March 31,				December 31,
		2010				2009
		(unaudited)				(audited)
ASSETS
Current assets
Cash		$	134,913			$	178,225
Restricted cash			1,324,648				1,324,510
Accounts receivable, net			20,447,469				22,497,444
Prepaid expenses and other current assets			448,674				625,231
Income taxes receivable			120,739				205,339
Other current assets			51,171				46,057
Deferred income taxes, current			2,430,547				2,361,611
Total current assets			24,958,161				27,238,417
Property and equipment, net			2,877,940				3,011,621
Goodwill			55,370,011				55,370,011
Intangible assets, net			5,604,716				6,102,798
Other assets			146,567				146,567
Deferred income taxes			1,495,795				1,400,260
Total assets		$	90,453,190			$	93,269,674
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	18,995,387			$	21,191,135
Accounts payable			5,102,145				4,753,800
Other accrued expenses and current liabilities			4,596,635				6,356,896
Accrued salaries and related taxes			3,495,647				4,541,509
Accrued vacation			2,499,145				2,259,538
Income taxes payable			946,901				—
Deferred revenue			813,456				1,392,457
Deferred rent – current portion			320,498				320,498
Total current liabilities			36,769,814				40,815,833
Deferred rent – net of current portion			2,616,000				2,658,055
Other long-term liabilities			5,794				5,795
Total liabilities			39,391,608				43,479,683
Shareholders’ equity:
Preferred stock $.001 par value, 1,000,000 shares authorized, and no shares issued and outstanding			—				—
Common stock $.001 par value, 100,000,000 shares authorized, 31,314,745 and 30,867,304 shares issued, respectively, and 22,416,852 and 22,524,549 shares outstanding, respectively			3,162				3,124
Additional paid-in capital			131,936,469				131,702,488
Treasury stock, at cost, 8,897,893 and 8,342,755 shares held, respectively			(31,663,758	)			(31,209,118	)
Accumulated deficit			(48,956,411	)			(50,062,979	)
Accumulated other comprehensive loss (net of tax benefit of $160,386 and $338,606, respectively)			(257,880	)			(643,524	)
Total shareholders’ equity			51,061,582				49,789,991
Total liabilities and shareholders’ equity		$	90,453,190			$	93,269,674

 

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

 

3

---

 

ATS CORPORATION

		Three Months Ended  March 31,
		2010 (unaudited)				2009 (unaudited)
Cash flows from operating activities
Net income		$	1,106,568			$	425,589
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			640,837				781,688
Non-cash other income from claim settlement			(495,000	)			—
Non-cash interest expense SWAP agreement			328,766
Stock-based compensation			162,492				105,219
Deferred income taxes			(405,254	)			274,106
Deferred rent			(42,055	)			(45,334	)
Gain on disposal of equipment			(5,000	)			—
Provision for bad debt			495,422				123,871
Changes in assets and liabilities, net of adjustments related to other comprehensive loss:
Accounts receivable			1,554,554				5,641,195
Prepaid expenses and other current assets			176,557				(94,646	)
Restricted cash			(138	)			(3,831	)
Other assets			(5,114	)			48,340
Accounts payable			365,864				66,803
Other accrued expenses and accrued liabilities			(1,462,500	)			(2,086,536	)
Accrued salaries and related taxes			(1,045,862	)			(89,936	)
Accrued vacation			239,608				231,248
Accrued interest			(17,520	)			13,616
Income taxes payable and receivable			1,031,400				(749,051	)
Other current liabilities			(579,001	)			573,737
Net cash provided by operating activities			2,044,624				5,216,078
Cash flows from investing activities
Purchase of property and equipment			(9,074	)			(80,400	)
Proceeds from disposals of equipment			5,000				—
Net cash used in investing activities			(4,074	)			(80,400	)
Cash flows from financing activities
Borrowings on line of credit			18,916,849				14,027,500
Payments on line of credit			(19,539,208	)			(18,877,448	)
Payments on notes payable			(1,078,390	)			(645,813	)
Payments on capital leases			—				(20,992	)
Proceeds from stock issued pursuant to Employee Stock Purchase Plan			71,527				59,966
Payments to repurchase treasury stock			(454,640	)			—
Net cash used in financing activities			(2,083,862	)			(5,456,787	)
Net decrease in cash			(43,312	)			(321,109	)
Cash, beginning of period			178,225				364,822
Cash, end of period		$	134,913			$	43,713
Supplemental disclosures:
Cash paid or received during the period for:
Income taxes paid		$	—			$	962,600
Income tax refunds			1,128				3,189
Interest paid			518,127				823,657
Interest received			8,080				7,980
Non-cash investing and financing activities and adjustment to other comprehensive loss:
Unrealized other comprehensive income (loss) on interest rate swap, net of tax			(183,302	)			(71,578	)

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

 

5

---

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 ¾ 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 (“SEC”). 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 2009 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 ¾ RECENT ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Standards

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.

			Options Outstanding								Options Exercisable
						Weighted-
						average		Weighted-					Weighted-
						Remaining		average					average
	Exercise		Number			Life in		Exercise			Number		Exercise
	Prices		Outstanding			Years		Price			Exercisable		Price
$	1.40			80,000		8.76		$	1.40		20,000		$	1.40
	1.50			192,000		9.09			1.50		—			—
	2.15			140,750		8.17		$	2.15		35,375			2.15
	2.23			5,000		9.47			2.23		—			—
	2.45			15,000		9.76			2.45		—			—
	2.50			15,000		9.71			2.50		—			—
	3.40			50,000		7.72			3.40		25,000			3.40
	3.50			30,000		7.61			3.50		15,000			3.50
	3.67			15,000		7.50			3.67		7,500			3.67
	3.75			4,500		7.30			3.75		2,250			3.75
	4.32			15,000		6.92			4.32		11,250			4.32
	4.88			60,000		6.91			4.88		45,000			4.88
				622,250		8.38		$	2.40		161,375		$	4.14

 

 

8

---

 

NOTE 5 ¾ STOCK PLANS AND STOCK-BASED COMPENSATION (continued)

Restricted Shares – Pursuant to the 2006 Omnibus Incentive Compensation Plan, during the three-month period ended March 31, 2010, the Company granted 100,000 restricted shares valued at $245,000. Such shares vest ratably over a five-year period. The table below provides additional restricted share information for the three months ended March 31, 2010:

 

	Three months Ended March 31, 2010
	Number of Shares				Weighted Average Grant Date Fair Value
Unvested at January 1, 2010			462,986			$	2.42
Granted			100,000				2.45
Vested			(45,150	)			2.06
Forfeited			—				—
Unvested at March 31, 2010			517,836			$	2.46

NOTE 6 ¾ EMPLOYEE STOCK PURCHASE PLAN

The Company adopted the 2007 Employee Stock Purchase Plan (the “Plan”) in July 2007. The Plan was subsequently approved by the shareholders in May 2008. The Plan provides employees and management with an opportunity to acquire or increase ownership interest in the Company through the purchase of shares of the Company’s common stock at periodic intervals, namely four month offering periods during which payroll deductions are made and shares are subsequently purchased at a discount. The Company initially reserved an aggregate of 150,000 shares of common stock exclusively for issuance under the Plan. Additionally, the Company may automatically increase the shares registered under this Plan on an annual basis pursuant to the Plan’s “evergreen” provision. This provision allows the Company to annually increase its registered Plan shares by the lesser of the following: (i) 100,000 shares, (ii) 1% of the Company’s outstanding shares on January 1 of such year, or (iii) a lesser amount as determined by the Board. Accordingly, the Board increased the number of shares authorized under the Plan by 100,000 for fiscal years 2009 and 2010.

NOTE 7 ¾ EARNINGS (LOSS) PER SHARE

Basic and diluted earnings per share information is presented in accordance with ASC 260, Earnings Per Share (formerly SFAS No. 128, Earnings Per Share). Basic earnings per share is calculated by dividing the net income/(loss) attributable to common stockholders by the weighted-average common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income attributable to common stockholders by the weighted average common shares outstanding which includes common stock equivalents. The Company’s common stock equivalents include stock options, restricted stock, and warrants. The weighted average shares outstanding excludes unvested restricted shares. Weighted average shares outstanding for the three months ended March 31, 2010 excludes stock options to purchase approximately 431,109 shares because such common stock equivalents have an exercise price in excess of the average market price of the Company’s common stock during the period, or would be anti-dilutive. Weighted average shares outstanding for the three months ended March 31, 2009 excludes warrants and stock options to purchase approximately 4,006,524 shares because such common stock equivalents have an exercise price in excess of the average market price of the Company’s common stock during the period, or would be anti-dilutive. The warrants expired in October 2009.

 

9

---

 

NOTE 8 ¾ SEGMENT ACCOUNTING

The Company reviewed its services by unit to determine if any unit of the business is subject to risks and returns that are different than those of other units in the Company. The Company has determined that it has one line of business, providing primarily IT services to government and commercial companies. As such, the Company has only one reportable segment.

We are exposed to certain financial market risks, the most predominant being fluctuations in interest rates for a portion of our borrowings under our credit facility. As of March 31, 2010, we had an outstanding balance of $18.1 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 Interim Financial Statements.

As of March 31, 2010, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (Exchange Act). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures as defined by Rule 13a-15(e) of the Exchange Act were effective as of March 31, 2010. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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

Changes in Internal Control Over Financial Reporting

During the three months ended March 31, 2010, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

See Part I, Item 1A, “Risk Factors,” of the Company’s 2009 Form 10-K for a detailed discussion of the risk factors affecting the Company.

Not applicable.

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 Corporation
	By:	/s/ Edward H. Bersoff
		Chairman of the Board and
		Chief Executive Officer
	By:	/s/ Pamela A. Little
		Chief Financial Officer
Date: April 28, 2010

 

22

---