S-1/A 1 v196223_s1a.htm

As filed with the Securities and Exchange Commission on September 17, 2010

Registration No. 333-167608

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Pre-Effective Amendment No. 3 to
Form S-1

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

The KEYW Holding Corporation

(Exact Name of Registrant as specified in Its Charter)

   
Maryland   7373   27-1594952
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

1334 Ashton Road, Suite A
Hanover, MD 21076
(443) 270-5300

(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)

Leonard E. Moodispaw
1334 Ashton Road, Suite A
Hanover, MD 21076
(443) 270-5300

(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)

Copies to:

 
A. Lynne Puckett
Brian J. Lynch
Hogan Lovells US LLP
Harbor East
100 International Drive, Suite 2000
Baltimore, Maryland 21202
Telephone: (410) 659-2700
Telecopy: (410) 659-2701
  Michael J. Volkovitsch
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, New York 10006
Telephone: (212) 225-2000
Telecopy: (212) 225-3999


 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date hereof.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See 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 o   Non-accelerated filer x
(Do not check if a smaller reporting company)
  Smaller reporting company o

CALCULATION OF REGISTRATION FEE

   
Title of each class of securities to be registered   Proposed maximum
aggregate
offering price(1)
  Amount of
Registration Fee(2)
Common Stock, $0.001 par value per share   $ 125,580,000     $ 8,954  

(1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price. $1,824 has been paid herewith; $7,130 was previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 


 
 

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The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject To Completion, Dated September 17, 2010

PROSPECTUS

9,100,000 Shares

The KEYW Holding Corporation

[GRAPHIC MISSING]

Common Stock



 

This is our initial public offering. The total number of shares of common stock being offered by us and the selling stockholders is 9,100,000. We are selling 8,274,090 shares of common stock and the selling stockholders identified in this prospectus are selling an additional 825,910 shares. See “The Offering” on page 6 of this prospectus. We will not receive any proceeds from the sale of shares by the selling stockholders.

We expect the public offering price to be between $10.00 and $12.00 per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will trade on the NASDAQ Global Market under the symbol “KEYW.”

Investing in our common stock involves risks that are described in the “Risk Factors” section beginning on page 15 of this prospectus.



 

   
  Per
Share
  Total
Public offering price   $          $       
Underwriting discount   $     $  
Proceeds, before expenses, to The KEYW Holding Corporation   $     $  
Proceeds, before expenses, to the selling stockholders   $     $  

We have granted the underwriters an option to purchase up to an additional 1,365,000 shares of common stock, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments.



 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.



 

The underwriters expect to deliver the shares against payment in New York, New York on       , 2010.



 

SunTrust Robinson Humphrey



 

FBR Capital Markets  Merriman Capital  Noble Financial Capital Markets

The date of this prospectus is       , 2010


 
 


 
 


 
 


 
 

TABLE OF CONTENTS

TABLE OF CONTENTS

 
SUMMARY     1  
THE OFFERING     6  
SUMMARY CONSOLIDATED FINANCIAL DATA     8  
RISK FACTORS     15  
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS     32  
USE OF PROCEEDS     33  
DIVIDEND POLICY     33  
CAPITALIZATION     34  
DILUTION     35  
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA     37  
UNAUDITED PRO FORMA FINANCIAL INFORMATION     40  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     45  
BUSINESS     65  
MANAGEMENT     79  
EXECUTIVE COMPENSATION     88  
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS     109  
PRINCIPAL AND SELLING STOCKHOLDERS     112  
DESCRIPTION OF CAPITAL STOCK     116  
SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE     121  
UNDERWRITING     123  
CONFLICTS OF INTEREST     126  
LEGAL MATTERS     128  
EXPERTS     128  
WHERE YOU CAN FIND MORE INFORMATION     129  
INDEX TO FINANCIAL STATEMENTS     F-1  


 

You should rely only on the information contained in this prospectus. We, the selling stockholders and the underwriters have not authorized any other person to provide you with different information. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

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SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that is important to you. Before investing in our common stock, you should read this prospectus carefully in its entirety, including the information that we discuss under “Risk Factors,” and our consolidated financial statements and related notes. Unless otherwise indicated, references in this prospectus to “KEYW,” the “Company,” “we,” “our” and “us” refer to The KEYW Holding Corporation and its subsidiaries. References to “Predecessor” and “ICCI” refer to Integrated Computer Concepts, Incorporated, which is our predecessor for accounting purposes. We also refer to KEYW as “Successor” in this prospectus.

References to information labeled as “pro forma” or “on a pro forma basis,” when used to describe our financial results or operations, unless the context otherwise requires, refer to our financial results of operations, after giving pro forma effect to the transactions described under “Unaudited Pro Forma Financial Information.”

KEYW

Our Business

We provide mission-critical cybersecurity and cyber superiority solutions to defense, intelligence and national security agencies. Our solutions, services and products support the collection, processing, analysis, and use of intelligence data and information in the domain of cyberspace. Cyberspace is the global environment of data and information that encompasses all parts of the electromagnetic spectrum in which intelligence data may exist or transit.

Our current customers include the National Security Agency (NSA), other intelligence agencies, the Department of Defense (including major agencies and branches within the Department of Defense) and other federal defense and law enforcement agencies. We believe our innovative solutions, understanding of intelligence and national security missions, management’s long-standing and successful customer relationships and significant management and operational capabilities position us to continue our growth. We are highly focused on assisting our customers in achieving their mission of superiority in cyberspace (cyber superiority), both defensively and offensively, within the entire domain of cyberspace, and doing so in time to observe, respond, and, where possible, prevent threat events, actions and agents from inflicting harm.

KEYW’s primary areas of expertise include:

providing engineering services and solutions that help our customers to solve discreet and complex cybersecurity, cyber superiority, and intelligence challenges;
providing specialized training, field support, and test and evaluation services;
collecting data and information in cyberspace, encompassing the entire electromagnetic spectrum;
processing data and information from cyberspace to make it accessible to a wide range of analytical needs and resources;
analyzing data and information that have been collected, processed, correlated, and made easily accessible to transform them into usable information for our customers; and
impacting, or creating integrated intelligence data and information that is useful in observing, preventing, and responding to known and emerging threat events, actions and agents on a global scale, often in real time.

We provide a full range of engineering services as well as fully integrated platforms that support the entire intelligence process, including collection, processing, analysis and impact. Our platforms include products that we manufacture, as well as hardware and software that we integrate using the engineering services of our highly skilled and security-cleared workforce. A hallmark of our capabilities is our ability to respond quickly and decisively to demanding and emergent customer requirements, with agile processes and methods that enable us to satisfy requirements that are constantly changing to meet an agile, aggressive and ever-changing threat environment. We also believe we are well positioned to apply our solutions to growth

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areas within government intelligence and national defense. In 2009, 86% of our revenue was derived from contracts with the NSA. For 2009, on a pro forma basis, approximately 41% of our revenue was derived from contracts with the NSA, approximately 41% of our revenue was derived from contracts with U.S. Air Force Intelligence, and the approximate remaining 18% of revenue was derived from another major intelligence agency and other intelligence, defense, homeland security and law enforcement organizations. As of June 30, 2010, KEYW has approximately 432 employees. Over 370 of our employees hold government security clearances, 326 of which hold Top Secret/Sensitive Compartmented Information clearances, or TS/SCI clearances, the highest U.S. Government security clearance level.

For 2008 and 2009, we generated revenue reflecting that of KEYW and our acquisitions, from the date of acquisition, of $9 million and $39 million, respectively, on an actual basis. Our 2009 pro forma revenue was approximately $116 million. Our 2009 pro forma revenue is derived from over 75 contracts (including a combination of prime contracts and subcontracts), the ten largest contracts of which account for approximately 40% of our 2009 pro forma revenue, and no one contract accounts for greater than 10% of our 2009 pro forma revenue. The majority of our contracts provide for a total contract period of five years, with an initial contract period of one year and the balance in one-year option periods. Historically, option exercise rates have been in excess of 95%.

Our History

KEYW began operations on August 4, 2008 with the former leadership team of Essex Corporation, which was acquired by Northrop Grumman Corporation in January 2007. Under an agreement between KEYW and Northrop Grumman Corporation, KEYW acquired a core set of capabilities (including the hiring of over 60 employees) and fixed assets from Northrop Grumman Corporation. Since its founding, KEYW has assembled, through a series of highly selective strategic acquisitions, a single distinct platform that provides the high quality and complementary cybersecurity, cyber superiority and intelligence capabilities, solutions and products our customers require.

In 2008, we acquired Integrated Computer Concepts, Incorporated, or ICCI, our predecessor for accounting purposes, and S&H Enterprises of Central Maryland, Inc., or S&H. Both companies are known for their innovations and capabilities in support of the Intelligence Community. The acquisition of ICCI brought KEYW approximately 80 employees working on key NSA programs. ICCI provided a highly regarded software engineering team that has been involved on a wide range of programs and contracts over many years. S&H provided strong program management and systems engineering capabilities on a large mission-critical program.

In 2009, we acquired certain assets of Embedded Systems Design, Inc., or Embedded Systems, Leading Edge Design & Systems, Inc., or LEDS, and the Systems Engineering and Technical Assistance (SETA) team of General Dynamics Advanced Information Systems Inc., or GDAIS team, which team supports a large intelligence agency. Both Embedded Systems and LEDS have provided high performance solutions to the Intelligence Community. The addition of Embedded Systems contributed a hardware systems engineering capability, while LEDS expanded our hardware engineering capabilities, as well as the depth of activity on a large program with our largest customer, the NSA.

In February 2010 we acquired The Analysis Group, LLC, or TAG, and in March 2010 we acquired Insight Information Technology, LLC, or IIT. TAG expanded our customer base to include Air Force Intelligence and TAG’s long-term customer relationship and contracts with this customer, particularly in the area of complex program management requirements. IIT further expanded our program management and systems engineering capabilities, and expanded our activity on a large program with our largest customer.

Our Market Opportunity

Our market opportunity is defined by the pervasive expanse of cyberspace and the urgent need for the United States to achieve cyber superiority or mastery of this domain. In a document entitled the National Military Strategy for Cyberspace Operations, the Department of Defense officially defined cyberspace as “a domain characterized by the use of electronics and electromagnetic spectrum to store, modify and exchange data via networked systems and associated physical infrastructures.”

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According to the Director of National Intelligence (DNI) in his 2010 Annual Threat Assessment, “the national security of the United States, our economic prosperity, and the daily functioning of our government are dependent on a dynamic public and private information infrastructure, which includes telecommunications, computer networks and systems, and the information residing within. The critical infrastructure is severely threatened.” In this same document, he states, “the Intelligence Community plays a vital role in protecting and preserving our nation’s cyber interests and the continued free flow of information in cyberspace.” His strategy is to create “an integrated and agile intelligence team to help deploy a defensive strategy that is both effective and respectful of American freedoms and values. We are integrating cybersecurity with counterintelligence and improving our ability to understand, detect, attribute, and counter the full range of threats.”

The market opportunity for cyber superiority/cybersecurity was further defined when, in 2009, Defense Secretary Gates directed the establishment of U.S. Cyber Command, a military sub-command focused on cybersecurity, to be based at Fort Meade, MD, which also houses the National Security Agency. According to Secretary Gates, “Cyber Command will bring together more than a half a dozen intelligence and military organizations in support of three overlapping categories of cyber operations,” to protect dense computer networks, coordinate all defense computer operations and provide full-spectrum support for all military and counterterrorism missions, and stand by to support civil authorities and industry partners on an as-needed basis. According to Deputy Defense Secretary Lynn in January 2010, “combining offensive and defensive capabilities under a single roof and bringing those together with the intelligence we need to anticipate attacks will make our cyber operations more effective.”

These decisions put the National Security Agency and Cyber Command, both at Fort Meade, MD, and near our headquarters, at the center of U.S. strategy for cyber superiority and cybersecurity. KEYW’s leadership and the platform of companies and capabilities it has strategically assembled have been involved with these customers and programs for many years as this strategy has been developed and deployed.

An additional element of the DNI’s strategy for the Intelligence Community, and an important element that helps define this market opportunity is the need for agility. Agility was identified by DNI in the 2009 National Intelligence Strategy as one of the characteristics essential to the IC’s effectiveness. The DNI defined an agile organization as “an enterprise with an adaptive, diverse, continually learning, and mission-driven intelligence workforce that embraces innovation and takes initiative.” In addition, the National Intelligence Strategy identified enhancing cybersecurity as one of six mission objectives that must be accomplished by the Intelligence Community: “Understand, detect, and counter adversary cyber threats to enable protection of the Nation’s information infrastructure.” The DNI, in his Vision 2015 document, published in August 2008, put forward a strategy for transforming the focus and operation of the Intelligence Community into cyber age operations. He challenged the Intelligence Community to “adopt modern business practices that will make us more effective, efficient, nimble, and accountable.”

For national security reasons, there is limited detailed information published on intelligence spending or the amount of intelligence spending dedicated for cyber warfare. The Director of National Intelligence disclosed that the 2009 National Intelligence Program budget was $49.8 billion. The budget for U.S. Air Force Intelligence is not separately reported within the overall Air Force budget, which was $160.5 billion for fiscal year 2010. According to the White House Office of Management and Budget, the fiscal year 2009 budget for information technology, or IT, security spending was approximately $7.3 billion, which represents a 9.8% increase over fiscal year 2008 IT security spending. According to INPUT, a provider of market information for U.S. Government business, the federal cybersecurity market is expected to achieve an 8.1% annual growth rate through 2014.

As a result of these decisions and actions, our customers have clearly defined agility, cyber superiority, and cybersecurity as a critical market opportunity. We believe that KEYW is strongly positioned based on its capabilities, competitive strengths, and strategy, to be a leader in this well funded and critical market.

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Our Competitive Strengths

We believe the following competitive strengths will allow us to take advantage of the trends in our industry:

Cyber superiority and intelligence focused.  We are a company that is entirely focused on delivering cyber superiority and intelligence support for our customers. We accomplish this by delivering a full range of cyber engineering services and solutions, as well as cyber intelligence products. Mastering cyberspace and thereby attaining cyber superiority is a core mission of the Intelligence Community. KEYW is building a platform of capabilities, culture, and technologies that is tailored to meeting this mission. This focus gives our customers faster and more innovative solutions than those offered by our competitors.

Agile intelligence, cybersecurity and cyber age operations expertise.  We have significant experience in building signal and information processing solutions and cybersecurity and cyber superiority solutions, using agile methodologies for the Intelligence Community to support mission critical activities and complex national security problems. The KEYW team has established a strong reputation for responding quickly to customer requirements, and working as a partner with our customers to identify and define these requirements. The changes in the threat environment that have occurred since 2001 have put enormous pressure on the Intelligence Community to respond more quickly and in a more integrated way than ever before. KEYW has a culture of innovation and agility that allows us to respond more quickly and with greater impact than large organizations.

Management’s Intelligence Community experience and relationships.  Our management has significant expertise in the Intelligence Community and a lengthy track record across all members of the Intelligence Community. Our insight into the Intelligence Community’s needs and our mission focus allow us to articulate and support our customers’ needs as they emerge, placing us at the forefront of solutions being offered. The senior members of KEYW’s leadership and technology teams have a record of supporting the Intelligence Community’s programs over a period of 20-30 years. These long-term relationships establish a basis of trust that is required to understand and support mission-critical requirements. During this period, our executives have gained access to the highest levels of the Intelligence Community and provided thought leadership in the transformation of the intelligence process to respond to challenges of cyber age operations and a rapidly changing asymmetrical global threat environment.

Skilled employees with high-level security clearances.  As of June 30, 2010, 86% of our employees have government security clearances, with 75% of our employees holding TS/SCI clearances. This concentration of highly-skilled and cleared engineers allows us to respond quickly to customer requirements and gives us on-going insight into our customers’ toughest national security problems. The requirement for these clearances and the time and process required to attain them are significant barriers to entering this market.

Established contract relationships.  We have a mix of prime contract and subcontract relationships with a long legacy of strong performance. An increasing number of our contracts are sole-source contracts, which are awarded without competitive bidding, based on innovation, distinct capabilities, and urgent and compelling needs.

Our Strategy

Our objective is to continue to grow our business as a provider of advanced solutions, including services, products, and fully integrated cyber platforms, for cyber intelligence to U. S. Government customers and to leverage our capabilities and innovations in this field to government intelligence, defense, civilian customers and the commercial market. Key elements of our strategy to accomplish our continued growth objective include:

Leveraging our distinct culture, which we describe as “Agile DNA”, products and solutions to expand U.S. Government business.  We intend to leverage our high technology capabilities and services, products and solutions to further penetrate the intelligence and defense communities and to expand our participation in other cyber intelligence growth areas of the U.S. Government in the homeland security and civilian sectors. We believe this will allow us to apply powerful cyber superiority solutions to the .gov community in a manner that is transparent and respectful of privacy in the civilian and commercial environments.

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Pursuing strategic, capability-enhancing acquisitions.  We will continue to pursue selective strategic acquisitions that expand our cyber intelligence platform of capabilities and solutions. This will include companies that are leaders in supporting the U.S. intelligence and defense community, as well as technologies and solutions in cybersecurity and other areas of innovation that are critical to the transformation of the Intelligence Community into cyber age operations.

Fully integrating and accelerating our business development efforts.  As a company that is growing quickly through integrating multiple strategic acquisitions, we plan to capitalize and leverage investments that each of our platform companies have made in the business development function. We intend to capitalize on the collective capabilities, relationships and facilities of our acquisitions to expand the number and scope of our prime contracts, as well as increase the number of sole-source contracts where our agility and innovation can create new solutions to our customers’ toughest problems.

Building and leveraging our research and development efforts.  We intend to continue utilizing company and customer funded research and development to develop technologies, products and solutions that have significant potential for near-term, as well as long-term value in both the government and commercial markets. We will continue to use intellectual property that we license from other companies and create at KEYW in the areas of network traffic intelligence, cybersecurity, and cyber intelligence to build products and solutions to further penetrate the intelligence and defense market for cyber superiority.

Corporate Information

We are a holding company and conduct our operations through The KEYW Corporation and its subsidiaries. We were incorporated in Maryland in December 2009. The KEYW Corporation was incorporated in Maryland in May 2008 and became our wholly-owned subsidiary in December 2009 as part of a corporate restructuring. We acquired our predecessor, Integrated Computer Concepts, Incorporated or ICCI, in September 2008.

The address of our principal executive office is 1334 Ashton Road, Suite A, Hanover, Maryland 21076 and our general telephone number is (443) 270-5300. Our web site address is www.keywcorp.com. The information on, or that can be accessed through, our web site is not part of this prospectus.

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THE OFFERING

Common stock we are offering    
    8,274,090 shares
Common stock offered by the selling Stockholders    
    825,910 shares
Total common stock offered    
    9,100,000 shares
Common stock outstanding after this offering    
    23,786,838 shares
Use of proceeds    
    We estimate that the net proceeds to us from this offering will be approximately $84 million, assuming an initial public offering price of $11.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use these net proceeds as follows:
   

•  

approximately $10 million of the net proceeds will be used to pay down a portion of outstanding indebtedness under an asset backed credit facility with Bank of America, N.A.;

   

•  

approximately $11 million of the net proceeds will be used to pay off subordinated unsecured notes issued to the seller of TAG as part of the acquisition of TAG;

   

•  

approximately $8 million of the net proceeds will be used to pay off subordinated unsecured notes issued to six of our stockholders to finance the acquisition of TAG and IIT; and

   

•  

the balance of the net proceeds will be used for working capital, capital expenditures and other general corporate purposes, including potential acquisitions. See “Use of Proceeds.”

Reserved shares    
    At our request, the underwriters have reserved for sale, at the initial public offering price, up to 46,000 shares offered by this prospectus for sale to some of our existing investors. See “Underwriting.”
Listing    
    We have filed an application to list our common stock on the NASDAQ Global Market under the trading symbol “KEYW.”
Risk factors    
    See “Risk Factors” and other information included in this prospectus for a discussion of factors that you should carefully consider before deciding to invest in shares of the common stock.
NASDAQ Global Market symbol    
    KEYW

The number of shares outstanding after this offering excludes:

1,305,250 shares of common stock issuable upon the exercise of outstanding stock options as of June 30, 2010, at a weighted average exercise price of $6.00 per share;
4,813,806 shares of common stock issuable upon the exercise of outstanding warrants as of June 30, 2010, at a weighted average exercise price of $4.98 per share; and
1,324,530 shares of common stock available for grant under our 2009 Stock Incentive Plan as of June 30, 2010.

Unless otherwise noted, all information in this prospectus:

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assumes the application of the net proceeds of this offering in the manner described in “Use of Proceeds”;
assumes the filing of our amended and restated articles of incorporation and the adoption of our amended and restated bylaws immediately before the completion of this offering;
assumes that the initial public offering price of the common stock will be $11.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus; and
assumes that the underwriters do not exercise their overallotment option.

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SUMMARY CONSOLIDATED FINANCIAL DATA

You should read the information set forth below in conjunction with the sections titled “Use of Proceeds,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Selected Consolidated Financial and Other Data,” “Unaudited Pro Forma Financial Information” and the financial statements and related notes appearing elsewhere in this prospectus. Our historical results are not necessarily indicative of our results for any future period.

The following tables set forth our summary statement of operations data, balance sheet data and other data for the periods indicated. The summary statement of operations data and other data for the six months ended June 30, 2010 and June 30, 2009 and the summary balance sheet data as of June 30, 2010 have been derived from our unaudited financial statements that are included elsewhere in this prospectus, and, in the opinion of our management, include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the information. The summary statement of operations data and other data for the year ended December 31, 2009 and the period from July 31, 2008 (inception) to December 31, 2008 have been derived from our audited financial statements, which are included elsewhere in this prospectus. The foregoing summary statement of operations data gives effect to various acquisitions from the date of acquisition.

The summary statement of operations data and other data for the period from January 1, 2008 to September 29, 2008 and for the year ended December 31, 2007 represent the operations of ICCI, our Predecessor, and have been derived from Predecessor audited financial statements that are included elsewhere in this prospectus. We acquired all of the outstanding stock of ICCI on September 30, 2008.

The following tables also set forth (1) summary statement of operations data for The Analysis Group, LLC, or TAG, for the year ended December 31, 2009, and (2) summary statement of operations data for Insight Information Technology, LLC, or IIT, for the year ended December 31, 2009. We acquired TAG on February 22, 2010 and we acquired IIT on March 15, 2010. The acquisition of TAG on February 22, 2010, and the acquisition of IIT on March 15, 2010, are referred to as the “TAG Acquisition” and the “IIT Acquisition,” respectively, throughout this prospectus. The summary statement of operations data for TAG for the year ended December 31, 2009 combines the statement of operations data for TAG for the period from January 1, 2009 to October 31, 2009 derived from TAG audited financial statements included in this prospectus, and the statement of operations data for TAG for the period from November 1, 2009 to December 31, 2009, derived from TAG unaudited financial statements that are not included in this prospectus. The summary statement of operations data for IIT presented in the tables below have been derived from IIT audited financial statements included elsewhere in this prospectus.

The summary unaudited pro forma statement of operations data as of December 31, 2009, and for the six months ended June 30, 2010, in the tables below has been prepared to give pro forma effect to (i) the 2009 acquisitions, consisting of Embedded Systems, LEDS, and GDAIS team, prior to their inclusion in the Successor’s financial statements, (ii) the TAG Acquisition, prior to inclusion in the Successor’s financial statements, and (iii) the IIT Acquisition, prior to inclusion in the Successor’s financial statements. The unaudited pro forma statement of operations give effect to these transactions as if they had occurred at the beginning of the period presented. This data is subject, and gives effect, to the assumptions and adjustments described in the notes accompanying the unaudited pro forma financial information included elsewhere in this prospectus. The summary unaudited pro forma statement of operations data is presented for informational purposes only and should not be considered indicative of actual results of operations that would have been achieved had the acquisitions been consummated on the dates indicated.

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  Predecessor   Successor   Pro Forma(4)
Combined
  Successor
     Year ended
December 31, 2007
  Period from
January 1
through
September 29, 2008
  Period from
July 31
(inception) through
December 31, 2008
  Year ended
December 31, 2009
  Year ended
December 31, 2009
    
  
Six months ended
June 30
     2009   2010
                         unaudited   unaudited
     (in thousands, except per share data)
Statement of Operations Data:
                                                           
Revenues
                                                              
Services   $ 15,410     $ 14,563     $ 9,045     $ 32,743     $ 109,924     $ 14,256     $ 42,699  
Products                       6,294       6,294       2,627       6,960  
Total     15,410       14,563       9,045       39,037       116,218       16,883       49,659  
Cost of revenues(5)
                                                              
Services     10,263       9,351       4,825       23,475       84,789       10,423       31,134  
Products                       4,443       4,443       1,609       3,937  
Total     10,263       9,351       4,825       27,918       89,232       12,032       35,071  
Gross profit
                                                              
Services     5,147       5,212       4,220       9,268       25,135       3,833       11,565  
Products                       1,851       1,851       1,018       3,023  
Total     5,147       5,212       4,220       11,119       26,986       4,851       14,588  
Operating expenses     2,847       4,104       3,573       11,373       19,718       3,739       11,619  
Intangible amortization expense                 612       2,055       6,670 (1)      941       2,761  
Net operating income (loss)     2,300       1,108       35       (2,309 )      598       171       208  
Non-operating (income) expense, net     (38 )      67       2,080       783       3,035 (2)      848       (8,935 ) 
Income (loss) before income taxes     2,338       1,041       (2,045 )      (3,092 )      (2,437 )      (677 )      9,143  
Income tax (expense) benefit, net                 (21 )      979       979       (105 )      (3,803 ) 
Net income (loss)   $ 2,338     $ 1,041     $ (2,066 )    $ (2,113 )    $ (1,458 )    $ (782 )    $ 5,340  
Earnings (loss) per share
                                                              
Basic     n/a       n/a     $ (0.32 )    $ (0.18 )    $ (0.12 )    $ (0.08 )    $ 0.36  
Diluted     n/a       n/a     $ (0.32 )    $ (0.18 )    $ (0.12 )    $ (0.08 )    $ 0.25  
Weighted average common shares outstanding
                                                              
Basic     n/a       n/a       6,474,028       12,062,930       12,312,930 (3)      10,018,010       14,990,118  
Diluted     n/a       n/a       6,474,028       12,062,930       12,312,930       10,018,010       21,294,058  

(1) The pro forma adjustments consist of the intangible amortization that would have been recorded if the acquisitions had been completed on January 1, 2009.
(2) This amount represents the estimated interest expense for the acquisitions if they had been completed on January 1, 2009.
(3) This includes the 250,000 shares issued to IIT.
(4) See table for details of combined pro forma.
(5) Cost of revenues excludes intangible amortization expense as shown separately below.

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  Successor   2009
Acquisitions
  TAG(4)   IIT   Pro Forma
Combined
     Year ended
December 31, 2009
  Year ended
December 31, 2009
  Year ended
December 31, 2009
  Year ended
December 31, 2009
  Year ended
December 31,
2009
          unaudited        unaudited
     (in thousands, except per share data)     
Statement of Operations Data:
                                            
Revenues
                                            
Services   $ 32,743     $ 24,229     $ 47,692     $ 5,260     $ 109,924  
Products     6,294                         6,294  
Total     39,037       24,229       47,692       5,260       116,218  
Cost of revenues(5)
                                            
Services     23,475       17,806       39,702       3,806       84,789  
Products     4,443                         4,443  
Total     27,918       17,806       39,702       3,806       89,232  
Gross profit
                                            
Services     9,268       6,423       7,990       1,454       25,135  
Products     1,851                         1,851  
Total     11,119       6,423       7,990       1,454       26,986  
Operating expenses     11,373       3,822       3,648       875       19,718  
Intangible amortization expense     2,055                         6,670 (1) 
Net operating income (loss)     (2,309 )      2,601       4,342       579       598  
Non-operating (income) expense, net     783       27       (353 )      78       3,035 (2) 
Income (loss) before income taxes     (3,092 )      2,574       4,695       501       (2,437 ) 
Income tax (expense) benefit, net     979                         979  
Net income (loss)   $ (2,113 )    $ 2,574     $ 4,695     $ 501     $ (1,458 ) 
Earnings (loss) per share
                                            
Basic   $ (0.18 )      n/a       n/a       n/a     $ (0.12 ) 
Diluted   $ (0.18 )      n/a       n/a       n/a     $ (0.12 ) 
Weighted average common shares outstanding
                                            
Basic     12,062,930       n/a       n/a       n/a       12,312,930 (3) 
Diluted     12,062,930       n/a       n/a       n/a       12,312,930  

(1) The pro forma adjustments consist of the intangible amortization that would have been recorded if the acquisitions had been completed on January 1, 2009.
(2) This amount represents the estimated interest expense for the acquisitions if they had been completed on January 1, 2009.
(3) This includes the 250,000 shares issued to IIT.
(4) The December 31, 2009 income statement numbers for TAG are unaudited. An audit for the 10 months ended October 31, 2009 is included in the financial statements appearing elsewhere in this prospectus.
(5) Cost of revenues excludes intangible amortization expense as shown separately below.

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  KEYW
Six Months Ended
June 30,
2010
(unaudited)
  TAG
Six Months Ended
June 30,
2010
(unaudited)(6)
  IIT
Six Months Ended
June 30,
2010
(unaudited)(6)
  Pro Forma
Adjustments
Six Months Ended
June 30,
2010
(unaudited)
  Pro Forma
Combined
Six Months Ended
June 30,
2010
(unaudited)
     (in thousands, except per share data)
Revenue
                                            
Services   $ 42,699     $ 3,854     $ 1,207     $     $ 47,760  
Products     6,960                         6,960  
Total     49,659       3,854       1,207             54,720  
Cost of revenues(5)
                                            
Services     31,134       3,227       904             35,265  
Products     3,937                         3,937  
Total     35,071       3,227       904             39,202  
Gross profit
                                            
Services     11,565       627       303             12,495  
Products     3,023                         3,023  
Total     14,588       627       303             15,518  
Operating expense     11,619       720       288             12,627  
Intangible amortization expense     2,761                   315 (1)      3,076  
Net operating income (loss)     208       (93 )      15       (315 )      (185 ) 
Non-operating expense (income), net     (8,935 )      (5 )                  (8,940 ) 
Income (loss) before income taxes     9,143       (88 )      15       (315 )      8,755  
Income tax benefit (expense), net     (3,803 )                  90 (2)      (3,713 ) 
Net income (loss)   $ 5,340     $ (88 )    $ 15     $ (225 )    $ 5,042  
Earnings per share
                                            
Basic   $ 0.36       n/a       n/a       n/a     $ 0.33  
Diluted   $ 0.25       n/a       n/a       n/a     $ 0.23  
Weighted average common shares outstanding
                                            
Basic     14,990,118       n/a       n/a       97,222 (3)(4)      15,087,340  
Diluted     21,294,058       n/a       n/a       97,222 (3)(4)      21,391,280  

(1) Intangible amortization that would have been recorded if the acquisitions had been completed on January 1, 2010.
(2) Estimated tax benefit that would have been recorded if the acquisition had occurred on January 1, 2010.
(3) Number of shares issued with the IIT acquisition (250,000) less the amount already issued in the KEYW average shares calculation.
(4) The TAG acquisition shares are not included as they are subject to earn-out and not yet earned.
(5) Cost of Revenues excludes intangible amortization expense as shown separately below.
(6) Income statement activity represents the period from January 1, 2010 through the date of acquisition.

The following summary balance sheet data as of June 30, 2010 is presented:

on an actual basis; and
on an as adjusted basis, to give effect to (1) the sale of common stock by us in this offering at an assumed public offering price of $11.00 per share, the midpoint of our price range set forth on the cover page of this prospectus, after the deduction of the estimated underwriting discount and offering expenses payable by us, and (2) the application of the net proceeds of this offering in the manner described under “Use of Proceeds.”

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  As of June 30, 2010
     Actual
(unaudited)
  As Adjusted
     (in thousands)
Balance Sheet Data
                 
Cash and cash equivalents   $ 2,338     $ 54,000  
Working capital(1)     (5,055 )      71,000  
Total assets     146,031       197,500  
Long-term liabilities     32,031       24,000  
Total stockholders’ equity     75,631       159,000  

(1) Working capital is defined as current assets net of current liabilities.

           
  Predecessor   Successor
     Year ended
December 31,
2007
  Period from
January 1
through
September 29,
2008
  Period from
July 31
(inception)
through
December 31,
2008
  Year ended
December 31,
2009
 
 
Six months
ended June 30
     2009   2010
     (in thousands)   unaudited
Other Data
                                                     
Adjusted EBITDA(1)   $ 2,293     $ 2,702     $ 694     $ 2,302     $ 1,185     $ 4,116  

(1) We define adjusted EBITDA as net income (loss) before depreciation, amortization, interest income (expense), tax expense (benefit), and adjusted for non-recurring, non-operational items. For the periods presented above, non-recurring, non-operational items consisted of non-cash warrant income and expense, one-time executive bonuses granted in 2009 to increase the executive ownership in the Company and success options granted at the end of 2009 to all of our employees. The one-time executive bonuses were paid to increase the ownership percentages of two senior executives to more appropriate levels prior to being a public company. See “Executive Compensation-Compensation Discussion and Analysis — Components of Executive Compensation.”

Adjusted EBITDA is a financial measure that is not calculated in accordance with accounting principles generally accepted in the United States of America, or US GAAP. The table below provides a reconciliation of this non-US GAAP financial measure to net income (loss), the most directly comparable financial measure calculated and presented in accordance with US GAAP. Adjusted EBITDA should not be considered as an alternative to net income (loss), operating income (loss) or any other measure of financial performance calculated and presented in accordance with US GAAP. Our adjusted EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate adjusted EBITDA or similarly titled measures in the same manner as we do. We prepare adjusted EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. We encourage you to evaluate these adjustments and the reasons we consider them appropriate.

We believe adjusted EBITDA is useful to investors in evaluating our operating performance for the following reasons:

In late 2009, we revised the terms of our outstanding warrants so that they are no longer classified as liability instruments for financial accounting purposes. Prior to the revision of the terms of our outstanding warrants, we valued these warrants as call options on our balance sheet at issuance and revalued the warrants at the end of each subsequent quarter, and any resulting change in warrant valuation each quarter was recorded as income or expense. We believe adjusted EBITDA provides investors with a useful baseline for comparing our results of operations in 2008 and 2009 to our results of operations in subsequent periods by adjusting for this accounting treatment change to our outstanding warrants adopted in late 2009;

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As a start-up company, we have various non-recurring transactions and expenses that directly impact our net income. Adjusted EBITDA is intended to approximate the net cash provided by operations by adjusting for non-recurring, non-operational items; and
Securities analysts use adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies and we anticipate that our investor and analyst presentations after we are public will include adjusted EBITDA.

Our board of directors and management use adjusted EBITDA:

as a measure of operating performance;
to determine a significant portion of management’s incentive compensation;
for planning purposes, including the preparation of our annual operating budget; and
to evaluate the effectiveness of our business strategies.

Although adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results of operations as reported under US GAAP. Some of these limitations are:

adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or other contractual commitments;
adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
adjusted EBITDA does not reflect interest expense or interest income;
adjusted EBITDA does not reflect cash requirements for income taxes;
although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for these replacements; and
other companies in our industry may calculate adjusted EBITDA or similarly titled measures differently than we do, limiting its usefulness as a comparative measure.

The following table presents a reconciliation of adjusted EBITDA to net income (loss), the most comparable US GAAP measure, for each of the periods indicated:

           
  Predecessor   Successor
     Year ended
December 31,
2007
  Period from
January 1
through
September 29,
2008
  Period from
July 31
(inception)
through
December 31,
2008
  Year ended
December 31,
2009
 
 
Six months
ended June 30
     2009   2010
     (in thousands)   unaudited
Net income (loss)   $ 2,338     $ 1,041     $ (2,066 )    $ (2,113 )    $ (782 )    $ 5,340  
Depreciation     11       9       24       310       122       322  
Amortization                 612       2,055       941       2,761  
Interest (income) expense     (56 )      (22 )            (118 )      (55 )      672  
Tax expense (benefit)                 21       (979 )      105       3,803  
Warrant expense(1)                 2,103       690       854        
Other non-recurring items           1,674 (2)            2,457 (3)            (8,782 )(4) 
Adjusted EBITDA   $ 2,293     $ 2,702     $ 694     $ 2,302     $ 1,185     $ 4,116  

(1) Warrant expense is the income statement impact from accounting for our warrants under the liability method of accounting. These warrants were exchanged for warrants accounted for under the equity method in December 2009.
(2) A one-time ICCI profit sharing bonus prior to acquisition.

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(3) Other non-recurring items include one-time equity grants made in 2009 to increase the equity ownership of Leonard Moodispaw and John Krobath, and success options granted at the end of 2009 to all employees. We view these as one-time events.
(4) Other non-recurring items including purchase price refunds from LEDS, one-time legal and audit costs in preparation for this public offering, and purchase accounting adjustments from a reduction in the TAG earn-out.

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and all other information contained in this prospectus, including our financial statements and the related notes, before investing in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any of the following risks materialize, our business, financial condition and results of operations could be materially harmed. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.

Risks Relating to Our Business

We currently rely on sales to the U.S. Government for substantially all of our revenue. If our relationships with U.S. Government agencies were harmed, our business, future revenue and growth prospects would be adversely affected.

We derive substantially all of our revenue from our U.S. Government customers. In 2009 and 2008, we generated 100% and 99%, respectively, of our total revenue from contracts with the U.S. Government, either as a prime contractor or a subcontractor. We expect that U.S. Government contracts will continue to be the primary source of our revenue for the foreseeable future. Our reputation and relationship with the U.S. Government, and in particular with the agencies of the U.S. Intelligence Community and the Department of Defense, are key factors in maintaining and growing our revenue. For example, in 2009, on a pro forma basis, approximately 41% of our revenue was derived from contracts with the National Security Agency (NSA), approximately 41% of our revenue was derived from contracts with U.S. Air Force Intelligence customers, and the approximate remaining 18% of revenue was derived from another major intelligence agency and other intelligence, defense, homeland security and law enforcement organizations. Our business, prospects, financial condition and/or operating results would be materially harmed if:

we were to lose, or there were to occur a significant reduction in, government funding of one or more programs for which we are the prime contractor or in which we participate;
we were suspended or debarred from contracting with the U.S. Government; or
our reputation, relationships, or the reputations or relationships of our senior managers with the government agencies with which we currently do business or seek to do business is impaired.

A decline in U.S. Government spending and mission priorities may adversely affect our future revenue and limit our growth prospects.

Continued U.S. Government expenditures on intelligence, defense and other programs for which we provide support are critically important for our business. While spending authorization for intelligence and defense-related programs by the government has increased in recent years due to greater homeland security and foreign military commitments and to a general outsourcing trend, these spending levels may not be sustainable and could significantly decline. Future levels of expenditures and authorizations for programs we support may decrease or shift to programs in areas where we do not currently provide services, or contract opportunities may be in-sourced to be performed by U.S. Government employees. Changes in spending authorizations and budgetary priorities could also occur due to a shift in the number, and intensity, of potential and ongoing conflicts, including the current conflicts in Iraq and Afghanistan, the rapid growth of the federal budget deficit, increasing political pressure to reduce overall levels of government spending, shifts in spending priorities from intelligence and defense-related programs as a result of competing demands for federal funds, or other factors. These or other factors could cause U.S. Government agencies and departments to reduce their purchases under contracts, exercise their right to terminate contracts, or not exercise options to renew contracts, any of which could cause us to lose revenue. A significant decline in overall U.S. Government spending, or a shift in expenditures away from agencies or programs that we support, could cause a material decline in our revenue.

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We depend on U.S. Government contract awards that are only partially funded and which depend upon annual budget appropriations. A delay in the completion of the U.S. Government’s budget process could delay procurement of the services and solutions we provide and have an adverse effect on our future revenue.

Budget decisions made by the U.S. Government are outside of our control and have significant consequences for our business. Funding for U.S. Government contract awards is subject to Congressional appropriations. Although multi-year awards may be planned or authorized in connection with major procurements, Congress generally appropriates funds on a fiscal year basis even though a program may be expected to continue for several years. Consequently, awards often initially receive only partial funding, and additional funds are committed only as Congress makes further appropriations. The termination of funding for any of our U.S. Government prime contracts or subcontracts would result in a loss of anticipated future revenue attributable to that program and a reduction in our cash flows and would have an adverse impact on our operating results.

In years when the U.S. Government does not complete its budget process before the end of its fiscal year on September 30, government operations are typically funded pursuant to a “continuing resolution” that authorizes agencies of the U.S. Government to continue to operate, but does not authorize new spending initiatives. When the U.S. Government operates under a continuing resolution, delays can occur in the procurement of the services and solutions that we provide. When supplemental budgets are required to operate the U.S. Government and passage of legislation needed to approve any supplemental budget is delayed, the overall funding environment for our business could be adversely affected.

The U.S. Government may modify, curtail or terminate our contracts at any time prior to their completion and, if we do not replace them, we may be unable to sustain our revenue growth and may suffer a decline in revenue.

Many of the U.S. Government programs in which we participate as a contractor or subcontractor may extend for several years. These programs are normally funded on an incremental basis. Under our contracts, the U.S. Government generally has the right not to exercise options to extend or expand our contracts and may modify, curtail or terminate the contracts and subcontracts at its convenience.

If the U.S. Government terminates a contract for convenience, we may recover only our incurred or committed costs, settlement expenses and profit on work completed prior to the termination. We cannot recover anticipated future profits on terminated work. If the U.S. Government terminates a contract for default, we may not recover each of those types of costs, and instead may be liable for excess costs incurred by the U.S. Government in procuring undelivered items and services from another source.

Any decision by the U.S. Government not to exercise contract options or to modify, curtail or terminate our major programs or contracts would adversely affect our revenue and revenue growth.

We may not realize as revenue the full amounts reflected in our backlog, which could adversely affect our future revenue and growth prospects.

As of June 30, 2010, our total backlog was $185.9 million, which included $139.1 million in unfunded backlog. The U.S. Government’s ability not to exercise contract options or to modify, curtail or terminate our major programs or contracts makes the calculation of backlog subject to numerous uncertainties. Due to the uncertain nature of our contracts with the U.S. Government, we may never realize revenue from some of the engagements that are included in our backlog. Our unfunded backlog, in particular, contains amounts that we may never realize as revenue because the maximum contract value specified under a U.S. Government contract or task order awarded to us is not necessarily indicative of the revenue that we will realize under that contract. If we fail to realize as revenue amounts included in our backlog, our future revenue and growth prospects may be adversely affected. For additional information on our backlog, see “Business — U.S. Federal Government Contracts — Backlog.”

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If we fail to comply with complex procurement laws and regulations, we could lose business and be liable for various penalties or sanctions.

We must comply with laws and regulations relating to the formation, administration and performance of federal government contracts. These laws and regulations affect how we conduct business with our federal government customers. In complying with these laws and regulations, we may incur significant costs, and the U.S. Government may impose additional fines and penalties, including contractual damages, in the event of our non-compliance. Among the more significant laws and regulations affecting our business are the following:

the Federal Acquisition Regulation, which comprehensively regulates the formation, administration and performance of federal government contracts;
the Truth in Negotiations Act, which requires certification and disclosure of all cost and pricing data in connection with cost-type contracts;
the Cost Accounting Standards and Cost Principles, which impose accounting requirements that govern our right to reimbursement under certain cost-based federal government contracts; and
laws, regulations and executive orders restricting the use and dissemination of classified information and, under U.S. export control laws, the export of certain products and technical data.

Our contracting agency customers periodically review our performance under and compliance with the terms of our federal government contracts. If we fail to comply with these control regimes or if a government review or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties or administrative sanctions, including:

termination of contracts;
forfeiture of profits;
cost associated with triggering of price reduction clauses;
suspension of payments;
fines; and
suspension or debarment from doing business with the U.S. Government.

Additionally, the False Claims Act provides for potentially substantial civil penalties where, for example, a contractor presents a false or fraudulent claim to the government for payment or approval. Actions under the False Claims Act may be brought by the government or by other persons on behalf of the government (who may then share a portion of any recovery).

Because substantially all of our revenue is dependent on our selection, performance and payment under our U.S. Government contracts, the loss of one or more large contracts or any suspension or debarment from doing business with U.S. Government agencies would result in a loss of anticipated future revenue from U.S. Government contracts and a reduction in cash flows and would have a material adverse effect on our operating results.

U.S. Government contracts contain other provisions that may be unfavorable to contractors.

Beyond the right to terminate a contract for convenience or decline to exercise an option to renew, U.S. Government contracts contain provisions and are subject to laws and regulations that give the U.S. Government rights and remedies not typically found in commercial contracts. These provisions, laws and regulations permit the U.S. Government to do the following:

reduce or modify contracts or subcontracts;
cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable;

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claim certain rights (including, under certain circumstances, certain intellectual property rights) in products and systems produced by us; and
suspend or debar us from doing business with the U.S. Government.

If the U.S. Government exercises its rights under any of these provisions, our ability to operate or our competitive advantage could be hindered, and our revenue and net income could decline.

Further, U.S. Government contracts and certain laws and regulations contain provisions that may restrict our ability to provide our products and services to third parties. These restrictions may prevent us from leveraging our products, services, intellectual property, know-how or other revenue-generating aspects of our business or our acquisitions to the fullest extent in the commercial sector.

The U.S. Government may revise its procurement or other practices in a manner adverse to us.

The U.S. Government may revise its procurement practices or adopt new contracting rules and regulations, such as cost accounting standards. It could also adopt new contracting methods relating to General Services Administration (GSA) contracts, or other government-wide acquisition contracts (GWACs), or adopt new standards for contract awards intended to achieve certain social or other policy objectives. In addition, the U.S. Government may face restrictions from new legislation or regulations, as well as pressure from government employees and their unions, on the nature and amount of services the U.S. Government may obtain from private contractors. These changes could impair our ability to obtain new contracts or to continue to retain contracts under which we currently perform when and if those contracts are put up for renewed competitive bidding. Any new contracting methods could be costly or administratively difficult for us to implement, and, as a result, could harm our operating results.

Audits by U.S. Government agencies could result in unfavorable audit results that could subject us to a variety of penalties and sanctions, and could harm our reputation and relationships with our customers.

U.S. Government agencies, including the Defense Contract Audit Agency (DCAA) and others, routinely audit and review contractors’ performance on contracts, cost structure, pricing practices and compliance with applicable laws, regulations and standards. They also review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s accounting, billing, cost, purchasing, property, estimating, compensation, management information system and other systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed, while such costs already reimbursed must be refunded. Adverse findings in a DCAA audit could materially affect our competitive position and result in a substantial adjustment to our revenue and net income.

If a U.S. Government audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of net income, suspension of payments, fines and suspension or debarment from doing business with U.S. Government agencies. In addition, we could suffer serious harm to our reputation and competitive position if allegations of impropriety were made against us, whether true or not. If our reputation or relationship with U.S. Government agencies were impaired, or if the U.S. Government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, our revenue and net income would decline.

A significant portion of our revenue and net income is derived from a few key contracts. The loss of any one or more of these contracts could cause a material decline in our operating results.

For the year ended December 31, 2009, on an actual basis, we had 3 contracts that each accounted for over 10% of our revenue, for a total of $12.8 million, or 32.7% of our total revenue. For the same period, our 10 largest contracts accounted for a total of $24.5 million, or 62.6% of our total revenue. Although we have been successful in continuing work on most of our large contracts in the past, there is no assurance that we will be able to do so in the future. The revenue stream from one or more of these contracts could end for a number of reasons, including the completion of the customer’s requirements, the completion or early termination of our current contract, the consolidation of our work into another contract where we are not a contractor under that contract, or the loss of a competitive bid for the follow-on work related to our current contract. If any of these events were to occur, we could experience an unexpected, significant reduction in revenue and net income.

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We derive significant revenue from contracts awarded through a competitive bidding process involving substantial costs and risks. Due to this competitive pressure, we may be unable to sustain our revenue growth and profitability.

We expect a significant portion of the business that we will seek in the foreseeable future will be awarded through competitive bidding. The competitive bidding process involves substantial costs and a number of risks, including the significant cost and managerial time to prepare bids and proposals for contracts that may not be awarded to us and our failure to accurately estimate the resources and costs that will be required to fulfill any contract we win. In addition, following a contract award, we may encounter significant expense, delay or contract modifications as a result of our competitors protesting or challenging contracts awarded to us in competitive bidding. In addition, multi-award contracts require that we make sustained post-award efforts to obtain task orders under the contract. We may not be able to obtain task orders or recognize revenue under these multi-award contracts. Our failure to compete effectively in this procurement environment would adversely affect our revenue and/or profitability.

We face intense competition from many competitors that, among other things, have greater resources than we do.

We operate in highly competitive markets and generally encounter intense competition to win contracts and task orders. We compete with many other firms, ranging from small, specialized firms to mid-tier technology firms and large, diversified firms, many of which have substantially greater financial, management and marketing resources than we do. Significant competitors include divisions of large defense contractors such as Lockheed Martin Corporation, The Boeing Company and Northrop Grumman Corporation. We also face competition from a number of large, well-established government contractors such as SAIC, Inc., CACI International Inc. and others. Our competitors may be able to provide our customers with different or greater capabilities or benefits than we can in areas such as technical qualifications, past contract performance, geographic presence, price and the availability of qualified professional personnel. Our failure to compete effectively because of any of these or other factors could cause our revenue and operating profits to decline. In addition, our competitors also have established or may establish relationships among themselves or with third parties to increase their ability to address our customers’ needs. Accordingly, it is possible that new competitors or alliances among competitors may emerge that would compete with us more effectively than they do currently.

Our earnings and profitability may vary based on the mix of our contracts and may be adversely affected by our failure to accurately estimate and manage costs, time and resources.

We generate revenue under various types of contracts, which include time and materials (T&M), fixed-price-level-of-effort, firm-fixed-price (FFP), and cost reimbursement contracts. For the year ended December 31, 2009, we derived revenue from such contracts on an actual basis, and on a pro forma basis, as follows:

       
  Year ended
December 31, 2009
     Actual   Pro forma (unaudited)
Contract Type   (in millions)   (%)   (in millions)   (%)
Time & Materials   $ 20.6       53%     $ 80.5       69%  
Fixed-Price-Level-of-Effort   $ 11.2       28%     $ 19.6       17%  
Firm-Fixed-Price   $ 5.7       15%     $ 11.0       10%  
Cost Reimbursement   $ 1.5       4%     $ 5.1       4%  

Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenue derived from each type of contract, the nature of services or products provided, as well as the achievement of performance objectives and the stage of performance at which the right to receive fees, particularly under incentive and award fee contracts, is finally determined. Cost reimbursement and T&M contracts generally have lower profitability than FFP contracts. Our operating results in any period may be affected, positively or negatively, by variable purchasing patterns by our customers of our more profitable border, port and mobile security products.

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To varying degrees, there is a risk that we could underestimate the costs and resources necessary to fulfill each of our contract types. While FFP contracts allow us to benefit from cost savings, these contracts also increase our exposure to the risk of cost overruns. When making proposals on these types of contracts, we rely heavily on our estimates of costs and timing for completing the associated projects, as well as on assumptions regarding technical issues. In each case, our failure to accurately estimate costs or the resources and technology needed to perform our contracts or to effectively manage and control our costs during the performance of our work could result, and in some instances has resulted, in reduced profits or in losses. More generally, any increased or unexpected costs or unanticipated delays in connection with the performance of our contracts, including costs and delays caused by contractual disputes or other factors outside of our control, could make our contracts less profitable or unprofitable.

We have a limited operating history, which may not provide an adequate basis for projection of our future prospects and results of operations.

Our limited operating history and method of initial growth may not provide a meaningful basis on which to evaluate our business. Since our founding in 2008, we have undertaken multiple acquisitions that have provided the basis of our business and revenue. Although our revenues have grown significantly since our formation, we have only recently become profitable and we may not be able to maintain our profitability and may incur net losses in the future. The lack of long term historical financial results as an operating entity may make it difficult to project our revenues and profitability. Further, we are subject to the risks inherent in the ownership and operation of a company with a limited operating history, such as setbacks and delays in integration of acquired companies, fluctuations in expenses, and competition from competitors that have a more extensive operating history and track record. Any failure to address these risks could seriously harm our business and prospects. We will continue to encounter risks and challenges frequently experienced by companies at a similar stage of development, including:

the ability to implement our business strategies and to adapt and modify them as needed;
our efforts to develop and protect our reputation and customer loyalty within the sectors in which we compete for contracts;
the management of our acquired subsidiaries and integrated operations, including the integration of any future acquisitions;
maintaining adequate control of our expenses; and
anticipating and adapting to future government proposals and the impact of any changes in government regulation.

Acquisitions have formed a significant part of our growth strategy in the past and we expect to continue this strategy in the future. If we are unable to identify suitable acquisition candidates, integrate the businesses we acquire or realize the intended benefits, this aspect of our growth strategy may not succeed. Acquisitions involve numerous risks, including risks related to integration and undisclosed or underestimated liabilities.

Historically, our growth strategy has relied on acquisitions. We expect to derive a significant portion of our growth by acquiring businesses and integrating those businesses into our existing operations. We intend to seek acquisition opportunities both to expand into new markets and to enhance our position in our existing markets. However, our ability to do so will depend on a number of steps, including our ability to:

identify suitable acquisition candidates;
negotiate appropriate acquisition terms;
obtain debt or equity financing that we may need to complete proposed acquisitions;
complete the proposed acquisitions; and
integrate the acquired business into our existing operations.

If we fail to achieve any of these steps, our growth strategy may not be successful.

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In addition, acquisitions involve numerous risks, including difficulties in the assimilation of the operations accounting systems, technologies, services and products of the acquired company, the potential loss of key employees of the acquired company and the diversion of our management’s attention from other business concerns. This is the case particularly in the fiscal quarters immediately following the completion of an acquisition to the extent the operations of the acquired business are integrated into the acquiring businesses’ operations during this period. We cannot be sure that we will accurately anticipate all of the changing demands that any future acquisition may impose on our management, our operational and management information systems, and our financial systems.

We may underestimate or fail to discover liabilities relating to a future acquisition during the due diligence investigation and we, as the successor owner, might be responsible for any such liabilities. Although we seek to minimize the impact of underestimated or potential undiscovered liabilities by structuring acquisitions to minimize liabilities and obtaining indemnities and warranties from the selling party, these methods may not fully protect us from the impact of undiscovered liabilities. Indemnities or warranties are often limited in scope, amount or duration, and may not fully cover the liabilities for which they were intended. The liabilities that are not covered by the limited indemnities or warranties could have a material adverse effect on our business and financial condition. In addition, acquisitions can raise potential Organizational Conflict of Interest (OCI) issues that can impact the nature and timing of the acquisition or the acquiring entity’s ability to compete for future contracts where the acquired entity may have been involved.

We have a substantial investment in recorded goodwill as a result of our acquisitions, and changes in future business conditions could cause these investments to become impaired, requiring substantial write-downs that could reduce our net income or increase our net loss.

As of June 30, 2010, goodwill accounted for $92.0 million, or 63% of our recorded total assets on an actual basis. We review our goodwill for impairment annually and when events or changes in circumstances indicate the carrying value may not be recoverable. The annual impairment test is based on several factors requiring judgment. Principally, a decrease in expected reporting unit cash flows or changes in market conditions may indicate potential impairment of recorded goodwill. If goodwill became impaired, we could record a significant charge to earnings in our financial statements during the period in which impairment of our goodwill is determined, which could significantly reduce or eliminate our net income.

Obligations associated with outstanding indebtedness on notes we have issued in connection with acquisitions may adversely affect our business.

At June 30, 2010, indebtedness on outstanding notes issued by us as financing for the acquisition of TAG and IIT totaled $32.5 million in aggregate principal amount, $3.4 million of which is currently held in escrow in conjunction with our acquisition of TAG. Our indebtedness and repayment obligations for these notes could have important negative consequences, including:

increasing our vulnerability to adverse economic and industry conditions;
limiting our ability to obtain additional financing, particularly in light of unfavorable conditions in the credit markets;
reducing the availability of cash resources for other purposes, including capital expenditures;
limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete; and
placing us at a possible competitive disadvantage to competitors that have better access to capital resources.

We have significant contingent earn-out obligations related to the acquisition of TAG that may adversely affect our liquidity and financial condition, results of operations and stock price. We may also pursue acquisitions in the future that include earn-out provisions.

Our recent acquisition of TAG contains a contingent earn-out provision that may require us to make additional payments in the future. Under this earn-out arrangement, our maximum aggregate potential contingent payment obligation at June 30, 2010 was up to 3,000,000 shares of our common stock and the

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payment of additional cash if TAG exceeds certain target revenue and gross margin levels. Though this contingent earn-out will only be paid if TAG exceeds a minimum revenue level of $90 million in aggregate revenue in 2010 and 2011, and additional cash will only be paid should TAG exceed $135 million of aggregate revenue subject to achieving gross margins of 20% or greater, the issuance of any additional stock or payment of any additional cash made pursuant to this earn-out provision may adversely affect our liquidity and financial condition, results of operations and stock price. Our existing earn-out obligation for the TAG Acquisition will expire on December 31, 2011. However, we may enter into acquisition agreements in the future, the terms of which may include earn-out provisions. These contingent obligations could adversely affect our liquidity and financial condition, results of operations and stock price.

We may require additional capital to finance our growth. If the terms on which the additional capital is available are unsatisfactory, if the additional capital is not available at all or we are not able to fully access our existing credit facility, we may not be able to pursue our growth strategy.

Our growth strategy will require additional capital investment to complete acquisitions, integrate any completed acquisitions into our existing operations, and to expand into new markets.

To the extent that we do not generate sufficient cash internally to provide the capital we require to fund our growth strategy and future operations, we will require additional debt or equity financing. We cannot be sure that this additional financing will be available or, if available, will be on terms acceptable to us. Further, high volatility in the equity markets may make it difficult for us to access the equity markets for additional capital at attractive prices, if at all. If we are unable to obtain sufficient additional capital in the future, it will limit our ability to implement our business strategy. Continued issues resulting from the current global financial crisis and economic downturn involving liquidity and capital adequacy affecting lenders could affect our ability to fully access our existing credit facilities. In addition, even if future debt financing is available, it may result in (1) increased interest expense, (2) increased term loan payments, (3) increased leverage, and (4) decreased income available to fund further acquisitions and expansion. It may also limit our ability to withstand competitive pressures and make us more vulnerable to economic downturns. If future equity financing is available, it may dilute the equity interests of our existing stockholders.

If we are unable to manage our growth, our business could be adversely affected.

Achieving our plans for growth will place significant demands on our management, as well as on our administrative, operational, and financial resources. For us to successfully manage our growth, we must continue to improve our operational, financial and management information systems and expand, motivate and manage our workforce. If we are unable to successfully manage our growth without compromising the quality of our services and products, our business, prospects, financial condition or operating results could be adversely affected.

We are dependent on the continued services and performance of our senior management, the loss of any of whom could adversely affect our business, operating results and financial condition.

We believe that our future performance depends on the continued services and continuing contributions of our senior management to execute our business plan, and to identify and pursue new opportunities successfully. In addition, the relationships and reputation that many members of our senior management team have established and maintain with federal government personnel contribute to our ability to maintain strong customer relationships. Therefore, the loss of services of senior management could significantly delay or prevent the achievement of our development and strategic objectives.

Our failure to attract, train and retain skilled employees with (or who can obtain) appropriate security clearances would adversely affect our ability to execute our strategy.

Our business involves the development of tailored solutions for our customers, a process that relies heavily upon the expertise and services of our employees. Our continued success depends on our ability to recruit and retain sufficient numbers of highly qualified individuals who have advanced engineering and information technology skills, specialized knowledge of customer missions and appropriate security clearances, and who work well with our government customers. Due to our growth and increased competition for experienced personnel, particularly in highly specialized areas, it has become more difficult for us to meet our

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needs for these employees in a timely manner and this may affect our growth in the current fiscal year and in future years. Although we intend to continue to devote significant resources to recruit, train and retain qualified employees, we may not be able to attract and retain these employees. Any failure to do so could impair our ability to perform our contractual obligations efficiently and timely meet our customers’ needs and win new business, which could adversely affect our future results. Our employee attrition rate in 2009, on an actual basis, was 9.6%.

In addition, the relationships and reputation that many members of our senior management team have established and maintain with government personnel contribute to our ability to maintain good customer relationships and to identify new business opportunities. The loss of key personnel may impair our ability to obtain new U.S. Government awards or adequately perform under our current U.S. Government contracts. We also rely on the skills and expertise of our senior technical development personnel, the loss of any of whom could prevent us from completing current development projects and restrict new development projects. We currently do not maintain “key person” insurance on any of our executives or key employees.

Our business depends upon obtaining and maintaining required security clearances.

Many of our federal government contracts require our employees to maintain various levels of security clearances, and we are required to maintain certain facility security clearances complying with Department of Defense and Intelligence Community requirements. Obtaining and maintaining security clearances for employees involves lengthy processes, and it is difficult to identify, recruit and retain employees who already hold security clearances. If our employees are unable to obtain or retain security clearances or if our employees who hold security clearances terminate employment with us and we are unable to find replacements with equivalent security clearances, we may be unable to perform our obligations to customers whose work requires cleared employees, or such customers could terminate their contracts or decide not to renew them upon their expiration. In addition, we expect that many of the contracts on which we will bid will require us to demonstrate our ability to obtain facility security clearances and perform work with employees who hold specified types of security clearances. To the extent we are not able to obtain or retain facility security clearances or engage employees with the required security clearances for a particular contract, we may not be able to bid on or win new contracts, or effectively re-bid on expiring contracts.

Employee misconduct, including security breaches, could cause us to lose customers or our ability to contract with the U.S. Government.

Misconduct, fraud or other improper activities by our employees could have a significant adverse impact on our business and reputation, particularly because we are a U.S. Government contractor. Such misconduct could include the failure to comply with U.S. Government procurement regulations, regulations regarding the protection of classified information, legislation regarding the pricing of labor and other costs in U.S. Government contracts, and any other applicable laws or regulations. Employee or former employee misconduct involving data security lapses or breaches of confidentiality resulting in the compromise of our or our customer’s sensitive or classified information could result in remediation costs, in regulatory sanctions against us and in serious harm to our reputation. The precautions we take to prevent and detect these activities may not be effective, and we could face unknown risks or losses. Our failure to comply with applicable laws or regulations or misconduct by any of our employees could subject us to fines and penalties, loss of security clearances and suspension or debarment from contracting with the U.S. Government, any of which would adversely affect our business and reputation.

Our quarterly operating results are likely to vary significantly and be unpredictable, which could cause the trading price of our stock to decline.

Our operating results have historically varied from period to period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control, including:

the level of demand for our products and services;
the budgeting cycles and purchasing practices of our customers;
acquisitions of other businesses;

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failure to accurately estimate or control costs under FFP contracts;
commencement, completion or termination of projects during any particular quarter; and
changes in senior U.S. Government officials that affect the timing of technology procurement.

Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our quarterly operating results. This variability and unpredictability could result in our failing to meet our revenue or operating results expectations or those of securities analysts or investors for any period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our shares could fall substantially.

    Our credit facility contains financial and operating covenants that limit our operations and could lead to adverse consequences if we fail to comply.

Our credit facility contains financial and operating covenants that, among other things, require us to maintain or satisfy specified financial ratios (including debt to adjusted EBITDA ratios and fixed charge coverage ratios as further described under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Facility and Other Debt Obligations”), limit our ability to incur indebtedness, pay dividends or engage in certain significant business transactions, and require us to comply with a number of other affirmative and negative operating covenants. Failure to meet these financial and operating covenants could result from, among other things, changes in our results of operations, our incurrence of debt or changes in general economic conditions. These covenants may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our stockholders, which could harm our business and operations. In addition, our credit facility contains several other material covenants, including a lien against our assets (including receivables), limitations on additional debt, pre-approval of any acquisitions, a prohibition of dividends, and restrictions on the sale, lease, or disposal of any substantial part of our assets, other than in the normal course of business.

    We have only a limited ability to protect and enforce our intellectual property rights, which we consider important to our success. Failure to adequately protect or enforce our intellectual property rights could adversely affect our competitive position and cause us to incur significant expense.

We believe that our success depends, in part, upon our ability to protect our proprietary information and other intellectual property. We rely principally on trade secrets to protect much of our intellectual property where we do not believe that patent protection is appropriate or obtainable. However, trade secrets are difficult to protect and to enforce against third parties. Although we believe that we have adopted reasonable practices to ensure that our employees are subject to appropriate confidentiality obligations and to ensure that we obtain appropriate ownership rights in intellectual property developed by our employees (or by the employees of companies that we have acquired), our practices in this regard may be insufficient, which could result in the misappropriation or disclosure of our confidential information or disputes regarding (or the loss of rights to) certain of our intellectual property. In addition, we may be unable to detect unauthorized use of our intellectual property or otherwise take appropriate steps to enforce our rights. Failure to obtain or maintain trade secret protection could adversely affect our competitive business position. The protections that we receive for our trade secrets and other intellectual property rights may not be sufficient to prevent our competitors from copying, infringing, or misappropriating our products and services. Similarly, there is no guarantee that when we do apply for intellectual property protection the applications will result in registrations sufficient to protect our rights. In addition, we cannot be certain that others will not independently develop, design around or otherwise acquire equivalent or superior technology or intellectual property rights.

From time to time, we may seek to enforce our intellectual property rights against third parties. The fact that we have intellectual property rights may not guarantee success in our attempts to enforce these rights against third parties. If we are unable to prevent third parties from infringing or misappropriating our trade secrets or other intellectual property rights, our competitive position could be adversely affected. Our ability and potential success in enforcing our rights is also subject to general litigation risks, as well as uncertainty as to the enforceability of our intellectual property rights. When we seek to enforce our rights, we may be subject to claims that our intellectual property rights are invalid, otherwise unenforceable, or are licensed to the party against whom we are asserting the claim. In addition, our assertions of intellectual property rights

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may result in the other party seeking to assert various claims against us, including its own alleged intellectual property rights, claims of unfair competition, or others. In the course of conducting our business, we may also inadvertently infringe the intellectual property rights of others, resulting in claims against us or our customers. Our contracts generally indemnify our customers for third-party claims for intellectual property infringement by the services and products we provide. The expense of defending these claims may adversely affect our financial results.

Our acquisitions frequently include the hiring of employees from the acquired entity. These employees may be subject to confidentiality provisions that are not related to the acquisition and may have been exposed to third party confidential information and intellectual property that we do not have the rights to use. During the course of their employment in our business, there is always a risk that employees may inadvertently breach confidentiality obligations or inadvertently infringe third party intellectual property rights based on their prior employment, which could adversely affect our business.

In addition, we conduct research and development under projects with the U.S. Government. In general, our rights to technologies we develop under those projects are subject to the U.S. Government’s non-exclusive, non-royalty bearing, world-wide license to use those technologies. Under certain circumstances, the U.S. Government could also claim rights in our intellectual property that could make it difficult to prevent disclosure to, licensing to, or use by third parties, which could adversely affect our competitive position and business.

    We may become involved in intellectual property disputes, which could subject us to significant liability, divert the time and attention of our management and prevent us from selling our products.

We, or our customers, may be a party to litigation in the future to protect our intellectual property or be required to respond to allegations that we infringe on others’ intellectual property. If any parties assert that our products infringe upon their proprietary rights, we would be forced to defend ourselves, and possibly our customers, against the alleged infringement, or to negotiate and possibly enter into settlement agreements that could adversely affect our intellectual property rights or the operation of our business. If we are unsuccessful in any intellectual property litigation or enter into any dispute-related settlement, we could be subject to significant liability and loss of our proprietary rights. Intellectual property litigation, regardless of its success, would likely be time consuming and expensive to resolve and would divert management’s time and attention. In addition, we could be forced to do one or more of the following:

stop selling, incorporating or using our products that include the challenged intellectual property;
obtain from the owner of any infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all; or may require us to extend a cross-license to rights under our intellectual property;
pay substantial damages; and/or
re-design those products that use the technology.

If we are forced to take any of these actions, our business could be seriously harmed.

    We rely on the availability of third-party licenses.

Certain of our products include software or other intellectual property licensed from third parties. It may be necessary in the future to renew licenses relating to various aspects of these products or to seek new licenses for existing or new products. There can be no assurance that the necessary licenses would be available on equivalent terms to those currently available, on other terms acceptable to us, or at all. The inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could result in delays in product releases until equivalent technology can be identified, licensed or developed, if at all, and integrated into our products and may have a material adverse effect on our business, operating results, and financial condition. Moreover, the inclusion in our products of software or other intellectual property licensed from third parties on a nonexclusive basis could limit our ability to differentiate our products from those of our competitors.

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    Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing expertise or are dependent upon factors not wholly within our control. Failure to meet these obligations could adversely affect our profitability and future prospects.

We design, develop and manufacture technologically advanced and innovative products and services applied by our customers in a variety of environments. Problems and delays in development or delivery as a result of issues with respect to design, technology, licensing and patent rights, labor, learning curve assumptions or materials and components could prevent us from achieving contractual requirements.

In addition, our products cannot be tested and proven in all situations and are otherwise subject to unforeseen problems. Examples of unforeseen problems that could negatively affect revenue and profitability include premature failure of products that cannot be accessed for repair or replacement, problems with quality, country of origin, delivery of subcontractor components or services and unplanned degradation of product performance. Among the factors that may affect revenue and profits could be unforeseen costs and expenses not covered by insurance or indemnification from the customer, diversion of management focus in responding to unforeseen problems, loss of follow-on work, and, in the case of certain contracts, repayment to the government customer of contract cost and fee payments we previously received.

    Business disruptions could reduce our expected revenue, increase our expenses, and damage our reputation.

We rely to a large extent upon sophisticated technology systems and infrastructure. We take reasonable steps to protect them, including the implementation and use of certain security precautions. However they are potentially vulnerable to breakdown, malicious intrusion, natural disaster, and random attack. A disruption to our systems or infrastructure could damage our reputation and cause us to lose customers and revenue. This could require us to expend significant efforts and resources or incur significant expense to eliminate these problems and address related security concerns.

Risks Relating to Our Common Stock and this Offering

    We will incur increased costs and demands upon management as a result of efforts to comply with the laws and regulations affecting public companies, which could adversely affect our operating results.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting and corporate governance requirements. These requirements include compliance with the Sarbanes-Oxley Act as well as other rules implemented by the SEC, and the applicable stock exchange. The expenses incurred by public companies for reporting and corporate governance purposes are significant. We expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. The increased costs associated with operating as a public company will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations.

    No market currently exists for our common stock, and an active trading market for our common stock may not develop.

Prior to this offering, there has been no public market for shares of our common stock. We have filed an application to list our common stock for trading on the NASDAQ Global Market. However, we cannot assure you that our common stock will be approved for listing on the NASDAQ Global Market, or if approved, that an active trading market for our common stock will develop on that exchange, or elsewhere, or if developed, that any trading market will continue. The initial public offering price for the shares of our common stock will be determined by negotiation between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering.

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    If our stock price fluctuates after this offering, you could lose a significant part, or all, of your investment.

The market price of our common stock may be reduced by many factors, some of which are beyond our control, including those described above under “Risks Relating to Our Business” and one or more of the following:

changes in stock market analysts’ recommendations regarding us, our competitors or the industry in which we operate generally, or lack of analyst coverage of our common stock;
announcements by us or our competitors of significant contracts or task orders, acquisitions or capital commitments;
loss of one or more of our significant customers;
changes in market valuations or earnings of our competitors;
availability of capital;
general economic conditions;
terrorist acts;
military action related to international conflicts, wars or otherwise;
future sales of our common stock; and
investor perception of us and our industry.

As a result of the existence of one or more of these factors, investors in our common stock may not be able to resell their shares at or above the initial public offering price.

    If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If we do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

    Concentration of ownership among our existing executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions.

Upon completion of this offering, our executive officers, directors and their affiliates will beneficially own, in the aggregate, approximately 37.1% of our outstanding common stock. As a result, these stockholders will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment of our articles of incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of our company or changes in management and will make the approval of certain transactions difficult or impossible without the support of these stockholders. See “Principal and Selling Stockholders” for additional detail about the shareholdings of these persons.

    Future sales of shares by existing stockholders could cause our stock price to decline.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based on shares of common stock outstanding as of June 30, 2010, upon completion of this offering, we will have outstanding a total of 23,786,838 million shares of common stock. Of these shares, the 9,100,000 shares of common stock sold in this offering by us and the selling stockholders will be freely tradable, without restriction, in the public market immediately following

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this offering, and approximately 1.6 million shares will be eligible for sale through Rule 144 under the Securities Act of 1933 without regard to any lock-up. Of our outstanding shares of common stock, 13,100,930 shares are subject to contractual lock-up agreements with our underwriters. Our underwriters for this offering, however, may, in their sole discretion, permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements, subject to compliance with applicable law.

We expect that the lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus (subject to extension upon the occurrence of specified events). After the lock-up agreements expire, up to an additional 13,100,930 shares of common stock will be eligible for sale in the public market, approximately 8.9 million of which shares are held by directors, executive officers and other affiliates and the sale of which will be subject to volume and other limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. In addition, as of June 30, 2010, 4,813,806 shares of common stock were subject to outstanding warrants, 1,305,250 shares of common stock were subject to outstanding options issued under our employee benefit plans and a total of 12% of the outstanding common shares, with 537,000 options having been issued, were reserved for future issuance under our employee benefit plans and will become eligible for sale in the public market to the extent permitted by the provisions of the applicable agreements and plans relating to such securities the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. In addition, common stock could be issued in the future in connection with future acquisitions or pursuant to contingent earn-out obligations (including obligations existing as of the date of this prospectus). If any of these shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

    We have previously issued common stock as a portion of the consideration paid for certain acquisitions. Our current stockholders may experience dilution in their holdings if we issue additional shares of common stock as a result of the TAG Acquisition, or in future acquisitions where we use our stock.

In connection with the acquisitions of S&H and ICCI in 2008, we issued 600,000 and 1,292,000 shares of our common stock, respectively, as consideration for these acquisitions. The acquisition of the assets of Embedded Systems in 2009 included 135,052 shares of common stock that we issued as consideration. Further, in connection with the TAG Acquisition, we have agreed to issue up to 3,000,000 shares of our common stock pursuant to a contingent earn-out provision, and we issued 250,000 shares of our common stock as part of the consideration for the IIT Acquisition. If we issue additional shares of common stock as a result of this earn-out provision, or if we otherwise issue stock in connection with future acquisitions, you may suffer dilution of your ownership interest in our company.

    Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our outstanding common stock immediately after this offering. Therefore, if you purchase our common stock in this offering, you will incur immediate dilution of $8.82 in the net tangible book value per share from the price you paid, based on the assumed public offering price. In addition, following this offering, purchasers in the offering will have contributed 55% of the total consideration paid by our stockholders to purchase shares of common stock, in exchange for acquiring approximately 35% of our total outstanding shares as of June 30, 2010 after giving effect to this offering. The exercise of outstanding stock options and warrants will result in further dilution. For a further description of the dilution that you will experience immediately after this offering, see “Dilution.”

    Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

Our management will have broad discretion over the use of our net proceeds from this offering. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. We expect to use approximately $29 million of the net proceeds to fund the repayment of debt we incurred to finance the acquisition of TAG and IIT, including $11 million of notes issued to the sellers of TAG, $8 million

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of unsecured debt owed to certain of our stockholders, and we intend to use approximately $10 million of the net proceeds to pay down the outstanding indebtedness under an asset backed credit facility with Bank of America, N.A. We expect to use the balance of the net proceeds for working capital, capital expenditures and other general corporate purposes, including working capital and capital expenditures, which may in the future include investments in, or acquisitions of businesses, services or technologies that management deems to likely be complementary or synergistic. We might not be able to yield a significant return, if any, on any investment of these net proceeds.

    Provisions in our organizational documents and in Maryland law may inhibit potential acquisition bids that our stockholders may consider favorable, and the market price of our common stock may be lower as a result.

Our charter and bylaws, as in effect upon closing of this offering, will contain provisions that may have an anti-takeover effect and inhibit a change in our board of directors and management. These provisions include the following:

Our charter permits our board of directors to issue preferred stock with terms that may discourage a third party from acquiring us.  Our charter permits our board of directors to issue up to 5 million shares of preferred stock, having preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption as determined by our board of directors. Our board of directors could authorize the issuance of preferred stock with terms and conditions that could have the effect of discouraging a takeover or other transaction in which holders of some or a majority of our shares might receive a premium for their shares over the then-prevailing market price.
Our charter and bylaws contain other possible anti-takeover provisions.  Our charter and bylaws contain other provisions that may have the effect of delaying, deferring or preventing a change-of-control or the removal of existing directors and, as a result, could prevent our stockholders from being paid a premium for their common stock over the then-prevailing market price. These provisions include the advance notice requirements for stockholder proposals and director nominations.

In addition, Maryland law provides protection for Maryland corporations against unsolicited takeovers by limiting, among other things, the duties of the directors in unsolicited takeover situations. The duties of directors of Maryland corporations do not require them to:

accept, recommend or respond to any proposal by a person seeking to acquire control of the corporation;
authorize the corporation to redeem any rights under, or modify or render inapplicable, any stockholder rights plan;
make a determination under the Maryland Business Combination Act or the Maryland Control Share Acquisition Act; or
act or fail to act solely because of the effect that the act or failure to act might have on an acquisition or potential acquisition of control of the corporation or the amount or type of consideration that may be offered or paid to the stockholders in an acquisition.

Maryland law also contains a statutory presumption that an act of a director of a Maryland corporation satisfies the applicable standards of conduct for directors under Maryland law.

Any one or more of these provisions, singularly or together, may have an anti-takeover effect that discourages potential acquisition bids that our stockholders may consider favorable.

    We do not intend to pay dividends.

We intend to retain our earnings, if any, for general corporate purposes, and we do not anticipate paying cash dividends on our stock in the foreseeable future. Our dividend policy may make our stock look less attractive to investors.

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    Section 404 of the Sarbanes-Oxley Act of 2002 will require us to document and test our internal control over financial reporting for 2011 and beyond and will require an independent registered public accounting firm to report on the effectiveness of these controls. Any delays or difficulty in satisfying these requirements could adversely affect our future results of operations and our stock price.

Section 404 of the Sarbanes-Oxley Act of 2002 will require us to document and test the effectiveness of our internal control over financial reporting in accordance with an established internal control framework and to report on our conclusions as to the effectiveness of our internal controls. It will also require an independent registered public accounting firm to test our internal control over financial reporting and report on the effectiveness of such controls for the year ending December 31, 2011 and subsequent years. In addition, upon completion of this offering, we will be required under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, to maintain disclosure controls and procedures and internal control over financial reporting.

In addition, we may in the future discover areas of our internal controls that need improvement, particularly with respect to businesses that we may acquire. If so, we cannot be certain that any remedial measures we take will ensure that we have adequate internal controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to conclude that we have effective internal control over financial reporting, or if our independent registered public accounting firm is unable to provide us with an unqualified report regarding the effectiveness of our internal control over financial reporting as of December 31, 2011 and in future periods, investors could lose confidence in the reliability of our financial statements. This could result in a decrease in the value of our common stock. Failure to comply with Section 404 could potentially subject us to sanctions or investigations by the SEC, the NASDAQ Global Market or other regulatory authorities.

    Operational risks such as material weaknesses and other deficiencies in internal control over financial reporting could result in errors, potentially requiring restatements of our historical financial data, leading investors to lose confidence in our reported results.

There are a number of factors that may impede our efforts to establish and maintain effective internal controls and a sound accounting infrastructure, including our recent history of acquisitions (including acquisitions of companies audited by auditors other than our own), our own change of auditors, our rapid pace of growth, and general uncertainty regarding the operating effectiveness and sustainability of controls. Controls and procedures, no matter how well designed and operated, provide only reasonable assurance that material errors in our financial statements will be prevented or detected on a timely basis. Any failure to establish and maintain effective internal controls over financial reporting increases the risk of material error and/or delay in our financial reporting. Depending on the nature of a failure and any required remediation, ineffective controls could have a material adverse effect on our business and potentially result in restatements of our historical financial results. Financial restatements or other issues arising from ineffective controls could also cause investors to lose confidence in our reported financial information, which would have an adverse effect on the trading price of our securities. Delays in meeting our financial reporting obligations could affect our ability to maintain the listing of our securities. Although we seek to reduce these risks though active efforts relating to properly documented processes, adequate systems, risk culture, compliance with regulations, corporate governance and other factors supporting internal controls, such procedures may not be effective in limiting each of the operational risks.

    We have never operated as a public company, and fulfilling our obligations incident to being a public company will be expensive and time consuming.

As a private company, we have maintained a relatively small finance and accounting staff. We currently do not have an internal audit group, and we have not been required to establish and maintain disclosure controls and procedures and internal control over financial reporting as required by the federal securities law for public companies. As a public company, the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC, as well as the rules of the NASDAQ Global Market, will require us to implement additional corporate governance practices and adhere to a variety of reporting requirements and complex accounting rules. Compliance with these public company obligations will require us to devote significant

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management time and will place significant additional demands on our finance and accounting staff and on our financial, accounting and information systems. We expect to hire additional accounting and financial staff with appropriate public company reporting experience and technical accounting knowledge. Other expenses associated with being a public company include increased auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees, listing fees, as well as other expenses. We cannot accurately predict the amount of additional costs that we may incur or the timing of such costs, but we have estimated that such costs may exceed $1 million during our first 12 months of being a public company.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include, among others:

risks associated with our reliance on the U.S. Government for substantially all of our revenue;
the significant competition we face in our industry;
our ability to identify attractive acquisition targets and realize the intended benefits of acquisitions;
our ability to manage and grow our business and execute our business and growth strategies;
attracting and retaining skilled employees with (or who can obtain) appropriate security clearances;
our financial performance; and
others risks and factors listed under “Risk Factors” and elsewhere in this prospectus.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this prospectus.

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USE OF PROCEEDS

We estimate that we will receive $84 million in net proceeds from our sale of the 8,274,090 shares of common stock sold by us in the offering (or approximately $98 million if the underwriters exercise their overallotment option in full). Our estimated net proceeds from the offering represent the amount we expect to receive after the underwriting discount and our payment of the other expenses of the offering payable by us. We will not receive any proceeds from the sale of shares by the selling stockholders. For purposes of estimating our net proceeds, we have assumed that the initial public offering price of the common stock will be $11.00, which is the midpoint of the price range set forth on the cover page of this prospectus.

We intend to use these net proceeds as follows:

approximately $10 million of the net proceeds will be used to pay down our asset backed credit facility with Bank of America, N.A.:
the interest rate on the asset backed credit facility re-prices at various intervals and has interest rates ranging from 2.75%-4.00%;
the asset backed credit facility matures mid-February 2011;
approximately $11 million of the net proceeds will be used to pay off subordinated unsecured notes issued to the seller of TAG as part of the acquisition of TAG;
the interest rates on the subordinated debt is 8.0% with the exception of $3.4 million of the TAG seller debt that is at 3.0%;
the TAG seller debt matures February 28, 2011;
approximately $8 million of the net proceeds will be used to pay off subordinated unsecured notes issued to six of our stockholders to finance the acquisition of IIT (see the section titled “Certain Relationships and Related Party Transactions”);
the subordinated shareholder debt matures February 2012;
the interest rate on this subordinated debt is 8%; and
all subordinated debt is due and payable within seven days of an initial public offering; and
the balance of the net proceeds will be used for working capital, capital expenditures and other general corporate purposes, including potential acquisitions.

DIVIDEND POLICY

We intend to retain our earnings for use in the operation and expansion of our business and we do not anticipate paying any dividends on our common stock in the foreseeable future. In addition, our ability to declare and pay cash dividends is restricted by our credit facility. Payment of future dividends, if any, will be determined in the sole discretion of our board of directors and will depend upon, among other things, the future earnings, operations, capital requirements and general financial condition and prevailing business and economic conditions, as well as contractual and statutory restrictions on our ability to pay dividends.

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CAPITALIZATION

The following table shows, as of June 30, 2010, our cash and cash equivalents and our capitalization:

on an actual basis; and
on an as adjusted basis, to give effect to (1) the sale of common stock by us in this offering at an assumed public offering price of $11.00 per share, the midpoint of our price range set forth on the cover page of this prospectus after the deduction of the estimated underwriting discount and offering expenses payable by us, (2) the application of the net proceeds of this offering in the manner described under “Use of Proceeds”, and (3) the filing of our amended and restated articles of incorporation immediately before the completion of this offering.

The share data in the table below are based on shares outstanding as of June 30, 2010. The number of outstanding shares on that date excludes:

1,305,250 shares of common stock issuable upon the exercise of outstanding stock options as of June 30, 2010, at a weighted average exercise price of $6.00;
4,813,806 shares of common stock issuable upon the exercise of outstanding warrants as of June 30, 2010, at a weighted average exercise price of $4.98; and
1,324,530 shares of common stock available for future grant under our 2009 Stock Incentive Plan as of June 30, 2010.

You should read this table in conjunction with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.

   
  As of
June 30, 2010
unaudited
     Actual   As Adjusted
     (in thousands)
Cash and cash equivalents   $ 2,338     $ 54,000  
Total debt, including current portion     32,450       3,450  
Stockholders’ equity (deficit):
                 
Preferred stock, undesignated, $0.001 par value per share;
5,000,000 shares authorized actual and as adjusted; 0 and 0 shares issued and outstanding actual and as adjusted
    0       0  
Common stock, $0.001 par value per share; 100,000,000 shares authorized actual and as adjusted; 15,512,748 and 23,768,838 shares issued and outstanding actual and as adjusted     15       24  
Additional paid-in capital     74,455       157,839  
Retained earnings (deficit)     1,161       1,161  
Accumulated other comprehensive loss     0        
Total stockholders’ equity (deficit)     75,631       159,000  
Total capitalization   $ 108,081     $ 159,000  

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DILUTION

Purchasers of the common stock in the offering will suffer an immediate and substantial dilution in net tangible book value per share. Dilution is the amount by which the initial public offering price paid by purchasers of shares of our common stock exceeds the net tangible book value per share of our common stock after the offering. Net tangible book value represents the amount of our total tangible assets reduced by our total liabilities. Tangible assets equal our total assets less goodwill and intangible assets. Net tangible book value per share represents our net tangible book value divided by the number of shares of common stock outstanding. As of June 30, 2010, our net tangible book value was $(32.2) million and our net tangible book value per share was $(2.08).

After giving effect to the Company’s sale of 8,274,090 shares of common stock in the offering at an initial public offering price of $11.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and the application of the estimated net proceeds of this offering in the manner described under “Use of Proceeds”, our adjusted net tangible book value as of June 30, 2010, would have been $51.8 million, or $2.18 per share. This represents an immediate accretion in net tangible book value of $4.26 per share to existing stockholders and an immediate dilution of $8.82 per share to new investors purchasing shares in the offering. The following table illustrates this per share dilution:

   
Assumed initial public offering price per share            $ 11.00  
Net tangible book value per share as of June 30, 2010   $ (2.08 )       
Increase in combined net tangible book value per share attributable to new investors     4.26           
Adjusted net tangible book value per share after this offering           2.18  
Dilution per share to new investors         $ 8.82  

A $1.00 increase (decrease) in the assumed initial public offering price of $11.00 per share would increase (decrease) our adjusted net tangible book value after the offering by approximately $8.2 million and dilution per share to new investors by approximately $0.66, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions.

If the underwriters exercise in full their option to purchase additional shares, the adjusted net tangible book value per share after the offering would be $2.61 per share, the increase in net tangible book value per share to existing stockholders would be $4.69 per share and the dilution to new investors would be $8.39 per share.

The following table illustrates on the as adjusted basis described above as of June 30, 2010, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid, or to be paid, by existing stockholders (including the selling stockholders) and by new investors purchasing common stock in this offering. The calculation below is based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the price range listed in the cover page of the prospectus:

         
  Shares Purchased   Total Consideration   Average Price
Per Share
     Number   Percent   Amount   Percent
Existing stockholders     15,512,748       65 %    $ 74,455,000       45 %    $ 4.80  
New investors     8,274,090       35 %      91,014,990       55 %    $ 11.00  
Total     23,786,838       100 %    $ 165,469,990       100 %       

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The share data in the table above are based on shares outstanding as of June 30, 2010. The number of outstanding shares at that date excludes:

1,305,250 shares of common stock issuable upon the exercise of outstanding stock options as of June 30, 2010, at a weighted average exercise price of $6.00;
4,813,806 shares of common stock issuable upon the exercise of outstanding warrants as of June 30, 2010, at a weighted average exercise price of $4.98; and
1,324,530 shares of common stock available for grant under our 2009 Stock Incentive Plan as of June 30, 2010.

A $1.00 increase (decrease) in the assumed initial public offering price of $11.00 per share would increase (decrease) the total consideration paid by new investors by $9.1 million and increase (decrease) the percentage of total consideration paid by new investors by approximately 9%, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

If the underwriters exercise in full their option to purchase additional shares, the percentage of shares of common stock held by existing stockholders will decrease to approximately 58.4% of the total number of shares of our common stock outstanding after this offering and will increase the number of shares held by new investors to 10,465,000, or 41.6% of the total number of shares of our common stock outstanding after this offering.

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables contain selected historical financial data for us for the six months ended June 30, 2010 and June 30, 2009, the year ended December 31, 2009 and the period from July 31, 2008 (inception) to December 31, 2008, and for ICCI, or our Predecessor, for the period from January 1, 2008 to September 29, 2008 and for the years ended December 31, 2007, 2006 and 2005. The information set forth below has been derived from the following sources:

The selected historical financial data as of June 30, 2010 and for the six months ended June 30, 2010 and June 30, 2009 have been derived from our unaudited financial statements that are included elsewhere in this prospectus;
The selected financial data for the year ended December 31, 2009 and the period from July 31, 2008 (inception) to December 31, 2008 have been derived from our audited financial statements, which were audited by Grant Thornton LLP, our independent registered public accounting firm, and which are included elsewhere in this prospectus;
The selected historical financial data for the period from January 1, 2008 to September 29, 2008 and for the year ended December 31, 2007 for our Predecessor have been derived from Predecessor audited financial statements, which were audited by Stegman & Company, an independent registered public accounting firm, and which are included elsewhere in this prospectus;
The selected historical financial data for the year ended December 31, 2006 for our Predecessor have been derived from Predecessor unaudited financial statements, which are included in this prospectus.
The selected historical financial data for the year ended December 31, 2005 for our Predecessor have been derived from unaudited financial statements, which are not included in this prospectus.

You should read the selected financial data in conjunction with “Use of Proceeds,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes appearing elsewhere in this prospectus. In the opinion of management, our unaudited financial data include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the information. Our historical results are not necessarily indicative of our results for any future period. The selected historical financial data give effect to various acquisitions from the date of acquisition.

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  Predecessor   Successor
     Year ended
December 31,
2005
(unaudited)
  Year ended
December 31,
2006
(unaudited)
  Year ended
December 31,
2007
  Period from
January 1,
through
September 29,
2008
  July 31,
(inception)
through
December 31,
2008
  Year ended
December 31,
2009
  Six months
ended June 30
     2009   2010
     (unaudited)
     (in thousands, except per share data)
Statement of Operations Data
                                                                       
Revenues
                                                                       
Services   $ 10,789     $ 12,497     $ 15,410     $ 14,563     $ 9,045     $ 32,743     $ 14,256     $ 42,699  
Products                                   6,294       2,627       6,960  
Total     10,789       12,497       15,410       14,563       9,045       39,037       16,883       49,659  
Cost of revenues(2)
                                                                       
Services     7,298       8,641       10,263       9,351       4,825       23,475       10,423       31,134  
Products                                   4,443       1,609       3,937  
Total     7,298       8,641       10,263       9,351       4,825       27,918       12,032       35,071  
Gross profit
                                                                       
Services     3,491       3,856       5,147       5,212       4,220       9,268       3,833       11,565  
Products                                   1,851       1,018       3,023  
Total     3,491       3,856       5,147       5,212       4,220       11,119       4,851       14,588  
Operating expenses     1,308       1,669       2,847       4,104       3,573       11,373       3,739       11,619  
Intangible amortization expense                             612       2,055       941       2,761  
Net operating income (loss)     2,183       2,187       2,300       1,108       35       (2,309 )      171       208  
Non-operating expense (income), net           (22 )      (38 )      67       2,080       783       848       (8,935 ) 
Income (loss) before income taxes     2,183       2,209       2,338       1,041       (2,045 )      (3,092 )      (677 )      9,143  
Income tax expenses (benefit), net                             (21 )      979       (105 )      (3,803 ) 
Net income (loss)   $ 2,183     $ 2,209     $ 2,338     $ 1,041     $ (2,066 )    $ (2,113 )    $ (782 )    $ 5,340  
Earnings (loss) per share
                                                                       
Basic     n/a       n/a       n/a       n/a     $ (0.32 )    $ (0.18 )    $ (0.08 )    $ 0.36  
Diluted     n/a       n/a       n/a       n/a     $ (0.32 )    $ (0.18 )    $ (0.08 )    $ 0.25  
Weighted average common shares outstanding
                                                                       
Basic     n/a       n/a       n/a       n/a       6,474,028       12,062,930       10,018,010       14,990,118  
Diluted     n/a       n/a       n/a       n/a       6,474,028       12,062,930       10,018,010       21,294,058  

           
  Predecessor   Successor
     As of December 31   As of December 31   As of June 30, 2010
     2005   2006   2007   2008   2009
     (unaudited)   (unaudited)                  (unaudited)
     (in thousands)
Balance Sheet Data
                                                     
Cash and cash equivalents   $ 236     $ 834     $ 842     $ 5,397     $ 7,333     $ 2,338  
Working capital(1)     1,831       2,618       3,250       9,312       19,365       (5,055 ) 
Total assets     1,946       2,827       3,735       35,885       67,130       146,031  
Long-term liabilities                       7,494       1,617       32,031  
Total stockholders’ equity     1,834       2,644       3,273       26,288       62,339       75,631  

(1) Working capital is defined as current assets net of current liabilities.
(2) Cost of revenues excludes intangible amortization expense as shown separately below.

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The Company intends to pay down or retire approximately $29 million of debt with proceeds from this offering. Based on an estimated share price of $11.00, this would result in attributing approximately 2.9 million shares sold in this offering to pay this debt. The table below (in thousands, except per share data) shows the pro forma impact as if these shares had been issued January 1, 2010:

 
  Six Months Ended June 30, 2010
Net income   $ 5,340  
Interest expense not incurred without debt     672  
Adjusted net income   $ 6,012  
Unaudited pro forma net income per share         
Basic   $ 0.26  
Diluted   $ 0.20  
Adjusted basic weighted average shares outstanding     23,264,208  
Adjusted fully diluted weighted average shares outstanding     29,568,148  

Note that the Company had no debt prior to the 2010 acquisitions.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma consolidated financial information set forth below is presented to illustrate the effects of the following transactions on our financial condition and results of operations:

the 2009 Acquisitions, consisting of the acquisition of Embedded Systems, LEDS, and GDAIS team, prior to their inclusion in Successor’s financial statements;
the TAG Acquisition; and
the IIT Acquisition.

These data are subject, and give effect, to the assumptions and adjustments described in the notes accompanying the unaudited pro forma financial information included elsewhere in this prospectus.

We have derived the historical financial data of our company for the year ended December 31, 2009 from the audited financial statements and related notes included elsewhere in this prospectus. The historical financial data for our company for each of the six months ended June 30, 2010 and 2009 respectively have been derived from our unaudited financial statements that are included elsewhere in this prospectus.

We have derived the historical financial data for the 2009 acquisitions from the audited financials for LEDS and GDAIS as included in the financial statements found elsewhere in this prospectus and for Embedded Systems from their internally generated unaudited financial statements.

The historical consolidated financial data for TAG for the year ended December 31, 2009 combines the audited historical consolidated financial data of TAG for the period from January 1, 2009 through October 31, 2009, included elsewhere in this prospectus, with the unaudited historical consolidated financial data of TAG for the period from November 1, 2009 through December 31, 2009, which is not included in this prospectus. We have derived the historical consolidated financial data of IIT for the year ended December 31, 2009 from the audited consolidated financial data of IIT included elsewhere in this prospectus.

The unaudited pro forma consolidated statements of operations for the year ended December 31, 2009, and for the six months ended June 30, 2010, assume that the TAG Acquisition, the IIT Acquisition and the 2009 acquisitions took place as of January 1, 2009. The unaudited pro forma consolidated balance sheet as of December 31, 2009 assumes that the TAG Acquisition and IIT Acquisition took place as of December 31, 2009.

You should read this information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes appearing elsewhere in this prospectus.

The summary unaudited pro forma statement of operations is presented for informational purposes only and should not be considered indicative of actual results of operations that would have been achieved had the acquisitions been achieved on the dates indicated.

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  KEYW   2009
Acquisitions(5)
(unaudited)
  TAG(4)
(unaudited)
  IIT   Pro Forma
Adjustments
(unaudited)
  Pro Forma
Combined
(unaudited)
     Year ended December 31, 2009
     (in thousands, except per share data)
Statement of Operations Data:
                                                     
Revenues
                                                     
Services   $ 32,743     $ 24,229     $ 47,692     $ 5,260     $     $ 109,924  
Product     6,294                               6,294  
Total     39,037       24,229       47,692       5,260             116,218  
Cost of revenues(6)
                                                     
Services     23,475       17,806       39,702       3,806             84,789  
Products     4,443                               4,443  
Total     27,918       17,806       39,702       3,806             89,232  
Gross profit
                                                     
Services     9,268       6,423       7,990       1,454             25,135  
Products     1,851                               1,851  
Total     11,119       6,423       7,990       1,454             26,986  
Operating expenses     11,373       3,822       3,648       875             19,718  
Intangible amortization expense     2,055                         4,615 (1)      6,670  
Net operating income (loss)     (2,309 )      2,601       4,342       579       (4,615 )      598  
Non-operating expense (income), net     783       27       (353 )      78       2,500 (2)      3,035  
Income (loss) before income taxes     (3,092 )      2,574       4,695       501       (7,115 )      (2,437 ) 
Income tax benefit (expense), net     979                               979  
Net income (loss)   $ (2,113 )    $ 2,574     $ 4,695     $ 501     $ (7,115 )    $ (1,458 ) 
Earnings (loss) per share
                                                     
Basic   $ (0.18 )      n/a       n/a       n/a       n/a     $ (0.12 ) 
Diluted   $ (0.18 )      n/a       n/a       n/a       n/a     $ (0.12 ) 
Weighted average common shares outstanding
                                                     
Basic     12,062,930       n/a       n/a       n/a       250,000 (3)      12,312,930  
Diluted     12,062,930       n/a       n/a       n/a       250,000       12,312,930  

(1) Intangible amortization that would have been recorded if the acquisitions had been completed on January 1, 2009.
(2) Estimated interest expense for the acquisitions if they had been completed on January 1, 2009.
(3) This includes the 250,000 shares issued to IIT.
(4) The December 31, 2009 income statement numbers for TAG for the year ended December 31, 2009 are unaudited. An audit for the 10 months ended October 31, 2009 is included in the financial statements and related notes appearing elsewhere in this prospectus.
(5) This amount represents the income statement activity from the Embedded Systems, LEDS, and GDAIS acquisitions prior to their incorporation in the KEYW financial statements. The detail by entity is included in Note 2 to The KEYW Holding Corporation financial statements included elsewhere in this prospectus.
(6) Cost of revenues excludes intangible amortization expense as shown separately below.

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  KEYW
Six Months Ended
June 30,
2010
(unaudited)
  TAG
Six Months Ended
June 30,
2010
(unaudited)(6)
  IIT
Six Months Ended
June 30,
2010
(unaudited)(6)
  Pro Forma
Adjustments
Six Months Ended
June 30,
2010
(unaudited)
  Pro Forma
Combined
Six Months Ended
June 30,
2010
(unaudited)
  (in thousands, except per share data)
Revenue
                             
Services   $ 42,699     $ 3,854     $ 1,207     $     $ 47,760  
Products     6,960                         6,960  
Total     49,659       3,854       1,207             54,720  
Cost of revenues(5)
                             
Services     31,134       3,227       904             35,265  
Products     3,937                         3,937  
Total     35,071       3,227       904             39,202  
Gross profit
                             
Services     11,565       627       303             12,495  
Products     3,023