##### Table of Contents



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2002

OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number   0-21682

SPARTA, Inc.

---

(Exact name of registrant as specified in its charter)


|                                                               |  |                  
|-------------------------------------------------------------- |  | -----------------
|Delaware                                                       |  | 63-0775889       
|                                                               |  |                  
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer)

23041 Avenida de la Carlota, Suite 325, Laguna Hills, CA 92653-1595

---

(Address of principal executive offices)
(Zip Code)


(949) 768-8161

---

(Registrants telephone number, including area code)


Not Applicable

---

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


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act or
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

Yes x   No

As of September 30, 2002, the registrant had 5,607,616 shares of common stock,
$.01 par value per share, issued and outstanding.





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TABLE OF CONTENTS



|                          |                                                                                               |                                            |  |  |  |  |  | 
|------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I                   
|                          | Item 1. Financial Information                                                                
|                          |                                                                                               | CONSOLIDATED BALANCE SHEET                
|                          |                                                                                               | CONSOLIDATED STATEMENT OF INCOME          
|                          |                                                                                               | CONSOLIDATED STATEMENT OF CASH FLOWS      
|                          |                                                                                               | Notes to Consolidated Financial Statements
|                          | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                          | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                          | Item 4. Controls and Procedures                                                              
|Part II Other Information
|                          | Item 1. Legal Proceedings                                                                    
|                          | Item 2. Changes in Securities                                                                
|                          | Item 3. Defaults Upon Senior Securities                                                      
|                          | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                          | Item 5. Other Materially Important Events                                                    
|                          | Item 6. Exhibits and Reports on Form 8-K                                                     
|Signature                
|Certification            
|INDEX TO EXHIBITS        
|EXHIBIT 99.1             
|EXHIBIT 99.2             



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##### Table of Contents



SPARTA, Inc.

QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 2002

INDEX

|               |  |                                                                                      
|-------------- |  | -------------------------------------------------------------------------------------
|PART I         |  | Financial Information                                                                
|              
|Item 1         |  | Quarterly Financial Statements                                                       
|              
|Item 2         |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|              
|Item 3         |  | Qualitative and Quantitative Disclosures About Market Risk                           
|              
|Item 4         |  | Controls and Procedures                                                              
|              
|PART II        |  | Other Information                                                                    
|              
|Item 1         |  | Legal Proceedings                                                                    
|              
|Item 2         |  | Changes in Securities                                                                
|              
|Item 3         |  | Defaults Upon Senior Securities                                                      
|              
|Item 4         |  | Submission of Matters to a Vote of Security Holders                                  
|              
|Item 5         |  | Other Materially Important Events                                                    
|              
|Item 6         |  | Exhibits and Reports on Form 8-K                                                     
|              
|Signature      |  |                                                                                      
|              
|Certifications |  |                                                                                      

-1-



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##### Table of Contents






PART I




Item 1. Financial Information

-2-



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##### Table of Contents






SPARTA, Inc.
CONSOLIDATED BALANCE SHEET

|                                           |                                                                                                                   |                            |            |               |            |              |            |            |            | 
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------- | ------------- | ---------- | ------------ | ---------- | ---------- | ---------- | 
|                                           |                                                                                                                   |                            |            | September 30, |            | December 31,
|                                           |                                                                                                                   |                            |            | 2002          |            | 2001        
|                                           |                                                                                                                   |                            |            |               |            |             
|                                           |                                                                                                                   |                            |            | (Unaudited)   |            | (Audited)   
|ASSETS                                     |                                                                                                                   |                            |            |               |            |              |            |           
|Current Assets                             |                                                                                                                   |                            |            |               |            |              |            |           
|                                           | Cash and cash equivalents                                                                                         |                            | $          | 19,002,000    |            |              | $          | 10,303,000 |           
|                                           | Short-term investments                                                                                            |                            |            |              |            |              |            | 8,727,000  |           
|                                           | Accounts receivable, net                                                                                          |                            |            | 27,960,000    |            |              |            | 27,150,000 |           
|                                           | Prepaid expenses                                                                                                  |                            |            | 536,000       |            |              |            | 395,000    |           
|                                           |                                                                                                                   |                            |            |               |            |              |            |           
|                                           |                                                                                                                   | Total current assets       |            |               | 47,498,000 |              |            |            | 46,575,000 | 
|                                           | Equipment and improvements, net                                                                                   |                            |            | 7,664,000     |            |              |            | 8,606,000  |           
|                                           | Other assets                                                                                                      |                            |            | 1,923,000     |            |              |            | 1,971,000  |           
|                                           |                                                                                                                   |                            |            |               |            |              |            |           
|                                           |                                                                                                                   | Total Assets               |            | $             | 57,085,000 |              |            | $          | 57,152,000 | 
|                                           |                                                                                                                   |                            |            |               |            |              |            |           
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                   |                            |            |               |            |              |            |           
|Current Liabilities                        |                                                                                                                   |                            |            |               |            |              |            |           
|                                           | Accrued compensation                                                                                              |                            | $          | 11,363,000    |            |              | $          | 10,596,000 |           
|                                           | Accounts payable and other accrued expenses                                                                       |                            |            | 6,068,000     |            |              |            | 5,977,000  |           
|                                           | Current portion of subordinated notes payable                                                                     |                            |            | 2,212,000     |            |              |            | 1,609,000  |           
|                                           | Income taxes payable                                                                                              |                            |            | 1,639,000     |            |              |            | 2,049,000  |           
|                                           | Deferred income taxes                                                                                             |                            |            | 1,013,000     |            |              |            | 1,013,000  |           
|                                           |                                                                                                                   |                            |            |               |            |              |            |           
|                                           |                                                                                                                   | Total current liabilities  |            |               | 22,295,000 |              |            |            | 21,244,000 | 
|Subordinated notes payable                 |                                                                                                                   |                            | 8,696,000  |               |            |              | 7,365,000  |           
|Deferred income taxes                      |                                                                                                                   |                            | 812,000    |               |            |              | 812,000    |           
|Redeemable Preferred Stock                 |                                                                                                                   |                            |            |               |            |              |            |           
|                                           | Preferred stock, $.01 par value; 2,000,000 shares authorized;
63,459 and 223,682 shares issued and outstanding    |                            |            | 1,301,000     |            |              |            | 4,053,000  |           
|Stockholders equity                       |                                                                                                                   |                            |            |               |            |              |            |           
|                                           | Common stock, $.01 par value, 25,000,000 shares authorized;
5,607,616 and 5,071,564 shares issued and outstanding |                            |            | 56,000        |            |              |            | 50,000     |           
|                                           | Additional paid-in capital                                                                                        |                            |            | 33,574,000    |            |              |            | 24,655,000 |           
|                                           | Retained earnings (deficit)                                                                                       |                            |            | 5,147,000     |            |              |            | (1,027,000 | )         
|                                           | Treasury stock                                                                                                    |                            |            | (14,796,000   | )          |              |            |           |           
|                                           |                                                                                                                   |                            |            |               |            |              |            |           
|                                           |                                                                                                                   | Total stockholders equity |            |               | 23,981,000 |              |            |            | 23,678,000 | 
|                                           |                                                                                                                   |                            |            |               |            |              |            |           
|Total Liabilities and Stockholders Equity |                                                                                                                   | $                          | 57,085,000 |               |            | $            | 57,152,000 |           
|                                           |                                                                                                                   |                            |            |               |            |              |            |           

The accompanying notes are an integral part of the financial statements

-3-



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##### Table of Contents






SPARTA, Inc.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

|                                            |                                  |   |                                  |            |                                 |   |            |            |      |   |             |            |   |   |             |            |  
|------------------------------------------- | -------------------------------- | - | -------------------------------- | ---------- | ------------------------------- | - | ---------- | ---------- | ---- | - | ----------- | ---------- | - | - | ----------- | ---------- | -
|                                            |                                  |   | Three Months ended September 30, |            | Nine Months ended September 30,
|                                            |                                  |   |                                  |            |                                
|                                            |                                  |   | 2002                             |            | 2001                            |   | 2002       |            | 2001
|                                            |                                  |   |                                  |            |                                 |   |            |            |     
|Sales                                       |                                  | $ | 42,911,000                       |            |                                 | $ | 34,819,000 |            |      | $ | 119,585,000 |            |   | $ | 100,006,000 |           
|                                            |                                  |   |                                  |            |                                 |   |            |            |      |   |             |            |   |   |             |           
|Costs and expenses:                         |                                  |   |                                  |            |                                 |   |            |            |      |   |             |            |   |   |             |           
|                                            | Labor costs and related benefits |   |                                  | 22,024,000 |                                 |   |            | 18,207,000 |      |   |             | 64,561,000 |   |   |             | 53,427,000 |  
|                                            | Subcontractor & other costs      |   |                                  | 13,095,000 |                                 |   |            | 9,246,000  |      |   |             | 32,310,000 |   |   |             | 25,480,000 |  
|                                            | Facility costs                   |   |                                  | 2,518,000  |                                 |   |            | 2,394,000  |      |   |             | 7,544,000  |   |   |             | 6,779,000  |  
|                                            | Travel and other                 |   |                                  | 1,783,000  |                                 |   |            | 1,200,000  |      |   |             | 4,350,000  |   |   |             | 4,110,000  |  
|                                            | Interest expense (income), net   |   |                                  | (9,000     | )                               |   |            | (65,000    | )    |   |             | (48,000    | ) |   |             | (171,000   | )
|                                            |                                  |   |                                  |            |                                 |   |            |            |      |   |             |            |   |   |             |           
|                                            |                                  |   | 39,411,000                       |            |                                 |   | 30,982,000 |            |      |   | 108,717,000 |            |   |   | 89,625,000  |           
|                                            |                                  |   |                                  |            |                                 |   |            |            |      |   |             |            |   |   |             |           
|Income before provision for
taxes on income |                                  |   | 3,500,000                        |            |                                 |   | 3,837,000  |            |      |   | 10,868,000  |            |   |   | 10,381,000  |           
|Provision for taxes on income               |                                  |   | 1,400,000                        |            |                                 |   | 1,534,000  |            |      |   | 4,347,000   |            |   |   | 4,152,000   |           
|                                            |                                  |   |                                  |            |                                 |   |            |            |      |   |             |            |   |   |             |           
|Net income                                  |                                  | $ | 2,100,000                        |            |                                 | $ | 2,303,000  |            |      | $ | 6,521,000   |            |   | $ | 6,229,000   |           
|                                            |                                  |   |                                  |            |                                 |   |            |            |      |   |             |            |   |   |             |           
|Basic earnings per share                    |                                  | $ | 0.43                             |            |                                 | $ | 0.39       |            |      | $ | 1.26        |            |   | $ | 1.14        |           
|                                            |                                  |   |                                  |            |                                 |   |            |            |      |   |             |            |   |   |             |           
|Diluted earnings per share                  |                                  | $ | 0.39                             |            |                                 | $ | 0.36       |            |      | $ | 1.15        |            |   | $ | 1.04        |           
|                                            |                                  |   |                                  |            |                                 |   |            |            |      |   |             |            |   |   |             |           

The accompanying notes are an integral part of the financial statements

-4-



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##### Table of Contents






SPARTA, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

|                                                   |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |            |            |           |            |  
|-------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ---------------------------------- | ---------------------------------------------------- | --------- | ------------------------------- | ----------- | ---------- | ---------- | --------- | ---------- | -
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           | Nine Months ended September 30,
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           |                                
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           | 2002                            |             | 2001      
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|Cash flows from operating activities:              |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|                                                   | Net income                                                                        |                                                                         | $                                  | 6,521,000                                            |           |                                 | $           | 6,229,000  |           
|                                                   | Adjustments to reconcile net income to net
cash provided by operating activities: |                                                                         |                                    |                                                      |           |                                 |             |            |           
|                                                   |                                                                                   |                                                                         | Depreciation and amortization      |                                                      |           | 1,597,000                       |             |            |            | 1,545,000 |           
|                                                   |                                                                                   |                                                                         | Loss on sale of equipment          |                                                      |           | 87,000                          |             |            |            | 1,000     |           
|                                                   |                                                                                   |                                                                         | Stock-based compensation           |                                                      |           | 3,752,000                       |             |            |            | 3,411,000 |           
|                                                   |                                                                                   |                                                                         | Changes in assets and liabilities: |                                                      |           |                                 |             |            |            |           |           
|                                                   |                                                                                   |                                                                         |                                    | Accounts receivable                                  |           |                                 | (810,000    | )          |            |           | 6,438,000  |  
|                                                   |                                                                                   |                                                                         |                                    | Prepaid expenses                                     |           |                                 | (141,000    | )          |            |           | 170,000    |  
|                                                   |                                                                                   |                                                                         |                                    | Other assets                                         |           |                                 | 48,000      |            |            |           | (81,000    | )
|                                                   |                                                                                   |                                                                         |                                    | Accrued compensation                                 |           |                                 | 767,000     |            |            |           | (324,000   | )
|                                                   |                                                                                   |                                                                         |                                    | Accounts payable and other accrued expenses          |           |                                 | 91,000      |            |            |           | (1,133,000 | )
|                                                   |                                                                                   |                                                                         |                                    | Income taxes payable                                 |           |                                 | (410,000    | )          |            |           | 136,000    |  
|                                                   |                                                                                   |                                                                         | Tax benefit relating to stock plan |                                                      |           | 1,467,000                       |             |            |            | 1,221,000 |           
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|                                                   |                                                                                   |                                                                         |                                    | Net cash provided by (used for) operating activities |           |                                 | 12,969,000  |            |            |           | 17,613,000 |  
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|Cash flows from investing activities:              |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|                                                   |                                                                                   | Capital expenditures                                                    |                                    |                                                      | (743,000  | )                               |             |            | (1,469,000 | )        
|                                                   |                                                                                   | Net proceeds from sale of short-term investments                        |                                    |                                                      | 8,727,000 |                                 |             |            |            |          
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|                                                   |                                                                                   |                                                                         |                                    | Net cash provided by (used for) investing activities |           |                                 | 7,984,000   |            |            |           | (1,469,000 | )
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|Cash flows from financing activities:              |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|                                                   | Proceeds from issuance of stock                                                   |                                                                         |                                    | 3,703,000                                            |           |                                 |             | 2,928,000  |           
|                                                   | Redemption of preferred stock                                                     |                                                                         |                                    | (3,095,000                                           | )         |                                 |             | (1,414,000 | )         
|                                                   | Cash purchases of treasury stock                                                  |                                                                         |                                    | (11,346,000                                          | )         |                                 |             | (7,801,000 | )         
|                                                   | Principal payments on subordinated notes payable                                  |                                                                         |                                    | (1,516,000                                           | )         |                                 |             | (1,017,000 | )         
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|                                                   |                                                                                   |                                                                         |                                    | Net cash provided by (used for) financing activities |           |                                 | (12,254,000 | )          |            |           | (7,304,000 | )
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|Net increase (decrease) in cash                    |                                                                                   |                                                                         | 8,699,000                          |                                                      |           |                                 | 8,840,000   |           
|Cash and cash equivalents at beginning of period   |                                                                                   |                                                                         | 10,303,000                         |                                                      |           |                                 | 7,082,000   |           
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|Cash and cash equivalents at end of period         |                                                                                   | $                                                                       | 19,002,000                         |                                                      |           | $                               | 15,922,000  |           
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|Supplemental disclosures of cash flow information: |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|                                                   | Cash paid during the period for:                                                  |                                                                         |                                    |                                                      |           |                                 |             |            |           
|                                                   |                                                                                   | Interest                                                                |                                    | $                                                    | 183,000   |                                 |             | $          | 318,000    |          
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|                                                   |                                                                                   | Income taxes                                                            |                                    | $                                                    | 3,325,000 |                                 |             | $          | 2,820,000  |          
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|Non-cash investing and financing activities:       |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           
|                                                   |                                                                                   | Repurchase of treasury stock in exchange for
subordinated notes payable |                                    | $                                                    | 3,450,000 |                                 |             | $          | 9,295,000  |          
|                                                   |                                                                                   |                                                                         |                                    |                                                      |           |                                 |             |           

The accompanying notes are an integral part of the financial statements

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##### Table of Contents






SPARTA, INC.
Notes to Consolidated Financial Statements
(Unaudited)

Note A  Basis of Presentation

The accompanying financial information has been prepared in accordance with the
instructions to Form 10-Q and therefore does not necessarily include all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.

The Companys fiscal year is the 52 or 53 week period ending on the Sunday
closest to December 31. The Companys last fiscal year ended on December 30,
2001, its third quarter ended September 29, 2002, and its corresponding third
quarter last year ended on September 30, 2001. To aid the reader of the
financial statements, the year-end has been presented as December 31, 2001 and
the quarters and nine-month period ends have been presented as September 30,
2002 and September 30, 2001.

In the opinion of management, the unaudited financial information for the
nine-month periods ended September 30, 2002 and September 30, 2001 reflects all
adjustments (which include only normal, recurring adjustments) necessary for a
fair presentation thereof.

Note B  Income Taxes

Income taxes for interim periods are computed using the estimated annual
effective rate method.

Note C  Computation of Per Share Earnings

|                                    |                      |                   |           |                                  |      |                                 |           |           |      |      |           |           |      |   |           |           |      | 
|----------------------------------- | -------------------- | ----------------- | --------- | -------------------------------- | ---- | ------------------------------- | --------- | --------- | ---- | ---- | --------- | --------- | ---- | - | --------- | --------- | ---- | 
|                                    |                      |                   |           | Three months ended September 30, |      | Nine months ended September 30,
|                                    |                      |                   |           |                                  |      |                                
|                                    |                      |                   |           | 2002                             |      | 2001                            |           | 2002      |      | 2001
|                                    |                      |                   |           |                                  |      |                                 |           |           |      |     
|Basic EPS                           |                      |                   |           |                                  |      |                                 |           |           |      |      |           |           |      |   |           |          
|                                    | Net income           |                   | $         | 2,100,000                        |      |                                 | $         | 2,303,000 |      |      | $         | 6,521,000 |      |   | $         | 6,229,000 |     
|                                    | Accretion adjustment |                   |           |                                 |      |                                 |           | (259,000  | )    |      |           | (347,000  | )    |   |           | (523,000  | )   
|                                    |                      |                   |           |                                  |      |                                 |           |           |      |      |           |           |      |   |           |          
|                                    |                      | $                 | 2,100,000 |                                  |      | $                               | 2,044,000 |           |      | $    | 6,174,000 |           |      | $ | 5,706,000 |          
|                                    |                      |                   |           |                                  |      |                                 |           |           |      |      |           |           |      |   |           |          
|Weighted average shares outstanding |                      |                   | 4,831,686 |                                  |      |                                 | 5,251,505 |           |      |      | 4,889,930 |           |      |   | 5,024,826 |          
|Per share amounts                   |                      | $                 | 0.43      |                                  |      | $                               | 0.39      |           |      | $    | 1.26      |           |      | $ | 1.14      |          
|                                    |                      |                   |           |                                  |      |                                 |           |           |      |      |           |           |      |   |           |          
|Dilutive Effect                     |                      |                   |           |                                  |      |                                 |           |           |      |      |           |           |      |   |           |          
|                                    | Net income           |                   | $         | 2,100,000                        |      |                                 | $         | 2,303,000 |      |      | $         | 6,521,000 |      |   | $         | 6,229,000 |     
|                                    | Accretion adjustment |                   |           |                                 |      |                                 |           | (259,000  | )    |      |           | (347,000  | )    |   |           | (523,000  | )   
|                                    |                      |                   |           |                                  |      |                                 |           |           |      |      |           |           |      |   |           |          
|                                    |                      | $                 | 2,100,000 |                                  |      | $                               | 2,044,000 |           |      | $    | 6,174,000 |           |      | $ | 5,706,000 |          
|                                    |                      |                   |           |                                  |      |                                 |           |           |      |      |           |           |      |   |           |          
|Weighted average shares outstanding |                      |                   | 4,831,686 |                                  |      |                                 | 5,251,505 |           |      |      | 4,889,930 |           |      |   | 5,024,829 |          
|Stock options                       |                      |                   | 446,295   |                                  |      |                                 | 352,032   |           |      |      | 395,415   |           |      |   | 349,473   |          
|Deferred stock                      |                      |                   | 90,327    |                                  |      |                                 | 116,442   |           |      |      | 90,327    |           |      |   | 116,442   |          
|                                    |                      |                   |           |                                  |      |                                 |           |           |      |      |           |           |      |   |           |          
|                                    |                      |                   | 5,368,308 |                                  |      |                                 | 5,719,979 |           |      |      | 5,375,672 |           |      |   | 5,490,744 |          
|                                    |                      | Per share amounts |           | $                                | 0.39 |                                 |           | $         | 0.36 |      |           | $         | 1.15 |   |           | $         | 1.04 | 
|                                    |                      |                   |           |                                  |      |                                 |           |           |      |      |           |           |      |   |           |          

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##### Table of Contents






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

The following table sets forth, for the periods indicated, selected financial
results:

|                                                       |                                 |   |                                  |    |                                 |   |            |    |      |   |             |    |   |   |             |    |  
|------------------------------------------------------ | ------------------------------- | - | -------------------------------- | -- | ------------------------------- | - | ---------- | -- | ---- | - | ----------- | -- | - | - | ----------- | -- | -
|                                                       |                                 |   | Three months ended September 30, |    | Nine months ended September 30,
|                                                       |                                 |   |                                  |    |                                
|                                                       |                                 |   | 2002                             |    | 2001                            |   | 2002       |    | 2001
|                                                       |                                 |   |                                  |    |                                 |   |            |    |     
|Sales                                                  |                                 | $ | 42,911,000                       |    |                                 | $ | 34,819,000 |    |      | $ | 119,585,000 |    |   | $ | 100,006,000 |   
|Sales by business area, as a
percentage of total sales |                                 |   |                                  |    |                                 |   |            |    |      |   |             |    |   |   |             |   
|                                                       | Ballistic Missile Defense (BMD) |   |                                  | 45 | %                               |   |            | 38 | %    |   |             | 43 | % |   |             | 37 | %
|                                                       | Non BMD Dept of Defense (DoD)   |   |                                  | 49 | %                               |   |            | 47 | %    |   |             | 49 | % |   |             | 49 | %
|                                                       | Non-DoD                         |   |                                  | 6  | %                               |   |            | 15 | %    |   |             | 8  | % |   |             | 14 | %
|Gross profit (1)                                       |                                 | $ | 3,815,000                        |    |                                 | $ | 3,880,000  |    |      | $ | 11,292,000  |    |   | $ | 10,752,000  |   
|Gross profit as a % of costs                           |                                 |   | 9.8                              | %  |                                 |   | 12.5       | %  |      |   | 10.4        | %  |   |   | 12.0        | % 
|Net income                                             |                                 | $ | 2,100,000                        |    |                                 | $ | 2,303,000  |    |      | $ | 6,521,000   |    |   | $ | 6,229,000   |   

|                                                           |  |              |             |              |  |              |             |  |  |   |             | 
|---------------------------------------------------------- |  | ------------ | ----------- | ------------ |  | ------------ | ----------- |  |  | - | ----------- | 
|                                                           |  | Balance at  
|                                                           |  |             
|                                                           |  | September 30 |             | December 31, |  | September 30
|                                                           |  | 2002         |             | 2001         |  | 2001        
|                                                           |  |              |             |              |  |             
|Funded 12 month backlog                                    |  | $            | 63,300,000  |              |  | $            | 31,700,000  |  |  | $ | 52,200,000  | 
|Unfunded 12 month backlog                                  |  |              | 101,100,000 |              |  |              | 111,600,000 |  |  |   | 93,200,000  | 
|                                                           |  |              |             |              |  |              |             |  |  |   |             | 
|Total 12 month contract backlog                            |  | $            | 164,400,000 |              |  | $            | 143,300,000 |  |  | $ | 145,400,000 | 
|                                                           |  |              |             |              |  |              |             |  |  |   |             | 
|Stockholders equity                                       |  | $            | 23,981,000  |              |  | $            | 23,678,000  |  |  | $ | 21,900,000  | 
|Equity per share (2)                                       |  |              | 4.95        |              |  |              | 4.66        |  |  |   | 4.26        | 
|Subordinated notes payable                                 |  | $            | 10,908,000  |              |  | $            | 8,974,000   |  |  | $ | 9,380,000   | 
|Borrowings under line of credit                            |  |              |            |              |  |              |            |  |  |   |            | 
|Number of days sales in receivables
(year-to-date average) |  |              | 64          |              |  |              | 69          |  |  |   | 70          | 
|Current ratio (3)                                          |  |              | 2.1         |              |  |              | 2.2         |  |  |   | 2.3         | 



| | (1) |  | The Company defines gross profit as sales less all costs that are
allowable for and allocable to contracts under government procurement
regulations. As such, gross profit excludes certain unallowable
expenses, as well as interest income and interest expense. Management
considers gross profit, and gross profit as a percentage of costs, to be
key measures of the Companys contract performance.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Equity per share is based on outstanding shares of common stock,
excluding shares of treasury stock.                                                                                                                                                                                                                                                                                                      
|
| | (3) |  | The current ratio is the ratio of current assets to current
liabilities, and is a commonly-used measure of a companys liquidity.                                                                                                                                                                                                                                                                         

New Contracts and Annualized Backlog

In the third quarter, the Company had twelve significant competitive contract
and task-order wins and two significant competitive contract and task-order
losses.

The Advanced Systems Technology Operation (ASTO) won three efforts with the
Missile Defense Agency (MDA). The first effort is to provide support services
to the Advanced Systems Directorates (MDA/AS) Hercules program under a
one-year cost-plus-fixed-fee contract. The second effort is to provide support
services to MDA/AS under our Blanket Purchase Agreement (BPA) with MDA. The
aggregate value of these two efforts for MDA/AS is estimated at $20 million
over the first year. The third effort is a $1.8 million effort to provide
support to the Program Director Cooperative Program and Allied Support
(MDA/CF), also under our BPA. Each of the BPA efforts is for one year, with
three one-year priced options plus award-term options that can extend each
program up to a total of ten years. In addition, the AS BPA effort includes
the provision for 100% growth, and the CF effort includes provision for 50%
growth.

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##### Table of Contents



The Advanced Communications Technology Operation (ACTO) won two follow-on tasks
in the third quarter. One task is for $3.3 million over one year for a
classified DoD customer. The other task is $1.4 million over 15 months for a
classified Intelligence agency customer.

The International Systems Operation (INSO), as a subcontractor to Xontec
Corporation, won a labor rate subcontract for the National Aerospace
Intelligence Center Have Gold III program. This subcontract has an expected
value of $2.5 million and will be performed over five years, with the potential
for two option years. Also, INSO won a program from the Technical Support
Working Group (TSWG) for the Critical Incident Response Technology Seminars
program. This contract has a value of $1.5 million and will be performed over
two years.

The Information Systems Security Operation (ISSO) won a contract from the
Maryland Procurement Office (MPO) for the Family Replacement System Engineering
and Simulator Development Support program. This contract has a value of $1.7
million over 18 months. Additionally, ISSO won a contract from MPO for the
Collaborative Netgraph Using GSAKMP program. This contract has a value of $1.1
million over two years. ISSO also won an independent verification and
validation (IV&V) contract on the National Security Agency SA KG-30 program for
$1.7 million over 18 months.

Integrated Data Systems Operation (IDSO), as a subcontractor to the Advanced
Logistics Solutions (ALS) Joint Venture, won two new task orders. The first
task order was valued, at the ALS level, at $1 million over three years for the
Enterprise Resource Planning/Shared Data Environment Support program. The
second task order was valued, at the ALS level, at $4.8 million over three
years for the Logistics Support program. Both tasks were for the Army Missile
Command (AMCOM) under the Omnibus Logistics Support program. SPARTAs share
of these ALS task orders is $0.3 million and $3 million, respectively. In
addition, IDSO won a $10 million GSA task order at AMCOM. The initial tasks
under this contract total $1.1 million over 17 months.

ACTO and INSO, in a joint proposal effort, lost the Mission Monitoring Center
contract for a classified customer. ASTO lost the Arms Control and
Nonproliferation contract for the Defense Threat Readiness Agency. This would
have been an Indefinite Delivery Indefinite Quantity (IDIQ) contract over five
years.

Results of Operations

The Companys contract revenues for the three- and nine-month periods ended
September 30, 2002 increased 23% and 20%, respectively, from the corresponding
periods in 2001 due to increased project activities, including the effect of
new work as described above. BMD sales for the three- and nine-month periods
increased 46% and 37%, respectively, over the corresponding periods in 2001, as
the Company won several new missile defense contracts (or extensions of
previous contracts) during 2002. Non-BMD DoD sales for the three- and
nine-month periods increased 29% and 20%, respectively, over the corresponding
periods in 2001, as the Company has continued to experience growth in its
business for various intelligence organizations. Non-DoD sales for the three-
and nine-month periods decreased 49% and 28%, respectively, over the
corresponding periods in 2001 due to the completion of a commercial development
contract early in the first quarter of 2002 and the completion of a NASA
contract early in the third quarter of 2002.

The Company defines gross profit as sales less all costs that are allowable for
and allocable to contracts under government procurement regulations and cost
principles. As such, gross profit excludes certain unallowable expenses, as
well as interest income and interest expense. Management considers gross
profit, and the gross profit rate (gross profit as a percentage of costs), to
be key measures of the Companys contract performance. Gross profit for the
three-month period ended September 30, 2002 decreased 2% compared to the
corresponding period of 2001, and the gross profit rate decreased to 9.8% for
the three-month period in 2002, from 12.5% for the corresponding period in
2001. Gross profit for the nine-month period ended September 30, 2002
increased 5% compared to the corresponding period in 2001, however, the gross
profit rate decreased to 10.4% for the nine-month period in 2002, from 12.0%
for the corresponding period in 2001. The changes in gross profit and the
gross profit rate are primarily attributable to sales mix, as the gross profit
rate on BMD programs, which comprised a higher percentage of revenues during
the three- and nine-month periods in 2002, are somewhat lower than on other
programs.

Liquidity and Capital Resources

The Companys principal sources of capital resources for funding its operations
are cash and short-term investments on hand, funds generated by ongoing
business activities, and proceeds from exercise of stock options and the
issuance of common stock. These sources are augmented, as necessary, by
borrowings under the Companys bank line of credit. The principal uses of
capital resources are for the repurchase of preferred and common stock,
repayments of amounts borrowed under the bank line of credit, principal
payments on subordinated promissory notes, and capital expenditures.

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There were no borrowings against the Companys $6 million line of credit during
the third quarter of 2002 or the corresponding period in 2001. Sustaining the
low reliance on borrowings is largely due to the Companys cash and short-term
investment position, emphasis on rapid billing and collection of receivables, a
concerted effort to control capital expenditures and expenditures for
independent research and development, and a planned reduction of investment in
product initiatives. Year-to-date average days sales outstanding (DSO)
decreased to 64 days at September 30, 2002 from 68 days at June 30, 2002. This
decrease was primarily attributable to the receipt of payments on two large
fixed price contracts. The Company continues to actively monitor receivables
with emphasis placed on collection activities.

Significant uses of cash during the third quarter of 2002 include the
repurchase of $3.7 million of common stock in accordance with the Companys
voluntary stock repurchase policy and the repurchase of $1.2 million of
redeemable preferred stock.

During the second quarter of 2002, the Company and its bank entered into an
Amended and Restated Loan Agreement (the Loan Agreement). The Loan Agreement
extends the Companys $6 million line of credit facility through July 1, 2004.
Borrowings under the Loan Agreement are at the banks reference rate (or LIBOR
plus 2%, at the Companys option), and are secured by substantially all of the
Companys assets. In addition, the Loan Agreement restricts the ability of the
Company to pay dividends, and requires the Company to maintain certain
financial ratios. The Company was in compliance with all such requirements at
September 30, 2002. The Company anticipates that its existing capital
resources and access to its line of credit will be sufficient to fund planned
operations for the foreseeable future.

Stock Purchase Agreement

In November 1994, the Company entered into a Stock Purchase Agreement with
Science Applications International Corporation (SAIC), pursuant to which SAIC
purchased a total of 569,039 shares of redeemable preferred stock at a cost of
$2.4 million. Beginning in May 1999, by agreement with SAIC, the Company began
repurchasing shares of this preferred stock. During the three- and nine-month
periods ended September 30, 2002, the Company repurchased 57,834 and 160,223
shares, respectively, at a cost of $1.2 million and $3.1 million, respectively.
As of September 30, 2002, SAIC held 63,459 shares of redeemable preferred
stock, with an aggregate accreted value of $1.3 million. It is the Companys
intent to continue to repurchase SAIC stock.

Effects of Federal Funding for Defense Programs

The Company continues to derive over 90% of its revenues from contracts with
U.S. Government agencies. The Companys government contracts may be
terminated, in whole or in part, at the convenience of the customer (as well as
in the event of default). In the event of a termination for convenience, the
customer is generally obligated to pay the costs incurred by the Company under
the contract plus a fee based upon work completed. There were no contracts
terminated in the third quarter of 2002. The Company does not anticipate any
termination of programs and contracts in 2002. However, no assurances can be
given that such events will not occur.

In addition to the right of the U.S. government to terminate contracts for
convenience, U.S. government contracts are conditioned upon the continuing
availability of Congressional appropriations. These appropriations are
therefore subject to changes as a result of increases or decreases in the
overall budget. New presidential administrations, change in the composition of
Congress, and disagreement or significant delay between Congress and the
Administration in reaching a defense budget accord can all significantly affect
the timing of funding on the Companys contract backlog. Delays in contract
funding resulting from these factors may have a significant adverse effect on
the Companys revenue recognition, liquidity, and DSO.

Forward-Looking Statements

All statements in this report that do not directly and exclusively relate to
historical facts constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements
represent the Companys intentions, plans, expectations and beliefs, and are
subject to risks, uncertainties and other factors, many of which are outside
the Companys control. These factors could cause our actual results,
performance, achievements or industry results to differ materially from the
results, performance or achievements expressed or implied by such
forward-looking statements. These factors are described in more detail in the
Companys Annual Report on Form 10-K for the fiscal year ended December 30,
2001, and such other filings that the Company makes with the SEC from time to
time. Due to such uncertainties and risks, readers are cautioned not to place
undue reliance on such forward-looking statements, which speak only as of the
date hereof.

-9-



---



##### Table of Contents






Item 3. Quantitative and Qualitative Disclosures about Market Risk

Refer to item 7A in the Companys Annual Report on Form 10-K for the year ended
December 30, 2001.




Item 4. Controls and Procedures



|(a) |  | Evaluation of Disclosure Controls and Procedures
|--- |  | ------------------------------------------------

Management has evaluated the Companys disclosure controls and procedures as of
November 11, 2002 (a date within 90 days of the filing of this Quarterly Report
on Form 10-Q). Based on the results of this evaluation, management believes
that such controls and procedures are operating effectively.



|(b) |  | Changes in Internal Controls
|--- |  | ----------------------------

There were no significant changes in the Companys internal controls or in
other factors that could significantly affect the aforementioned controls and
procedures subsequent to November 11, 2002 (the date of their evaluation)



|(c) |  | Asset-Backed Issuers
|--- |  | --------------------

Not Applicable




Part II Other Information




Item 1. Legal Proceedings

The Company has no investigations, claims, or lawsuits arising out of its
business, nor any known to be pending.




Item 2. Changes in Securities

Not Applicable




Item 3. Defaults Upon Senior Securities

Not Applicable




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

Not Applicable




Item 5. Other Materially Important Events

Not Applicable




Item 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibits
|--- |  | --------

See Index to Exhibits on page 14.



|(b) |  | Reports on Form 8-K
|--- |  | -------------------

The Company did not file any Reports on Form 8-K during the fiscal quarter for
which this report is filed.

-10-



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##### Table of Contents






Signature

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

|                         |  |                                                                                                        
|------------------------ |  | -------------------------------------------------------------------------------------------------------
|                         |  | SPARTA, INC                                                                                            
|                        
|                         |  | /s/ David E. Schreiman                                                                                 
|                         |  |                                                                                                        
|Date:  November 13, 2002 |  | David E. Schreiman
Vice President, Treasurer and Chief
Financial Officer (Principal Accounting Officer)

-11-



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##### Table of Contents






Certification

I, Robert C. Sepucha, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of SPARTA, Inc.;                                                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

November 13, 2002

/s/ Robert C. Sepucha

---

Robert C. Sepucha
Chief Executive Officer


-12-



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##### Table of Contents



Certification

I, David E. Schreiman, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of SPARTA, Inc.;                                                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

November 13, 2002

/s/ David E. Schreiman

---

David E. Schreiman
Chief Financial Officer


-13-



---



##### Table of Contents






INDEX TO EXHIBITS
PART II, ITEM 6(a)

|               |  |                                                                                                                       
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                           
|               |  |                                                                                                                       
|99.1           |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|              
|99.2           |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

-14-