<PAGE>   1

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

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

      For the quarterly period ended September 30, 1998

                                       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 000-23585
                             ---------

                                SM&A CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

         CALIFORNIA                                              33-0080929
(State or other jurisdiction of                                 (IRS Employer
incorporation or organization)                               Identification No.)


               4695 MACARTHUR COURT, EIGHTH FLOOR, NEWPORT BEACH,
--------------------------------------------------------------------------------
                CA 92660 (Address of principal executive offices)

                                 (949) 975-1550
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                        STEVEN MYERS & ASSOCIATES, INC.
--------------------------------------------------------------------------------
              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 of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [X] No [ ].

   Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.

<TABLE>
<CAPTION>
                                                        OUTSTANDING AT
              CLASS                                   SEPTEMBER 30, 1998
           ------------                               ------------------
           <S>                                            <C>       
           Common Stock                                   16,534,579
</TABLE>




<PAGE>   2



                                SM&A CORPORATION

                          QUARTERLY REPORT ON FORM 10-Q

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998

                                      INDEX

<TABLE>
<S>           <C>
PART      I.  FINANCIAL INFORMATION

Item      1.  Financial Statements

              Consolidated Condensed Balance Sheets as of September 30, 1998 and
              December 31, 1997

              Consolidated Condensed Statements of Earnings for the three months
              and nine months ended September 30, 1998 and 1997

              Consolidated Condensed Statements of Cash Flows for the nine
              months ended September 30, 1998 and 1997

              Notes to Consolidated Condensed Financial Statements

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


PART      II. OTHER INFORMATION

Item      2.  Changes in Securities and Use of Proceeds

Item      6.  Exhibits and Reports on Form 8-K
</TABLE>



                                       2


<PAGE>   3



                                SM&A CORPORATION

                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                     SEPTEMBER 30,    DECEMBER 31,
                                                         1998             1997
                                                     -------------    ------------
<S>                                                  <C>              <C>     
                    ASSETS
Current Assets:
        Cash and cash equivalents                      $  1,936         $    150
         Accounts receivable, net of allowance           13,527            2,975
         Costs and estimated earnings in
            excess of billings on contracts
            in progress, net of allowance                 9,344            1,270
         Inventory                                          174               --
         Other accounts receivable                           60                8
         Prepaid expenses and other current
              assets                                        985              414
                                                       --------         --------
           Total current assets                          26,026            4,817

Goodwill, net                                            33,637               --
Notes receivable, affiliate                               2,924               --
Property and equipment, net                               2,480              378
Deferred tax asset                                          237               --
Other assets                                              2,848              136
                                                       --------         --------
           Total assets                                $ 68,152         $  5,331
                                                       ========         ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
         Trade accounts payable                        $  1,469         $    280
         Current portion of long-term debt                   11              786
         Accrued salaries, wages, and payroll taxes       7,786            2,574
         Accrued bonuses                                    148              736
         Income taxes payable                               663               53
         Deferred tax liability                             101               --
         Other liabilities                                   72              287
                                                       --------         --------
           Total current liabilities                     10,250            4,716

Deferred rents                                              185               --
Other deferred liabilities                                  581               --
Bank line of credit                                       3,500            6,409
Long-term debt, excluding current portion                    25              534
                                                       --------         --------
           Total liabilities                             14,541           11,659

Stockholders' equity (deficit):
         Common stock, no par value                         165                5
         Additional paid in capital                      54,309              316
         Due from stockholder                                --             (679)
         Accumulated deficit                               (863)          (5,970)
                                                       --------         --------
           Total stockholders' equity (deficit)          53,611           (6,328)
                                                       --------         --------
           Total liabilities and stockholders'
              equity (deficit)                         $ 68,152         $  5,331
                                                       ========         ========
</TABLE>



                                       3


<PAGE>   4


                                SM&A CORPORATION

                  CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED           NINE MONTHS ENDED
                                              --------------------------- ---------------------------
                                              SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
                                                  1998          1997          1998           1997
                                              ------------- ------------- ------------- -------------
<S>                                             <C>          <C>             <C>            <C>     
Net revenues                                    $ 22,284      $ 10,866       $ 46,405       $ 26,639
Cost of revenues                                  13,619         6,181         27,118         14,838
                                                --------      --------       --------       --------
     Gross profit                                  8,665         4,685         19,287         11,801

Selling, general and administrative expenses       5,768         2,161         10,404          4,923
                                                --------      --------       --------       --------

     Operating income                              2,897         2,524          8,883          6,878

Other (income) expense:
     Interest expense                                 30           130            102            378
     Other, net                                      (17)          (31)        (1,243)          (229)
                                                --------      --------       --------       --------
         Earnings before income taxes              2,884         2,425         10,024          6,729

Income tax expense                                 1,271            77          4,208            105
                                                --------      --------       --------       --------
         Net earnings                           $  1,613      $  2,348       $  5,816       $  6,624
                                                ========      ========       ========       ========

Earnings per common share:
         Basic                                  $   0.10                     $   0.38
         Diluted                                    0.10                         0.37
                                                ========                     ========

Weighted average common shares used
    computing per share amounts:
         Basic                                    16,371                       15,346
         Diluted                                  16,794                       15,674
                                                ========                     ========
----------------------------------------------------------------------------------------------------
Pro forma supplemental data:

Earnings before income taxes, as reported       $  2,884      $  2,425       $ 10,024       $  6,729

Pro forma adjustment to selling,
   general and administrative expenses                --          (315)            --           (878)
                                                --------      --------       --------       --------
Pro forma earnings before income tax expense       2,884         2,110         10,024          5,851

Pro forma income tax expense                       1,271           844          4,208          2,340
                                                --------      --------       --------       --------
Pro forma net earnings                          $  1,613      $  1,266       $  5,816       $  3,511
                                                ========      ========       ========       ========

Pro forma earnings per common share:
         Basic                                  $   0.10      $   0.10       $   0.38       $   0.27
         Diluted                                    0.10          0.10           0.37           0.27
                                                ========      ========       ========       ========

Weighted average common shares used in
   computing pro forma per share amounts:
         Basic                                    16,371        12,948         15,346         12,948
         Diluted                                  16,794        12,948         15,674         12,948
                                                ========      ========       ========       ========
</TABLE>



   The pro forma adjustments include the elimination of salaries and bonuses
paid to three principal executive officers (which have historically been
included in selling, general and administrative expenses) in excess of $2.7
million ($675,000 per quarter) in the 



                                       4

<PAGE>   5


aggregate (the maximum salaries and bonuses payable for 1998 under the Executive
Compensation Program) and adjustments for Federal and state income taxes as if
the Company had been taxed as a C corporation rather than an S corporation.

   The above pro forma data does not include the effect of the acquisitions of
Space Applications Corporation ("SAC") and Decision-Science Applications, Inc.
("DSA") in May 1998 and August 1998, respectively, as if the acquisitions
occurred at the beginning of the periods presented. See note 5 for further pro
forma disclosure.

   Pro forma share and per share amounts reflect a conversion of all outstanding
shares of Series A and Series B common stock of the Company into an aggregate of
12.9 million shares of common stock effected upon the consummation of the
initial public offering.

   Supplemental pro forma earnings per share has been computed by dividing
supplemental pro forma net earnings by the weighted average number of shares of
common stock outstanding during the period. Supplemental pro forma net earnings
per share information are calculated under Statement of Financial Accounting
Standard No. 128 "Earnings per Share."

   Historic earnings per share for 1997 is not presented because it is not
meaningful.



                                       5

<PAGE>   6




                                SM&A CORPORATION

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                           NINE MONTHS ENDED
                                                    ------------------------------
                                                    SEPTEMBER 30,    SEPTEMBER 30,
                                                        1998             1997
                                                    -------------    -------------
<S>                                                   <C>              <C>     
Cash flows from operating activities:
    Net Earnings                                      $  5,816         $  6,624
    Adjustments to reconcile net earnings to
      net cash (used in) provided by operating
      activities:
              Provision for doubtful accounts               96               78
              Depreciation and amortization                780              100
              Gain on sale of fixed assets                (788)            (137)
              Changes in assets and
                liabilities, net of effect of
                acquisitions:
                  Accounts receivable                    2,937           (2,557)
                   Costs and estimated
                     earnings in excess of
                     billings on contracts              (5,479)            (385)
                    Prepaid expenses and other
                      current assets                        52             (935)
                   Deferred tax asset                       13               --
                   Other assets                           (335)              16
                   Trade accounts payable               (1,799)           2,243
                    Accrued salaries, wages, &
                      payroll taxes                     (2,248)             137
                   Accrued bonuses                        (589)             428
                   Income taxes payable                 (1,208)              --
                   Deferred tax liability                1,154               --
                   Other deferred liabilities              (32)              --
                   Other liabilities                      (799)             111
                                                      --------         --------
     NET CASH (USED IN) PROVIDED BY OPERATING
          ACTIVITIES                                    (2,429)           5,723

Cash flows from investing activities:
    Acquisitions, net of cash acquired                 (11,874)              --
    Net purchases of property and equipment               (314)            (136)
    Increase in capitalized software                      (251)              --
    Net proceeds from sale of property and
       equipment                                            --                6
    Repayment from stockholder                             679               --
                                                      --------         --------
        NET CASH USED IN INVESTING ACTIVITIES          (11,760)            (130)

Cash flows from financing activities:
    Proceeds from issuance of common stock              22,421               --
    Borrowings of long-term debt                         3,500           14,645
    Repayment of long-term debt                         (9,236)         (10,200)
    Distributions to shareholders                         (710)          (5,675)
    Common stock repurchase                                 --           (5,812)
                                                      --------         --------
     NET CASH PROVIDED BY (USED IN) FINANCING
          ACTIVITIES                                    15,975           (7,042)

    Net increase (decrease) in cash and cash
         equivalents                                     1,786           (1,449)

Cash at beginning of period                                150            1,927
                                                      --------         --------
Cash at end of period                                 $  1,936         $    478
                                                      ========         ========

SUPPLEMENTAL DISCLOSURE:
    Cash paid during the period for:
              Interest                                $    164         $    169
</TABLE>



                                       6


<PAGE>   7



<TABLE>
<CAPTION>
                                                           NINE MONTHS ENDED
                                                    ------------------------------
                                                    SEPTEMBER 30,    SEPTEMBER 30,
                                                        1998             1997
                                                    -------------    -------------
<S>                                                   <C>              <C>     
              Income taxes                               3,378              136
</TABLE>



                                       7


<PAGE>   8



SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:

   In September 1998, the Company sold its approximate 37.0% ownership interest
in Savant Corporation to an affiliate of the Company's principal shareholder for
its estimated fair value of $2.0 million. Terms of payment included $200,000
cash and a guaranteed note for $1.8 million. The note bears interest of 9.0% and
is payable in 30 equal monthly installments through March 2001. There was no
gain recognized by the Company on this transaction.

   In August 1998, the Company acquired Decision-Science Applications, Inc.
("DSA") in a stock for stock and cash forward triangular merger. Purchase
consideration included 714,839 shares of the Company's common stock valued at
approximately $14.4 million and $14.0 million cash. The table below summarizes
the acquisition, which was accounted for using the purchase method of
accounting:


<TABLE>
<CAPTION>
   DSA                                      (in `000)
   ---                                      ---------
<S>                                         <C>     
   Assets acquired at fair value            $ 16,100
   Costs in excess of net assets
     acquired                                 21,349
   Liabilities assumed at fair
     value                                    (8,383)
                                            --------
        Total acquisition costs               29,066
   Less cash acquired                         (2,846)
                                            --------
   Total acquisition costs, net of
     cash acquired                          $ 26,220
                                            ========
</TABLE>


   In June 1998, the Company sold its Turbo Commander aircraft to an affiliate
of the Company's principal shareholder for $880,000. Terms of payment included a
note receivable for the total sales price of $880,000. As the aircraft was
approximately fully depreciated at the time of sale, the majority of the
proceeds were recognized as a gain on sale.

   In May 1998, the Company acquired Space Applications Corporation ("SAC") in a
stock for stock reverse triangular merger. Purchase consideration included
819,743 shares of common stock valued at approximately $14.7 million and
issuance of stock options with a fair value of approximately $2.7 million. The
acquisition was accounted for using the purchase method of accounting. The table
below summarizes the effect of the purchase:



<TABLE>
<CAPTION>
   DSA                                      (in `000)
   ---                                      ---------
<S>                                         <C>     
   Assets acquired at fair value            $ 12,023
   Costs in excess of net assets
      acquired                                11,340
   Liabilities assumed at fair
      value                                   (5,755)
                                            --------
        Total acquisition costs               17,608
   Less cash acquired                           (223)
                                            --------
   Total acquisition costs, net of
      cash acquired                           17,385
                                            ========
</TABLE>


   In January 1997, the Company sold its Hawker Jet to an affiliate of the
Company's principal shareholder for $5,635,000. Terms of payment included $5,000
cash and transfer of the related long-term notes payable of $5,630,000.



                                       8


<PAGE>   9



                                SM&A CORPORATION

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1998


NOTE 1.  BASIS OF PRESENTATION

   The accompanying unaudited interim consolidated condensed financial
statements of SM&A Corporation (the "Company") have been prepared pursuant to
the rules of the Securities and Exchange Commission for quarterly Reports on
Form 10-Q and do not include all of the information and note disclosures
required by generally accepted accounting principles. The information furnished
herein includes all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary for a fair presentation of
results for these interim periods.

   The results of operations for the nine months ended September 30, 1998 are
not necessarily indicative of the results to be expected for the entire fiscal
year ending December 31, 1998.

   The consolidated condensed financial statements include the accounts of the
Company and its subsidiaries. As discussed in Note 5, in August, 1998 the
Company acquired Decision-Science Applications, Inc. ("DSA"). The transaction
was accounted for as a purchase and, accordingly, the consolidated financial
statements include the financial results of DSA from the effective date of this
event. DSA's key areas of expertise are in information systems, software
development, electrical engineering, telecommunications, and physics.
Additionally, in May, 1998 the Company acquired Space Applications Corporation
("SAC"). This transaction was also accounted for as a purchase. The consolidated
financial statements include the financial results of SAC from the effective
date of this event. SAC provides systems engineering, scientific research,
program management support, and military operations support services to the
nation's military and civilian space programs, the national intelligence
community, and the national defense sector.

   These financial statements should be read in conjunction with the Company's
audited financial statements and notes thereto for the year ended December 31,
1997. Supplementary information, which includes the historical pro-forma
financial statements of the Company prior to its initial public offering, is
included in Form S-1 filed by the Company with the Securities and Exchange
Commission on January 28, 1998, as amended (the "S-1"). Due to the Company
converting from an S corporation to a C corporation, the information found in
the S-1 filing includes pro forma operating results. These pro formas reflect an
adjustment of salaries and bonuses paid to three principal executive officers
(which have historically been included in selling, general, and administrative
expenses) in excess of $2,700,000 ($675,000 per quarter) in the aggregate (the
maximum salaries and bonuses payable for 1998 under the Company's Executive
Compensation Program) and adjustments for Federal and state income taxes as if
the Company had been taxed as a C corporation rather than an S corporation
during such period.

   Certain reclassifications have been made to the 1997 financial statements to
conform to the 1998 presentation.

NOTE 2.  INITIAL PUBLIC OFFERING

   The Company completed an initial public offering ("IPO") of Common Stock
during January 1998. Of the 3,150,000 shares of Common Stock sold in the IPO,
1,050,000 were sold by existing shareholders and 2,100,000 were sold by the
Company, generating $22,421,000 in proceeds to the Company, net of offering
expenses of $1,015,000.

   The Company made cash payments of S corporation distributions (the "S
Corporation Dividend") to shareholders totaling $710,000 which were accrued as
of January 28, 1998 and paid February 5, 1998. The S Corporation Dividend
represented the undistributed earnings of the Company taxed or taxable to the
shareholders through the date of the IPO. Cash provided from the operating
activities of the Company prior to the IPO was used to fund the dividend
payment.

NOTE 3. INCOME TAX PROVISION AND PRO FORMA FINANCIAL DATA

   Prior to the IPO, the Company and its shareholders elected to be treated as
an S corporation under the Internal Revenue Code of 1986, as amended (the
"Code"). Under the provisions of the Code, the Company's shareholders included
their pro rata share of the Company's income on their personal tax returns.
Accordingly, the Company was not subject to Federal and most state income taxes.



                                       9

<PAGE>   10


   Historical pro forma figures and pro forma net income per share figures are
presented as if the Company had been taxed as a C corporation for the periods
presented. The pro forma tax provision has been calculated assuming a 40%
combined effective tax rate.

   In January 1998, the Company still operated as an S corporation; thus, the
consolidated income statement presentation for the nine months ended September
30, 1998 includes only applicable Federal and state income taxes for the period
in which the Company had been a C corporation. Upon termination of the S
corporation status on January 28, 1998, the Company recorded a tax expense
resulting from the establishment of net deferred tax liabilities of
approximately $510,000, which was based upon temporary book to tax differences
existing at the date of termination of the Company's S corporation status.

NOTE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   NET EARNINGS PER SHARE

   Basic net earnings per common share is computed based on weighted average
common shares outstanding during the period. Diluted net earnings per common
share is computed based on weighted average common shares and common equivalent
shares (stock options) outstanding during the period. As of September 30, 1998,
the Company had 16,534,579 shares of common stock outstanding. As of December
31, 1997, there were 12,900,000 shares of common stock outstanding.

   Pursuant to Statement of Financial Accounting Standards No. 128, basic and
diluted earnings per share have been included. Basic earnings per share is
computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding during the period. Shares
issued during the period and shares repurchased during the period are weighted
for the portion of the period that they were outstanding. Diluted earnings per
share is consistent with that of basic earnings per share while giving effect to
all dilutive potential common share equivalents that were outstanding during the
period. The Company's diluted earnings per share is calculated by arriving at
basic earnings per share and factoring in the dilutive effect of the 798,000
options issued under the Company's 1997 Stock Option Plan (using the treasury
stock method and the average common stock price per share), plus the 272,500
options granted to SAC employees and associates since May 1998.

   The following table illustrates the computation of basic and diluted earnings
per common share. Information for the three months and nine months ended
September 30, 1997 is based on the pro forma supplemental data presented on the
consolidated condensed statements of earnings.

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                  -------------------------------     --------------------------------
                                                  SEPTEMBER 30,     SEPTEMBER 30,     SEPTEMBER 30,      SEPTEMBER 30,
                                                     1998                1997              1998               1997
                                                  -------------     -------------     -------------      -------------
                                                                 (in thousands, except per share data)
<S>                                                 <C>                <C>                <C>                <C>    
Numerator:
Numerator for basic and diluted
  earnings per common share - net earnings          $ 1,613            $ 1,266            $ 5,816            $ 3,511
                                                    =======            =======            =======            =======

Denominator:
Denominator for basic earnings
  per share - weighted average shares
  outstanding during the period                      16,371             12,948             15,346             12,948

Incremental common shares attributable
  to dilutive outstanding stock options                 423                 --                328                 --
                                                    -------            -------            -------            -------

Denominator for diluted earnings per
   common share                                      16,794             12,948             15,674             12,948
                                                    =======            =======            =======            =======

Basic earnings per common share                     $  0.10            $  0.10            $  0.38            $  0.27
                                                    =======            =======            =======            =======
</TABLE>



                                       10

<PAGE>   11


<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                  -------------------------------     --------------------------------
                                                  SEPTEMBER 30,     SEPTEMBER 30,     SEPTEMBER 30,      SEPTEMBER 30,
                                                     1998                1997              1998               1997
                                                  -------------     -------------     -------------      -------------
                                                                 (in thousands, except per share data)
<S>                                                 <C>                <C>                <C>                <C>    
Diluted earnings per common share                   $  0.10            $  0.10            $  0.37            $  0.27
                                                    =======            =======            =======            =======
</TABLE>


   REVENUE RECOGNITION

   Proposal Management Services

   The majority of Proposal Management Service activities are provided under
"time and expenses" billing arrangements, and revenues are recorded as work is
performed. Revenues are directly related to the total number of hours billed to
clients and the associated hourly billing rates. Revenues are also derived from
success fees offered to clients as a pricing option, and recorded as revenue
only upon the attainment of the specified incentive criteria. This success fee
is billable by the Company when a contract is won by the client.

   Contract Services

   The majority of the Company's contract services are performed for the United
States Government under various cost reimbursable and fixed-price contracts and
subcontracts. For financial reporting purposes, the Company records revenue from
fixed-price contracts on the percentage-of-completion method. Accrued income is
based on the percentage of estimated total income that costs incurred to date
bear to estimated total costs after giving effect to the most recent estimates
of cost and estimated contract price at completion. Some contracts contain
incentive provisions based upon performance in relation to established targets
to which applicable recognition has been given in the contract revenue
estimates. Since many contracts extend over a long period of time, revisions in
cost and price estimates during the progress of work have the effect of
adjusting earnings in the current period applicable to performance in prior
periods. When the contract estimate indicates a loss, provision is made for the
total anticipated loss. In accordance with these practices, contracts in
progress are stated at cost plus estimated profit, but not in excess of
realizable value. The Company records revenues from cost-reimbursable contracts,
including cost-plus-fixed-fee contracts, on the basis of reimbursable costs plus
a pro rata portion of the fee.

   Contract costs for services supplied to the U.S. Government, including
indirect expenses, are subject to audit by the Government's representatives. All
contract revenues are recorded in amounts that are expected to be realized upon
final settlement.


NOTE 5. BUSINESS COMBINATIONS

   On August 20, 1998, the Company issued 714,839 shares of common stock valued
at approximately $14,375,000, and $14,035,000 cash for all the outstanding
common stock of DSA. This transaction was accounted for as a purchase and,
accordingly, the consolidated financial statements include the financial results
of DSA from August 1, 1998, the beginning of the accounting period in which the
purchase transaction was finalized.

   The Company recorded goodwill of approximately $21,349,000 as a result of the
purchase of DSA. The Company incurred significant costs and expenses in
connection with this acquisition, including legal, accounting, and various other
expenses. Eligible costs have been capitalized as part of goodwill in accordance
with generally accepted accounting principles. The assets acquired, the costs in
excess of net assets acquired, and the liabilities assumed in the acquisition of
DSA are as follows:

<TABLE>
<CAPTION>
DSA                                         (in `000)
---                                         ---------
<S>                                         <C>     
Assets acquired at fair value               $ 16,100

Costs in excess of net assets acquired        21,349

Liabilities assumed at fair value             (8,383)
                                            --------
     Total acquisition costs                $ 29,066
                                            ========
</TABLE>



   On May 29, 1998, the Company issued 819,743 shares of common stock valued at
approximately $14,700,000 and stock options with a fair value of $2,657,000 for
substantially all the outstanding common stock of SAC. This transaction was
accounted for as a 





                                       11


<PAGE>   12

purchase and, accordingly, the consolidated financial statements include the
financial results of SAC from May 18, 1998, the date the definitive agreement
was approved by all relevant parties, and the date of the private placement
memorandum for SAC.

   The Company recorded goodwill of approximately $11,340,000 as a result of the
purchase of SAC. The Company incurred significant costs and expenses in
connection with this acquisition, including legal, accounting, and various other
expenses. Eligible costs have been capitalized as part of goodwill in accordance
with generally accepted accounting principles. The assets acquired, the costs in
excess of net assets acquired, and the liabilities assumed in the acquisition of
SAC are as follows:


<TABLE>
<CAPTION>
SAC                                         (in 000)
---                                         ---------
<S>                                         <C>     
Assets acquired at fair value               $ 12,023

Costs in excess of net assets acquired        11,340

Liabilities assumed at fair value             (5,755)
                                            --------
Total acquisition costs                     $ 17,608
                                            ========
</TABLE>


     The following unaudited pro forma consolidated results of operations for
the three months and the nine months ended September 30, 1998 and 1997 assumes
the acquisitions of SAC and DSA occurred as of January 1, 1997:

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED                           NINE MONTHS ENDED
                              ----------------------------------         -----------------------------------
                              SEPTEMBER 30,        SEPTEMBER 30,         SEPTEMBER 30,         SEPTEMBER 30,
                                1998 (2)              1997 (1)               1998(2)              1997 (1)
                              -------------        -------------         -------------         -------------
                                                  (in thousands, except per share data)
<S>                            <C>                   <C>                   <C>                   <C>       
Net revenues                   $   24,756            $   24,712            $   78,132            $   72,271
Net earnings                        1,505                   878                 5,036                 3,407
Earnings per share:
          Basic                      0.09                  0.06                  0.30                  0.22
          Diluted                    0.09                  0.06                  0.30                  0.21
</TABLE>

     The pro forma data includes goodwill amortization expense for the 
acquisitions of SAC and DSA as if the acquisitions occurred on 
January 1, 1997 and assuming a 30 year estimated useful life.

     The pro forma data is for informational purposes only and may not
necessarily reflect the results of operations of SM&A Corporation had the
acquisitions occurred at the beginning of the periods presented. The unaudited
pro forma financial information does not reflect certain cost savings that may
have been realized had the acquisitions been consummated at the beginning of the
periods presented. Such savings may have been realized primarily through
discontinuance of certain stock repurchase programs and other special incentives
paid to employees of SAC and DSA in 1997 and 1998 in addition to scheduled
salary and bonus compensation. In addition, the acquisitions may have enabled
the Company to achieve additional savings as a result of certain economies of
scale with respect to facility costs and various selling, general, and
administrative functions. There can be no assurance that the Company would have
actually realized any such costs savings had the acquisitions been consummated
at the beginning of the periods presented or that the Company will realize any
such cost savings in the future.

   (1) The supplemental pro forma information provided for the three months and
nine months ended September 30, 1997 is comprised of the supplemental pro forma
information for SM&A Corporation (See note 3) combined with the historical
financial information of SAC and DSA. The pro forma basic earnings per share
figures give effect to 1,258,000 shares of the Company's common stock issued in
the Company's IPO to provide the cash paid in the DSA acquisition.

   (2) Stock option transactions recorded by DSA in July 1998, relating to the
acquisition by SM&A, have been excluded from the pro forma data.

NOTE 6. LONG TERM DEBT

     In September 1998, the Company entered into a credit agreement with a bank
to borrow up to $25,000,000 under a revolving line of credit. The credit
agreement, which is secured by a first priority interest in substantially all of
the assets of the Company, matures 



                                       12

<PAGE>   13


in September 2001 and has two interest rate options; the Bank's Prime rate or
LIBOR plus 1.25% to 2.0%, based on the ratio of total indebtedness to earnings
before interest and taxes. As of September 30, 1998, the Company had $3,500,000
outstanding under the credit agreement at a Prime rate of 8.50%.


PART I - FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

FACTORS CONCERNING FORWARD-LOOKING STATEMENTS

   From time to time, SM&A Corporation, Inc. (the "Company", or "SM&A"), through
its management, may make forward-looking public statements, such as statements
concerning then expected future revenues or earnings or concerning projected
plans, performance, contract procurement as well as other estimates relating to
future operations. Forward-looking statements may be in reports filed under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), in press
releases or informal statements made with the approval of an authorized
executive officer. The words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," or similar expressions
are intended to identify "forward-looking statements" within the meaning of
Section 21E of the Exchange Act and Section 27A of the Securities Act of 1933,
as amended, as enacted by the Private Securities Litigation Reform Act of 1995.

   The Company wishes to caution readers not to place undue reliance on these
forward-looking statements, which speak only as of the date on which they are
made. In addition, the Company wishes to advise readers that the factors listed
below, as well as other factors not currently identified by management, could
affect the Company's financial or other performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods or events in any
current statement.

   The Company will not undertake and specifically declines any obligation to
publicly release any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events which may
cause management to re-evaluate such forward-looking statements.

   In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important factors that could cause the Company's actual
results to differ materially from those projected in forward-looking statements
of the Company made by or on behalf of the Company.

   DEPENDENCE ON DEFENSE INDUSTRY AND U.S. GOVERNMENT. A significant portion of
the Company's revenues is derived from proposal management services, including
proposal development centers, related to government procurement contracts. A
significant portion of the Company's revenues is also derived from contracts or
subcontracts with the U.S. Government. For the foreseeable future, the Company
expects that the percentage of its revenues attributable to such contracts will
continue to be substantial. In the future, U.S. Government expenditures for
defense products may decline with such reductions having an effect on the
Company's clients, or, indirectly, the Company. A number of trends may
contribute to such a decline, including: (i) large weapon systems being replaced
with smaller, more precise high technology systems, (ii) multiple procurements
for similar weapons being consolidated into joint service procurements, (iii)
threat scenarios transitioning from global conflicts to regional conflicts, and
(iv) the continuing draw down of U.S. military forces in response to the end of
the Cold War. In the event expenditures for products of the type manufactured by
the Company's clients are reduced and not offset by other new programs or
products, there will be a reduction in the volume of contracts or subcontracts
to be bid upon by the Company's clients and, as a result, a reduction in the
volume of proposals managed by the Company. Unless offset, such reductions could
materially and adversely affect the Company's business, operating results and
financial condition.

   RISKS OF GOVERNMENT CONTRACTING. The Company, both directly and through its
government-contractor clients, is subject to risks associated with compliance
with governmental regulations. The fines and penalties which could result from
noncompliance with appropriate standards and regulations, or a client's
suspension or debarment from the bidding process for future government contracts
could have a material adverse effect on the Company's business, operating
results and financial condition. The Company relies, for the continuance and
expansion of its business, on a facility security clearance from the U.S.
Government, and 



                                       13


<PAGE>   14


individual security clearances, at various levels, for nearly all members of its
staff. There can be no assurance that necessary security clearances will
continue to be made available by the U.S. Government.

   A significant portion of the Company's revenues is derived from contracts or
subcontracts with the U.S. Government. The Company's services are performed
pursuant to the following types of contracts: (i) cost reimbursable; (ii)
time-and-materials; and (iii) fixed-price contracts and subcontracts. Under
fixed-price contracts and time-and-material contracts, the Company bears any
risk of increased or unexpected costs that may reduce its profits or cause it to
sustain a loss.

   The Company's U.S. Government contracts and subcontracts are subject to
termination, reduction or modification as a result of changes in the U.S.
Government's requirements or budgetary restrictions, or at the convenience of
the U.S. Government. Moreover, when the Company participates as a subcontractor,
it is subject to the risk that the primary contractor may fail or become unable
to perform its duties and responsibilities as a prime contractor. If a contract
were to be terminated for convenience, the Company would be reimbursed for its
allowable costs incurred up to the date of termination and would be paid a
proportionate amount of the stipulated profits or fees attributable to the work
actually performed. To date, the U.S. Government has not terminated any
contracts with the Company for convenience.

   Contracts with the U.S. Government are generally complex in nature, and
require the Company to comply with numerous U.S. Government regulations
regarding discrimination in the hiring of personnel, fringe benefits for
employees, safety, safeguarding classified information, responsibility for U.S.
Government property, fire prevention, equipment maintenance, record keeping and
accounting, management qualifications, drug free work place and numerous other
matters. The Company has not experienced any material difficulty in complying
with applicable U.S. Government regulations.

   Under certain circumstances the U.S. Government can suspend or bar
individuals or firms from obtaining future contracts with the U.S. Government
for specified periods of time. Any such suspension or disbarment of the Company
or its major clients could have a material adverse effect upon the Company. The
books and records of the Company are subject to audit by the Defense Contract
Audit Agency, which can result in adjustments to contract costs and fees. If any
costs are improperly allocated to a contract, such costs are not reimbursable
and, if already reimbursed, will be required to be refunded to the government.
Furthermore, if improper or illegal activities are discovered in the course of
any audits or investigation, the contractor may be subject to various civil and
criminal penalties and administrative sanctions, including termination of
contracts, forfeiture of profits, suspension of payments, fines and suspension
or disqualification from doing business with the government. If the Company
becomes subject to penalties or sanctions, such penalties or sanctions could
have a material adverse effect on the Company's business, financial condition
and results of operations.

   CLIENT CONCENTRATION. SM&A derives a significant portion of its revenues from
a relatively limited number of clients. Clients typically retain the Company for
major proposals as needed on an engagement basis rather than pursuant to
long-term contracts, and a client can usually terminate an engagement at any
time without a significant penalty. Moreover, there can be no assurance that the
Company's existing clients will continue to engage the Company for additional
assignments or do so at the same revenue levels. The loss of any significant
client could materially and adversely affect the Company's business, financial
condition and results of operations. In addition, the level of the Company's
services required by an individual client may diminish over the life of its
relationship with the Company, and there can be no assurance that the Company
will be successful in establishing relationships with new clients as this
occurs.

   COMPETITION AND MARKET PENETRATION. The market for proposal management
services in the procurement of government and commercial contracts for aerospace
and defense is a niche market with a number of competitors. The Company
principally competes with numerous smaller proposal management companies in this
highly specialized industry. The Company also competes with some of its clients'
internal proposal development resources. The Company has recently entered and
seeks to achieve significant growth in the contract support services market. The
market for services in the contract support industry is competitive, highly
fragmented and subject to rapid change. Such competition is likely to increase
in the future. Many of the Company's competitors have greater personnel,
financial, technical and marketing resources than the Company. The Company also
competes with its clients' in-house resources. This source of competition may
increase as consolidation of the aerospace and defense industry creates larger
organizations. Although the Company believes that it has the ability to further
penetrate the contract support services market, there can be no assurance that
the Company will be successful in such efforts. In addition, significant further
expense for sales and marketing may be required to promote a major expansion of
the Company's services in such area. If the Company is unsuccessful in 



                                       14

<PAGE>   15


its efforts to penetrate further the market for such services, or if its current
win rate in the proposal management business drops significantly, the Company's
growth prospects could be materially and adversely affected.

   MANAGEMENT OF GROWTH. The Company is currently experiencing significant
growth and intends to pursue further growth as part of its business strategy.
The Company's ability to manage the growth of its operations will require it to
continue to improve its operational, financial, and other internal systems. The
Company's rapid growth has presented and will continue to present numerous
operational challenges, such as the assimilation of financial reporting systems
and internal controls. In addition, the Company's success depends in large part
upon its ability to attract, develop, motivate, and retain highly-skilled
professionals and administrative employees. Qualified professionals are
currently in great demand and there is significant competition for employees
with the requisite skills from other major and boutique consulting firms,
research firms, government contractors, proposal management or business
acquisition departments of major corporations and other professional services
firms. There can be no assurance that the Company will be able to attract and
retain the qualified personnel necessary to pursue its growth strategy. There
can be no assurance that the Company will be able to maintain or increase its
current growth, effectively manage its expanding operations or achieve planned
growth on a timely or profitable basis. To the extent the Company is unable to
manage its growth effectively and efficiently, the Company's business, financial
condition and results of operations could be materially and adversely affected.

   RISKS RELATED TO POSSIBLE ACQUISITIONS. An element of the Company's growth
strategy is to expand its operations through the acquisition of complementary
businesses. However, there can be no assurance that the Company will be able to
identify suitable acquisition candidates or that, if identified, the Company
will be able to acquire such companies on suitable terms. Moreover, other
companies which may have greater resources than SM&A may compete for acquisition
candidates, which could result in an increase in the price of acquisition
targets and a decrease in the number of attractive companies available for
acquisition.

   There can be no assurance that the anticipated economic, operation and other
benefits of any of the acquisitions or any future acquisitions will be realized
or that the Company will be able to successfully integrate acquired businesses
in a timely manner without substantial costs, delays or other operational or
financial problems. The difficulties of such integration may initially be
increased by the necessity of integrating personnel with disparate business
backgrounds and corporate cultures. In addition, acquisitions may involve the
expenditure of significant funds. Failure to effectively integrate the acquired
companies may adversely affect the Company's ability to bid successfully on
certain engagements and otherwise grow its business. Client dissatisfaction or
performance problems at a single acquired company could have an adverse effect
on the reputation of the Company as a whole, resulting in increased difficulty
in marketing services or acquiring companies in the future. In addition, there
can be no assurance that the acquired companies will operate profitably or will
not otherwise adversely impact the operating results of the Company.
Acquisitions also involve a number of additional risks, including diversion of
management attention, potential loss of key clients or personnel, risks
associated with unanticipated problems, liabilities or contingencies and risks
of entering markets in which the Company has limited or no direct expertise. The
occurrence of some or all of the events described in these risks could have a
material adverse effect on the Company's business, operating results, and
financial condition.

OVERVIEW

   The Company is the largest proposal management company in the United States.
The Company's proprietary proposal management processes and team of
approximately 175 highly experienced professionals help its clients to achieve a
higher probability of winning the government and commercial contracts that are
critical to their success, and also provides systems engineering and program
integration services to aerospace, communications, and engineering companies.

   The May 1998 acquisition of SAC and the August 1998 acquisition of DSA, which
collectively added approximately 475 professionals to the Company's workforce,
provides for a greater percentage of the Company's revenues derived from
high-end contract support services. The majority of these services are with the
U.S. Government. SAC provides systems engineering, scientific research, program
management support, and military operations support services to the nation's
military and civilian space programs, the national intelligence community, and
the national defense sector. DSA's key areas of expertise are in information
systems, software development, electrical engineering, telecommunications, and
physics.

RESULTS OF OPERATIONS

   The following information sets forth pro forma operating results for all
periods indicated except the three months ended and nine months ended September
30, 1998, which are historical results of operations. Pro forma amounts reflect
adjustments for (a) the 



                                       15

<PAGE>   16

elimination of salaries and bonuses paid to the three principal executive
officers (which have historically been included in SG&A expenses) in excess of
$2,700,000 ($675,000 per quarter) in the aggregate (which amount is equal to the
maximum salaries and bonuses payable for 1998 under the Executive Compensation
Program), and (b) adjustments for Federal and state income taxes as if the
Company had been taxed as a C corporation at an assumed effective income tax
rate of approximately 40%. The pro forma adjustment in clause (a) above is made
to provide a more meaningful comparison of the Company's SG&A expenses by
recasting historical financials to be consistent with future levels of executive
compensation following termination of the Company's S corporation status.

THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1997

   Net revenues. Net revenues for the three months ended September 30, 1998 were
$22.3 million compared to $10.9 million for the three months ended September 30,
1997, an increase of $11.4 million or 104.6%. Net revenues from proposal
management services were $5.9 million compared to $6.5 million for the
comparable three months of the prior year, a decrease of $.6 million or 9.2%.
Net revenues from Proposal Development Centers ("PDCs") were $1.2 million for
the three months ended September 30, 1998, compared to $2.1 million for same
three month period of the prior year, a decrease of $.9 million or 42.9%. Such
decreases were mainly attributable to short-term delays of some major project
starts. Net revenues from contract support services for the three months ended
September 30, 1998 were $15.2 million compared to $2.3 million for the
comparable three months of the prior year, an increase of $12.9 million or
560.9%. The increase in contract support services revenue was due primarily to
the acquisitions of SAC and DSA in May and August 1998, respectively, which
increased the Company's scope of services and customer base within this area of
business.

   Gross profit. Gross profit was $8.7 million for the three months ended
September 30, 1998 compared to $4.7 million for the three months ended September
30, 1997, an increase of $4.0 million or 85.1%. As a percentage of net revenues,
gross profit was 39.0% for the three months ended September 30, 1998; a decrease
from 43.1% for the three months ended September 30, 1997. The decrease in gross
profit as a percentage of revenues was primarily attributable to lower gross
margin contributions from the newly acquired entities.

   SG&A Expenses. Selling, general and administrative expenses for the three
months ended September 30, 1998 were $5.8 million compared to $2.5 million for
the three months ended September 30, 1997, an increase of $3.3 million or
132.0%. The increase was primarily the result of additional overhead and
facility expenses related to the SAC and DSA acquisitions and an increase in
senior management staff to position the Company for continued growth. As a
percentage of total revenues, SG&A expenses were 26.0% for the three months
ended September 30, 1998, up from 22.9% for the three months ended September 30,
1997.

   Other (income) expense. Other expense, net was $13,000 for the three months
ended September 30, 1998 compared to a net expense of $99,000 for the same
three month period of 1997. This decrease in expense was twofold; lower interest
expense in the current period based on lower bank borrowings and interest income
earned in the current period on IPO proceeds invested in short-term marketable
securities.

   Net earnings. Net earnings were $1.6 million for the three months ended
September 30, 1998 compared to $1.3 million for the three months ended September
30, 1997, an increase of $0.3 million or 23.1%.

NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED 
SEPTEMBER 30, 1997

   Net revenues. Net revenues for the nine months ended September 30, 1998 were
$46.4 million compared to $26.6 million for the nine months ended September 30,
1997, an increase of $19.8 million or 74.4%. Net revenues from proposal
management services were $18.2 million compared to $15.9 million for the
comparable nine months of the prior year, an increase of $2.3 million or 14.5%.
This increase was the result of continued strong demand for the Company's
proposal management services and an increase in customer base. Net revenues from
PDCs were $6.1 million for the nine months ended September 30, 1998 compared to
$5.1 million for the nine months ended September 30, 1997, an increase of $1.0
million or 19.6%. This increase was attributable to an increase in marketing
efforts by the Company to develop additional PDCs at customer sites. Net
revenues from contract support services for the nine months ended September 30,
1998 were $22.1 million compared to $5.6 million for the same period in 1997, an
increase of $16.5 million or 294.6%. The increase in contract support services
revenue was due primarily to the acquisitions of SAC and DSA in May and August
1998, respectively, which increased the Company's scope of services and customer
base within this area of business, as well as increased marketing efforts during
1998 to include contract support agreements with proposal management contracts.


                                       16
<PAGE>   17

   Gross profit. Gross profit increased to $19.3 million for the nine months
ended September 30, 1998, up from $11.8 million recorded for the same period in
1997, an increase of $7.5 million or 63.6%. As a percentage of net revenues,
gross profit was 41.6% for the nine months ended September 30, 1998, compared to
44.4% for the nine months ended September 30, 1997. This decrease as a
percentage of net revenues was mainly attributable to lower gross margin
contributions from the newly acquired entities and success fees earned in the
first nine months of 1997 of $277,000 which earned a 100% margin. There were no
such success fees earned in the first nine months of 1998.

   SG&A expenses. Selling, general and administrative expenses for the nine
months ended September 30, 1998 were $10.4 million compared to $5.8 million for
the nine months ended September 30, 1997, an increase of $4.6 million, or 79.3%.
The increase was mainly the result of additional overhead and facility expenses
related to the SAC and DSA acquisitions, an increase in senior management staff
to position the Company for continued growth, and an increase in facility lease
costs as the Company relocated to an expanded facility in June 1997. As a
percent of net revenues, SG&A expenses was 22.4% for the nine months ended
September 30, 1998, compared to 21.8% for the same period in 1997.

   Other (income) expense. Other income for the nine months ended September 30,
1998 was $1.1 million compared to an expense of $149,000 for the nine months
ended September 30, 1997. This increase in income was primarily due to a gain of
$880,000 resulting from the sale of the Company's Turbo Commander aircraft at
market value to an affiliate of the Company's principal shareholder. In
addition, interest income increased in the current period due to interest earned
on proceeds from the Company's IPO in January 1998. Interest expense decreased
in 1998 based on lower bank borrowings.

   Net earnings. Net earnings were $5.8 million for the nine months ended
September 30, 1998 compared to $3.5 million for the nine months ended September
30, 1997, an increase of $2.3 million or 65.7%.

LIQUIDITY AND CAPITAL RESOURCES

   For the nine months ended September 30, 1998, the Company's net cash used by
operating activities was $2.4 million, compared to cash flows provided by
operating activities of $5.7 million for the same period of the prior year. This
change was mainly due to lower net earnings during the current period, an
increase in costs and estimated earnings in excess of billings on contracts,
significant paydowns of trade accounts payable, accrued salaries, accrued
bonuses, and income taxes, offset by a decrease in accounts receivable.

   Net cash used in investing activities was $11.8 million for the nine months
ending September 30, 1998, compared to $130,000 for the same period of the prior
year. The Company's primary use of funds on investing activities during the nine
months ending September 30, 1998 was the acquisition of DSA wherein the purchase
consideration included a $14.0 million cash outlay in addition to the issuance
of 714,839 shares of common stock, valued at approximately $14.4 million.

   Net cash provided by financing activities was $16.0 million in the nine
months ended September 30, 1998, compared to net cash used of $7.0 million for
the same period of the prior year. Financing activities provided funds of $22.4
million to the Company as a result of the IPO. The primary uses of cash for the
nine months ended September 30, 1998 were for the repayment of $7.1 million bank
debt of the Company existing at the time of the IPO, repayment in full of $1.6
million of SAC bank indebtedness existing at the time of the SAC acquisition,
and payment of $1.0 million for expenses directly related to the IPO.

   The Company believes that funds generated by operations will continue to
provide adequate cash to fund its anticipated operating cash needs for at least
the next twelve months. The Company has a $25.0 million revolving line of credit
facility with a bank. The revolving line of the credit will be used, as
considered necessary, for operating cash and for future acquisitions. As of
September 30, 1998, the Company had $3,500,000 outstanding under the credit
agreement at a Prime rate of 8.50%.

INFLATION

   The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented. On an ongoing basis,
the Company attempts to minimize any effects of inflation on its operating
results by controlling operating costs and, whenever possible, seeking to insure
that billing rates reflect increases in costs due to inflation.

YEAR 2000


                                       17
<PAGE>   18


     The Company is currently working to resolve the potential impact of the
Year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Among other issues, any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000, which could result in miscalculations or system failures.

     The Company has investigated the impact of the Year 2000 problem on its
business, including the Company's operational, information and financial
systems. Based on this investigation, the Company does not expect the Year 2000
problem, including the cost of making the Company's computerized information
systems Year 2000 compliant, to have a material adverse impact on the Company's
financial position or results of operations in future periods. However, the
inability of the Company to resolve all potential Year 2000 problems in a timely
manner could have a material adverse impact on the Company.

     The Company has also initiated communications with significant suppliers
and vendors on which the Company relies in an effort to determine the extent to
which the Company's business is vulnerable to the failure by these third
parties' to remediate their Year 2000 problems. While the Company has not been
informed of any material risks associated with the Year 2000 problem on these
entities, there can be no assurance that the computerized information systems of
these third parties will be Year 2000 compliant on a timely basis. The inability
of these third parties to remediate their Year 2000 problems could have a
material adverse impact on the Company.

     The Company has completed a review of its information systems and is
involved in a comprehensive program to upgrade computer systems and applications
in connection with its effort to fully integrate its recent acquisitions. In
conjunction with this computer upgrade process, the Company believes it will
have addressed any potential Year 2000 issues. Total expenditures related to the
upgrade of the information systems are expected to range from $300,000 to 
$1.5 million. As of September 30, 1998, the Company has incurred approximately
$150,000 of expenditures consisting of internal staff costs as well as outside
consulting and other expenditures related to this upgrade process. These costs
are being funded through operating cash flows.

     To the extent possible, the Company will be developing and executing
contingency plans designed to allow continued operation in the event of failure
of the Company's or third parties' computer information systems.


RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

   In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components (revenue, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS 130 requires all items that are
required to be recognized under accounting standards as components of
comprehensive income to be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS 130 does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period covered by those financial statements. SFAS 130 requires an enterprise to
(a) classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. SFAS 130 did not have a material impact
on the Company's financial position or results of operations.

   In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 establishes standards for public business enterprises to report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. This statement supersedes FASB Statement No. 14, "Financial Reporting
for Segments of a Business Enterprise," but retains the requirement to report
information about major customers. It amends FASB Statements No. 94,
"Consolidation of All Majority-Owned Subsidiaries," to remove the special
disclosure requirement for previously unconsolidated subsidiaries. SFAS 131
requires, among other items, that a public business enterprise report a measure
of segment profit or loss, certain specific revenue and expense items, and
segment assets, information about the revenues derived from the enterprise's
product or services, and major customers. SFAS 131 also requires that the
enterprise report descriptive information 



                                       18

<PAGE>   19


about the way that the operating segments were determined and the products and
services provided by the operating segments. SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years is to be restated. SFAS
131 need not be applied to interim financial statements in the initial year of
its application, but comparative information for interim periods in the initial
year of application is to be reported in financial statements for interim
periods in the second year of application. Management has not determined whether
the adoption of SFAS 131 will have a material impact on the Company's segment
reporting.

   In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal
quarters or fiscal years beginning after June 15, 1999. SFAS 133 establishes
accounting and reporting standards for derivative instruments embedded in other
contracts and for hedging activities. Application of this accounting standard is
not expected to have a material impact on the Company's consolidated financial
position, results of operations or liquidity.

   In October 1997, the American Institute of Certified Public Accountants
("AICPA") released Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"). Among other things, SOP 97-2 eliminates the distinction between
significant and insignificant vendor obligations promulgated by SOP 91-1 and
requires each element of a software arrangement to meet certain criteria in
order to recognize revenue allocated to that element. Additionally, SOP 97-2
requires that total fees under an arrangement be allocated to each element in
the arrangement based upon vendor-specific objective evidence, as defined.

   As a result of certain issues raised in applying SOP 97-2, in March 1998, the
AICPA issued a Statement of Position ("SOP") which will delay for one year the
effective date of certain provisions of SOP 97-2 with respect to what
constitutes vendor-specific objective evidence of fair value of the delivered
software element in certain multiple-element arrangements that include service
elements entered into by entities that never sell the software elements
separately. The Company does not anticipate that the adoption of SOP 97-2 and
the subsequent SOP will have a material effect on the Company's results of
operations. However, the ultimate resolution of the implementation issues
referred to above could change the Company's expectation.




                                       19


<PAGE>   20

                          PART II - OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

(A) CHANGES IN SECURITIES

   On August 20, 1998, the Company acquired Decision-Science Applications, Inc.
in a stock-for-stock and cash exchange merger (the "DSA Merger"). In connection
with such acquisition and in exchange for all of the issued and outstanding DSA
common stock and options, the Company issued an aggregate of 714,839 shares of
its common stock and $14,035,000 cash to shareholders and option holders of DSA,
consisting mainly of DSA employees, executives and directors. The exchange
involved 35 or fewer persons not established to the reasonable satisfaction of
the Registrant as "accredited investors" under Rule 501(a) of the Securities Act
of 1933, as amended (the "Act"), and was consummated in reliance upon Section 4
(2) of the Act, and the rules and regulations thereunder. Pursuant to Rule 506
(b), all investors were either accredited investors, reasonably believed by the
Company to have such knowledge and experience in financial and business matters
that such investor was capable of evaluating the merits and risks of the
investment, or retained a purchaser representative not affiliated with the
Company in connection with the transaction.

(B) USE OF PROCEEDS

   A Registration Statement on Form S-1 (File No. 333-40725) registering
3,150,000 shares of the Company's Common Stock, filed in connection with the
Company's IPO, was declared effective by the Securities and Exchange Commission
on January 27, 1998. The IPO closed on February 3, 1998 and the offering has
terminated. All of the shares covered by the Registration Statement were sold
upon termination of the offering. The Company and its selling shareholders sold,
in the aggregate, all 3,150,000 shares registered in the IPO, with an aggregate
offering price to the public of $37.8 million through an underwriting syndicate
managed by Donaldson, Lufkin & Jenrette Securities Corporation and Lehman
Brothers Incorporated.

   In connection with the IPO, the Company incurred total underwriting discounts
and commission expenses of $1.8 million through March 31, 1998. After aggregate
underwriting discounts and commissions, the Company's net proceeds from the IPO
were $22.4 million. From February 3, 1998 through September 30, 1998, net
offering proceeds used by the Company are summarized as follows; $7.1 million in
full payment of all existing revolver and term loan indebtedness with a bank at
the time of the IPO, $0.3 million payment on a note secured by the Company
aircraft, $1.6 million used for repayment of indebtedness of SAC, and $14.0
million used as a portion of the purchase consideration for DSA.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBITS

        Exhibit
          No.
        ------- 

         11.1   --   Computation of Earnings Per Share
         27     --   Financial Data Schedules (EDGAR)

(b) REPORTS ON FORM 8-K

   On August 3 and August 4, 1998, the Company filed with the Securities and
Exchange Commission, interim reports on Form 8-K/A providing consolidated
financial information related to the acquisition of Space Applications
Corporation.

   On August 19, 1998, the Company filed with the Securities and Exchange
Commission, an interim report on Form 8-K describing the acquisition of SM&A
Corporation ("Sub") by Steven Myers & Associates ("Parent") in a short form
merger. As part of the merger, Parent caused its name to be changed to SM&A
Corporation, and Sub was merged into Parent with Parent as the surviving
corporation.

   On August 21, 1998, the Company filed with the Securities and Exchange
Commission, an interim report on Form 8-K describing the acquisition of
Decision-Science Applications, Inc.


                                       20

<PAGE>   21

                                   SIGNATURES


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

                                       SM&A CORPORATION

Date: November 12, 1998                By: /s/ STEVEN R. MAST
                                           ------------------------------------
                                           Steven R. Mast
                                           Chief Financial Officer
                                           and Secretary


                                       21

<PAGE>   22



                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                    Description
-----------                    -----------
<S>                 <C>
 11.1               Computation of Earnings Per Share

 27                 Financial Data Schedules (EDGAR)
</TABLE>





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