine-month period in 2008.  Revenue was $2.0 million lower
in the insurance services arena primarily due to a large fixed price contract
which was concluded in 2008. Revenue from civilian and defense customers
decreased $6.5 million to $72.4 million, or 8.2%. The most significant reduction
was with the US Coast Guard, which decreased revenue by $6.4 million as a result
of a large contract being converted to a small-business set-aside
award.





Direct costs
- Direct costs were 67.0% and 67.3% of revenue for the nine-month periods
ended September 30, 2009 and 2008, respectively, a decrease of 0.3%. Direct
costs are comprised of direct labor, fringe on this labor, subcontract labor
costs and material and ODCs. Material and ODCs are incurred in response to
specific client tasks and may vary from period to period. The single largest
component of direct costs, direct labor, was $29.4 million and $33.0 million for
the nine-month periods ended September 30, 2009 and 2008, respectively. Gross
margin improvements in the defense and civilian businesses drove the increase in
the gross margin for the first three quarters of 2009 by 0.3% to
33.0%.





“SG&A”
expenses - The components of SG&A are marketing, bid and proposal
costs, indirect labor and the associated fringe benefits, facilities costs and
other discretionary expenses. As a percentage of revenue, SG&A expenses were
21.1% and 24.1% for the nine-month periods ended September 30, 2009 and 2008,
respectively. SG&A expenses decreased $5.3 million to $18.9 million, or
21.1%.  The following major cost categories show the following
reductions in 2009 as compared with the nine months of 2008: salaries and
related fringe benefits of $5.0 million and building rent and utilities expenses
of $0.5 million due to the relocation of the Company’s headquarters. The
indirect salaries reduction was due to the successful integration of the
indirect functions from our four acquisitions in 2007. This cost savings was
achieved by increased efficiency in the operations of the combined
businesses.





Depreciation and
amortization - Depreciation and amortization expense decreased $3.3
million to $2.3 million or 2.6% of revenue for the nine months ended September
30, 2009 compared to 5.5% for the nine-month period ended September 30, 2008.
This decrease is primarily related to a reduction of amortization resulting from
the intangible asset impairment valuation taken during September
2008.


17




Interest, net
- The net interest expense decreased to $2.2 million for the nine-month
period ended September 30, 2009 compared to $2.6 million for the nine-month
period ended September 30, 2008, primarily due to significant prepayments on
long-term debt made possible by our positive operating cash flows. Average bank
debt for the nine months ended September 30, 2009 was $26.0 million, a decrease
of 34% or $13.5 million from an average balance of $39.5 million for the nine
months ended September 30, 2008.





Income
taxes - The Company reported an income tax expense of $2.6 million and
benefit of $5.6 million for the nine-month periods ended September 30, 2009 and
2008, respectively. The effective tax rates were 41.8% and 10.0% for the
nine-month periods ended September 30, 2009 and 2008, respectively. The
effective rate for the tax benefit for the nine-month period ended September 30,
2008 was affected primarily by the impairment charge, which is non-deductible
for tax purposes.





Financial
Condition, Liquidity and Capital Resources





Financial Condition. Total
assets decreased $12.5 million to $93.9 million as of September 30, 2009 from
$106.4 million as of December 31, 2008. This decrease was primarily driven
by a $6.2 million decrease in our accounts receivable. This decrease is the
direct result of improved collections which decreased aged receivables over 60
days by $6.4 million to $1.2 million as of Sept 30 from $7.6 million as of
December 31, 2008, as well as a $3.8 million decrease in goodwill which was the
result of the payment received from the resolution of acquisition escrows (see
Note 11). Additionally, property & equipment and net intangible assets
decreased by $2.2 million due to ordinary depreciation and
amortization.





Our total
liabilities decreased $17.1 million to $43.3 million as of September 30, 2009
from $60.5 million as of December 31, 2008. The decrease in total
liabilities was primarily attributable to the decrease in notes payable and the
revolving credit facility of $15.4 million due to favorable cash collections and
a decrease in accounts payable of $2.4 million.





Liquidity and Capital
Resources.  Our primary liquidity needs are to fund the debt,
finance the costs of operations, acquire capital assets and to make strategic
acquisitions. We expect to meet our short-term requirements through funds
generated from operations and from our $50 million line of credit facility. As
of September 30, 2009, we had an outstanding balance of $18.4 million on our
credit facility. As noted above, the Company has elected to curtail this
outstanding debt given our positive cash flows from operations. The credit
facility is considered adequate to meet the operations liquidity and capital
requirements. As of September 30, 2009, the Company could borrow an additional
$5.4 million while remaining within our loan covenant agreements.





Net cash
generated by operating activities was $11.8 million for the nine months ended
September 30, 2009, compared to cash generated by operating activities of $5.3
million for the same period in 2008. Cash generated by operating activities was
primarily driven by ongoing operations, specifically collecting receivables,
which were utilized to pay down the balance on our revolving credit facility as
discussed above, as well as operating expenses and income taxes. Depreciation
and amortization were also lower due to the effect of the asset impairment
recorded in September of 2008.





Net cash
generated by investing activities was $3.6 million for the nine months ended
September 30, 2009, compared to cash generated by investing activities of less
than $0.1 million for the same period in 2008.  This difference was
due to the receipt of a $3.8 million payout resulting from the resolution of
acquisition escrows (see Note 11).





Net cash
used in financing activities was $15.4 million for the nine months ended
September 30, 2009, compared to cash used in financing activities of $7.1
million in the same period in 2008. The cash was primarily used to pay down the
credit facility and the notes payable from acquisitions in 2007.





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





ATSC has
a three-year, secured credit facility that permits continuous renewable
borrowings of up to $50.0 million, with an expiration date of June 4, 2010
(the “Agreement”). The interest rate is based on LIBOR plus the applicable rate
ranging from 200 to 350 basis points depending on the Company’s consolidated
leverage ratio. The Company pays a fee in the amount of .20% to .375% on the
unused portion of the facility, based on its consolidated leverage ratio, as
defined in the Agreement. Any outstanding balances under the facility are due on
the expiration date. The Agreement places certain restrictions on the Company’s
ability to make acquisitions. It also requires the Company to reduce the
principal amount on its loan outstanding by between 50% to 100% of the net cash
proceeds from the sale or issuance of equity interests.  At September 30,
2009, the Company was in compliance with its covenant agreements. The Company is
currently in discussion with Bank of America and other lenders regarding a new
facility.





18




Off-Balance
Sheet Arrangements





For the
nine months ended September 30, 2009, we did not have any off-balance sheet
arrangements.





Contractual
Obligations





The
following table summarizes our contractual obligations as of September 30, 2009
that require us to make future cash payments.





Less than
                        One Year
                      
                      
                      One to Three
                        Years
                      
                      
                      Three to Five
                        Years
                      
                      
                      More than
                        Five Years
                      
                      
                      Total(in thousands)Long-Term
      Debt Obligations
                      
                      $
                      21,205
                      
                      
                      $
                      459
                      
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      21,664Capital
      Leases, including interest
                      
                      
                      23
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      23Operating
      Leases
                      
                      
                      2,177
                      
                      
                      
                      3,569
                      
                      
                      
                      3,600
                      
                      
                      
                      7,070
                      
                      
                      
                      16,416Total
                      
                      $
                      23,405
                      
                      
                      $
                      4,028
                      
                      
                      $
                      3,600
                      
                      
                      $
                      7,070
                      
                      
                      $
                      38,103





Recent
Accounting Pronouncements





See Note
2 of the September 30, 2009 Interim Financial Statements. Other new
pronouncements issued but not yet effective until after September 30, 2009 are
not expected to have a significant effect on the Company’s consolidated
financial position or results of operations.





Item 3. Quantitative and Qualitative
Disclosures about Market Risk.





We are
exposed to certain financial market risks, the most predominant being
fluctuations in interest rates for a portion of our borrowings under our credit
facility. As of September 30, 2009, we had an outstanding balance of $18.4
million under our variable interest rate line of credit. In November 2007,
we hedged the interest rate risk on such debt by executing an interest rate swap
as discussed in Note 4 of the notes to consolidated financial
statements.





Item 4. Controls and
Procedures.





Our
management performed an assessment, under the supervision and with the
participation of our Chief Executive Officer (principal executive officer) and
our Chief Financial Officer (principal financial officer), of the effectiveness
of the design and operation of our disclosure controls and procedures (as
defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange
Act of 1934, as amended) as of September 30, 2009 and have concluded that these
controls and procedures are effective to ensure that information required to be
disclosed by the Company is recorded, processed, summarized, and reported within
the time periods specified in the Securities and Exchange Commission’s (the
“SEC”) rules and forms. The forms of certification are required in
accordance with Section 302 of the Sarbanes - Oxley Act of
2002.





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





Changes
in Internal Control Over Financial Reporting





During
the three months ended September 30, 2009, no change occurred in the Company’s
internal control over financial reporting that materially affected, or is likely
to materially affect, the Company’s internal control over financial
reporting.


19





PART II — OTHER
INFORMATION





Item 1. Legal
Proceedings.




See Note
11 of the September 30, 2009 Interim Financial Statements included
herein.





Item 1A. Risk
Factors.




See Part
I, Item 1A, “Risk Factors,” of the Company’s 2008 Form 10-K for a detailed
discussion of the risk factors affecting the Company. In addition to the risk
factors listed therein, the Company is currently in discussion with Bank of
America and other lenders regarding a new facilityif we are unable to
arrange a new credit facility with Bank of America or a different lender, it
would have a material adverse effect on our business.





Item
2. Recent Sales of Unregistered Securities.





There
have been no changes to the “Recent Sales of Unregistered Securities” disclosed
in Part II, Item 2 of our Form 10-Q for the quarter ended June 30,
2009.





Purchases
of Equity Securities by Issuer





(a)
                                          
                                          
                                          (b)
                                          
                                          
                                          (c)
                                          
                                          
                                          (d)Period
                                          
                                          Total Number
                                            of Shares
                                            Purchased
                                          
                                          
                                          Average Price
                                            Paid per Share
                                          
                                          
                                          Total Number
                                            of Shares
                                            Purchased as
                                            Part of
                                            Publicly
                                            Announced
                                            Plans or
                                            Programs
                                          
                                          
                                          Maximum
                                            Dollar Value of
                                            Shares that May
                                            Yet Be
                                            Purchased
                                            Under the PlanJuly
      1-31, 2009
                                          
                                          
                                          —
                                          
                                          
                                          $
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          $
                                          —August
      1-31, 2009
                                          
                                          
                                          1,505
                                          
                                          
                                          
                                          2.24
                                          
                                          
                                          
                                          1,505
                                          
                                          
                                          
                                          2,996,627September
      1-30, 2009
                                          
                                          
                                          373
                                          
                                          
                                          
                                          2.26
                                          
                                          
                                          
                                          373
                                          
                                          
                                          
                                          2,995,784Total
                                          
                                          
                                          1,878
                                          
                                          
                                          $
                                          2.25
                                          
                                          
                                          
                                          1,878
                                          
                                          
                                          
                                          2,995,784





On August
10, 2009, the Company announced approval of a plan under Rule 10b5-1 under the
Securities Exchange Act of 1934, as amended, to facilitate purchases of the
Company’s common shares and assist with compliance with Rule 10b-18 under such
Act.  A plan under Rule 10b5-1 allows a company to repurchase its
common shares at times when it otherwise might be prevented from doing so under
insider trading laws.  A broker selected by the Company has authority
under the plan to repurchase up to $1.5 million of the Company’s common stock
over the next two years on the Company’s behalf.  The $1.5 million
amount is a portion of the total repurchase program amount previously approved
by the Board on February 11, 2009 of the lesser of $3.0 million or 2.0 million
shares.  Purchases of common shares under the 10b5-1 plan will be
subject to specified parameters and certain price, volume and timing
constraints.  Accordingly, there can be no assurance as to how many
common shares will be purchased.  In addition, the program and related
plan may be suspended or discontinued at any time without prior
notice.





Item 3.  Defaults upon Senior
Securities.





Not
applicable.





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





None.




Item 5.  Other
Information.





None.


20





Item 6. 
Exhibits.





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


21





SIGNATURES





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





ATS
      CorporationBy:
                        /s/
      Edward H. BersoffChairman
      of the Board, President andChief
      Executive OfficerBy:
                        /s/
      Pamela A. LittleExecutive
      Vice President and Chief Financial OfficerDate:
      November 9, 2009


22