##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)



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

For the Quarter ended June 30, 2002

OR



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

Commission file number 0-23585

(SM&A LOGO)

SM&A

(Exact name of registrant as specified in its charter)


|                                                                          |  |                                                
|------------------------------------------------------------------------- |  | -----------------------------------------------
|California
(State or other jurisdiction of
incorporation or organization) |  | 33-0080929
(I.R.S. Employer
Identification No.)

4695 MacArthur Court, 8th Floor, Newport Beach, California 92660
(Address of principal executive offices, including zip code)

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

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

The number of shares outstanding of the registrants common stock as of
August 1, 2002 was 19,546,680.



---

TABLE OF CONTENTS



|                            |                                                                                               |                                                      |  |  |  |  |  | 
|--------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|                            |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                            |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                            |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS               
|                            |                                                                                               | NOTES TO CONDENSED 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                           
|PART II  OTHER INFORMATION
|                            | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                            | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                            | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                            | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                            | ITEM 5. OTHER INFORMATION                                                                    
|                            | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|EXHIBIT INDEX              
|SIGNATURES                 



---



##### Table of Contents



SM&A

INDEX

|                                |  |                                                                                       |    |                                                                                                                       |    |      |   | 
|------------------------------- |  | ------------------------------------------------------------------------------------- | -- | --------------------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|                                |  |                                                                                       |    |                                                                                                                       |    | Page
|                                |  |                                                                                       |    |                                                                                                                       |    |     
|                               
|PART I.   FINANCIAL INFORMATION
|                               
|Item 1.                         |  | Financial Statements:                                                                 |    |                                                                                                                       |    |     
|                               
|                               
|                               
|                               
|                                |  |                                                                                       |    | Condensed Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001                           |    |      | 3 | 
|                               
|                               
|                               
|                               
|                                |  |                                                                                       |    | Condensed Consolidated Statements of Operations for the three and six months ended
June 30, 2002 and 2001 (unaudited) |    |      | 4 | 
|                               
|                               
|                               
|                               
|                                |  |                                                                                       |    | Condensed Consolidated Statements of Cash Flows for the three and six months ended
June 30, 2002 and 2001 (unaudited) |    |      | 5 | 
|                               
|                               
|                               
|                               
|                                |  |                                                                                       |    | Notes to Condensed Consolidated Financial Statements (unaudited)                                                      |    |      | 6 | 
|                               
|                               
|                               
|                               
|Item 2.                         |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |    |                                                                                                                       | 9  |     
|                               
|                               
|                               
|                               
|Item 3.                         |  | Quantitative and Qualitative Disclosures About Market Risk                            |    |                                                                                                                       | 17 |     
|                               
|PART II.   OTHER INFORMATION   
|                               
|Item 1.                         |  | Legal Proceedings                                                                     |    |                                                                                                                       | 18 |     
|                               
|                               
|                               
|                               
|Item 2.                         |  | Changes in Securities and Use of Proceeds                                             |    |                                                                                                                       | 18 |     
|                               
|                               
|                               
|                               
|Item 3.                         |  | Defaults Upon Senior Securities                                                       |    |                                                                                                                       | 18 |     
|                               
|                               
|                               
|                               
|Item 4.                         |  | Submission of Matters to a Vote of Security Holders                                   |    |                                                                                                                       | 18 |     
|                               
|                               
|                               
|                               
|Item 5.                         |  | Other Information                                                                     |    |                                                                                                                       | 19 |     
|                               
|                               
|                               
|                               
|Item 6.                         |  | Exhibits and Reports on Form 8-K                                                      |    |                                                                                                                       | 20 |     
|                               
|Signatures                      |  |                                                                                       | 23 |                                                                                                                      
|                               
|                               
|                               
|                               
|Certification                   |  |                                                                                       | 24 |                                                                                                                      



2



---



##### Table of Contents






SM&A

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                                  |                                                                      |                            |        |             |        |              |        |         |        | 
|------------------------------------------------- | -------------------------------------------------------------------- | -------------------------- | ------ | ----------- | ------ | ------------ | ------ | ------- | ------ | 
|                                                  |                                                                      |                            |        | June 30,    |        | December 31,
|                                                  |                                                                      |                            |        | 2002        |        | 2001        
|                                                  |                                                                      |                            |        |             |        |             
|                                                  |                                                                      |                            |        | (unaudited) |        |              |        |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|ASSETS                                           
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Current assets:                                   |                                                                      |                            |        |             |        |              |        |        
|                                                  | Cash                                                                 |                            | $      | 4,570       |        |              | $      | 26,270  |       
|                                                  | Restricted cash                                                      |                            |        | 500         |        |              |        | 3,265   |       
|                                                  | Accounts receivable, net                                             |                            |        | 8,000       |        |              |        | 9,022   |       
|                                                  | Prepaid income taxes                                                 |                            |        |            |        |              |        | 1,860   |       
|                                                  | Prepaid expenses and other current assets                            |                            |        | 287         |        |              |        | 385     |       
|                                                  | Deferred income taxes                                                |                            |        | 1,703       |        |              |        | 2,395   |       
|                                                  |                                                                      |                            |        |             |        |              |        |        
|                                                  |                                                                      | Total current assets       |        |             | 15,060 |              |        |         | 43,197 | 
|Property and equipment, net                       |                                                                      |                            | 623    |             |        |              | 557    |        
|Deferred income taxes                             |                                                                      |                            | 729    |             |        |              | 729    |        
|Other assets                                      |                                                                      |                            | 108    |             |        |              | 118    |        
|                                                  |                                                                      |                            |        |             |        |              |        |        
|                                                  |                                                                      | $                          | 16,520 |             |        | $            | 44,601 |        
|                                                  |                                                                      |                            |        |             |        |              |        |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|LIABILITIES AND SHAREHOLDERS EQUITY             
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Current liabilities:                              |                                                                      |                            |        |             |        |              |        |        
|                                                  | Trade accounts payable                                               |                            | $      | 1,090       |        |              | $      | 1,487   |       
|                                                  | Accrued compensation and related benefits                            |                            |        | 2,635       |        |              |        | 3,479   |       
|                                                  | Income taxes payable                                                 |                            |        | 2,505       |        |              |        | 3,351   |       
|                                                  | Current portion of long-term debt and capital lease obligations, net |                            |        | 68          |        |              |        | 22,232  |       
|                                                  | Interest payable                                                     |                            |        |            |        |              |        | 695     |       
|                                                  | Net liabilities of discontinued operations                           |                            |        | 4,048       |        |              |        | 7,483   |       
|                                                  |                                                                      |                            |        |             |        |              |        |        
|                                                  |                                                                      | Total current liabilities  |        |             | 10,346 |              |        |         | 38,727 | 
|Deferred rent                                     |                                                                      |                            | 221    |             |        |              | 215    |        
|Interest rate swap, at fair value                 |                                                                      |                            | 1,695  |             |        |              | 1,786  |        
|Capital lease obligations, net of current portion |                                                                      |                            | 152    |             |        |              | 188    |        
|Commitments and contingencies                     |                                                                      |                            |        |             |        |              |        |        
|Shareholders equity:                             |                                                                      |                            |        |             |        |              |        |        
|                                                  | Preferred stock                                                      |                            |        |            |        |              |        |        |       
|                                                  | Common stock                                                         |                            |        | 49,097      |        |              |        | 48,754  |       
|                                                  | Accumulated deficit                                                  |                            |        | (44,991     | )      |              |        | (45,069 | )     
|                                                  |                                                                      |                            |        |             |        |              |        |        
|                                                  |                                                                      | Total shareholders equity |        |             | 4,106  |              |        |         | 3,685  | 
|                                                  |                                                                      |                            |        |             |        |              |        |        
|                                                  |                                                                      | $                          | 16,520 |             |        | $            | 44,601 |        
|                                                  |                                                                      |                            |        |             |        |              |        |        

See accompanying notes to consolidated financial statements



3



---



##### Table of Contents






SM&A

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

|                                                                             |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |        |        |       | 
|---------------------------------------------------------------------------- | -------------------------------------------- | --------------------------- | ---------------- | ------ | ------------------ | ----- | ---------------- | ------ | ----------- | ----- | ----------- | ------ | ---- | ------ | ------ | ------ | ------ | ----- | 
|                                                                             |                                              |                             |                  |        | Three Months Ended |       | Six Months Ended
|                                                                             |                                              |                             |                  |        | June 30,           |       | June 30,        
|                                                                             |                                              |                             |                  |        |                    |       |                 
|                                                                             |                                              |                             |                  |        | 2002               |       | 2001             |        | 2002        |       | 2001       
|                                                                             |                                              |                             |                  |        |                    |       |                  |        |             |       |            
|                                                                             |                                              |                             |                  |        | (Unaudited)        |       | (Unaudited)      |        | (Unaudited) |       | (Unaudited)
|Revenue                                                                      |                                              | $                           | 13,654           |        |                    | $     | 10,528           |        |             | $     | 26,206      |        |      | $      | 22,536 |       
|Cost of revenue                                                              |                                              |                             | 8,204            |        |                    |       | 6,155            |        |             |       | 15,572      |        |      |        | 12,905 |       
|                                                                             |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|                                                                             |                                              |                             | Gross margin     |        |                    | 5,450 |                  |        |             | 4,373 |             |        |      | 10,634 |        |        |        | 9,631 | 
|Selling, general and administrative expenses                                 |                                              |                             | 2,986            |        |                    |       | 2,818            |        |             |       | 5,893       |        |      |        | 5,989  |       
|                                                                             |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|                                                                             |                                              |                             | Operating income |        |                    | 2,464 |                  |        |             | 1,555 |             |        |      | 4,741  |        |        |        | 3,642 | 
|Other income (expense):                                                      |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|                                                                             | Interest expense, net                        |                             |                  | (306   | )                  |       |                  | (444   | )           |       |             | (740   | )    |        |        | (882   | )     
|                                                                             | Unrealized gain (loss) on interest rate
swap |                             |                  | (157   | )                  |       |                  | 164    |             |       |             | 91     |      |        |        | (284   | )     
|                                                                             |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|                                                                             |                                              | Other income (expense), net |                  |        | (463               | )     |                  |        | (280        | )     |             |        | (649 | )      |        |        | (1,166 | )    
|                                                                             |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|Income from continuing operations before income
taxes                        |                                              |                             | 2,001            |        |                    |       | 1,275            |        |             |       | 4,092       |        |      |        | 2,476  |       
|Income tax expense                                                           |                                              |                             | 658              |        |                    |       | 523              |        |             |       | 1,515       |        |      |        | 1,005  |       
|                                                                             |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|Income from continuing operations                                            |                                              |                             | 1,343            |        |                    |       | 752              |        |             |       | 2,577       |        |      |        | 1,471  |       
|Loss from discontinued businesses, net of
income taxes                       |                                              |                             |                 |        |                    |       | (628             | )      |             |       |            |        |      |        | (1,560 | )     
|Extraordinary loss from early extinguishment of
debt, net of income taxes    |                                              |                             |                 |        |                    |       |                 |        |             |       | (2,499      | )      |      |        |       |       
|Cumulative effect of adoption of FASB
Statement No. 133, net of income taxes |                                              |                             |                 |        |                    |       |                 |        |             |       |            |        |      |        | (668   | )     
|                                                                             |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|Net income (loss)                                                            |                                              | $                           | 1,343            |        |                    | $     | 124              |        |             | $     | 78          |        |      | $      | (757   | )     
|                                                                             |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|Income per share from continuing operations:                                 |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|                                                                             | Basic                                        |                             | $                | 0.07   |                    |       | $                | 0.04   |             |       | $           | 0.13   |      |        | $      | 0.08   |       
|                                                                             | Diluted                                      |                             | $                | 0.07   |                    |       | $                | 0.04   |             |       | $           | 0.13   |      |        | $      | 0.08   |       
|Loss per share from discontinued operations:                                 |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|                                                                             | Basic                                        |                             | $                |       |                    |       | $                | (0.03  | )           |       | $           |       |      |        | $      | (0.08  | )     
|                                                                             | Diluted                                      |                             | $                |       |                    |       | $                | (0.03  | )           |       | $           |       |      |        | $      | (0.08  | )     
|Loss per share from early extinguishment of debt:                            |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|                                                                             | Basic                                        |                             | $                |       |                    |       | $                |       |             |       | $           | (0.13  | )    |        | $      |       |       
|                                                                             | Diluted                                      |                             | $                |       |                    |       | $                |       |             |       | $           | (0.12  | )    |        | $      |       |       
|Loss per share from cumulative effect of change
in accounting:               |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|                                                                             | Basic                                        |                             | $                |       |                    |       | $                |       |             |       | $           |       |      |        | $      | (0.04  | )     
|                                                                             | Diluted                                      |                             | $                |       |                    |       | $                |       |             |       | $           |       |      |        | $      | (0.04  | )     
|                                                                             |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|Net income (loss) per share:                                                 |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|                                                                             | Basic                                        |                             | $                | 0.07   |                    |       | $                | 0.01   |             |       | $           | 0.00   |      |        | $      | (0.04  | )     
|                                                                             | Diluted                                      |                             | $                | 0.07   |                    |       | $                | 0.01   |             |       | $           | 0.00   |      |        | $      | (0.04  | )     
|                                                                             |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|Shares used in calculating net income (loss) per
share:                      |                                              |                             |                  |        |                    |       |                  |        |             |       |             |        |      |        |        |       
|                                                                             | Basic                                        |                             |                  | 19,497 |                    |       |                  | 18,949 |             |       |             | 19,422 |      |        |        | 18,921 |       
|                                                                             | Diluted                                      |                             |                  | 20,563 |                    |       |                  | 18,967 |             |       |             | 20,419 |      |        |        | 18,921 |       

See accompanying notes to consolidated financial statements.



4



---



##### Table of Contents






SM&A

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                      |                                                                                          |                                                       |                                                       |                                                            |       |                  |         |             |        |        |        |  
|------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------------------------- | ----------------------------------------------------- | ---------------------------------------------------------- | ----- | ---------------- | ------- | ----------- | ------ | ------ | ------ | -
|                                      |                                                                                          |                                                       |                                                       |                                                            |       | Six Months Ended
|                                      |                                                                                          |                                                       |                                                       |                                                            |       | June 30,        
|                                      |                                                                                          |                                                       |                                                       |                                                            |       |                 
|                                      |                                                                                          |                                                       |                                                       |                                                            |       | 2002             |         | 2001       
|                                      |                                                                                          |                                                       |                                                       |                                                            |       |                  |         |            
|                                      |                                                                                          |                                                       |                                                       |                                                            |       | (unaudited)      |         | (unaudited)
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                          |                                                       |                                                       |                                                            |       |                  |         |            
|                                      | Net income (loss)                                                                        |                                                       | $                                                     | 78                                                         |       |                  | $       | (757        | )     
|                                      | Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                                       |                                                       |                                                            |       |                  |         |             |       
|                                      |                                                                                          | Loss from discontinued operations, net of tax         |                                                       |                                                            |      |                  |         |             | 932    |       
|                                      |                                                                                          | Cumulative effect of adoption of FASB 133, net of tax |                                                       |                                                            |      |                  |         |             | 668    |       
|                                      |                                                                                          | Change in fair value of interest rate swap            |                                                       |                                                            | (91   | )                |         |             | 284    |       
|                                      |                                                                                          | Depreciation and amortization                         |                                                       |                                                            | 124   |                  |         |             | 117    |       
|                                      |                                                                                          | Deferred income taxes                                 |                                                       |                                                            | 692   |                  |         |             | (2,802 | )     
|                                      |                                                                                          | Amortization of debt issuance costs                   |                                                       |                                                            | 4,165 |                  |         |             | 232    |       
|                                      |                                                                                          | Changes in operating assets and liabilities:          |                                                       |                                                            |       |                  |         |             |        |       
|                                      |                                                                                          |                                                       | Decrease (Increase) in accounts receivable            |                                                            |       | 1,022            |         |             |        | (1,902 | )     
|                                      |                                                                                          |                                                       | Decrease in prepaid income taxes                      |                                                            |       | 1,860            |         |             |        | 6      |       
|                                      |                                                                                          |                                                       | Decrease in prepaid expense and other assets          |                                                            |       | 108              |         |             |        | 407    |       
|                                      |                                                                                          |                                                       | Decrease in trade accounts and interest payable       |                                                            |       | (1,092           | )       |             |        | (759   | )     
|                                      |                                                                                          |                                                       | Decrease in accrued compensation and related benefits |                                                            |       | (844             | )       |             |        | (537   | )     
|                                      |                                                                                          |                                                       | (Decrease)
Increase in income taxes payable           |                                                            |       | (846             | )       |             |        | 6,121  |       
|                                      |                                                                                          |                                                       | Increase in other liabilities                         |                                                            |       | 6                |         |             |        | 283    |       
|                                      |                                                                                          |                                                       |                                                       |                                                            |       |                  |         |            
|                                      |                                                                                          |                                                       |                                                       | Net cash provided by operating activities                  |       |                  | 5,182   |             |        |        | 2,293  |  
|                                      |                                                                                          |                                                       |                                                       |                                                            |       |                  |         |            
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                          |                                                       |                                                       |                                                            |       |                  |         |            
|                                      | Purchases of property and equipment                                                      |                                                       |                                                       | (190                                                       | )     |                  |         | (18         | )     
|                                      | Decrease in restricted cash                                                              |                                                       |                                                       | 2,765                                                      |       |                  |         |            |       
|                                      |                                                                                          |                                                       |                                                       |                                                            |       |                  |         |            
|                                      |                                                                                          |                                                       |                                                       | Net cash provided by (used in) investing activities        |       |                  | 2,575   |             |        |        | (18    | )
|                                      |                                                                                          |                                                       |                                                       |                                                            |       |                  |         |            
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                          |                                                       |                                                       |                                                            |       |                  |         |            
|                                      | Repayment of subordinated notes                                                          |                                                       |                                                       | (25,000                                                    | )     |                  |         |            |       
|                                      | Payment of early payment penalty on subordinated notes                                   |                                                       |                                                       | (1,250                                                     | )     |                  |         |            |       
|                                      | Proceeds from issuance of common stock                                                   |                                                       |                                                       | 343                                                        |       |                  |         | 246         |       
|                                      | Repayments under revolving line of credit facility                                       |                                                       |                                                       |                                                           |       |                  |         | (1,946      | )     
|                                      | Repayments under capital lease obligation                                                |                                                       |                                                       | (115                                                       | )     |                  |         | (54         | )     
|                                      |                                                                                          |                                                       |                                                       |                                                            |       |                  |         |            
|                                      |                                                                                          |                                                       |                                                       | Net cash (used in) provided by financing activities        |       |                  | (26,022 | )           |        |        | (1,754 | )
|                                      |                                                                                          |                                                       |                                                       |                                                            |       |                  |         |            
|                                      |                                                                                          |                                                       |                                                       | Net (decrease) increase in cash from continuing operations |       |                  | (18,265 | )           |        |        | 521    |  
|                                      |                                                                                          |                                                       |                                                       | Net cash used in discontinued operations                   |       |                  | (3,435  | )           |        |        | 411    |  
|                                      |                                                                                          |                                                       |                                                       |                                                            |       |                  |         |            
|                                      |                                                                                          |                                                       |                                                       | Net (decrease) increase in cash                            |       |                  | (21,700 | )           |        |        | 932    |  
|                                      | Cash at beginning of period                                                              |                                                       |                                                       | 26,270                                                     |       |                  |         | 1,548       |       
|                                      |                                                                                          |                                                       |                                                       |                                                            |       |                  |         |            
|                                      | Cash at end of period                                                                    |                                                       | $                                                     | 4,570                                                      |       |                  | $       | 2,480       |       
|                                      |                                                                                          |                                                       |                                                       |                                                            |       |                  |         |            

See accompanying notes to consolidated financial statements.



5



---



##### Table of Contents






SM&A
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2002 and 2001
(unaudited)

NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated financial statements included herein are
unaudited; however, they contain all normal recurring accruals and adjustments
that, in the opinion of management, are necessary to present fairly the
consolidated financial position of SM&A at June 30, 2002 and the consolidated
results of our operations and our cash flows for the three and six months ended
June 30, 2002 and 2001.

It should be understood that accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the three and six months ended June 30, 2002 are not
necessarily indicative of the results to be expected for the full fiscal year.

The accompanying unaudited condensed consolidated financial statements do
not include footnotes and certain financial presentations normally required
under generally accepted accounting principles. Therefore, these financial
statements should be read in conjunction with our audited consolidated
financial statements and notes thereto for the year ended December 31, 2001,
included in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 15, 2002.

Recent Accounting Pronouncements.We adopted Financial Accounting
Standards Board (FASB) Statement No. 141, Business Combinations (Statement
No. 141), and No. 142, Goodwill and Other Intangible Assets (Statement No.
142), effective January 1, 2002. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with Statement Nos. 141 and
142. Other intangible assets will continue to be amortized over their useful
lives. The adoption of Statement Nos. 141 and 142 did not have a material
effect on our results of operations, financial position or cash flows.

We also adopted Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, that is applicable to financial statements
issued for fiscal years effective January 1, 2002. The FASBs new rules on
asset impairment supersede Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and portions of
Accounting Principles Bulletin Opinion 30, Reporting the Results of
Operations. This Statement provides a single accounting model for long-lived
assets to be disposed of and significantly changes the criteria that would have
to be met to classify an asset as held-for-sale. Classification as
held-for-sale is an important distinction since such assets are not depreciated
and are stated at the lower of fair value and carrying amount. This Statement
also requires expected future operating losses from discontinued operations to
be displayed in the period(s) in which the losses are incurred, rather than as
of the measurement date as presently required. The adoption of Statement 144
did not have a material effect on our results of operations, financial position
or cash flows.

Reclassifications.Certain items in the 2001 financial statements have
been reclassified to conform to the current period presentation.



6



---



##### Table of Contents



NOTE 2. NET INCOME (LOSS) PER SHARE

The following table illustrates the number of shares used in the computation of
basic and diluted net income (loss) per share (in thousands):

|                                                                                                           |  |                    |        |                  |  |      |        |      |  |  |        |  |  |  |        | 
|---------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                                                                                                           |  | Three Months Ended |        | Six Months Ended
|                                                                                                           |  | June 30,           |        | June 30,        
|                                                                                                           |  |                    |        |                 
|                                                                                                           |  | 2002               |        | 2001             |  | 2002 |        | 2001
|                                                                                                           |  |                    |        |                  |  |      |        |     
|Denominator for basic income (loss) per common
share weighted average shares outstanding
during the period |  |                    | 19,497 |                  |  |      | 18,949 |      |  |  | 19,422 |  |  |  | 18,921 | 
|Incremental common shares attributable to
dilutive outstanding stock options                               |  |                    | 1,066  |                  |  |      | 18     |      |  |  | 997    |  |  |  |       | 
|                                                                                                           |  |                    |        |                  |  |      |        |      |  |  |        |  |  |  |        | 
|Denominator for diluted income (loss) per
common share                                                     |  |                    | 20,563 |                  |  |      | 18,967 |      |  |  | 20,419 |  |  |  | 18,921 | 
|                                                                                                           |  |                    |        |                  |  |      |        |      |  |  |        |  |  |  |        | 

NOTE 3. DISCONTINUED OPERATIONS

On November 30, 2001, we completed the sale of our interest in the common
stock of Emergent-East (also known as the Government Services Group or GSG), a
provider of system engineering, scientific research, program management and
technical support services. Accordingly, the operating results of
Emergent-East for all periods prior to the closing date are reflected as
discontinued operations.

Following is summary financial information for our discontinued
operations (in thousands):

|                                                                  |  |                    |        |                  |  |   |        |  
|----------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | - | ------ | -
|                                                                  |  | Three Months Ended |        | Six Months Ended
|                                                                  |  | June 30,           |        | June 30,        
|                                                                  |  | 2001               |        | 2001            
|                                                                  |  |                    |        |                 
|Revenue                                                           |  | $                  | 17,033 |                  |  | $ | 34,708 |  
|                                                                  |  |                    |        |                  |  |   |        |  
|Loss from operations of discontinued
business before income taxes |  | $                  | (1,011 | )                |  | $ | (2,613 | )
|Income tax benefit                                                |  |                    | 383    |                  |  |   | 1,053  |  
|                                                                  |  |                    |        |                  |  |   |        |  
|Loss from operations of discontinued
business                     |  | $                  | (628   | )                |  | $ | (1,560 | )
|                                                                  |  |                    |        |                  |  |   |        |  

Liabilities of the discontinued businesses totaled $4.0 million at June
30, 2002, including reserves for lease termination costs and contingent
liabilities related to the sale of Emergent-East and accruals for professional
fees.

NOTE 4. REVOLVING LINE OF CREDIT

In January 2002, we entered into a line of credit agreement with a bank
for working capital purposes. The line of credit, which expires on April 30,
2003, provides for maximum borrowings of $7.5 million, based on eligible
receivables, at an interest rate of prime plus one percent. Borrowings under
the revolving credit agreement are secured by a lien on substantially all of
our assets. The agreement requires us to comply with certain financial
covenants pertaining to our tangible net worth and ratio of total liabilities
to tangible net worth (as defined in the agreement) and also contains certain
negative covenants which, among other things, restrict our ability to incur
additional indebtedness, sell our assets, make certain types of investments and
engage in certain types of mergers and acquisitions.

At June 30, 2002, we had no outstanding borrowings under the line of
credit, the bank had issued letters of credit for $2.5 million and we had $2.1
million in remaining availability.



7



---



##### Table of Contents



NOTE 4. REVOLVING LINE OF CREDIT  (contd)

On May 12, 2000, we entered into an interest rate swap agreement to manage
our interest rate risk exposure related to the former senior credit facility of
the Company, which was repaid in November 2001. The agreement required that we
pay a fixed rate of 7.5225% on $20 million and in turn receive a variable rate
of interest based on one-month LIBOR. The agreement expires on June 1, 2004.
Beginning January 1, 2001, the interest rate swap has been marked to market on
a quarterly basis and the resulting gain or loss recognized in the statement of
operations. During the three and six months ended June 30, 2002 and 2001, we
recognized a loss of $157,000, a gain of $164,000, a gain of $91,000, and a
loss of $284,000, respectively, related to the change in the fair value of the
interest rate swap. On July 5, 2002, we paid $572,000 to reduce by one-third
the value of the interest rate swap. The swap agreement has been amended to
require that we pay 7.5225% on $13.3 million and, in return, we receive a
variable interest rate based on one-month LIBOR.

NOTE 5. LONG-TERM DEBT

We entered into a Note and Stock Purchase Agreement (the Subordinated
Debt Agreement) dated December 29, 2000 with various investors (the
Purchasers). In consideration of a $25.0 million investment, we issued to
the Purchasers (i) 13% unsecured, Senior Subordinated Notes due in 2005 in the
aggregate principal amount of $25.0 million (the Notes), and (ii) 2,250,000
shares of our common stock with a fair value of $1,968,750. The Subordinated
Debt Agreement required payment of a premium if the Notes were prepaid within
three years of the closing.

The value of the common stock issued and related financing costs of $3.5
million were reflected as a discount on the Notes and were being amortized over
the term of the Notes. On January 11, 2002, the Notes were repaid in full. In
connection with the repayment, we incurred a prepayment penalty of $1.25
million, and wrote off the remaining original issue discount and debt issuance
costs. This retirement of the Notes resulted in a loss of $2.5 million, net of
tax, and is reflected as an extraordinary item in the accompanying condensed
consolidated statements of operations.

NOTE 6. RELATED PARTIES

We entered into a contract with the Precept Group, for which one of the
members of our Board of Directors serves as the President and CEO. During
June 2002, The Precept Group was engaged to advise us on our executive
compensation and to perform a human resources assessment. The contract value
was determined through a review of prevailing market rates for such services.
We paid the total contract value of $22,000 during the three months ended June
30, 2002.

In addition, we entered into a contract with ProView, a subsidiary of the
Precept Group, for which one of our members of our Board of Directors serves as
the President and CEO. We have agreed to outsource our employee benefits
administration which requires us to pay a $2,500 setup fee, $10.50 per employee
per month for enrollment activity, benefit administration and billing
administration, $25 per qualifying or $100 monthly minimum for COBRA
processing, $4.00 per participant per month for flexible spending account
administration and $1.50 per employee per month for use of a human resources
intranet website. The contract value was determined through a review of
prevailing market rates for such services. Under this contract, we paid
$1,900 during the three months ended June 30, 2002.

During June 2002, we entered into a right of offset and barter agreement
with SummitJets, Inc. (SummitJets), which is owned by our CEO. The agreement
provides for the offset of the existing accounts receivable and accounts
payable balances between the companies. After the offset, SM&A is owed
$114,000 which will be paid in the form of credits to use SummitJets aircraft.
The $114,000 owed is for expenses incurred related to a former location sharing
agreement for rent and related utilities. In June 2002, SummitJets moved into
their own facilities and cancelled the existing location sharing agreement.

One of the members of our Board of Directors has assisted us in brokering
our excess real estate related to the sale of our discontinued operations. We
paid him $4,600 and $44,200 during the three and six months ended June 30,
2002, respectively.



8



---



##### Table of Contents






|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

SM&A is a provider of integrated proposal management services through a
proprietary proposal management strategy and process. In conjunction with this
process, we typically assume a leadership role and place dedicated teams at
client facilities to manage all aspects of the competitive proposal development
process. We also leverage success in winning business for our clients and our
involvement in the project life cycle to extend our services beyond proposal
development to our comprehensive capabilities in the areas of information
technology services, systems engineering, program integration, and other
technical areas. SM&A has been expanding its management consulting practice
with traditional aerospace and defense companies, as well as other commercial
customers.

Forward-Looking Statements

From time to time, we may make forward-looking public statements, such as
statements concerning expected future revenue 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 in 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, projected, 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.

We wish to caution you not to place undue reliance on these
forward-looking statements, which speak only as of the date on which they are
made. In addition, we wish to advise you that the factors listed below, as well
as other factors not currently identified by management, could affect our
financial or other performance and could cause our 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.

We will not undertake and specifically decline 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 us to
re-evaluate such forward-looking statements.

In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, we are hereby filing cautionary statements
identifying important factors that could cause our actual results to differ
materially from those projected in forward-looking statements made by or on
behalf of us, and those statements should be read together with this discussion
and analysis.

Recent Events

On November 30, 2001, we completed the sale of our interest in the common
stock of Emergent-East (also known as the Government Services Group or GSG), a
provider of system engineering, scientific research, program management and
technical support services. Accordingly, the operating results of
Emergent-East for all periods prior to the closing date are reflected as
discontinued operations.



9



---



##### Table of Contents





|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (contd)
|------- | ------------------------------------------------------------------------------------------------

Following is summary financial information for our discontinued operations (in thousands):

|                                                                  |  |                    |        |                  |  |   |        |  
|----------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | - | ------ | -
|                                                                  |  | Three Months Ended |        | Six Months Ended
|                                                                  |  | June 30,           |        | June 30,        
|                                                                  |  | 2001               |        | 2001            
|                                                                  |  |                    |        |                 
|Revenue                                                           |  | $                  | 17,033 |                  |  | $ | 34,708 |  
|                                                                  |  |                    |        |                  |  |   |        |  
|Loss from operations of discontinued
business before income taxes |  | $                  | (1,011 | )                |  | $ | (2,613 | )
|Income tax benefit                                                |  |                    | 383    |                  |  |   | 1,053  |  
|                                                                  |  |                    |        |                  |  |   |        |  
|Loss from operations of discontinued
business                     |  | $                  | (628   | )                |  | $ | (1,560 | )
|                                                                  |  |                    |        |                  |  |   |        |  

Liabilities of the discontinued businesses totaled $4.0 million at June
30, 2002, including reserves for lease termination costs and contingent
liabilities related to the sale of Emergent-East and accruals for professional
fees.

RESULTS OF CONTINUING OPERATIONS

The following table sets forth certain historical operating results as a
percentage of revenue:

|                                             |              |  |                    |      |                  |  |       |      |      |  |       |      |  |  |       |      | 
|-------------------------------------------- | ------------ |  | ------------------ | ---- | ---------------- |  | ----- | ---- | ---- |  | ----- | ---- |  |  | ----- | ---- | 
|                                             |              |  | Three Months Ended |      | Six Months Ended
|                                             |              |  | June 30,           |      | June 30,        
|                                             |              |  |                    |      |                 
|                                             |              |  | 2002               |      | 2001             |  | 2002  |      | 2001
|                                             |              |  |                    |      |                  |  |       |      |     
|Revenue                                      |              |  | 100.0              | %    |                  |  | 100.0 | %    |      |  | 100.0 | %    |  |  | 100.0 | %   
|Cost of revenue                              |              |  | 60.1               |      |                  |  | 58.5  |      |      |  | 59.4  |      |  |  | 57.2  |     
|                                             |              |  |                    |      |                  |  |       |      |      |  |       |      |  |  |       |     
|                                             | Gross margin |  |                    | 39.9 |                  |  |       | 41.5 |      |  |       | 40.6 |  |  |       | 42.8 | 
|Selling, general and administrative expenses |              |  | 21.9               |      |                  |  | 26.8  |      |      |  | 22.5  |      |  |  | 26.6  |     
|                                             |              |  |                    |      |                  |  |       |      |      |  |       |      |  |  |       |     
|Operating income                             |              |  | 18.0               |      |                  |  | 14.8  |      |      |  | 18.1  |      |  |  | 16.2  |     
|Income from continuing operations            |              |  | 9.8                | %    |                  |  | 7.1   | %    |      |  | 9.8   | %    |  |  | 6.5   | %   

The foregoing table and the comparison that follows do not include the
discontinued operations of Emergent-East and other discontinued operations.



10



---



##### Table of Contents





|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (contd)
|------- | ------------------------------------------------------------------------------------------------

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

Revenue.We derive our revenue from the various consulting services that
we provide: proposal management; program support services; management
consulting; and competitive strategy services. Revenue increased $3.1 million,
or 29.7%, to $13.7 million for the three months ended June 30, 2002 compared to
$10.5 million for the three months ended June 30, 2001. The increase is
primarily the result of an increase in program support services revenue. This
increase was partially offset by a decrease in proposal management revenue
related to a lower number of major procurements due to a delay in procurements
while the government reassesses national priorities after the events of
September 11, 2001.

Gross Margin.Gross margin increased $1.1 million, or 24.6%, to $5.5
million, for the three months ended June 30, 2002 as compared to $4.4 million
for the three months ended June 30, 2001. As a percentage of revenue, gross
margin decreased to 39.9% compared to 41.5% for the three months ended June 30,
2001. The decrease in gross margin percentage is a result of increased revenue
from program support services which carry slightly lower margins than our other
services, but they are generally at the 40% level.

Selling, General and Administrative Expenses.Selling, general and
administrative expenses consist principally of salary and benefit costs for
executive and administrative personnel, professional services and other general
corporate activities such as facility rent, insurance and utilities. Selling,
general and administrative expenses increased $168,000, or 6.0%, to $3.0
million for the three months ended June 30, 2002, as compared to $2.8 million
for the three months ended June 30, 2001. As a percentage of revenue, selling,
general and administrative expenses decreased to 21.9% for the three months
ended June 30, 2002, as compared to 26.8% for the same period of the prior
year. The decrease is the result of reductions in executive personnel and
general corporate overhead resulting from cost control initiatives implemented
in fiscal 2001. We plan to invest in our infrastructure over the next few
quarters, primarily in recruiting and training. Therefore, we expect that the
level of selling, general and administrative expenses may be somewhat higher as
a percentage of revenue for the remainder of the year.

Operating Income.Operating income was $2.5 million for the three months
ended June 30, 2002 compared to $1.6 million for the three months ended June
30, 2001, an increase of $909,000. As a percentage of revenue, operating
income increased to 18.0% for the three months ended June 30, 2001, from 14.8%
in the same period of the prior year. Operating income increased due to the
increased revenue and the decreased selling, general and administrative
expenses, as discussed above.

Interest Expense, net.Interest expense, net was $306,000 for the three
months ended June 30, 2002 compared to $444,000 for the three months ended June
30, 2001, a decrease of $138,000. Included in interest expense is the
amortization of debt discount in 2001, and interest on interim borrowings on
our line of credit and our interest rate swap in 2002.

Unrealized Gain (Loss) on Interest Rate Swap.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), as amended. SFAS 133 requires that an entity recognize all derivatives
as either assets or liabilities and measure those instruments at fair value and
requires that changes in the derivatives fair value be recognized in earnings
unless specific hedging criteria are met. We have one interest rate swap
agreement that does not qualify as a cash flow hedge. Accordingly, during the
second quarter of fiscal 2002 and 2001, we recorded a loss of $157,000, and a
gain of $164,000, respectively, to recognize the change in the fair value of
our interest rate swap.

Income Tax Expense.Our effective income tax rate for the three months
ended June 30, 2002 was 32.9% and was comparable to the 41.0% rate incurred in
the three months ended June 30, 2001. During the second quarter of fiscal
2002, we received an income tax refund of $145,000, which decreased our income
tax expense. The excess refund was due primarily to a recent change in tax law
relating to alternative minimum taxes.



11



---



##### Table of Contents





|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (contd)
|------- | ------------------------------------------------------------------------------------------------

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

Revenue.Revenue increased $3.7 million, or 16.3%, to $26.2 million for
the six months ended June 30, 2002 compared to $22.5 million for the six months
ended June 30, 2001. The increase is primarily the result of an increase in
program support services revenue. This increase was partially offset by a
decrease in proposal management revenue related to a lower number of major
procurements due to a delay in procurements while the government reassesses
national priorities after the events of September 11, 2001.

Gross Margin.Gross margin increased $1.0 million, or 10.4%, to $10.6
million for the six months ended June 30, 2002 as compared to $9.6 million for
the six months ended June 30, 2001. As a percentage of revenue, gross margin
decreased to 40.6% compared to 42.8% for the six months ended June 30, 2001.
The decrease in gross margin percentage is a result of increased revenue from
program support services which carry slightly lower margins than our other
services, but they are generally at the 40% level.

Selling, General and Administrative Expenses.Selling, general and
administrative expenses consist principally of salary and benefit costs for
executive and administrative personnel, professional services and other general
corporate activities such as facility rent, insurance and utilities. Selling,
general and administrative expenses decreased $96,000, or 1.6%, to $5.9 million
for the six months ended June 30, 2002, as compared to $6.0 million for the six
months ended June 30, 2001. As a percentage of revenue, selling, general and
administrative expenses decreased to 22.5% for the six months ended June 30,
2002, as compared to 26.6% for the same period of the prior year. The decrease
is the result of reductions in executive personnel and general corporate
overhead resulting from cost control initiatives implemented in fiscal 2001.
We plan to invest in our infrastructure over the next few quarters, primarily
in recruiting and training. Therefore, we expect that the level of selling,
general and administrative expenses may be somewhat higher as a percentage of
revenue for the remainder of the year.

Operating Income.Operating income was $4.7 million for the six months
ended June 30, 2002 compared to $3.6 million for the six months ended June 30,
2001, an increase of $1.1 million. As a percentage of revenue, operating
income increased to 18.1% for the six months ended June 30, 2002, from 16.2% in
the same period of the prior year. Operating income increased due to the
increased revenue and the decreased selling, general and administrative
expenses, as discussed above.

Interest Expense, net.Interest expense, net was $740,000 for the six
months ended June 30, 2002 compared to $882,000 for the three months ended June
30, 2001, a decrease of $142,000. Included in interest expense is the
amortization of debt discount in 2001, and interest on interim borrowings on
our line of credit and our interest rate swap in 2002.

Unrealized Gain (Loss) on Interest Rate Swap.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), as amended. SFAS 133 requires that an entity recognize all derivatives
as either assets or liabilities and measure those instruments at fair value and
requires that changes in the derivatives fair value be recognized in earnings
unless specific hedging criteria are met. We have one interest rate swap
agreement that does not qualify as a cash flow hedge. Accordingly, during the
first six months of fiscal 2002 and 2001, we recorded a gain of $91,000, and a
loss of $284,000, respectively, to recognize the change in the fair value of
our interest rate swap.

Income Tax Expense.Our effective income tax rate for the six months
ended June 30, 2002 was 37.0% and was comparable to the 40.7% rate incurred in
the six months ended June 30, 2001. During the second quarter of fiscal 2002,
we received an income tax refund of $145,000, which decreased our income tax
expense. The excess refund was due primarily to a recent change in tax law
relating to alternative minimum taxes.



12



---



##### Table of Contents





|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (contd)
|------- | ------------------------------------------------------------------------------------------------

LIQUIDITY AND CAPITAL RESOURCES

Net Cash Provided by Operating Activities.For the six months ended June
30, 2002, net cash provided by operating activities of $5.2 million reflected
our income from continuing operations of $2.6 million, increased by non-cash
charges for depreciation, amortization and the amortization of debt issuance
costs offset by an increase in deferred tax assets and an increase in working
capital.

Net Cash Provided by Investing Activities.For the six months ended June
30, 2002, net cash provided by investing activities was $2.6 million which
primarily related to a decrease in restricted cash from $3.3 million to
$500,000. A portion of our cash acts as collateral for a stand-by letter of
credit that guarantees our obligations under the interest rate swap. This cash
collateral is shown as restricted cash in the condensed consolidated balance
sheets.

We entered into an agreement with a software vendor in July 2002 to
purchase an Enterprise Resource Planning (ERP) software program. For the
remaining six months of this year, the software program, installation, and
maintenance costs are estimated to cost us approximately $400,000 to $500,000.
The costs will be capitalized as a capital expenditure and depreciated over
five years starting from the date the ERP software program is placed into
service.

Net Cash Used in Financing Activities.For the six months ended June 30,
2002, net cash of $26.0 million was used in financing activities primarily for
repayment in full of our subordinated notes, net of proceeds from the issuance
of common stock under our Employee Stock Purchase Plan and from exercise of
stock options.

In January 2002, we entered into a line of credit agreement with a bank
for working capital purposes. The line of credit, which expires on April 30,
2003, provides for maximum borrowings of $7.5 million, based on eligible
receivables, at an interest rate of prime plus one percent. Borrowings under
the revolving credit agreement are secured by a lien on substantially all of
our assets. The agreement requires us to comply with certain financial
covenants pertaining to our tangible net worth and ratio of total liabilities
to tangible net worth (as defined in the agreement) and also contains certain
negative covenants which, among other things, restrict our ability to incur
additional indebtedness, sell our assets, make certain types of investments and
engage in certain types of mergers and acquisitions.

At June 30, 2002, we had no outstanding borrowings under the line of
credit, the bank had issued letters of credit for $2.5 million and we had $2.1
million in remaining availability.

On May 12, 2000, we entered into an interest rate swap agreement to manage
our interest rate risk exposure related to the former senior credit facility of
the Company, which was repaid in November 2001. The agreement requires that we
pay a fixed rate of 7.5225% on $20 million and in turn receive a variable rate
of interest based on one-month LIBOR. The agreement expires on June 1, 2004.
Beginning January 1, 2001, the interest rate swap has been marked to market on
a quarterly basis and the resulting gain or loss recognized in the statement of
operations. During the three and six months ended June 30, 2002 and 2001, we
recognized a loss of $157,000, a gain of $164,000, a gain of $91,000, and a
loss of $284,000, respectively, related to the change in the fair value of the
interest rate swap. On July 5, 2002, we paid $572,000 to reduce by one-third
the value of the interest rate swap. The swap agreement has been amended to
require that we pay 7.5225% on $13.3 million and, in return, we receive a
variable interest rate based on one-month LIBOR.

On November 30, 2001, we completed the sale of Emergent-East. We used the
proceeds from the sale to pay off our revolving credit facility in November
2001. At December 31, 2001, our outstanding debt for subordinated notes was
$25.0 million. On January 11, 2002, we repaid all amounts outstanding and a
$1.25 million prepayment penalty. Concurrent with the repayment of our
long-term debt, we entered into the line of credit agreement discussed above
with a bank for working capital purposes.



13



---



##### Table of Contents



We believe that we have sufficient cash balances, working capital,
availability under the line of credit and cash generated by continuing
operations to fund operations for at least the next twelve months.

The Companys contractual obligations are as follows at June 30, 2002:

|                                                    |  |                        |       |         |  |        |       |       |  |       |       |         |  |   |       |  |  |   |     | 
|--------------------------------------------------- |  | ---------------------- | ----- | ------- |  | ------ | ----- | ----- |  | ----- | ----- | ------- |  | - | ----- |  |  | - | --- | 
|Contractual Obligations                             |  | Payments Due By Period
|                                                    |  |                       
|                                                    |  |                        |       |         |  | 1 Year |       | 2-3   |  | 4-5   |       | After 5
|In thousands                                        |  | Total                  |       | or Less |  | Years  |       | Years |  | Years
|                                                    |  |                        |       |         |  |        |       |       |  |      
|Capital lease obligations                           |  | $                      | 220   |         |  | $      | 68    |       |  | $     | 152   |         |  | $ |      |  |  | $ |    | 
|Operating leases                                    |  |                        | 2,405 |         |  |        | 489   |       |  |       | 978   |         |  |   | 938   |  |  |   |    | 
|Operating leases related to
discontinued operations |  |                        | 2,214 |         |  |        | 614   |       |  |       | 420   |         |  |   | 280   |  |  |   | 900 | 
|Interest rate swap                                  |  |                        | 1,922 |         |  |        | 1,003 |       |  |       | 919   |         |  |   |      |  |  |   |    | 
|                                                    |  |                        |       |         |  |        |       |       |  |       |       |         |  |   |       |  |  |   |     | 
|Total                                               |  | $                      | 6,761 |         |  | $      | 2,174 |       |  | $     | 2,469 |         |  | $ | 1,218 |  |  | $ | 900 | 
|                                                    |  |                        |       |         |  |        |       |       |  |       |       |         |  |   |       |  |  |   |     | 

Operating leases related to discontinued operations represents office
space previously occupied by the Emergent-East and Emergent-Central divisions.
The amounts above represent the remaining lease commitments over the term of
the lease. During the six months ended June 30, 2002, we bought out two leased
properties for $810,000 and reduced our discontinued operations accrual by the
same amount. We have three subleases of our properties that cover a portion of
our lease requirement, which we expect to continue for the life of the lease.
The Company is continuing the process of identifying sub-lessees for our
remaining property or negotiating lease buy-outs with the lessors.

Under the terms of our interest rate swap agreement, we must pay 7.5225%
on $20 million, and in return receive a variable interest rate based on
one-month LIBOR through June 2004. The above amounts represent only our
contractual payments under the agreement. In July 2002, we paid $572,000 to
reduce by one-third the value of the interest rate swap. The swap agreement
has been amended to require that we pay 7.5225% on $13.3 million and, in
return, we receive a variable interest rate based on one-month LIBOR.
Accordingly, future contractual payments will be reduced commensurately.

In addition to our contractual obligations, the Company maintains certain
commercial commitments. The Company has deposited $3.0 million with a financial
institution as collateral for letters of credit that guarantee certain of the
Companys contractual obligations, primarily the interest rate swap agreement
and certain property leases. The expiration of those commitments is as
follows:

|                          |  |               |       |           |  |                                            |     |       |  |        |       |  |  |  |   |  |  |  |   | 
|------------------------- |  | ------------- | ----- | --------- |  | ------------------------------------------ | --- | ----- |  | ------ | ----- |  |  |  | - |  |  |  | - | 
|Other Commercial          |  |               |       |           |  |                                            |     |       |  |        |       |  |  |  |   |  |  |  |   | 
|Commitments               |  |               |       |           |  | Amount of Commitment Expiration Per Period
|                          |  |               |       |           |  |                                           
|                          |  | Total Amounts |       | Less Than |  | 2 - 3                                      |     | 4 - 5 |  | Over 5
|In thousands              |  | Committed     |       | 1 Year    |  | Years                                      |     | Years |  | Years 
|                          |  |               |       |           |  |                                            |     |       |  |       
|Standby Letters of Credit |  | $             | 3,015 |           |  | $                                          | 500 |       |  | $      | 2,515 |  |  |  |  |  |  |  |  | 



14



---



##### Table of Contents





|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (contd)
|------- | ------------------------------------------------------------------------------------------------

RISK FACTORS

In addition to the other information in this Quarterly Report on Form 10-Q, the
following factors should be considered carefully in evaluating our business and
prospects.

Our business depends substantially on the defense industry.

Our proposal management business depends substantially on U.S. Government
expenditures for defense products. Any decline in the future defense
procurement expenditures could affect the opportunities available to our
clients and, indirectly, us. A number of factors could contribute to such a
decline in opportunities, including:



| |  |  | Large weapon systems being replaced with smaller, more precise high
technology systems;                                                                   
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Multiple procurements for similar weapons being consolidated
into joint service procurements, such as the Joint Strike Fighter
program;                   
|
| |  |  | Threat scenarios evolving away from global conflicts to regional
conflicts; and                                                                           
|
| |  |  | Spending for ongoing operations, such as the War on
Terrorism, crowding out spending for procurement of new systems and
research and development spending.

In the event expenditures for products of the type manufactured by our
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 our clients and, as a result, a reduction in the volume of proposals managed
by us. Unless offset, such reductions could materially and adversely affect our
business, operating results and financial condition.

We rely on a relatively limited number of clients.

We derive a significant portion of revenue from continuing operations from
a relatively limited number of clients. In 2001, our seven largest customers
accounted for 91% of our revenue from continuing operations. Clients typically
retain our services as needed on an engagement basis rather than pursuant to
long-term contracts, and a client can usually terminate the engagement at any
time without a significant penalty. Moreover, there can be no assurance that
existing clients will continue to engage us for additional assignments or do so
at the same revenue levels. The loss of any significant client could materially
and adversely affect our business, financial condition and results of
operations. In addition, the level of services required by an individual client
may diminish over the life of the relationship, and there can be no assurance
we will be successful in establishing relationships with new clients as this
occurs.

The markets in which we operate are highly competitive.

The market for proposal management services in the procurement of
government and commercial contracts for aerospace and defense work is a niche
market with a number of competitors. We are the largest provider of such
services and principally compete with numerous smaller proposal management
companies in this highly specialized industry. We also compete with some of our
clients internal proposal development resources. Our competitors could erode
our current market share and such a reduction could materially and adversely
affect our business, operating results and financial condition.



15



---



##### Table of Contents





|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (contd)
|------- | ------------------------------------------------------------------------------------------------

We rely heavily upon our key employees.

Our success is highly dependent upon the efforts, abilities, and business
generation capabilities and project execution of our executive officers, in
particular those of Steven S. Myers, Chief Executive Officer and Chairman of
the Board, Cathy L. Wood, Executive Vice President and Chief Financial Officer,
and Bennett Beaudry, Executive Vice President and Chief Operating Officer. The
loss of the services of these key individuals for any reason could materially
and adversely affect our business, operating results and financial condition.

Our business involves the delivery of professional services and is highly
labor-intensive. Our success depends largely on our general ability to
attract, develop, motivate and retain highly skilled professionals. The loss
of some or a significant number of our professionals or the inability to
attract, hire, develop, train and retain additional skilled personnel could
have a serious negative effect on us, including our ability to obtain and
successfully complete important engagements and thus maintain or increase our
revenue. Qualified consultants are in great demand and are likely to remain a
limited resource for the foreseeable future.

Our stock price is subject to significant volatility.

Our common stock was first publicly traded on January 29, 1998 after our
initial public offering at $12.00 per share. Between January 29, 1998 and June
30, 2002, the closing sale price has ranged from a low of $0.75 per share to a
high of $31.13 per share. The market price of our common stock could continue
to fluctuate substantially due to a variety of factors, including:



| |  |  | Quarterly fluctuations in results of operations;                                                                                                                                                                           
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Adverse circumstances affecting the introduction, or market acceptance of new services we offer;                                                                                                                           
|
| |  |  | Announcements of new services by competitors;                                                                                                                                                                              
|
| |  |  | Loss of key employees;                                                                                                                                                                                                     
|
| |  |  | Changes in the regulatory environment or market conditions
affecting the defense and aerospace industry;                                                                                                                   
|
| |  |  | Changes in earnings estimates and ratings by analysts;                                                                                                                                                                     
|
| |  |  | Lack of market liquidity resulting from a relatively small amount of public stock float;                                                                                                                                   
|
| |  |  | Changes in generally accepted accounting principles;                                                                                                                                                                       
|
| |  |  | Sales of common stock by existing holders;                                                                                                                                                                                 
|
| |  |  | The announcement and market acceptance of proposed acquisitions and dispositions; and                                                                                                                                      
|
| |  |  | Financial performance for any period resulting in the
violation of debt covenants with any of our lenders which they are
not willing to amend or waive and the subsequent loss of available
bank lines for working capital.

Principal shareholder has significant control.

Steven S. Myers, Chief Executive Officer and Chairman of the Board,
beneficially owns or controls approximately 37.3% of our outstanding common
stock and will have the ability to control or significantly influence the
election of directors and the results of other matters submitted to a vote of
shareholders. This concentration of ownership may have the effect of delaying
or preventing a change in control and may adversely affect the ability of other
holders of our common stock to pass shareholder resolutions and control our
actions. Our board of directors is currently comprised entirely of individuals
nominated with the approval of Mr. Myers.

Loss of liquidity.

We have a revolving credit agreement with a bank, which expires April 30,
2003. If we are unable to satisfy financial and other covenants associated
with this commitment, adverse action by the lender could result in the loss of
our ability to borrow under the revolving credit agreement. If, as a result,
we cannot fund our working capital needs, the effect would be materially
adverse to our business.



16



---



##### Table of Contents






ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The principal market risk (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which we are exposed is interest rate
risk.

On May 12, 2000, we entered into an interest rate swap agreement whereby
we pay a fixed rate of interest of 7.5225% on $20 million, and receive a
variable rate of interest based on one-month LIBOR. On July 5, 2002, we paid
$572,000 to reduce by one-third the value of the interest rate swap. The swap
agreement has been amended to require that we pay 7.5225% on $13.3 million and,
in return, we receive a variable interest rate based on one-month LIBOR. Based
on the notional amount of $13.3 million, we estimate that a 10% decrease in
LIBOR would decrease our reported net income by approximately $25,000 annually.

This interest rate sensitivity analyses disregards the possibility that
rates can move in opposite directions and that gains from one category may or
may not be offset by losses from another category and vice versa.



17



---



##### Table of Contents






PART II  OTHER INFORMATION




ITEM 1.     LEGAL PROCEEDINGS

We are involved in routine litigation incidental to the conduct of our
business. There are currently no material pending litigation proceedings to
which we are a party or to which any of our property is subject.




ITEM 2.     CHANGES IN SECURITIES AND USE OF PROCEEDS

Not Applicable.




ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

Not Applicable.




ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



| | (a)    |  | The Annual Meeting of Shareholders was held on June 5, 2002.                                                                                         
| | ------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b)    |  | Elected Directors:
Steven S. Myers, J. Christopher Lewis, Albert S. Nagy, Luther J.
Nussbaum, Wade R. Olson, Robert J. Untracht and John R. Woodhull.
|
| | (c)(i) |  | Election of seven directors as follows:                                                                                                              

|                     |  |     |            |         |  |         |   |  |  |  |         | 
|-------------------- |  | --- | ---------- | ------- |  | ------- | - |  |  |  | ------- | 
|                     |  | For |            | Against |  | Abstain
|                     |  |     |            |         |  |        
|Steven S. Myers      |  |     | 17,416,253 |         |  |         | 0 |  |  |  | 181,819 | 
|J. Christopher Lewis |  |     | 17,542,399 |         |  |         | 0 |  |  |  | 55,673  | 
|Albert S. Nagy       |  |     | 17,499,483 |         |  |         | 0 |  |  |  | 98,589  | 
|Luther J. Nussbaum   |  |     | 17,502,388 |         |  |         | 0 |  |  |  | 95,684  | 
|Wade R. Olson        |  |     | 17,519,995 |         |  |         | 0 |  |  |  | 78,077  | 
|Robert J. Untracht   |  |     | 17,520,135 |         |  |         | 0 |  |  |  | 77,937  | 
|John R. Woodhull     |  |     | 17,535,452 |         |  |         | 0 |  |  |  | 62,620  | 



| | (c)(ii) |  | To approve an amendment to the Companys Amended and Restated
Stock Purchase Plan, to increase the number of shares of common
stock available under the Restated Stock Purchase Plan to 1,050,000
shares and changing the Purchase Dates to quarterly versus
semi-annually:
| | ------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                   |  |                      |  |                    
|-------------------------------------------------- |  | -------------------- |  | -------------------
|For:     12,378,737
Broker-Non Vote:     5,026,136 |  | Against:     110,787 |  | Abstain:     82,412



| | (c)(iii) |  | To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the
fiscal year ending December 31, 2002.
| | -------- |  | -----------------------------------------------------------------------------------------------------------------------------------

|                    |  |                      |  |                    
|------------------- |  | -------------------- |  | -------------------
|For:     17,538,941 |  | Against:     161,760 |  | Abstain:     83,024



18



---



##### Table of Contents






ITEM 5.     OTHER INFORMATION

We entered into a contract with the Precept Group, for which one of the
members of our Board of Directors serves as the President and CEO. During
June 2002, The Precept Group was engaged to advise us on our executive
compensation and to perform a human resources assessment. The contract value
was determined through a review of prevailing market rates for such services.
We paid the total contract value of $22,000 during the three months ended June
30, 2002.

In addition, we entered into a contract with ProView, a subsidiary of the
Precept Group, for which one of our members of our Board of Directors serves as
the President and CEO. We have agreed to outsource our employee benefits
administration which requires us to pay a $2,500 setup fee, $10.50 per employee
per month for enrollment activity, benefit administration and billing
administration, $25 per qualifying or $100 monthly minimum for COBRA
processing, $4.00 per participant per month for flexible spending account
administration and $1.50 per employee per month for use of a human resources
intranet website. The contract value was determined through a review of
prevailing market rates for such services. Under this contract, we paid
$1,900 during the three months ended June 30, 2002.

During the second
quarter of 2002, Mr. Tom Amrhein agreed to a change in his
position at the company from President & General Manager to a Senior
Vice President position responsible for account management. The
general manager position was eliminated and the responsibilities
subsumed by Mr. Bennett Beaudry, who was elected by the board as
the company's Chief Operating Officer at the June Board Meeting.
Subsequently, on July 1st, Mr. Amrhein tendered his
resignation from the company. The company does not anticipate any
adverse consequences as a result of Mr. Amrhein's departure.

During June 2002, we entered into a right of offset and barter agreement
with SummitJets, Inc. (SummitJets), which is owned by our CEO. The agreement
provides for the offset of the existing accounts receivable and accounts
payable balances between the companies. After the offset, SM&A is owed
$114,000 which will be paid in the form of credits to use SummitJets aircraft.
The $114,000 owed is for expenses incurred related to a former location
sharing agreement for rent and related utilities. In June 2002, SummitJets
moved into their own facilities and cancelled the existing location sharing
agreement.

One of the members of our Board of Directors has
assisted us in brokering our excess real estate related to the sale
of our discontinued operations. We paid him $4,600 and $44,200 during
the three and six months ended June 30, 2002,
respectively.



19



---



##### Table of Contents






ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K




EXHIBIT INDEX

(a)  Exhibits (numbered in accordance with item 601 of Regulation S-K).

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1 |  | Asset Purchase Agreement dated January 11, 2001, by and between the
Registrant and Lynch & Company, Inc. (filed on August 14, 2001 as
Exhibit 10.16 to the Registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001 and incorporated herein by
reference).                                                                                                                                                                                                                                                                                                    
|   
|   
|   
|   
|   
|   
|   
|   
|2.2 |  | Asset Sale and Purchase Agreement dated March 23, 2001, by and between
the Registrant and ICCE Technologies, Inc. (filed on August 14, 2001
as Exhibit 10.17 to the Registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001 and incorporated herein by
reference).                                                                                                                                                                                                                                                                                           
|   
|   
|   
|   
|   
|   
|   
|   
|2.3 |  | Stock Purchase and Sale Agreement dated November 19, 2001, by and
among the Registrant, Steven Myers Holding Inc. and L-3 Communications
Corporation (filed on December November 27, 2001 as Exhibit 10.1 to
the Registrants Current Report of Form 8-K and incorporated herein by
reference).                                                                                                                                                                                                                                                                                     
|   
|   
|   
|   
|   
|   
|   
|   
|2.4 |  | Amendment No.1 to Stock Purchase and Sale Agreement dated November 29,
2001, by and among the Registrant, Steven Myers Holding Inc. and L-3
Communications Corporation (filed on December 14, 2001 as Exhibit 10.1
to the Registrants Current Report of Form 8-K and incorporated herein
by reference).                                                                                                                                                                                                                                                                            
|   
|   
|   
|   
|   
|   
|   
|   
|3.1 |  | Amended and Restated Articles of Incorporation of the Registrant, as
amended by that certain Certificate of Ownership filed with the
Secretary of State of the State of California on August 6, 1998, that
certain Certificate of Ownership filed with the Secretary of State of
the State of California on April 25, 2000, and that certain
Certificate of Ownership filed with the Secretary of State of the
State of California on January 24, 2002 (filed on March 15, 2002 as
Exhibit 3.1 to the Registrants Annual Report on Form 10-K and
incorporated herein by reference).
|   
|   
|   
|   
|   
|   
|   
|   
|3.2 |  | Amended and Restated Bylaws of the Registrant (filed on May 3, 2002,
2002 as Exhibit 3.2 to the Registrants Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002 and incorporated herein by
reference.)                                                                                                                                                                                                                                                                                                                                                              
|   
|   
|   
|   
|   
|   
|   
|   
|4.1 |  | Registration and Antidilution Rights Agreement dated December 29,
2000, by and among the Registrant and the Holders listed on the
signature pages thereto (filed on January 8, 2001 as Exhibit 99.5 to
the Registrants Current Report on Form 8-K and incorporated herein by
reference).                                                                                                                                                                                                                                                                                           
|   
|   
|   
|   
|   
|   
|   
|   
|4.2 |  | Controlling Shareholder Agreement dated December 29, 2000, by and
among the Registrant, Steven S. Myers as Common Stockholder and the
Purchasers listed on the signature pages thereto (filed on January 8,
2001 as Exhibit 99.6 to the Registrants Current Report on Form 8-K
and incorporated herein by reference).                                                                                                                                                                                                                                                              
|   
|   
|   
|   
|   
|   
|   
|   
|4.3 |  | Registration Rights Agreement dated May 29, 1998, by and among the
Registrant and certain shareholders of Space Applications Corporation
identified therein (filed on June 4, 1998 as Exhibit 2 to the
Registrants Current Report on Form 8-K and incorporated herein by
reference).                                                                                                                                                                                                                                                                                               
|   
|   
|   
|   
|   
|   
|   
|   
|4.4 |  | Registration Rights Agreement dated August 20, 1998, by and among the
Registrant and certain shareholders of Decision-Science Applications,
Inc. set forth therein (filed on August 21, 1998 as Exhibit 10.1 to
the Registrants Current Report on Form 8-K and incorporated herein by
reference).                                                                                                                                                                                                                                                                                  



20



---



##### Table of Contents



ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K   (contd)

|      |  |                                                                                                                                                                                                                                                                                               
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1  |  | Amended and Restated 1997 Stock Option Plan and related form of Stock
Option Agreement (filed on April 17, 2001 as Exhibit 10.1 to
Registrants Annual Report on Form 10-K and incorporated herein by
reference).                                                                             
|     
|     
|     
|     
|     
|     
|     
|     
|10.2  |  | Amended and Restated Employee Stock Purchase Plan (filed on April 29,
2002 as Exhibit C to the Registrants Definitive Revised Proxy
Statement on Form 14A and incorporated herein by reference).                                                                                             
|     
|     
|     
|     
|     
|     
|     
|     
|10.3  |  | Office Facilities Lease (filed on November 21, 1997 as Exhibit 10.3 to
the Registrants Registration Statement on Form S-1 (Registration No.
333-4075) and incorporated herein by reference).                                                                                                 
|     
|     
|     
|     
|     
|     
|     
|     
|10.4  |  | Note and Stock Purchase Agreement dated December 29, 2000, by and
among the Registrant and the Guarantors and Purchasers listed on the
signature pages thereto (filed on January 8, 2001 as Exhibit 99.3 to
the Registrants Current Report on Form 8-K and incorporated herein by
reference).
|     
|     
|     
|     
|     
|     
|     
|     
|10.5  |  | Management Rights Agreement dated December 29, 2000, by and between
Libra Mezzanine Partners II-A, L.P. and the Registrant (filed on
January 8, 2001 as Exhibit 99.7 to the Registrants Current Report on
Form 8-K and incorporated herein by reference).                                    
|     
|     
|     
|     
|     
|     
|     
|     
|10.6  |  | Employment Agreement dated as of February 1, 2000, by and between the
Registrant and Steven S. Myers (filed on April 17, 2001 as Exhibit
10.17 to the Registrants Current Report on Form 10-K and incorporated
herein by reference).                                                         
|     
|     
|     
|     
|     
|     
|     
|     
|10.7  |  | Amendment No. 1 to Employment Agreement dated as of December 29, 2000
by and between the Registrant and Steven S. Myers (filed on March 15,
2002 as Exhibit 10.7 to the Registrants Current Report on Form 10-K
and incorporated herein by reference).                                       
|     
|     
|     
|     
|     
|     
|     
|     
|10.8  |  | Amendment No. 2 to Employment Agreement dated as of April 12, 2002 by
and between the Registrant and Steven S. Myers (filed on May 3, 2002,
2002 as Exhibit 3.2 to the Registrants Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002 and incorporated herein by
reference.) 
|     
|     
|     
|     
|     
|     
|     
|     
|10.9  |  | Employment Agreement dated as of November 13, 2001 by and between the
Registrant and Cathy L. Wood (filed on March 15, 2002 as Exhibit 10.8
to the Registrants Annual Report on Form 10-K and incorporated herein
by reference).                                                             
|     
|     
|     
|     
|     
|     
|     
|     
|10.10 |  | Accounts Receivable Loan Agreement dated January 10, 2002, by and
between the Registrant and City National Bank, a national banking
association (filed on January 25, 2002 as Exhibit 99.2 to the
Registrants Current Report on Form 8-K and incorporated herein by
reference).              
|     
|     
|     
|     
|     
|     
|     
|     
|10.11 |  | Commercial Guaranty dated January 10, 2002, executed by Steven Myers &
Associates, Inc. in favor of City National Bank, a national banking
association (filed on January 25, 2002 as Exhibit 99.3 to the
Registrants Current Report on Form 8-K and incorporated herein by
reference).       



---

|* |  | Filed herewith.
|- |  | ---------------



21



---



##### Table of Contents



ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K   (contd)

(b)  Reports on Form 8-K:

On April 22, 2002 the Company filed with the Securities and Exchange Commission
a Current Report on Form 8-K reporting the appointment of Wade R. Olson and
Robert J. Untracht to fill the vacancies on the Board of Directors until the
annual meeting of the Companys shareholders held on June 5, 2002.



22



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

|                       |  |     |  |                                                                                
|---------------------- |  | --- |  | -------------------------------------------------------------------------------
|                       |  |     |  | SM&A                                                                           
|                      
|                       |  | By: |  | /s/   CATHY L. WOOD                                                            
|                       |  |     |  |                                                                                
|Dated: August 12, 2002 |  |     |  | Cathy L. Wood
Executive Vice President, Chief Financial Officer and Secretary  
|                      
|                       |  | By: |  | /s/   JUDY L. BEDAR                                                            
|                       |  |     |  |                                                                                
|                       |  |     |  | Judy L. Bedar
Vice President, Corporate Controller and
Chief Accounting Officer



23



---



##### Table of Contents



CERTIFICATION UNDER SECTION 906 OF
THE SARBARNES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbarnes-Oxley Act of 2002, each of the
undersigned certifies that the quarterly report on Form 10-Q for the quarter
ended June 30, 2002, fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that the information contained
in this periodic report fairly presents, in all material respects, the
financial condition and results of operations of SM&A.



|Dated: August 12, 2002 | /s/     STEVEN S. MYERS                                                      
|---------------------- | -----------------------------------------------------------------------------
|                       | Steven S. Myers
President and Chief Executive Officer                        
|                      
|                       | /s/     CATHY L. WOOD                                                        
|                       | Cathy L. Wood
Executive Vice President,
Chief Financial Officer and Secretary



24