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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 1934For the Quarter ended September 30, 2004ORo
    
    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
    
    33-0080929(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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 Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b of the Act). Yes x No o Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date. Class
    
    Outstanding at October 15, 2004Common stock, no par value
    
    20,359,294 shares




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SM&A INDEX PART I. FINANCIAL INFORMATION PageCautionary Statement Related to Forward Looking Statements
    
    3How to Obtain SM&A SEC Filings
    
    3Item 1. Financial Statements:Consolidated Balance Sheets as of September 30, 2004 (unaudited) and December 31, 2003
    
    4Consolidated Statements of Income for the three and nine months ended September 30, 2004 and 2003 (unaudited)
    
    5Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003 (unaudited)
    
    6Notes to Consolidated Financial Statements (unaudited)
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    18Item 4. Controls and Procedures
    
    18PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    19Item 2. Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities
    
    19Item 3. Defaults Upon Senior Securities
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    19Item 5. Other Information
    
    19Item 6. Exhibits and Reports on Form 8-K
    
    21Signatures
    
    24EXHIBIT 10.21EXHIBIT 10.22EXHIBIT 10.23EXHIBIT 10.24EXHIBIT 10.25EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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CAUTIONARY STATEMENT RELATED TO FORWARD LOOKING STATEMENTS This Quarterly Report onForm 10-Qincludes certain forward-looking
statements as defined within Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
relating to revenue, revenue composition, demand trends, future expense levels,
trends in average headcount and gross margins, and the level of expected
capital expenditures. Such forward-looking statements are based on the beliefs
of, estimates made by, and information currently available to SM&A ( the
Company) management and are subject to certain risks, uncertainties and
assumptions. Any statements contained herein (including without limitation
statements to the effect that the Company or management estimates, expects,
anticipates, plans, believes, projects, continues, may, will,
could, or would or statements concerning potential or opportunity or
variations thereof or comparable terminology or the negative thereof) that are
not statements of historical fact should be construed as forward-looking
statements. The actual results of SM&A may vary materially from those expected
or anticipated in these forward-looking statements. The realization of such
forward-looking statements may be impacted by certain important unanticipated
factors including those discussed in  Risk Factors under Item 2, and
Managements Discussion and Analysis of Financial Condition and Results of
Operations, at pages 10-17. Because of these and other factors that may affect
SM&As operating results, past performance should not be considered as an
indicator of future performance and investors should not use historical results
to anticipate results or trends in future periods. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Readers should carefully review the risk factors described in this and other
documents that SM&A files from time to time with the Securities and Exchange
Commission (SEC), including subsequent Current Reports onForm 8-K, Quarterly
Reports onForm 10-Qand Annual Reports onForm 10-K. 
 HOW TO OBTAIN SM&A SEC FILINGS All reports filed by SM&A with the SEC are available free of charge via
EDGAR through the SEC website at www.sec.gov. In addition, the public may read
and copy materials filed by the Company with the SEC at the SECs public
reference room located at 450 Fifth St., N.W., Washington, D.C. 20549. SM&A
also provides copies of its Forms 8-K, 10-K, 10-Q, Proxy and Annual Report at
no charge to investors upon request and makes electronic copies of its most
recently filed reports available through its website at www.smawins.com as soon
as reasonably practicable after filing such material with the SEC. 3




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SM&A 
 CONSOLIDATED BALANCE SHEETS
 (in thousands)
 September 30
    
    December 312004
    
    2003(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    18,139
    
    
    $
    17,712Accounts receivable, net
    
    
    15,975
    
    
    
    12,178Prepaid expenses and other current assets
    
    
    378
    
    
    
    310Deferred income taxes
    
    
    752
    
    
    
    752Total current assets
    
    
    35,244
    
    
    
    30,952Fixed assets, net
    
    
    823
    
    
    
    723Other assets
    
    
    188
    
    
    
    128$
    36,255
    
    
    $
    31,803LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    592
    
    
    $
    683Accrued compensation and related
benefits
    
    
    3,103
    
    
    
    3,637Income taxes payable
    
    
    898
    
    
    
    1,440Net liabilities of discontinued
operations
    
    
    902
    
    
    
    1,359Total current liabilities
    
    
    5,495
    
    
    
    7,119Deferred income taxes
    
    
    45
    
    
    
    45Other liabilities
    
    
    183
    
    
    
    206Total liabilities
    
    
    5,723
    
    
    
    7,370Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    51,424
    
    
    
    52,215Accumulated deficit
    
    
    (20,892
    )
    
    
    (27,782
    )Total shareholders equity
    
    
    30,532
    
    
    
    24,433$
    36,255
    
    
    $
    31,803
 See accompanying notes to consolidated financial statements 4




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SM&A 
 CONSOLIDATED STATEMENTS OF INCOME
 (in thousands, except per share data)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(Unaudited)
    
    (Unaudited)
    
    (Unaudited)
    
    (Unaudited)Revenue
    
    $
    16,078
    
    
    $
    18,704
    
    
    $
    50,724
    
    
    $
    56,231Cost of revenue
    
    
    9,003
    
    
    
    10,135
    
    
    
    27,817
    
    
    
    31,316Gross margin
    
    
    7,075
    
    
    
    8,569
    
    
    
    22,907
    
    
    
    24,915Selling, general and administrative expenses
    
    
    4,359
    
    
    
    3,733
    
    
    
    11,937
    
    
    
    10,478Operating income
    
    
    2,716
    
    
    
    4,836
    
    
    
    10,970
    
    
    
    14,437Interest income, net
    
    
    39
    
    
    
    32
    
    
    
    117
    
    
    
    42Income before income taxes
    
    
    2,755
    
    
    
    4,868
    
    
    
    11,087
    
    
    
    14,479Income tax expense
    
    
    1,088
    
    
    
    1,996
    
    
    
    4,197
    
    
    
    4,938Net income
    
    $
    1,667
    
    
    $
    2,872
    
    
    $
    6,890
    
    
    $
    9,541Net income per share:Basic
    
    $
    0.08
    
    
    $
    0.14
    
    
    $
    0.34
    
    
    $
    0.48Diluted
    
    $
    0.08
    
    
    $
    0.13
    
    
    $
    0.32
    
    
    $
    0.45Shares used in calculating net income per
share:Basic
    
    
    20,512
    
    
    
    20,113
    
    
    
    20,484
    
    
    
    19,907Diluted
    
    
    21,492
    
    
    
    21,610
    
    
    
    21,638
    
    
    
    21,309
 See accompanying notes to consolidated financial statements. 5




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SM&A 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Nine Months EndedSeptember 30,2004
    
    2003(unaudited)
    
    (unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    6,890
    
    
    $
    9,541Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    297
    
    
    
    208Gain on disposal of fixed assets
    
    
    
    
    
    
    (35
    )Deferred income taxes
    
    
    
    
    
    
    147Income tax effect from exercise of stock options
    
    
    73
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,797
    )
    
    
    (3,953
    )Prepaid expense and other assets
    
    
    (128
    )
    
    
    (241
    )Accounts payable
    
    
    (91
    )
    
    
    674Accrued compensation and related benefits
    
    
    (534
    )
    
    
    424Income taxes payable
    
    
    (542
    )
    
    
    (1,133
    )Other liabilities
    
    
    (23
    )
    
    
    (28
    )Net cash provided by operating activities
    
    
    2,145
    
    
    
    5,604CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of fixed assets
    
    
    (397
    )
    
    
    (349
    )Net cash used in investing activities
    
    
    (397
    )
    
    
    (349
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repurchase of common stock
    
    
    (2,485
    )
    
    
    Proceeds from issuance of common stock
    
    
    1,621
    
    
    
    1,677Net cash (used in) provided by financing activities
    
    
    (864
    )
    
    
    1,677Net increase in cash from continuing operations
    
    
    884
    
    
    
    6,932Net cash used in discontinued operations
    
    
    (457
    )
    
    
    (867
    )Net increase in cash
    
    
    427
    
    
    
    6,065Cash at beginning of period
    
    
    17,712
    
    
    
    5,956Cash at end of period
    
    $
    18,139
    
    
    $
    12,021
 See accompanying notes to consolidated financial statements 6




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SM&A 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For the Three and Nine Months Ended September 30, 2004 and 2003
(unaudited)
 Note 1. Basis of Presentation and Significant Accounting Policies The 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 September 30, 2004, the consolidated results of
operations for the three and nine months ended September 30, 2004 and 2003, and
cash flows for the nine months ended September 30, 2004 and 2003.
Comprehensive income is equivalent to net income for the three and nine month
periods ended September 30, 2004 and 2003, respectively. 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 nine months ended September 30, 2004 are not
necessarily indicative of the results to be expected for the full fiscal year. The accompanying unaudited 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, 2003, included in
our Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 6, 2004. Significant Accounting Policies Revenue Recognition.We recognize revenue from services rendered when the
following four revenue recognition criteria are met: persuasive evidence of an
arrangement exists, delivery has occurred or services have been rendered, the
selling price is fixed or determinable, and collection is reasonably assured.
The majority of our services are provided under time and expenses billing
arrangements and revenue is recognized on the basis of hours worked, plus other
reimbursable contract costs incurred during the period. Revenue is directly
related to the total number of hours billed to clients and the associated
hourly billing rates. A limited amount of revenue is also derived from success
fees, offered to clients as a pricing option, and recorded as revenue only upon
attainment of the specified incentive criteria. Success fees are not billable
and revenue is not recorded until the client wins a contract. Cash and Cash Equivalents.The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Note 2. Net Income Per Share The following table illustrates the number of shares used in the
computation of basic and diluted net income per share (in thousands): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Denominator
for basic income per share: weighted average shares outstanding
during the period
    
    
    20,512
    
    
    
    20,113
    
    
    
    20,484
    
    
    
    19,907Incremental shares attributable to dilutive
outstanding stock options
    
    
    980
    
    
    
    1,497
    
    
    
    1,154
    
    
    
    1,402Denominator for diluted income per share:
    
    
    21,492
    
    
    
    21,610
    
    
    
    21,638
    
    
    
    21,309
 7




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Note 3. Stock-Based Compensation The Company has elected to follow APB Opinion No. 25, Accounting for
Stock Issued to Employees, to account for options to purchase common stock
of the Company issued pursuant to the Companys stock-based compensation
plans. Under APB Opinion No. 25, no compensation cost is recognized because
the exercise price of options granted under the Companys stock-based
compensation plans is at least equal to the market price of the underlying
stock on the date of grant. Had compensation costs for these plans been
determined at the grant dates for awards under the alternative accounting
method provided for in SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure-an Amendment to FASB Statement No.
123, net income and earnings per share, on a pro forma basis, would have
been (in thousands except for per share information): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net income  as reported
    
    $
    1,667
    
    
    
    2,872
    
    
    $
    6,890
    
    
    
    9,541Less: stock compensation expense  net of tax
    
    
    (181
    )
    
    
    (150
    )
    
    
    (1,390
    )
    
    
    (666
    )Net income  SFAS No. 123 pro forma
    
    $
    1,486
    
    
    
    2,722
    
    
    $
    5,500
    
    
    
    8,875Basic income per share  as reported
    
    $
    0.08
    
    
    
    0.14
    
    
    $
    0.34
    
    
    
    0.48Basic income per share  SFAS No. 123 pro
forma
    
    $
    0.07
    
    
    
    0.14
    
    
    $
    0.27
    
    
    
    0.46Diluted income per share  as reported
    
    $
    0.08
    
    
    
    0.13
    
    
    $
    0.32
    
    
    
    0.45Diluted income per share  SFAS No. 123 pro
forma
    
    $
    0.07
    
    
    
    0.13
    
    
    $
    0.25
    
    
    
    0.43
 Note 4. Revolving Line of Credit The Company has a revolving credit agreement which allows for borrowings
up to $10.0 million at the prime rate minus one half of one percent (-0.50%)
per annum or LIBOR plus two and one quarter percent (2.25%) per annum. The
revolving credit agreement is renewable annually on April 30th of each year.
Borrowings under the revolving credit agreement are unsecured. The agreement
requires the Company to comply with certain financial covenants pertaining to
its tangible net worth, ratio of total liabilities to tangible net worth, and
ratio of current assets to current liabilities (as defined in the agreement).
The agreement also contains certain negative covenants which, among other
things, restricts the Companys ability to incur additional indebtedness of
more than $1.0 million in excess of the $10.0 million limit set forth in the
credit agreement and make capital expenditures in excess of $2.0 million
without the prior written approval of the lender. At September 30, 2004, we
had no outstanding borrowings under the line of credit, the bank had issued a
letter of credit for $64,000 and we had $9.9 million in availability. Note 5. Income Taxes The Companys effective income tax rates for the three and nine months
ended September 30, 2004 and 2003 were 39.5%, 37.9%, 41.0% and 34.1%,
respectively. For the three months ended September 30, 2004, the effective
tax rate is lower than the same period of the prior year because of the
Companys lower effective state tax rate in 2004. For the nine months ended September 30, 2004, the Companys effective
tax rate was higher than the same period of the prior year because in the
first quarter ended March 31, 2003, the Internal Revenue Service completed
their examination for the calendar years 1998 through 2001. Based on the
conclusion of the examination, the Company recorded a decrease in its income
tax liability leading to a reduction of income tax expense. 8




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Note 6. Stockholders equity In May 2004, the Companys Board of Directors authorized a plan to
repurchase up to $7.0 million of the Companys common stock. The Company
intends to repurchase shares from time to time, at prevailing prices, in the
open market. The timing and amount of the share repurchases will be at the
discretion of management and will be based on such factors as the stock price,
general economic and market conditions, and other factors. The share repurchase
plan may be suspended or discontinued at any time. Shares repurchased under the
plan will be restored to the status of authorized but unissued shares. As of
September 30, 2004, management has repurchased 332,000 shares at a total cost
of $2.5 million. Note 7. Related Parties The Company entered into a contract in April 2002 with ProView, a
subsidiary of the Precept Group, for which one of the former members of the
Companys Board of Directors serves as the President and Chief Executive
Officer. The Company has agreed to outsource its employee benefits
administration to ProView. The contract value was determined through a
review of prevailing market rates for such services. Under this contract,
the Company paid $9,000, $25,000, $6,000 and $18,000 during the three and
nine months ended September 30, 2004 and 2003, respectively. The Company periodically leases aircraft from SummitJets, Inc.
(SummitJets), which is owned by the Companys Chairman and Chief Executive
Officer. The lease rate was determined through a review of prevailing market
rates for such services. During the three and nine months ended September
30, 2004 and 2003, the Company paid $124,000, $124,000, $0 and $48,000,
respectively. The expense is included in selling, general and administrative
expenses. Note 8. Discontinued Operations In 2002 and 2001, the Company sold and dissolved one of its business
segments, respectively. The balance owed at September 30, 2004 of $902,000
represents the remaining office lease commitments, net of subleases and
estimated broker fees, over the remaining terms of the leases. During the
nine months ended September 30, 2004, the Company paid $457,000 net of
sublease receipts, related to the leased property. The Company continues the
process of identifying sub-lessees for our remaining leased property. 9




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Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations SM&A is one of the worlds leading providers of competition management
services (formerly known as proposal management services), and a leading
provider of high-value performance assurance services (formerly known as
program support services). Our more than 300 employees and consultants provide
program management, systems engineering, and expert support to major industrial
customers in the defense, homeland security, aerospace, information technology,
and architect and engineering sectors. Since 1982, we have managed more than
889 proposals worth more than $303 billion for our clients and have achieved an
85% win rate on awarded contracts. We also provide systems engineering,
program planning and other high-value technical support services to such high
priority national programs as the Joint Strike Fighter program and Americas
missile defense efforts. RESULTS OF OPERATIONS The following table sets forth certain historical operating results (in
thousands): For the three months ended September 30,Change2004
    
    2003
    
    Change $
    
    %Revenue
    
    $
    16,078
    
    
    $
    18,704
    
    
    
    (2,626
    )
    
    
    (14.0
    )Cost of revenue
    
    
    9,003
    
    
    
    10,135
    
    
    
    (1,132
    )
    
    
    (11.2
    )Gross margin
    
    
    7,075
    
    
    
    8,569
    
    
    
    (1,494
    )
    
    
    (17.4
    )Selling, general and administrative expenses
    
    
    4,359
    
    
    
    3,733
    
    
    
    626
    
    
    
    16.8Operating income
    
    
    2,716
    
    
    
    4,836
    
    
    
    (2,120
    )
    
    
    (43.8
    )Income tax expense
    
    
    1,088
    
    
    
    1,996
    
    
    
    (908
    )
    
    
    (45.5
    )Net income
    
    $
    1,667
    
    
    $
    2,872
    
    
    
    (1,205
    )
    
    
    (42.0
    )
 Three Months Ended September 30, 2004 Compared to Three Months Ended
September 30, 2003 Revenue.Revenue decreased $2.7 million, or 14.0%, to $16.1 million for
the three month ended September 30, 2004 compared to $18.7 million for the same
period of the prior year. The decrease in our revenue was due to two reasons.
First, the level of spending by the Department of Defense on the extended
military operations in Iraq and Afghanistan has led to budget pressures that
have directly delayed a number of requests for proposals (RFPs) and programs.
Second, our revenue has been impacted by the anticipated slowdown in several
major performance assurance programs, namely the Global Missile Defense program
with Boeing, some missile programs with Raytheon Company and the Joint Strike
Fighter program with Lockheed Martin. Normally, the award of new programs
would more than offset this natural attrition, but, as we explained above,
there has been a significant delay in the award of new programs and the release
of funds for awarded programs during the year. Our revenue for the three months ended September 30, 2004 exceeded our
revised guidance provided at the end of August 2004 by $1.1 million due to two
factors. First, we won a higher level of new business in September than
expected and second, two competition management projects were extended
resulting in a significant increase in intense work to meet deadlines. Through September 30, 2004, our investment in sales and marketing has
resulted in 23 new customers including two during the three months ended
September 30, 2004. These new customers represented $1.7 million dollars of
revenue during the three months ended September 30, 2004, or 10.6% of total
revenue. The percentage of revenues from competition management services and
performance assurance services was 53.4% and 46.6% for the three months ended
September 30, 2004, respectively, compared to 50.9% and 49.1% for the same
period of the prior year. Gross Margin.Gross margin decreased $1.5 million, or 17.4%, to $7.1
million for the three month ended September 30, 2004 compared to $8.6 million
for the same period of the prior year. The decrease in gross margin dollars is
due to the decrease in sales as discussed above. As a percentage of revenue,
gross margin decreased to 44.0% for the three months ended September 30, 2004
compared to 45.8% for the same period of the prior year. 10




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Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations  (contd) The decrease in gross margin as a percentage of sales is due to the timing of
success fees for the period, which were $42,000 and $183,000 for the three
months ended September 30, 2004 and 2003, respectively. Selling, General and Administrative Expenses.Selling, general and
administrative expenses consist principally of salary and benefit costs for
executive, sales and administrative personnel, professional services and other
general corporate activities. Selling, general and administrative expenses
increased $626,000, or 16.8%, to $4.4 million for the three months ended
September 30, 2004, as compared to $3.7 million for the same period of the
prior year. As a percentage of revenue, selling, general and administrative
expenses increased to 27.1% for the three months ended September 30, 2004, as
compared to 20.0% for the same period of the prior year. The increase is due
to expenses including salary, benefits, and travel relating to the increase in
the number of account executives and staff to support and service our new and
existing client base. Operating Income.Operating income decreased $2.1 million, or 43.8% to
$2.7 million for the three months ended September 30, 2004, compared to $4.8
million for the same period of the prior year. As a percentage of revenue,
operating income decreased to 16.9% for the three months ended September 30,
2004, as compared to 25.9% for the same period of the prior year. Operating
income decreased due to the decrease in sales and gross profit and the increase
in selling, general and administrative expenses, as discussed above. Income Tax Expense. Our effective income tax rates for the three months
ended September 30, 2004 and 2003 were 39.5% and 41.0%, respectively. The
difference in the effective tax rate is due to a reduction to our state
effective tax rate. 11




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Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations  (contd) RESULTS OF OPERATIONS The following table sets forth certain historical operating results (in
thousands): For the nine months ended September 30,Change2004
    
    2003
    
    Change $
    
    %Revenue
    
    $
    50,724
    
    
    $
    56,231
    
    
    
    (5,507
    )
    
    
    (10.0
    )Cost of revenue
    
    
    27,817
    
    
    
    31,316
    
    
    
    (3,499
    )
    
    
    (11.2
    )Gross margin
    
    
    22,907
    
    
    
    24,915
    
    
    
    (2,008
    )
    
    
    (8.1
    )Selling, general and administrative expenses
    
    
    11,937
    
    
    
    10,478
    
    
    
    1,459
    
    
    
    13.9Operating income
    
    
    10,970
    
    
    
    14,437
    
    
    
    (3,467
    )
    
    
    (24.0
    )Income tax expense
    
    
    4,197
    
    
    
    4,938
    
    
    
    (741
    )
    
    
    (15.0
    )Net income
    
    $
    6,890
    
    
    $
    9,541
    
    
    
    (2,651
    )
    
    
    (27.8
    )
 Nine Months Ended September 30, 2004 Compared to Nine Months Ended September
30, 2003 Revenue.Revenue decreased $5.5 million, or 10.0%, to $50.7 million for
the nine month ended September 30, 2004 compared to $56.2 million for the same
period of the prior year. The decrease in our revenue was due to two reasons.
First, the level of spending by the Department of Defense on the extended
military operations in Iraq and Afghanistan has led to budget pressures that
have directly delayed a number of requests for proposals (RFPs) and programs.
In 2004, we have experienced 37 delays, which is more than we have experienced
in the past several years. This is the first time in our 22 year history that
the Federal Government has funded a prolonged military action leading to both
RFP and program delays. Second, our revenue has been impacted by the
anticipated slowdown in several major performance assurance programs, namely
the Global Missile Defense program with Boeing, some missile programs with
Raytheon Company and the Joint Strike Fighter program with Lockheed Martin. In
total, the people working on these specific programs averaged 122 in 2003 and
through September 30 of this year that number had dropped to an average of 92.
Normally, the award of new programs would more than offset this natural
attrition, but, as we explained above, there has been a significant delay in
the award of new programs and the release of funds for awarded programs during
the year. Through September 30, 2004, our investment in sales and marketing has
resulted in 23 new customers representing $4.8 million or 9.4% of our revenue.
The increase in growth from new customers is directly related to our hiring
of more account executives, which has enabled us to focus on developing new
markets outside of our traditional aerospace and defense concentration. We
believe that this growth validates our strategy and conviction that our
services are portable across multiple vertical markets. The percentage of revenues from competition management services and
performance assurance services was 57.0% and 43.0% for the nine months ended
September 30, 2004, respectively, compared to 50.5% and 49.5% for the same
period of the prior year. Gross Margin.Gross margin decreased $2.0 million, or 8.1%, to $22.9
million for the nine months ended September 30, 2004 compared to $24.9 million
for the same period of the prior year. The decrease in gross margin dollars is
due to the decrease in sales as discussed above. As a percentage of revenue,
gross margin increased to 45.2% for the nine months ended September 30, 2004
compared to 44.3% for the same period of the prior year. The increase in gross
margin as a percentage of sales is due to the timing of success fees for the
period, which were $793,000 and $296,000 for the nine months ended September
30, 2004 and 2003, respectively. Selling, General and Administrative Expenses.Selling, general and
administrative expenses consist principally of salary and benefit costs for
executive, sales and administrative personnel, professional services and other
general corporate activities. Selling, general and administrative expenses
increased $1.5 million, or 13.9%, to $11.9 million for the nine months ended
September 30, 2004, as compared to $10.5 million for the same period of the
prior year. As a percentage of revenue, selling, general and administrative
expenses increased to 23.5% for the nine months ended September 30, 2004, as
compared to 18.6% for the same period of the prior year. 12




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations  (contd) The increase is due to expenses including salary, benefits, and travel
relating to the increase in the number of account executives and staff to
support and service our new and existing client base. Operating Income.Operating income decreased $3.5 million, or 24.0% to
$11.0 million for the nine months ended September 30, 2004, compared to $14.4
million for the same period of the prior year. As a percentage of revenue,
operating income decreased to 21.6% for the nine months ended September 30,
2004, as compared to 25.7% for the same period of the prior year. Operating
income decreased due to the decrease in sales and gross profit and the increase
in selling, general and administrative expenses, as discussed above. Income Tax Expense. Our effective income tax rates for nine months
ended September 30, 2004 and 2003 were 37.9% and 34.1%, respectively. In the
second quarter ended June 30, 2004, the Company completed and filed its
federal and state income tax returns for the calendar year ended December 31,
2003. Based on the income tax returns as filed, the Company reduced its
state effective tax rate in the second quarter resulting in a reduction of
income tax expense of $182,000. The Company also reduced its current year
state tax provision rate by $125,000. In the first quarter ended March 31, 2003, the Internal Revenue Service
completed their examination for the calendar years 1998 through 2001. Based
on the conclusion of the examination, we recorded a decrease in our tax
contingency reserve leading to a reduction of income tax expense of $0.05 per
diluted share in the first quarter of 2003. 13




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations  (contd) Capital Resources and Liquidity Our working capital increased to $29.7 million at September 30, 2004 from
$23.8 million at December 31, 2003. In addition, our cash and cash equivalents
increased to $18.1 million at September 30, 2004, from $17.7 million at
December 31, 2003. Cash flow from operating activities provided $2.1 million
during the nine months ended September 30, 2004, compared to $5.6 million for
the same period during the prior year. This decrease is due to the decrease
in sales and net income and the change in accounts receivable. The change in accounts receivable was due to our increase in days sales
outstanding (DSO). The DSO increased to approximately 90 days which was caused
by the timing on receipt of payments on a couple of our large contracts. The
Company has reviewed the accounts receivable balance in detail and has
concluded that our past due balances do not reflect a credit risk issue. The
Company expects to receive the payments and return our DSOs to 60 days by the
end of this fiscal year. In May 2004, the Companys Board of Directors authorized a plan to
repurchase up to $7.0 million of the Companys common stock. The Company
intends to repurchase shares from time to time, at prevailing prices, in the
open market. The timing and amount of the share repurchases will be at the
discretion of management and will be based on such factors as the stock price,
general economic and market conditions, and other factors. The share repurchase
plan may be suspended or discontinued at any time. Shares repurchased under the
plan will be restored to the status of authorized but unissued shares. As of
September 30, 2004, we have repurchased 332,000 shares at a total cost of $2.5
million. The Company has a revolving credit agreement which allows for borrowings
up to $10.0 million at the prime rate minus one half of one percent (-0.50%)
per annum or LIBOR plus two and one quarter percent (2.25%) per annum. The
revolving credit agreement is renewable annually on
April 30th of each year.
Borrowings under the revolving credit agreement are unsecured. The agreement
requires the Company to comply with certain financial covenants pertaining to
its tangible net worth, ratio of total liabilities to tangible net worth, and
ratio of current assets to current liabilities (as defined in the agreement).
The agreement also contains certain negative covenants which, among other
things, restricts the Companys ability to incur additional indebtedness of
more than $1.0 million in excess of the $10.0 million limit set forth in the
credit agreement and make capital expenditures in excess of $2.0 million
without the prior written approval of the lender. At September 30, 2004, we
had no outstanding borrowings under the line of credit, the bank had issued a
letter of credit for $64,000 and we had $9.9 million in availability. We believe we have sufficient working capital available under the line of
credit and cash generated by continuing operations will be sufficient to fund
operations for at least the next twelve months. The following table illustrates the remaining contractual obligations
outstanding as of September 30, 2004: Contractual Obligations Payments Due By Period as of September 30, 2004
(In thousands) Contractual
    
    
    
    
    
    1 Year
    
    1-3
    
    3-5
    
    After 5Obligations
    
    Total
    
    or Less
    
    Years
    
    Years
    
    YearsOperating leases
    
    $
    7,577
    
    
    $
    863
    
    
    $
    1,923
    
    
    $
    1,959
    
    
    $
    2,832Operating leases
related to
discontinued
operations, net of
subleases
    
    
    915
    
    
    
    373
    
    
    
    348
    
    
    
    194
    
    
    
    Total
    
    $
    8,492
    
    
    $
    1,236
    
    
    $
    2,271
    
    
    $
    2,153
    
    
    $
    2,832
 14




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations  (contd) Capital Resources and Liquidity  (contd) In September 2004, the Company amended its operating lease for its
facilities located in Newport Beach, CA. The amendment extends the original
operating lease from July 2007 to July 2012 and increased the square footage
from 19,500 to 30,550. The lease expense related to the amendment is included
in the table above. The additional office space is going to be used to expand
our training, production, and information technology departments. 15




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##### 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 competition management and performance assurance services business
depends substantially on U.S. Government expenditures for defense products.
Any decline in the future defense, information technology or homeland
security procurement expenditures could affect the opportunities available to
our clients and, indirectly, our business. A number of factors could
contribute to such a decline in opportunities, including:  
    
    Loss of political support for current or increased levels
of spending;
    
    Changes of presidential administration, particularly
changes from one political party to another, that typically result
in a mass reordering of priorities that reduce new proposal
activity for up to a year;
    
    Threat scenarios evolving away from global conflicts to regional
conflicts;
    
    Spending for ongoing operations, such as the war on
terrorism, the occupation of Iraq, downward pressure on spending
for procurement of new systems and research and development
spending; and
    
    Cancellation of programs or emphasis on government shifting
programs. 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 we
managed. 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 a relatively limited
number of clients. In 2003, our seven largest customers accounted for 91.8%
of our revenue. Clients typically retain our services as needed on an
engagement basis rather than pursuant to long-term contracts, and a client
may terminate the engagement at any time without 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 competition 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 the in-house resources of our clients.
In addition, numerous smaller competition management companies compete in
this highly specialized industry. With sufficient resources in the form of
money and excellent talent with current security clearances, our competitors
could erode our current market share, and such a reduction could materially
and adversely affect our business, operating results and financial condition. 16




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##### 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 senior management personnel and our ability to
recruit and maintain skilled professionals. Our success is highly dependent upon the efforts, abilities, and
business generation capabilities and project execution of our three principal
executive officers, our account executives, and senior staff such as our Vice
President of Recruiting and Vice President of Operations. In particular,
Steven S. Myers, Chief Executive Officer and Chairman of the Board, Cathy L.
Wood, Executive Vice President, Chief Financial Officer and Corporate
Secretary, and Bennett C. Beaudry, President and Chief Operating Officer have
a significant role in our success. 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 and/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 maintain or
increase our revenue. Quarterly results may fluctuate. We may experience fluctuations in future quarterly operating results due
to a number of factors, including the size, timing and duration of client
engagements. 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
September 30, 2004, the closing sale price has ranged from a high of $31.13
per share to a low of $0.75 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; and
    
    The announcement of proposed acquisitions and dispositions. Principal shareholder has significant control. At September 30, 2004, Steven S. Myers, Chief Executive Officer and
Chairman of the Board, beneficially owned or controlled approximately 24.0%
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 ownership concentration 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. 17




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company currently has no instruments that are sensitive to market
risk. 
 Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our principal executive officer
and principal financial officer, has evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
as of the end of the period covered by this quarterly report on Form 10-Q.
Based on this evaluation, our principal executive officer and principal
financial officer concluded that these disclosure controls and procedures are
effective and designed to ensure that the information required to be disclosed
in our reports filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized, and reported within the requisite time
periods. While the Companys disclosure controls and procedures provide reasonable
assurance that the appropriate information will be available on a timely basis,
this assurance is subject to limitations inherent in any control system, no
matter how well designed and administered. Changes in Internal Controls There was no change in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934, as amended) identified in connection with the evaluation of our internal
control performed during our last fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting. 18




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##### 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 and Issuer Purchase of Equity Securities Issuer Purchases of Equity Securities Total Number of
    
    Approximate $ ValueShares Purchased as
    
    of Shares That MayTotal Number of
    
    Average Price Paid
    
    Part of a Publicly
    
    Yet Be PurchasedPeriod
    
    Shares Purchased
    
    per Share
    
    Announced Plan
    
    Under the PlanBeginning balance
    
    
    34,200
    
    
    $
    8.01
    
    
    
    34,200
    
    
    $
    6,726,000July 1, 2004 to
July 30, 2004
    
    
    19,400
    
    
    
    8.05
    
    
    
    53,600
    
    
    
    6,570,000August 1, 2004 to
August 31, 2004
    
    
    109,600
    
    
    
    8.01
    
    
    
    163,200
    
    
    
    5,692,000September 1, 2004
to September 30,
2004
    
    
    168,800
    
    
    
    6.97
    
    
    
    332,000
    
    
    
    4,515,000Total
    
    
    332,000
    
    
    $
    7.48
    
    
    
    332,000
 In May 2004, the Companys Board of Directors authorized a plan to
repurchase up to $7.0 million of the Companys common stock. The Company
intends to repurchase shares from time to time, at prevailing prices, in the
open market. The timing and amount of the share repurchases will be at the
discretion of management and will be based on such factors as the stock price,
general economic and market conditions, and other factors. The share repurchase
plan may be suspended or discontinued at any time. Shares repurchased under the
plan will be restored to the status of authorized but unissued shares. As of
September 30, 2004, we have repurchased 332,000 shares at a total cost of $2.5
million. 
 Item 3. Defaults Upon Senior Securities Not Applicable. 
 Item 4. Submission of Matters to a Vote of Security Holders Not Applicable. 
 Item 5. Other Information The Company entered into a contract in April 2002 with ProView, a
subsidiary of the Precept Group, for which one of the former members of the
Companys Board of Directors serves as the President and Chief Executive
Officer. The Company has agreed to outsource its employee benefits
administration to ProView. The contract value was determined through a
review of prevailing market rates for such services. Under this contract, 19




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##### Table of Contents



Item 5. Other Information  (contd) the Company paid $9,000, $25,000, $6,000 and $18,000 during the three and
nine months ended September 30, 2004 and 2003, respectively. The Company periodically leases aircraft from SummitJets, Inc.
(SummitJets), which is owned by the Companys Chairman and Chief Executive
Officer. The lease rate was determined through a review of prevailing market
rates for such services. During the three and nine months ended September
30, 2004 and 2003, the Company paid $124,000, $124,000, $0 and $48,000,
respectively. The expense is included in selling, general and administrative
expenses. 20




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##### Table of Contents



Item 6. Exhibits and Reports on Form 8-K INDEX TO EXHIBITS Exhibits (numbered in accordance with item 601 of Regulation S-K). 2.1
    
    Stock Purchase and Sale Agreement, by and among the Registrant, Steven
Myers Holding Inc. and L-3 Communications Corporation.(1)2.2
    
    Amendment No.1 to Stock Purchase and Sale Agreement, by and among the
Registrant, Steven Myers Holding Inc. and L-3 Communications
Corporation.(2)3.1
    
    Amended and Restated Articles of Incorporation.(3)3.2
    
    Amended and Restated Bylaws of the Registrant.(4)10.1
    
    Amended and Restated 1997 Stock Option Plan and related form of Stock Option Agreement.(5)10.2
    
    Amended and Restated Employee Stock Purchase Plan.(6)10.3
    
    Office Facility Lease.(7)10.4
    
    Employment Agreement of Steven S. Myers. (8)10.5
    
    Amendment No. 1 to Employment Agreement of Steven S. Myers.(9)10.6
    
    Amendment No. 2 to Employment Agreement of Steven S. Myers.(10)10.7
    
    Amendment No. 3 to Employment Agreement of Steven S. Myers.(11)10.8
    
    Amendment No. 4 to Employment Agreement of Steven S. Myers.(12)10.9
    
    Employment Agreement of Cathy L. Wood.(13)10.10
    
    Amendment No. 1 to Employment Agreement of Cathy L. Wood.(14)10.11
    
    Amendment No. 2 to Employment Agreement of Cathy L. Wood.(15)10.12
    
    Amendment No. 3 to Employment Agreement of Cathy L. Wood.(16)10.13
    
    Employment Agreement of Bennett C. Beaudry.(17)10.14
    
    Amendment No. 1 to Employment Agreement of Bennett C. Beaudry.(18)10.15
    
    Amendment No. 2 to Employment Agreement of Bennett C. Beaudry.(19)10.16
    
    Accounts Receivable Loan Agreement dated January 10, 2002, by and
between the Registrant and City National Bank, a national banking
association.(20)10.17
    
    Commercial Guaranty dated January 10, 2002, executed by Steven Myers &
Associates, Inc. in favor of City National Bank, a national banking
association.(21)
 21




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##### Table of Contents



Item 6. Exhibits and Reports on Form 8-K  (contd) 10.18
    
    Revolving Loan Agreement dated October 14, 2003, by and between the
registrant and City National Bank, a national association.
(22)10.19
    
    Revolving Note dated April 10, 2003, executed by SM&A, in favor of
City National Bank. (23)10.20
    
    Renewal of Revolving Note dated April 27, 2004, executed by SM&A, in
favor of City National Bank. (24)10.21
    
    Amendment No. 5 to Employment Agreement of Steven S. Myers (25)10.22
    
    Amendment No. 4 to Employment Agreement of Cathy L. Wood (26)10.23
    
    Consultant Agreement of Bowes Enterprises (27)10.24
    
    Consultant Agreement of Joseph B. Reagan (28)10.25
    
    Amendment No. 1 to Office Facility Lease (29)21.1
    
    Subsidiaries of the Registrant. (30)31.1
    
    Certificate of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (31)31.2
    
    Certificate of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (32)32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (33)32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (34)
 Footnote #  (1)
    
    Filed on November 27, 2001 as Exhibit 10.1 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(2)
    
    Filed on December 14, 2001 as Exhibit 10.1 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(3)
    
    Filed on March 15, 2002 as Exhibit 3.1 to the registrants Annual Report
on Form 10-K and incorporated herein by reference.(4)
    
    Filed on May 3, 2002 as Exhibit 3.2 to the registrants Quarterly Report
on Form 10-Q and incorporated herein by reference.(5)
    
    Filed on April 17, 2001 as Exhibit 10.1 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(6)
    
    Filed on April 29, 2002 as Exhibit C to the registrants Annual Proxy
Statement on Form 14A and incorporated herein by reference.(7)
    
    Filed on November 21, 1997 as Exhibit 10.3 to the registrants
Registration Statement 333-4075 on Form S-1 (Registration No. 333-4075) and
incorporated herein by reference.(8)
    
    Filed on April 17, 2001 as Exhibit 10.17 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(9)
    
    Filed on March 15, 2002 as Exhibit 10.7 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(10)
    
    Filed on May 3, 2002 as Exhibit 10.8 to the registrants Quarterly
Report on Form 10-Q and incorporated herein by reference.(11)
    
    Filed on March 11, 2003 as
Exhibit 10.7 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(12)
    
    Filed on February 6, 2004 as Exhibit 10.8 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(13)
    
    Filed on March 15, 2002 as Exhibit 10.8 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(14)
    
    Filed on November 4, 2002 as Exhibit 10.10 to the registrants
Quarterly Report on Form 10-Q and incorporated herein by reference.(15)
    
    Filed on March 11, 2003 as Exhibit 10.10 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(16)
    
    Filed on February 6, 2004 as Exhibit 10.12 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.
 22




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##### Table of Contents



Item 6. Exhibits and Reports on Form 8-K  (contd) Footnote # - (contd)  (17)
    
    Filed on November 4, 2002 as Exhibit 10.11 to the registrants
Quarterly Report on Form 10-Q and incorporated herein by reference.(18)
    
    Filed on March 11, 2003 as Exhibit 10.12 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(19)
    
    Filed on February 6, 2004 as Exhibit 10.15 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(20)
    
    Filed on January 25, 2002 as Exhibit 99.2 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(21)
    
    Filed on January 25, 2002 as Exhibit 99.3 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(22)
    
    Filed on February 6, 2004 as Exhibit 10.18 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(23)
    
    Filed on July 31, 2003 as Exhibit 10.16 to the registrants Quarterly
Report on Form 10-Q and incorporated herein by reference.(24)
    
    Filed on July 21, 2004 as Exhibit 10.20 to the registrants Quarterly
Report on Form 10-Q and incorporated herein by reference.(25)
    
    Filed herewith.(26)
    
    Filed herewith.(27)
    
    Filed herewith.(28)
    
    Filed herewith.(29)
    
    Filed herewith.(30)
    
    Filed on March 11, 2003 as Exhibit 21.1 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(31)
    
    Filed herewith.(32)
    
    Filed herewith.(33)
    
    Filed herewith.(34)
    
    Filed herewith.
 (a) Reports on Form 8-K: Form 8-K dated and filed on July 20, 2004, to report the issuance
of a press release announcing financial results for the fiscal
quarter ended June 30, 2004. Form 8-K dated and filed on July 30, 2004, to report the issuance of
a press release announcing the appointment of a new director to the
Companys Board of Directors. Form 8-K dated August 30, 2004 and filed on August 31, 2004, to report the
issuance of a press release updating guidance. 23




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##### Table of Contents



SIGNATURE Pursuant to the requirements 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&ABy:
    
    /s/ CATHY L. WOODDated: October 22, 2004
    
    
    
    Cathy L. WoodExecutive Vice President, Chief Financial Officer and SecretaryBy:
    
    /s/ STEVEN S. MYERSDated: October 22, 2004
    
    
    
    Steven S. MyersChairman and Chief Executive Officer
 24




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EXHIBIT INDEX Exhibit No.
    
    Description2.1
    
    Stock Purchase and Sale Agreement, by and among the Registrant, Steven
Myers Holding Inc. and L-3 Communications Corporation.(1)2.2
    
    Amendment No.1 to Stock Purchase and Sale Agreement, by and among the
Registrant, Steven Myers Holding Inc. and L-3 Communications
Corporation.(2)3.1
    
    Amended and Restated Articles of Incorporation.(3)3.2
    
    Amended and Restated Bylaws of the Registrant.(4)10.1
    
    Amended and Restated 1997 Stock Option Plan and related form of Stock Option Agreement.(5)10.2
    
    Amended and Restated Employee Stock Purchase Plan.(6)10.3
    
    Office Facility Lease.(7)10.4
    
    Employment Agreement of Steven S. Myers. (8)10.5
    
    Amendment No. 1 to Employment Agreement of Steven S. Myers.(9)10.6
    
    Amendment No. 2 to Employment Agreement of Steven S. Myers.(10)10.7
    
    Amendment No. 3 to Employment Agreement of Steven S. Myers.(11)10.8
    
    Amendment No. 4 to Employment Agreement of Steven S. Myers.(12)10.9
    
    Employment Agreement of Cathy L. Wood.(13)10.10
    
    Amendment No. 1 to Employment Agreement of Cathy L. Wood.(14)10.11
    
    Amendment No. 2 to Employment Agreement of Cathy L. Wood.(15)10.12
    
    Amendment No. 3 to Employment Agreement of Cathy L. Wood.(16)10.13
    
    Employment Agreement of Bennett C. Beaudry.(17)10.14
    
    Amendment No. 1 to Employment Agreement of Bennett C. Beaudry.(18)10.15
    
    Amendment No. 2 to Employment Agreement of Bennett C. Beaudry.(19)10.16
    
    Accounts Receivable Loan Agreement dated January 10, 2002, by and
between the Registrant and City National Bank, a national banking
association.(20)10.17
    
    Commercial Guaranty dated January 10, 2002, executed by Steven Myers &
Associates, Inc. in favor of City National Bank, a national banking
association.(21)




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EXHIBIT
INDEX  (contd) Exhibit No.
    
    Description10.18
    
    Revolving Loan Agreement dated October 14, 2003, by and between the
registrant and City National Bank, a national association. (22)10.19
    
    Revolving Note dated April 10, 2003, executed by SM&A, in favor of
City National Bank. (23)10.20
    
    Renewal of Revolving Note dated April 27, 2004, executed by SM&A, in
favor of City National Bank. (24)10.21
    
    Amendment No. 5 to Employment Agreement of Steven S. Myers (25)10.22
    
    Amendment No. 4 to Employment Agreement of Cathy L. Wood (26)10.23
    
    Consultant Agreement of Bowes Enterprises (27)10.24
    
    Consultant Agreement of Joseph B. Reagan (28)10.25
    
    Amendment No. 1 to Office Facility Lease (29)21.1
    
    Subsidiaries of the Registrant. (30)31.1
    
    Certificate of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (31)31.2
    
    Certificate of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (32)32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (33)32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (34)
 Footnote #  (1)
    
    Filed on November 27, 2001 as Exhibit 10.1 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(2)
    
    Filed on December 14, 2001 as Exhibit 10.1 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(3)
    
    Filed on March 15, 2002 as Exhibit 3.1 to the registrants Annual Report
on Form 10-K and incorporated herein by reference.(4)
    
    Filed on May 3, 2002 as Exhibit 3.2 to the registrants Quarterly Report
on Form 10-Q and incorporated herein by reference.(5)
    
    Filed on April 17, 2001 as Exhibit 10.1 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(6)
    
    Filed on April 29, 2002 as Exhibit C to the registrants Annual Proxy
Statement on Form 14A and incorporated herein by reference.(7)
    
    Filed on November 21, 1997 as Exhibit 10.3 to the registrants
Registration Statement 333-4075 on Form S-1 (Registration No. 333-4075) and
incorporated herein by reference.(8)
    
    Filed on April 17, 2001 as Exhibit 10.17 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(9)
    
    Filed on March 15, 2002 as Exhibit 10.7 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(10)
    
    Filed on May 3, 2002 as Exhibit 10.8 to the registrants Quarterly
Report on Form 10-Q and incorporated herein by reference.(11)
    
    Filed on March 11, 2003 as
Exhibit 10.7 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(12)
    
    Filed on February 6, 2004 as Exhibit 10.8 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(13)
    
    Filed on March 15, 2002 as Exhibit 10.8 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(14)
    
    Filed on November 4, 2002 as Exhibit 10.10 to the registrants
Quarterly Report on Form 10-Q and incorporated herein by reference.(15)
    
    Filed on March 11, 2003 as Exhibit 10.10 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(16)
    
    Filed on February 6, 2004 as Exhibit 10.12 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.




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Footnote # - (contd)  (17)
    
    Filed on November 4, 2002 as Exhibit 10.11 to the registrants
Quarterly Report on Form 10-Q and incorporated herein by reference.(18)
    
    Filed on March 11, 2003 as Exhibit 10.12 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(19)
    
    Filed on February 6, 2004 as Exhibit 10.15 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(20)
    
    Filed on January 25, 2002 as Exhibit 99.2 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(21)
    
    Filed on January 25, 2002 as Exhibit 99.3 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(22)
    
    Filed on February 6, 2004 as Exhibit 10.18 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(23)
    
    Filed on July 31, 2003 as Exhibit 10.16 to the registrants Quarterly
Report on Form 10-Q and incorporated herein by reference.(24)
    
    Filed on July 21, 2004 as Exhibit 10.20 to the registrants Quarterly
Report on Form 10-Q and incorporated herein by reference.(25)
    
    Filed herewith.(26)
    
    Filed herewith.(27)
    
    Filed herewith.(28)
    
    Filed herewith.(29)
    
    Filed herewith.(30)
    
    Filed on March 11, 2003 as Exhibit 21.1 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(31)
    
    Filed herewith.(32)
    
    Filed herewith.(33)
    
    Filed herewith.(34)
    
    Filed herewith.
 (a) Reports on Form 8-K: Form 8-K dated and filed on July 20, 2004, to report the issuance
of a press release announcing financial results for the fiscal
quarter ended June 30, 2004. Form 8-K dated and filed on July 30, 2004, to report the issuance of
a press release announcing the appointment of a new director to the
Companys Board of Directors. Form 8-K dated August 30, 2004 and filed on August 31, 2004, to report the
issuance of a press release updating guidance.