<PAGE>
 
                                   FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549

(Mark One)

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

                     For The Quarter Ended March 31, 1999

                                      OR

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

     For the transition period from ______________ to _______________

     Commission file number _________________

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


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


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

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

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

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

                              Yes  [X]  No  [_].

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

                   Class                            Outstanding at 
               ------------                         March 31, 1999
               Common Stock                           16,389,579

                                       1
<PAGE>
 
                       SM&A CORPORATION AND SUBSIDIARIES

                                     INDEX

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
<C>        <S>                                                                                          <C>
PART   I.  FINANCIAL INFORMATION

Item   1   Consolidated Financial Statements

           Consolidated Balance Sheets as of March 31, 1999  and December 31, 1998....................      3

           Consolidated Statements of Earnings for the three months ended March 31, 1999 and 1998.....      4

           Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998...      5

           Notes to Consolidated Financial Statements.................................................   6-11

Item   2   Management's Discussion and Analysis of Financial Condition and Results of Operations......  12-22

PART  II   OTHER INFORMATION

Item   1   Legal Proceedings..........................................................................     23

Item   2   Changes in Securities and Use of Proceeds..................................................     23

Item   3   Defaults Upon Senior Securities............................................................     23

Item   4   Submission of Matters to Vote of Security Holders..........................................     23

Item   5   Other Information..........................................................................     23

Item   6   Exhibits and Reports on Form 8-K...........................................................     23

Signatures............................................................................................     24
</TABLE>

                                       2
<PAGE>
 
                       SM&A CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                (In thousands)
                                  (unaudited)
                                        
<TABLE>
<CAPTION>
                                                                                       March 31,           December 31,
                                                                                         1999                  1998
                                                                                        -------              -------
<S>                                                                                   <C>                  <C>
                                   ASSETS
Current Assets:
         Cash and cash equivalents                                                      $   835              $   454
         Accounts receivable, net of allowance for doubtful accounts                     17,544               15,326
         Costs and estimated earnings in excess of billings
           on contracts in progress, net of allowance                                    11,618                7,545
         Prepaid income taxes                                                               591                2,085
         Prepaid expenses and other assets                                                  952                  559
                                                                                        -------              -------
           Total current assets                                                          31,540               25,969
 
Property and equipment, net                                                               2,791                2,390
Notes receivable - affiliates                                                             2,854                2,832
Other assets                                                                              3,889                3,346
Goodwill, net                                                                            35,033               31,787
                                                                                        -------              -------
           Total assets                                                                 $76,107              $66,324
                                                                                        =======              =======
 
                     LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current Liabilities:
         Trade accounts payable                                                         $ 2,949              $ 2,496
         Accrued compensation and payroll taxes                                           7,931                6,585
         Deferred income taxes                                                              265                  265
         Other liabilities                                                                   75                  644
                                                                                        -------              -------
           Total current liabilities                                                     11,220                9,990
 
Deferred income taxes                                                                       659                  725
Other liabilities                                                                           464                  280
Long-term debt, excluding current portion                                                 6,508                   --
                                                                                        -------              -------
           Total liabilities                                                             18,851               10,995
 
Shareholders' equity:
         Common stock, no par value                                                         164                  165
         Additional paid in capital                                                      53,113               54,164
         Retained earnings                                                                3,979                1,000
                                                                                        -------              -------
           Total shareholders' equity                                                    57,256               55,329
                                                                                        -------              -------
           Total liabilities and shareholders' equity                                   $76,107              $66,324
                                                                                        =======              =======
</TABLE>

The accompany notes are an integral part of the unaudited consolidated financial
                                  statements.

                                       3
<PAGE>
 
                       SM&A CORPORATION AND SUBSIDIARIES
                                        
                      CONSOLIDATED STATEMENTS OF EARNINGS
                     (In thousands, except per share data)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                       Three Months Ended
                                                                            March 31,
                                                                    -----------------------
                                                                     1999            1998
                                                                    -------         -------
<S>                                                                 <C>             <C>
Net revenues                                                        $25,314         $10,659
Cost of revenues                                                     14,737           5,988
                                                                    -------         -------
     Gross margin                                                    10,577           4,671
 
Selling, general and administrative expenses                          5,223           1,746
Amortization of goodwill and other intangibles                          345              --
                                                                    -------         -------
 
     Operating income                                                 5,009           2,925
 
Other income (expense):
     Interest expense                                                   (23)            (70)
     Other, net                                                          62             139
                                                                    -------         -------
         Income before income taxes                                   5,048           2,994
 
Income tax expense                                                    2,069           1,245
                                                                    -------         -------
         Net income                                                 $ 2,979         $ 1,749
                                                                    =======         =======
 
Income per share from continuing operations:
         Basic                                                      $  0.18         $  0.12
         Diluted                                                       0.18            0.12
                                                                    =======         =======
 
Weighted average common shares outstanding:
         Basic                                                       16,515          14,347
         Diluted                                                     16,927          14,431
                                                                    =======         =======
</TABLE>



    The accompany notes are an integral part of the unaudited consolidated 
                             financial statements.

                                       4
<PAGE>
 
                       SM&A CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                             Three Months Ended
                                                                                                  March 31,
                                                                                        ----------------------------
                                                                                         1999                 1998
                                                                                        -------              -------
<S>                                                                                     <C>                  <C>
Cash flows from operating activities:
    Net income                                                                          $ 2,979              $ 1,749
    Adjustments to reconcile net income to net cash
    (used in) provided by operating activities:
              Provision for doubtful accounts                                               (30)                  10
              Depreciation and amortization                                                 345                   44
              Deferred income taxes                                                          --                  161
              Changes in assets and liabilities, net of effect
                   of acquisitions:
                    Accounts receivable, net                                             (1,883)              (1,682)
                    Costs and estimated earnings in excess of billings                   (4,073)                  --
                    Prepaid expenses and other assets                                      (740)                 161
                    Trade accounts payable                                                  401                 (183)
                    Accrued compensation and payroll taxes                                1,330                1,473
                    Income taxes                                                          1,531                  989
                    Other liabilities                                                      (596)                 (78)
                                                                                        -------              -------
                         Net cash (used in) provided by operating activities               (736)               2,644
Cash flows from investing activities:
    Acquisition, net of cash acquired                                                    (3,278)                  --
    Additional expenditures related to acquisitions                                        (645)                  --
    Purchases of property and equipment                                                    (349)                 (11)
    Advances to shareholder                                                                 (22)                 679
                                                                                        -------              -------
                         Net cash (used in) provided by investing activities             (4,294)                 668
Cash flows from financing activities:
    Proceeds from issuance of common stock                                                   60               22,474
    Advances (repayments) of long-term debt, net                                          6,464               (7,710)
    Distributions to shareholders                                                            --                 (710)
    Common stock repurchases                                                             (1,113)                  --
                                                                                        -------              -------
    Net cash provided by financing activities                                             5,411               14,054
    Net increase in cash and cash equivalents                                               381               17,366
Cash at beginning of period                                                                 454                  150
                                                                                        -------              -------
Cash at end of period                                                                   $   835              $17,516
                                                                                        =======              =======
 
Supplemental information-Cash paid for:
              Interest                                                                  $     8              $   147
              Income taxes                                                                  464                   94
                                                                                        =======              =======

Supplemental schedule of noncash investing activity:

Detail of business acquired and other purchase accounting adjustments as follows
(in thousands):

                    Cash consideration paid for acquisition                             $ 3,263
                    Plus acquisition expenses                                                40
                    Less cash acquired in acquisition                                       (25)
                                                                                        -------
                         Cash paid for acquisition, net of cash acquired                $ 3,278
                                                                                        =======
</TABLE>

    The accompany notes are an integral part of the unaudited consolidated
                             financial statements.

                                       5
<PAGE>
 
                       SM&A CORPORATION AND SUBSIDIARIES
                                        
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

              For the Three Months Ended March 31, 1999 and 1998
                                        
NOTE 1.  GENERAL

  SM&A Corporation (formerly Steven Myers & Associates, Inc.) and Subsidiaries
("the Company") was incorporated in California on January 25, 1985.  The
Company's primary business is providing proposal management and contract support
services.  In January 1998, the Company completed an initial public offering
("IPO") of Common Stock.  Subsequently, in May 1998, the Company acquired Space
Applications Corporation ("SAC").  SAC provides systems engineering, scientific
research, program management support and technical support to military and
civilian space programs, the intelligence community, and the armed services.  In
August 1998, the Company acquired Decision-Science Applications, Inc. ("DSA").
DSA provides system engineering, information systems development, scientific
research and program management support to the U.S. Government, principally the
Department of Defense.  In March 1999, the Company acquired Systems Integration
Software, Inc. ("SIS"). SIS provides systems engineering, information systems
development, scientific research and program management support to the U.S.
Government, principally the Department of Defense.  These transactions were
accounted for as purchases and, accordingly, the consolidated financial
statements include the financial results of the Acquisitions from the effective
dates of the respective events. SAC, DSA and SIS are collectively referred to as
"the Acquisitions".  On December 31, 1998, SAC merged into DSA.  In connection
with the merger, the surviving corporation changed its name to SM&A Corporation
(East).
 
  The accompanying unaudited interim consolidated financial statements of SM&A
Corporation (the "Company") have been prepared pursuant to the rules of the
Securities and Exchange Commission for quarterly Reports on Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. The information furnished herein includes all
adjustments, consisting of normal recurring adjustments, which are, in the
opinion of management, necessary for a fair presentation of results for these
interim periods.

  The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the entire fiscal year
ending December 31, 1999.

  The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.

  Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected periods
to be benefited, generally 30 years. The recoverability of goodwill is
determined by comparing the carrying value of intangible assets to the estimated
future operating cash flows of the Company on an undiscounted basis. Should the
carrying value of goodwill exceed the fair value an impairment for the excess
would be recorded at that time. As of March 31, 1999, no impairment has been
recognized.

  In addition, these financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1998. This supplementary information is included in Form 10-K filed
by the Company with the Securities and Exchange Commission on March 31, 1999.
Additional supplementary information which includes the historical pro-forma
financial statements of the Company prior to its initial public offering is
included in Form S-1 filed by the Company with the Securities and Exchange
Commission on January

                                       6
<PAGE>
 
                       SM&A CORPORATION AND SUBSIDIARIES
                                        
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)--(Continued)

              For the Three Months Ended March 31, 1999 and 1998

28, 1998 as amended (the "S-1"). Due to the Company converting from an S
corporation to a C corporation, the information found in the S-1 filing includes
pro forma operating results. These pro formas reflect an adjustment of salaries
and bonuses paid to three principal executive officers (which have historically
been included in selling, general, and administrative expenses) in excess or
less than $2.7 million ($675,000 per quarter) in the aggregate (the maximum
salaries and bonuses payable for 1998 under the Company's Executive Compensation
Program) and adjustments for Federal and state income taxes as if the Company
had been taxed as a C corporation rather than an S corporation during such
period.

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

NOTE 2.  NET INCOME PER SHARE

  Basic net income per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares outstanding
during the periods presented.  Diluted net income per share is computed by
dividing net income available to common shareholders by the weighted average
number of common and common equivalent shares outstanding during the periods
presented assuming the exercise of all in-the-money stock options.  Common
equivalent shares have not been included where inclusion would be anti-dilutive.

  The following table illustrates the computation of basic and diluted earnings
per common share (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                                                            March 31,
                                                                        ------------------
                                                                         1999       1998
                                                                        -------    -------   
<S>                                                                     <C>        <C> 
  Numerator:
      Numerator for basic and diluted
         income per common share -- net earnings                        $ 2,980    $ 1,749
                                                                        -------    -------
  Denominator:
  Denominator for basic income
         per share -- weighted average shares
         outstanding during the period                                   16,515     14,347
  Incremental common shares attributable
         to dilutive outstanding stock options                              412         84
                                                                        -------    -------
  Denominator for diluted income per
         common share                                                    16,927     14,431
                                                                        -------    -------
  Basic net income per common share:                                    $   .18    $   .12
                                                                        =======    =======
  Diluted net income per common share:                                  $   .18    $   .12
                                                                        =======    =======
</TABLE>

                                       7
<PAGE>
 
                       SM&A CORPORATION AND SUBSIDIARIES
                                        
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)--(Continued)

              For the Three Months Ended March 31, 1999 and 1998

NOTE 3.  INCOME TAX PROVISION

  The Company provides for income taxes using an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns.  In estimating future tax
consequences, the Company generally considers all expected future events other
than enactments of changes in the tax laws or rates.

NOTE 4.  ACQUISITIONS

  In March 1999, the Company purchased the outstanding common shares of SIS.
The transaction was for cash of  $3,263,000 and a one-year earn-out, contingent
upon the achievement of certain operating results. This transaction was
accounted for under the purchase method of accounting and, accordingly, the
consolidated financial statements of the Company for the three months ended
March 31, 1999, include the financial results of SIS from March 1, 1999, the
beginning of the accounting period in which the purchase transaction was
finalized.

  In August 1998, the Company issued 714,839 unregistered shares of common stock
valued at approximately $14 million, and $14 million cash for all the
outstanding common stock and options of DSA. This transaction was accounted for
as a purchase and, accordingly, the consolidated financial statements of the
Company for twelve months ended December 31, 1998 include the financial results
of DSA from August 1, 1998, the beginning of the accounting period in which the
purchase transaction was finalized.

  In May 1998, the Company issued 819,743 unregistered shares of common stock
valued at approximately $14.7 million, and stock options with a fair value of
$2.7 million for all the outstanding common stock of SAC.  This transaction was
accounted for as a purchase and, accordingly, the consolidated financial
statements of the Company for the twelve months ended December 31, 1998, include
the financial results of SAC from May 18, 1998, the date of the private
placement memorandum for SAC.  Due to certain price protection provisions
relating to the shares of common stock issued in connection with the acquisition
of SAC and the recent market price of the Company's common stock, the Company
will likely be required to issue additional shares of common stock to former
shareholders of SAC depending upon the market price of the common stock at
certain defined liquidation dates.

  The shareholders of common stock issued in the SAC and DSA acquisitions have
demand registration rights.  The shareholders exercised such demand rights on
February 1, 1999.  Subsequently, on April 29, 1999, the Company filed a
registration statement with the SEC on Form S-3 to register these common shares.

                                       8
<PAGE>
 
                       SM&A CORPORATION AND SUBSIDIARIES
                                        
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)--(Continued)

              For the Three Months Ended March 31, 1999 and 1998

  The Company recorded goodwill of approximately $35.8 million as a result of
these purchase transactions.  The Company incurred costs and expenses in
connection with the Acquisitions, including legal and accounting, and other
various expenses.  Eligible costs will be capitalized as part of goodwill in
accordance with generally accepted accounting principles (GAAP).  The allocation
of the purchase price for the Acquisitions and other purchase accounting
adjustments is as follows (in thousands):

<TABLE>
<S>                                                   <C>
        Total purchase price, net                          $ 49,030
        Net assets acquired                                 (14,480)
        Acquisition costs                                     1,275
                                                           --------
 
        Goodwill                                             35,825
        Less accumulated amortization                          (792)
                                                           --------
        Goodwill, net                                      $ 35,033
                                                           ========
</TABLE>

  The following table presents unaudited historical results of operations for
the three months ended March 31, 1999 and unaudited pro forma results of
operations for three months ended March 31, 1998 assuming the acquisitions of
SAC and DSA occurred as of January 1, 1998 (in thousands, except per share
data):

<TABLE>
<CAPTION>
                                                      Three Months Ended
                                                          March 31,
                                                      ------------------
                                                       1999       1998
                                                      -------    -------
  <S>                                                 <C>        <C>
  Net revenue                                         $25,314    $25,001
                                                      =======    =======

  Income from continuing operations                     2,979      1,213
  Income from discontinued operations                      --         27
                                                      -------    -------
 
  Net income                                          $ 2,979    $ 1,240
                                                      =======    ======= 
  Net income per share:
   Basic                                              $   .18    $   .08
   Diluted                                            $   .18    $   .07
                                                      =======    =======
  Weighted average shares outstanding:
   Basic                                               16,515     16,373
   Diluted                                             16,927     16,758
</TABLE>

  The pro forma data includes adjustments which have been applied to reflect the
purchases of SAC and DSA and the addition of amortization related to intangible
assets acquired.  The pro forma data adjustments also include the presentation
of Staminet, Inc. (a subsidiary of the Company) as a discontinued operation as
of January 1, 1998.

                                       9
<PAGE>
 
                       SM&A CORPORATION AND SUBSIDIARIES
                                        
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)--(Continued)

              For the Three Months Ended March 31, 1999 and 1998

   For the combined pro forma basic earnings per share figures, it is assumed
that 12,900,000 shares of SM&A common stock were outstanding since January 1,
1998 along with 819,743 shares issued in the SAC acquisition and 714,839 shares
issued in the DSA acquisition.  The pro forma results presented above may not be
indicative of future performance.

NOTE 6.  LONG-TERM DEBT

   In September 1998, the Company entered into a credit agreement with a bank
which provides a $25.0 million revolving line of credit.  The credit agreement,
which is secured by a first priority interest in substantially all of the assets
of the Company, matures in September 2001 and has two interest rate options; the
Bank's Prime rate or LIBOR plus 1.25% to 2.0%, based on the ratio of total
indebtedness to earnings before interest and taxes.  The credit agreement
requires payment of a fee of .25% of the average unused portion of the facility
and contains certain covenants.  The most restrictive covenant requires the
Company to maintain consolidated net worth, as defined in the credit agreement,
of at least $35.0 million plus 75% of consolidated quarterly net income.  As of
March 31, 1999, the Company was in compliance with all covenants. The Company
had $6,500,000 outstanding under the credit agreement at March 31, 1999 at an
effective interest rate of 7.75%.  The Company is currently in discussions with
its lenders to increase the size of the credit facility to $50.0 million, with
similar covenant restrictions and other terms.

NOTE 7.  SEGMENT REPORTING DATA

   SM&A Corporation classifies its operations into three lines of business, each
offering  a distinct set of services.  These lines of business are summarized as
follows; Proposal Management, which involves assisting clients with the
procurement of government and commercial programs; Systems Solutions, which
includes systems engineering, scientific research, program management and
technical support services, and Information Technology Solutions, which focuses
on information systems development.

   The Company evaluates performance based on several factors, of which a
primary financial measure is business segment revenue earned.  The revenue
recognition policies of the business segments vary according to the type of
contract being worked.

   Information as to the net revenues of the lines of business is set forth
below.  The information presented for the three months ended March 31, 1998
represents historical supplemental data as described on the statements of income
(in thousands):

                                       10
<PAGE>
 
                       SM&A CORPORATION AND SUBSIDIARIES
                                        
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)--(Continued)

              For the Three Months Ended March 31, 1999 and 1998

  Information as to the net revenues of the lines of business is set forth
below. The information presented for the three months ended March 31, 1998
represents historical supplemental data as Described on the statements of
income (in thousands):

<TABLE>
<CAPTION>
                                                  Three Months Ended
                                                       March 31,
                                                  -------------------
                                                   1999         1998
                                                  -------     -------
<S>                                               <C>         <C> 
  Net Revenues:
  Proposal Management Group                       $10,579     $ 9,125
  Systems Solutions Group                           9,809       1,534
  Information Technology Solutions Group            4,926          --
                                                  -------     -------
   Total revenues                                 $25,314     $10,659
                                                  =======     =======
 
  Operating Income (loss):
  Proposal Management Group                       $ 4,012     $ 3,365
  Systems Solutions Group                           2,656         670
  Information Technology Solutions Group            1,495          --
  Executive Group                                  (3,154)     (1,110)
                                                  -------     -------
   Total operating income                         $ 5,009     $ 2,925
                                                  =======     =======
 
  Income (Loss) from Continuing Operations:
  Proposal Management Group                       $ 2,367     $ 1,985
  Systems Solutions Group                           1,571         366
  Information Technology Solutions Group              882          --
  Executive Group                                  (1,841)       (602)
                                                  -------     -------
   Total Income from Continuing Operations        $ 2,979     $ 1,749
                                                  =======     =======
</TABLE>

                                       11
<PAGE>
 
  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
                           AND RESULTS OF OPERATIONS
                                        
  From time to time, the Company through its management, may make forward-
looking public statements, such as statements concerning then expected future
revenues or earnings or concerning projected plans, performance, contract
procurement as well as other estimates relating to future operations. Forward-
looking statements may be in reports filed under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), in press releases or informal statements
made with the approval of an authorized executive officer. The words or phrases
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project," or similar expressions are intended to identify "forward-
looking statements" within the meaning of Section 21E of the Exchange Act and
Section 27A of the Securities Act of 1933, as amended, as enacted by the Private
Securities Litigation Reform Act of 1995.

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

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

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


                                 RISK FACTORS
                                        
There are risks associated with our acquisition strategy

  An element of our growth strategy is to expand our operations through the
acquisition of complementary businesses. We cannot be sure that we will be able
to identify suitable acquisition candidates. If identified, we are not sure we
will be able to acquire such companies on suitable terms. Also, other companies
which may have greater resources than us may compete for acquisition candidates.
Such competition could result in an increase in the price of acquisition targets
and a decrease in the number of attractive companies available for acquisition
by us.

  There can be no assurance that the anticipated economic, operational and
other benefits of our acquisition of SAC, DSA or SIS or any future acquisitions
will be realized. We cannot be sure that we will be able to successfully
integrate acquired businesses in a timely manner without substantial costs,
delays or other operational or financial problems. The difficulties of such
integration may initially be increased by our need to integrate personnel with
different business backgrounds and corporate cultures. In addition, acquisitions
may involve our spending significant funds. Our failure to effectively integrate
the acquired companies may adversely affect our ability to bid successfully on
certain engagements and otherwise grow our business. Client dissatisfaction or
performance problems at a single acquired company could have an adverse effect
on our reputation as a whole, and this could 

                                       12
<PAGE>
 
result in increased difficulty in marketing services or acquiring companies in
the future. In addition, we cannot be certain that the acquired companies will
operate profitably or will not otherwise hurt operating results. There are other
risks with acquisitions. These include diversion of management attention,
potential loss of key clients or personnel, risks associated with unanticipated
problems, liabilities or contingencies and risks of entering markets in which we
have limited or no direct expertise. The occurrence of some or all of the events
described in these risks could have a material adverse effect on our business,
operating results and financial condition.

We may fail to manage our future growth effectively

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

Our business depends substantially on the defense industry

  Approximately 56.3% of our revenues were derived from Proposal Management
Group services related to government procurement contracts for the fiscal year
ended December 31, 1998. In addition, a significant portion of our revenues are
derived from contracts or subcontracts with the U.S. Government. For the
foreseeable future, we expect that the percentage of revenues attributable to
such contracts will continue to be substantial. U.S. Government expenditures for
defense products may decline in the future with such reductions having an effect
our clients, or, indirectly, on us. A number of trends may contribute to such a
decline, including:

o    large weapon systems being replaced with smaller, more precise high
     technology systems

o    multiple procurements for similar weapons being consolidated into joint
     service procurements, such as the Joint Strike Fighter

o    threat scenarios evolving away from global conflicts to regional conflicts

o    the continuing draw down of U.S. military forces in response to the end of
     the Cold War

  In the event expenditures for products of the type manufactured by 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.

                                       13
<PAGE>
 
The are risks associated with government contracting

  We are subject to risks associated with compliance with governmental
regulations, both directly and through government-contractor clients. The fines
and penalties which could result from noncompliance with appropriate standards
and regulations, or a client's suspension or debarment from the bidding process
for future government contracts could have a material adverse effect on our
business, operating results and financial condition. We rely for the continuance
and expansion of our business on a facility security clearance from the U.S.
Government, and individual security clearances, at various levels, for nearly
all members of staff. There can be no assurance that necessary security
clearances will continue to be made available by the U.S. Government.

  In addition, a significant portion of our revenues are derived from
contracts or subcontracts with the U.S. Government. Our services are performed
pursuant to the following types of contracts:

o    cost reimbursable

o    time-and-materials

o    fixed-price contracts and subcontracts

  Under fixed-price contracts and time-and-materials contracts, we bear any
risk of increased or unexpected costs that may reduce our profits or cause us to
sustain a loss.

  Our U.S. Government contracts and subcontracts are subject to termination,
reduction or modification as a result of changes in the U.S. Government's
requirements or budgetary restrictions, or at the convenience of the U.S.
Government. When we participate as a subcontractor, we are also subject to the
risk that the primary contractor may fail or become unable to perform its duties
and responsibilities as a prime contractor. If a contract were to be terminated
for convenience, we would be reimbursed for allowable costs incurred up to the
date of termination and would be paid a proportionate amount of the stipulated
profits or fees attributable to the work actually performed.

  Contracts with the U.S. Government are generally complex in nature, and
require us to comply with numerous U.S. Government regulations regarding
discrimination in the hiring of personnel, fringe benefits for employees,
safety, safeguarding classified information, responsibility for U.S. Government
property, fire prevention, equipment maintenance, record keeping and accounting,
management qualifications, drug free work place and numerous other matters.

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

                                       14
<PAGE>
 
We rely on a relatively limited number of clients

  We derive a significant portion of revenues from a relatively limited number
of clients. For example, our revenues from the ten most significant clients
accounted for approximately 76.0%, 90.3%, 98.0%, 92.9% and 91.2% of our total
revenues for the years ended December 31, 1998, 1997, 1996, 1995 and 1994,
respectively. Three clients, the U.S. Government, Lockheed Martin Corporation,
and Raytheon Company accounted for approximately 57.2% and 33.3% of our total
revenues for the years ended December 31, 1998 and 1997, respectively. Lockheed
Martin Corporation is our single largest commercial client, accounting for
approximately 16.6%, 22.5% and 22.9% of our total revenues for the years ended
December 31, 1998, 1997 and 1996, respectively.

  Clients typically retain us for major proposals as needed on an engagement
basis rather than pursuant to long-term contracts, and a client can usually
terminate our engagement at any time without a significant penalty. Moreover,
there can be no assurance that our 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 our services
required by an individual client may diminish over the life of our relationship
with us, and there can be no assurance that we will be successful in
establishing relationships with new clients as this occurs.

The markets in which we compete are highly competitive

  The market for proposal management services in the procurement of government
and commercial contracts for aerospace and defense is a niche market with a
number of competitors. 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.

  We recently entered and seek to achieve significant growth in the contract
support services market, however, there can be no assurance that we will be
successful in such efforts. The market for services in the contract support
industry is highly competitive, highly fragmented and subject to rapid change.
Such competition is likely to increase in the future. Many of our competitors
have greater personnel, financial, technical and marketing resources than us.
Such competitors include many larger management consulting firms such as
McKinsey & Company, Booz Allen & Hamilton, and Science Applications
International Corp., as well as the consulting arms of major accounting firms.
We also compete with our clients' in-house resources. This source of competition
may increase as consolidation of the aerospace and defense industry creates
larger organizations. In addition, there can be no assurance that we will be
successful in such efforts. In addition, significant further expense for sales
and marketing may require us to promote a major expansion of our services in
such area. If we are unsuccessful in our efforts to penetrate further the market
for such services, or our current 89.6% win rate in the proposal management
business drops significantly, our growth prospects could be materially and
adversely affected.

Because we believe our proprietary rights are material to our success,
misappropriation of such rights or claims of infringement or legal actions
related to intellectual property could adversely impact our financial condition

  We rely upon a combination of nondisclosure and other contractual arrangements
and trade secret, patent, copyright and trademark laws to protect our
proprietary rights. There can be no assurance that the steps taken by us to
protect our proprietary rights will be adequate to deter misappropriation of
proprietary information or that we will be able to detect unauthorized use and
take appropriate steps to enforce our intellectual property rights.

  Although we believe that our services do not infringe on the intellectual
property rights of others and that we have all rights necessary to utilize the
intellectual property employed in our 

                                       15
<PAGE>
 
business, we are subject to the risk of claims alleging infringement of third-
party intellectual property rights. Any such claims could require us to spend
significant sums in litigation, pay damages, develop non-infringing intellectual
property or acquire licenses to the intellectual property which is the subject
of asserted infringement.

We rely heavily upon our key employees

  Our success is highly dependent upon the efforts, abilities, business
generation capabilities and project execution of our executive officers, in
particular those of Steven S. Myers, our Chief Executive Officer and Chairman of
the Board and Michael A. Piraino, our President and Chief Operating Officer. We
entered into a two-year employment agreement with Mr. Myers in November 1997,
and a three-year employment agreement with Mr. Piraino in December 1998. The
loss of the services of either of these individuals for any reason could
materially and adversely affect our business, operating results and financial
condition, including our ability to secure and complete engagements. We
currently maintain a key-man life insurance policy in the amount of $2.0 million
on Mr. Myers and have obtained a similar policy on Mr. Piraino.

Our quarterly results may fluctuate significantly

  We may experience significant 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 March
29, 1999, the closing sale price has ranged from a low of $8.75 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:

o    quarterly fluctuations in results of operations

o    adverse circumstances affecting the introduction or market acceptance of
     new services offered by us

o    announcements of new services by our competitors

o    our loss of key employees

o    changes in the regulatory environment or market conditions affecting the
     defense and aerospace industry

o    changes in earnings estimates ratings by analysts

o    lack of market liquidity resulting from a relatively small amount of public
     stock float

o    changes in generally accepted accounting principles

o    sales of common stock by existing holders

o    the announcement and market acceptance of proposed acquisitions

  The market price for our common stock may also be affected by our ability to
meet analysts' expectations, and any failure to meet such expectations, even if
minor, could have a material adverse effect on the market price of our common
stock. In addition, the stock market is subject to extreme 

                                       16
<PAGE>
 
price and volume fluctuations. This volatility has had a significant effect on
the market prices of securities issued by many companies for reasons unrelated
to the operating performance of these companies. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. Any such
litigation instigated against us could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on our business, operating results and financial condition.

Year 2000 issues could affect our business

  The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in major system failure or
miscalculations. We have performed a review of our internal systems to identify
and resolve the effect of Year 2000 software issues on the integrity and
reliability of our financial and operational systems.

  Based on this review, our management believes that our internal systems are
substantially compliant with Year 2000 issues. In addition, we are also
communicating with our principal service providers to ensure Year 2000 issues
will not have an adverse impact on us. If we, and third parties upon which we
rely, are unable to address this issue in a timely manner, it could result in a
material financial risk. In order to assure that this does not occur, we plan to
devote all resources required to resolve any significant Year 2000 issues in a
timely manner.

  Additionally, we noted some risk with legacy products marketed and
maintained by us, the vast majority of which have been delivered to the U.S.
Government. Information which we have collected to-date regarding such legacy
products indicates that while some products were designed with date and time
functions, most of our products have been heavily modified by the licensee or by
a third party integrator with whom we have no obligatory agreement.
Consequently, management believes the exposure has been reduced. However, we
will continue to evaluate these products and implement remediation plans, as
deemed appropriate. These products do not affect our internal operations.

Our principal shareholder has significant control over SM&A

  Steven S. Myers, our Chief Executive Officer and Chairman of the Board,
beneficially owns approximately 43.9% 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. Such
concentration of ownership may have the effect of delaying or preventing a
change in control of SM&A and may adversely affect the voting or other rights of
other holders of common stock. Our board of directors is currently comprised
entirely of individuals supported by Mr. Myers.

If we issue preferred stock, the rights of holders of common stock will be
subject to the rights of holders of preferred stock

  Our board of directors has the authority to issue up to ten million shares
of preferred stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any vote or
action by the shareholders. The rights of the holders of the common stock will
be subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. The issuance of the
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock. We have no present plan to issue any shares of
preferred stock.

                                       17
<PAGE>
 
The number of shares available for future sale could adversely affect the price
of our publicly traded stock

  As of April 23, 1999, we had 16, 364.584 shares of common stock outstanding.
As of April 23, 1999, we had outstanding options to acquire, subject to certain
vesting requirements. 1,630,300 shares of common stock pursuant to our 1997
Stock Option Plan. Additionally, in connection with our Acquisition of Space
Applications Corporation, options were granted to purchase an aggregate of
175,906 shares of our common stock. In addition, due to certain price protection
provisions relating to the shares of common stock issued in connection with the
acquisition of Space Applications Corporation, we are required to issue an
aggregate of 537,464 additional shares of common stock to former shareholders of
Space Applications Corporation. We also may be required to issue additional
shares of our common stock upon exercise of stock options by the former SAC
shareholders, depending upon the average closing price of our common stock on
the NASDAQ National Market for the twenty (20) trading days immediately before
the effective data of a registration statement on Form S-6.

  We have registered on a registration statement on Form S-8 all 1,500,00 
shares of common stock underlying the options outstanding or issuable under our 
1997 Stock Option Plan. The possibility that substantial amounts of common stock
may be sold in the public market would likely have a material adverse effect on
prevailing market prices of our common stock and could impair our ability to
raise capital through the sale of our equity securities.

  We issued 819,743 unregistered shares of common stock in the acquisition of
SAC and 714,841 unregistered shares of common stock in the acquisition of DSA.
The common stock has registration demand rights, which were exercised by the
shareholders on February 1, 1999. We have filed the related Form S-3 to register
such shares, and the additional 537,464 shares being issued to the former SAC
shareholders pursuant to the price protection provisions in the SAC acquisition
agreement. In addition, 811,573 shares have also been registered on behalf of
certain other shareholders of the Company.

Overview

  The Company is the largest provider of proposal management and high-end
contract support services.  The Company's proposal management services help its
clients achieve a higher probability of winning government and commercial
contracts while its high-end contract support services enhance its clients'
ability to successfully and efficiently perform on such contracts.  The
Company's clients include leading firms in the aerospace, defense and
communications industries.

  The 1998 acquisitions of SAC and DSA, and the 1999 acquisition of SIS, which
collectively added approximately 480 employees to the Company's workforce,
provide for a greater percentage of the Company's revenues derived from high-end
contract support services.  The majority of these services are with the U.S.
Government.  Within high-end contract support services, two new lines of
business were established, the Information Technology Solutions Group ("ITSG")
and the Systems Solutions Group ("SSG"). ITSG provides information systems
development, scientific research and program management support to the U.S.
Government, principally the Department of Defense.  SSG provides systems
engineering, program management support and technical support to military and
civilian space programs, the intelligence community and the armed services.

                                       18
<PAGE>
 
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

  Net Revenues. Net revenues for the three months ended March 31, 1999 were
$25.3 million compared to $10.7 million for the three months ended March 31,
1998, an increase of $14.6 million or 136.4%. Net revenues from Proposal
Management Services were $10.6 million for the three months ended March 31, 1999
compared to $9.1 million for the comparable three months of the prior year, an
increase of $1.5 million or 16.5%. This increase was attributable to an increase
in the customer base and number of proposals managed as a result of increased
marketing efforts by the Company. Net revenues from high-end contract support
services, specifically Systems Solutions and Information Technology Solutions
were  $9.8 million and $4.9 million, respectively, for the three months ended
March 31, 1999 compared to $1.5 million and -0- for the same three months of
the prior year.  Revenues from high-end contract support services in total
increased $13.2 million or 880% due to the Company expanding their scope of
high-end contract support services as a result of the acquisitions of SAC and
DSA in May and August 1998, respectively.

  Gross Margin. Gross margin was $10.6 million for the three months ended March
31, 1999 compared to $4.7 million for the three months ended March 31, 1998, an
increase of $5.9 million or 125.5%. This increase in gross profit was primarily
attributable to the increase in high end contract support services provided as a
result of the acquisitions of SAC and DSA in May and August 1998, respectively.
As a percentage of net revenues, gross margin decreased to 41.8% compared to
43.8% for the prior year period.  The decrease in gross margin as a percentage
of net revenues was primarily attributable to lower gross margin contributions
from the newly acquired entities.

  Selling, General & Administrative Expenses. Selling, General and
Administrative expenses for the three months ended March 31, 1999 were $5.2
million compared to $1.7 million for the three months ended March 31, 1998, an
increase of $3.5 million or 205.9%. The increase was primarily the result of
increased overhead and facility expenses related to the SAC and DSA
acquisitions, an increase in senior management staff to position the Company for
continued growth, and an increase in facility lease costs.   As a percentage of
total revenues, SG&A expenses were 20.6% for the three months ended March 31,
1999, up from 15.9% for the three months ended March 31, 1998.

  Goodwill Amortization. Amortization of goodwill for the three months ended
March 31, 1999 was $0.3 million due to the Acquisitions.

  Operating Income. Operating income for the three months ended March 31, 1999
was $5.0 million compared to $2.9 million for the three months ended March 31,
1998, an increase of $2.1 million or 72.4%. As a percentage of total revenues,
operating income decreased  to 19.8% for the three months ended March 31, 1999
from 27.1% for the three months ended March 31, 1998.

  Other Income (Expense). Other income, net was $39,000 for the three months
ended March 31, 1999 compared to $69,000 for the same three months of 1998. This
decrease in income was a result of higher interest expense attributable to
increased bank borrowings in the first three months of 1999 and lower interest
income due to fewer cash equivalents in 1999 compared to the same three month
period of 1998.

  Net Income. Net income was $3.0 million for the three months ended March 31,
1999 compared to $1.7 million for the three months ended March 31, 1998, an
increase of $1.3 million or 76.5%.

                                       19
<PAGE>
 
                        LIQUIDITY AND CAPITAL RESOURCES

  For the three months ended March 31, 1999, the Company's net cash used in
operating activities was approximately $736,000, compared to cash flows provided
by operating activities of  $2.6 million in the same period of the prior year.
This change was mainly due to an increase in accounts receivable and costs and
estimated earnings in excess of billings on contracts in progress, and a
decrease in other liabilities.

  Net cash used in investing activities was $4.3 million for the three months
ending March 31, 1999, compared to cash flows provided by investing activities
of $668,000 for the same period of the prior year. The Company's primary uses of
funds on investing activities during the three months ended March 31, 1999  were
the acquisition of SIS in March 1999 and additional costs related to the
acquisitions of DSA and SAC.

  Net cash provided by financing activities was $5.4 million in the three months
ended March 31, 1999, compared to $14.1 million for the same period of the prior
year.  The primary source of cash provided by investing activities for the three
months ended March 31, 1999,  was advances on the bank line of credit of $7.5
million, required due to the deterioration of days sales outstanding in
receivables.  The primary uses of cash on financing activities were the
repayment of $1.0 million of outstanding bank debt and the payment of $1.1
million for the repurchase of 137,000 shares of the Company's outstanding common
stock.

  The Company believes that funds generated by operations will continue to
provide adequate cash to fund its anticipated operating cash needs for at least
the next twelve months.  The Company has a $25 million revolving line of credit
facility with a bank.  The revolving line of credit will be used, as considered
necessary, for operating cash and for future acquisitions.  As of March 31,
1999, the Company had $6.5 million of borrowings outstanding on the line.  The
Company is in discussions with its lenders to increase the size of the credit
facility to $50.0 million, under similar covenant restrictions and other terms.

                                   INFLATION

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

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

  The Company is in the process of investigating the impact of Year 2000
Issues on its business, including the Company's operational, information and
financial systems (e.g. general ledger; payroll, accounts receivable and
payable, etc.). Similarly, non informational systems, such as communication
systems and security systems are also being reviewed. As systems are evaluated
and assessed, a detailed work plan is being developed to ensure that each area
requiring modification or replacement is adequately and timely addressed. At
this time, the Company's work plan continues to indicate that most significant
areas have been or are scheduled to be remedied by December 1999. Such work plan
includes adequate time for remediation of the area, as well as testing to ensure
the remediation efforts 

                                       20
<PAGE>
 
were complete. Additionally, the Company has established an Executive Oversight
Committee to monitor implementation plans and to determine whether all areas
have been assessed and evaluated, resources identified and remediation completed
on a timely basis.

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

  Additionally, management noted some risk with legacy products marketed and
maintained by the Company, the vast majority of which have been delivered to the
U.S. Government. Information collected to-date regarding such legacy products
indicates that while some products were designed with date and time functions,
most products have been heavily modified by the licensee or by a third party
integrator with whom the Company has no obligatory agreement.  Consequently, the
Company's exposure has been reduced. However, the Company will continue to
evaluate these products and implement remediation plans, as deemed appropriate.
These products do not affect internal operations.

  To date, management estimates that the total cost (including hardware,
software and services) incurred by the Company to evaluate, assess and remedy
Year 2000 Issues, has been approximately $200,000. The expected future cost to
complete evaluation, assessment and remediation of Year 2000 Issues, including
replacement if necessary, is expected to range from $300,000 to $1,500,000. The
Company has expensed all internal costs related to the remediation of Year 2000
Issues.

  The cost and the date on which the Company plans to complete the Year 2000
Issue  odifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties. The
Company's total Year 2000 Issue project cost and estimates to complete exclude
the estimated costs and time associated with the impact of a third party's Year
2000 Issue, which are not yet determinable.

  It is difficult to accurately project what the potential risks and
ramifications to the Company may be, in the event timely remediation efforts are
not completed by either the Company or significant third parties. In such an
event, it is possible that the ability to maintain accurate and complete
financial records of the Company's activities and transactions may be impaired.
Such events, should they occur, may significantly impair the Company's ability
to operate as it does today, creating business interruption, potential loss of
business, and earnings and liquidity difficulties. The Company presently
believes that with current and planned modifications to existing software and
conversions to new software, the risk of potential loss associated with the Year
2000 Issue can be mitigated. However, if such modifications and conversions are
not made, or are not completed on a timely basis, the Year 2000 Issue could have
a material impact on the operations of the Company.

  Though the Company's preliminary Year 2000 Issue work plan is believed to be
adequate to achieve compliance on a timely basis, there may be circumstances
that could prevent timely implementation. Accordingly, the Company is designing
its work plan to address this potential occurrence. First, the work plan is
being designed to ensure that the most critical systems and areas 

                                       21
<PAGE>
 
are addressed first, and in a manner that provides adequate time to remediate
and test. Second, the Company has secured external expert resources to assist in
evaluation, assessment, prioritization and implementation of the work plan to
further ensure its success. The Company will continue to monitor and adjust its
contingency plan needs in conjunction with the progress made on the primary work
plan.

FUTURE ACCOUNTING CHANGES

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

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

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


  The American Institute of Certified Public Accountants issued Statement of
Position (SOP) 98-1 in March 1998. SOP 98-1 establishes accounting standards for
costs of internal use software and is effective for financial statements for
fiscal years beginning after December 15, 1998. Management does not anticipate
that the adoption of SOP 98-1 will have a material effect on the company's
results of operations.

                                       22
<PAGE>
 
PART II--OTHER INFORMATION

Item 1. Legal Proceedings

   Not applicable

Item 2. Changes in Securities and Use of Proceeds

        On April 21, 1999 the  Company amended its open market Stock Repurchase
  Program to provide authority for the repurchase of up to an additional 300,000
  shares of its issued and outstanding common stock, bringing the total
  authorized repurchases to an amount up to 600,000 shares.  As of May 10, 1999
  the Company has repurchased 325,000 shares at an average purchase price of 
  $8.25.  These repurchases are made at the sole discretion of the Company's
  management.

Item 3. Defaults Upon Senior Securities

   Not applicable

Item 4. Submission of Matters to Vote of Security Holders

   Not applicable

Item 5. Other Information

   Not applicable

Item 6. Exhibits and Reports on Form 8-K

   (a)  Exhibits

        Exhibit
        -------
        No.
        ---
 
        10.1 *  Agreement and Plan of Reorganization and Merger, dated March 30,
                1999, among SM&A Corporation, Systems Integration Software, SIS
                Acquisition, Inc. and the Individuals named therein.

        10.2 *  Escrow Agreement, dated March 30, 1999, among SM&A Corporation,
                Systems Integration Software, First American Trust Company and 
                the individuals named therein.

        27.1 *  Financial Data Schedule

   (b)  Reports on Form 8-K

        None

        ____________________
        * filed herewith

                                       23
<PAGE>
 
                                  SIGNATURES

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


                                SM&A CORPORATION



Date: May 15, 1999              By:  /s/ Michael A. Piraino
                                    ____________________________________________
                                    Michael A. Piraino
                                    President, Chief Operating Officer,
                                    and Director
 

                                By:  /s/ Michael A. Piraino
                                    ____________________________________________
                                    Michael A. Piraino
                                    Acting Chief Financial Officer and Secretary
                                    (Principal Financial Officer and Principal
                                    Accounting Officer)

                                       24
<PAGE>
 
                                 EXHIBIT INDEX
                                        

   Exhibit               Description
   -------               -----------
   No.                     
   ---          
                
     10.1       Agreement and Plan of Reorganization and Merger, dated March 30,
                1999, among SM&A Corporation, Systems Integration Software, SIS
                Acquisition, Inc. and the Individuals named therein.
                
     10.2       Escrow Agreement, dated March 30, 1999, among SM&A Corporation,
                Systems Integration Software, First American Trust Company and 
                the individuals named therein.
                
     27         Financial Data Schedules (EDGAR)

                                       25