<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  June 30, 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 000-23585

                               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
  ----------------                                            June 30, 1999
    Common Stock                                               16,551,235
<PAGE>

                       SM&A CORPORATION AND SUBSIDIARIES


                                     INDEX


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

<S>                                                                                                              <C>
Item    1   Consolidated Financial Statements

            Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998                                  3

            Consolidated Statements of Earnings for the three months and six months ended June 30, 1999 and        4
            1998

            Consolidated Statements of Cash Flows for the six months ended June 30, 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                                                                      24

Signatures                                                                                                        25
</TABLE>

                                       2
<PAGE>

                       SM&A CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                June 30,         December 31,
                                                                                  1999              1998
                                                                             ---------------   -----------------
<S>                                                                             <C>               <C>
                                   ASSETS
Current Assets:
         Cash and cash equivalents                                               $ 3,926           $   454
         Accounts receivable, net of allowance for doubtful accounts              18,925            15,326
         Costs and estimated earnings in excess of billings
           on contracts in progress, net of allowance                             10,261             7,545
         Prepaid income taxes                                                      1,869             2,085
         Prepaid expenses and other assets                                         1,709               559
                                                                                 -------           -------
           Total current assets                                                   36,690            25,969

Property and equipment                                                             3,519             2,390
Notes receivable  affiliates                                                       2,009             2,832
Other assets                                                                       5,054             3,346
Goodwill                                                                          37,582            31,787
                                                                                 -------           -------
           Total assets                                                          $84,854           $66,324
                                                                                 =======           =======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
         Trade accounts payable                                                  $ 1,783           $ 2,496
         Accrued compensation and payroll taxes                                    7,959             6,585
         Deferred income taxes                                                       265               265
         Other liabilities                                                           168               644
                                                                                 -------           -------
           Total current liabilities                                              10,175             9,990

Deferred income taxes                                                                659               725
Other liabilities                                                                    427               280
Long-term debt, excluding current portion                                         16,850                --
                                                                                 -------           -------
           Total liabilities                                                      28,110            10,995

Shareholders' equity :
         Common stock, no par value                                                  159               165
         Additional paid in capital                                               49,552            54,164
         Retained earnings                                                         7,032             1,000
                                                                                 -------           -------
           Total shareholders' equity                                             56,743            55,329
                                                                                 -------           -------
           Total liabilities and shareholders' equity                            $84,854           $66,324
                                                                                 =======           =======
</TABLE>

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

                                       3
<PAGE>

                       SM&A CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF EARNINGS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                                      Three Months Ended                   Six Months Ended
                                                                            June 30,                            June 30,
                                                              ---------------------------------   ---------------------------------
                                                                   1999              1998              1999              1998
                                                              ---------------   ---------------   ---------------   ---------------
<S>                                                           <C>               <C>               <C>               <C>
Net revenues                                                         $26,927           $12,684           $52,241           $23,343
Cost of revenues                                                      15,665             6,960            30,402            12,948
                                                                     -------           -------           -------           -------
     Gross margin                                                     11,262             5,724            21,839            10,395

Selling, general and administrative expenses                           5,630             2,667            10,853             4,413
Amortization of goodwill and other intangibles                           285                86               630                86
                                                                     -------           -------           -------           -------

     Operating income                                                  5,347             2,971            10,356             5,896

Other income (expense):
     Interest expense                                                   (199)               (7)             (222)              (77)
     Other, net                                                           70             1,136               132             1,275
                                                                     -------           -------           -------           -------
         Income before income taxes                                    5,218             4,100            10,266             7,094

Income tax expense                                                     2,164             1,673             4,234             2,918
                                                                     -------           -------           -------           -------
         Income from continuing operations                             3,054             2,427             6,032             4,176

Income from operations of discontinued business,                                            29                                  29
         Net of income tax benefit
Loss from disposal of discontinued business,                              --                --                --                --
         Net of income tax benefit                                   -------           -------           -------           -------

Net income                                                           $ 3,054           $ 2,456           $ 6,032           $ 4,205
                                                                     =======           =======           =======           =======

Income per share from continuing operations:
         Basic                                                       $  0.19           $  0.16           $  0.37           $  0.28
         Diluted                                                     $  0.19           $  0.16           $  0.37           $  0.28
                                                                     =======           =======           =======           =======
Income per share from discontinued operations:
         Basic                                                       $    --           $    --           $    --           $    --
         Diluted                                                     $    --           $    --           $    --           $    --
                                                                     =======           =======           =======           =======
Net income per share:
         Basic                                                       $  0.19           $  0.16           $  0.37           $  0.28
         Diluted                                                     $  0.19           $  0.16           $  0.37           $  0.28
                                                                     =======           =======           =======           =======
Weighted average common shares outstanding:
         Basic                                                        16,090            15,297            16,301            14,825
         Diluted                                                      16,247            15,630            16,471            15,042
                                                                     =======           =======           =======           =======
</TABLE>



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

                                       4
<PAGE>

                       SM&A CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                           Six Months Ended
                                                                                               June 30,
                                                                                     --------------------------
                                                                                      1999                 1998
                                                                                      ----                 ----
<S>                                                                                  <C>                 <C>
Cash flows from operating activities:
    Net income                                                                     $ 6,032             $  4,205
    Adjustments to reconcile net income to net cash
    (used in) provided by operating activities:
              Depreciation and amortization                                          1,113                  140
              Deferred income taxes                                                     --                 (821)
              Changes in assets and liabilities, net of effect
                   of acquisitions:
                    Accounts receivable, net                                        (4,885)                (551)
                    Costs and estimated earnings in excess of billings              (3,732)                  --
                    Prepaid expenses and other assets                               (2,664)                (439)
                    Trade accounts payable                                            (765)              (1,178)
                    Accrued compensation and payroll taxes                           1,357                  359
                    Income taxes                                                       252                  161
                    Other liabilities                                                 (474)                (465)
                                                                                   -------             --------
                         Net cash (used in) provided by operating activities        (3,766)               2,243
Cash flows from investing activities:
    Acquisition, net of cash acquired                                               (3,393)             (17,134)
    Additional expenditures related to acquisitions                                   (757)                  --
    Purchases of property and equipment                                             (1,627)                 (95)
    Collection of advances to shareholder                                              823                  679
                                                                                   -------             --------
                         Net cash used in investing activities                      (4,954)             (16,550)
Cash flows from financing activities:
    Proceeds from issuance of common stock                                             329               39,790
    Advances (repayments) of long-term debt, net                                    16,811               (8,706)
    Distributions to shareholders                                                       --                 (710)
    Common stock repurchases                                                        (4,948)                  --
                                                                                   -------             --------
    Net cash provided by financing activities                                       12,192               30,374
    Net increase in cash and cash equivalents                                        3,472               16,067
Cash at beginning of period                                                            454                  150
                                                                                   -------             --------
Cash at end of period                                                              $ 3,926             $ 16,217
                                                                                   =======             ========
Supplemental information-Cash paid for:
              Interest                                                             $    85             $    149
              Income taxes                                                         $ 3,892             $  1,967
                                                                                   =======             ========
</TABLE>
     Supplemental schedule of noncash investing activity:

<TABLE>
<CAPTION>
Detail of business acquired and other purchase accounting adjustments as follows (in thousands):
<S>                                                                               <C>
        Cash consideration paid for acquisition                                       $3,263
        Plus acquisition expenses                                                        155
        Less cash acquired in acquisition                                                (25)
                                                                                      ------
             Cash paid for acquisition, net of cash acquired                          $3,393
                                                                                      ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

                                       5
<PAGE>

                       SM&A CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        For the Three Months and Six Months Ended June 30, 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. SAC, DSA and SIS are
collectively referred to as "the Acquisitions".  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. 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 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 and six months ended June 30,
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 income of the Company on an undiscounted cash-flow basis.
Should the carrying value of goodwill exceed the estimated operating income for
the expected period of benefit, an impairment for the excess would be recorded
at that time.  As of June 30, 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.

                                       6
<PAGE>

                       SM&A CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  - Continued

              For the Three Months and Six Months Ended June 30, 1999 and 1998

Additional supplementary information which includes the historical pro-forma
financial statements of the Company prior to its IPO is included in Form S-1
filed by the Company with the Securities and Exchange Commission on January 28,
1998, as amended (the "S-1"). Due to the Company converting from an S
corporation to a C corporation, the information found in the S-1 filing includes
pro forma operating results. These pro formas reflect an adjustment of salaries
and bonuses paid to three principal executive officers (which have historically
been included in selling, general, and administrative expenses) in excess 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 prior period financial
statements to conform to current period presentation.

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              Six Months Ended
                                                        June 30,                       June 30,
                                                   -------------------           --------------------
                                                   1999           1998           1999            1998
                                                   ----           ----           ----            ----
<S>                                               <C>           <C>            <C>             <C>
Numerator:
Numerator for basic and diluted
   income per common share net earnings           $ 3,054       $ 2,456        $ 6,032         $ 4,205
                                                  -------       -------        -------         -------
Denominator:
Denominator for basic income
   per share  weighted average shares
   outstanding during the period                   16,090        15,297         16,301          14,825

Incremental common shares attributable
   to dilutive outstanding stock options              157           333            170             217
                                                  -------       -------        -------         -------
Denominator for diluted income per
   common share                                    16,247        15,630         16,471          15,042
                                                  -------       -------        -------         -------
Basic net income per common share:                $   .19       $   .16        $   .37         $   .28
                                                  =======       =======        =======         =======
Diluted net income per common share:              $   .19       $   .16        $   .37         $   .28
                                                  =======       =======        =======         =======
</TABLE>

                                       7
<PAGE>

                       SM&A CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

        For the Three Months and Six Months Ended June 30, 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 all 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 $14.4 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
issued 703,530 additional shares of common stock to former shareholders of SAC
based 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 had
demand registration rights.  The shareholders exercised such demand rights on
February 1, 1999 and 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 -- (Continued)

        For the Three Months and Six Months Ended June 30, 1999 and 1998

  The Company recorded goodwill of approximately $38.7 million as a result of
the Acquisitions.  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                                      (11,873)
   Acquisition costs                                          1,503
                                                           --------

   Goodwill                                                  38,660
   Less accumulated amortization                             (1,078)
                                                           --------
   Goodwill, net                                           $ 37,582
                                                           ========
</TABLE>

  The following table presents unaudited historical results of operations for
the three months and six months ended June 30, 1999 and unaudited pro forma
results of operations for three months and six months ended June 30, 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                  Six Months Ended
                                                   June 30,                           June 30,
                                             --------------------               --------------------
                                             1999            1998                1999           1998
                                             ----            ----                ----           ----
<S>                                        <C>             <C>                  <C>            <C>
  Net revenue                               $26,927          $25,001            $52,241    $48,863
                                            =======          =======
  Income from continuing operations           3,054            1,213              6,032      3,646
  Income from discontinued operations            --               27                 --         58
                                            -------          -------            -------    -------

  Net income                                $ 3,054          $ 1,240            $ 6,032    $ 3,704
                                            =======          =======            =======    =======

  Net income per share:
   Basic                                    $   .19          $   .08            $   .37    $   .23
   Diluted                                  $   .19          $   .07            $   .37    $   .22
                                            =======          =======            =======    =======
  Weighted average shares outstanding:
   Basic                                     16,090           16,373             16,301     16,373
   Diluted                                   16,247           16,758             16,471     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 -- (Continued)

        For the Three Months and Six Months Ended June 30, 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 provided for a $25.0 million revolving line of credit. Subsequently, in
June 1999, the Company renegotiated with its lenders to increase the amount
provided under the agreement to $50.0 million. The credit agreement, which is
secured by a first priority interest in substantially all of the assets of the
Company, matures in May 2004 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
fees on the unused portion of the facility and contains certain covenants. The
most restrictive covenant requires the Company to maintain minimum consolidated
net worth, as defined in the credit agreement. As of June 30, 1999, the Company
was in compliance with all covenants. The Company had $16,850,000 outstanding
under the credit agreement at June 30, 1999 at an effective interest rate of
7.75%.

                                       10
<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 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

                                       12
<PAGE>

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>

There 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 our 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 win rate of approximately 90% 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 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

                                       15
<PAGE>

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 June
30, 1999 the closing sale price has ranged from a low of $6.06 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

                                       16
<PAGE>

    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 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 43.6% of our outstanding common stock at June
30, 1999 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 June 30, 1999, we had 16,551,235 shares of common stock outstanding.
As of June 30, 1999, we had outstanding options to acquire, subject to certain
vesting requirements, 1,653,900 shares of common stock pursuant to our 1997
Stock Option Plan. Additionally, in connection with our acquisition of SAC,
options were granted to purchase an aggregate of 175,906 shares of common stock.

    We have registered on a registration statement on Form S-8 all 2,500,000
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.

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.

THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998

  Net Revenues. Net revenues for the three months ended June 30, 1999 were $26.9
million compared to $12.7 million for the three months ended June 30, 1998, an
increase of $14.2 million or 111.9%. Net revenues from Proposal Management
Services were $8.2 million for the three months ended June 30, 1999 compared to
$8.2 million for the comparable three months of the prior year. Net revenues
from high-end contract support services, specifically SSG and ITSG were $13.5
million and $5.2 million, respectively, for the three months ended June 30, 1999
compared to $4.5 million and nothing for the same three months of the prior
year. Revenues from high-end contract support services in total increased $14.2
million or 315.6% due to the Company expanding their scope of high-end contract
support services as a result of the acquisitions of SAC, DSA and SIS in May and
August 1998, and March 1999, respectively.

  Gross Margin. Gross margin was $11.3 million for the three months ended June
30, 1999 compared to $5.7 million for the three months ended June 30, 1998, an
increase of $5.6 million or 98.3%. 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, DSA and SIS in May and August 1998, and March
1999, respectively. As a percentage of net revenues, gross margin decreased to
42.0% compared to 44.9% 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.

                                       18
<PAGE>

  Selling, General & Administrative Expenses. Selling, General and
Administrative expenses for the three months ended June 30, 1999 were $5.6
million compared to $2.7 million for the three months ended June 30, 1998, an
increase of $2.9 million or 107.4%. The increase was primarily the result of
increased overhead and facility expenses related to the 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, Selling, General and Administrative expenses were substantially the
same for both periods.

  Goodwill Amortization. Amortization of goodwill for the three months ended
June 30, 1999 was $285,000 due to the Acquisitions.

  Operating Income. Operating income from continuing operations for the three
months ended June 30, 1999 was $5.3 million compared to $3.0 million for the
three months ended June 30, 1998, an increase of $2.3 million or 76.7%. As a
percentage of total revenues, operating income decreased  to 19.7% for the three
months ended June 30, 1999 from 23.6% for the three months ended June 30, 1998.

  Other Income (Expense). Other expense, net was $129,000 for the three months
ended June 30, 1999 compared to other income, net of $1,129,000 for the same
three months of 1998. The 1998 amount included income of $880,000 from the sale
of an aircraft. The balance of the decrease in income was a result of higher
interest expense attributable to increased bank borrowings in the three months
ended June 30, 1999 and lower interest income due to fewer cash equivalents in
1999 compared to the same three month period of 1998.

  Income From Continuing Operations. Income from continuing operations was $3.1
million for the three months ended June 30, 1999 compared to $2.4 million for
the three months ended June 30, 1998, an increase of $.7 million or 29.2%.

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998

  Net Revenues. Net revenues for the six months ended June 30, 1999 were $52.2
million compared to $23.3 million for the six months ended June 30, 1998, an
increase of $28.9 million or 124.0%. Net revenues from Proposal Management
Services were $18.8 million for the six months ended June 30, 1999 compared to
$17.3 million for the comparable six months of the prior year, an increase of
$1.5 million or 8.7%. This increase was attributable to continued strong demand
for the Company's proposal management services and an increased customer base.
Net revenues from high-end contract support services, specifically SSG and ITSG
were $23.3 million and $10.1 million, respectively, for the six months ended
June 30, 1999 compared to $6.0 million and nothing for the same six months of
the prior year. Revenues from high-end contract support services in total
increased $27.4 million or 456.7% due to the Company expanding the scope of
high-end contract support services as a result of the acquisitions of SAC,
DSA and SIS in May and August 1998 and March 1999, respectively.

  Gross Margin. Gross margin was $21.8 million for the six months ended June 30,
1999 compared to $10.4 million for the six months ended June 30, 1998, an
increase of $11.4 million or 109.6%. 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, DSA and SIS in May and August 1998 and March
1999, respectively. As a percentage of net revenues, gross margin decreased to
41.8% compared to 44.6% 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 six months ended June 30, 1999 were $10.9
million compared to $4.4 million for the six months ended June 30, 1998, an
increase of $6.5 million or 147.7%. The increase was primarily the result of
increased overhead and facility expenses related to the 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, Selling, General and Administrative expenses were 20.9% for the six
months ended June 30, 1999, up from 18.9% for the six months ended June 30, 1998

                                       19
<PAGE>

  Goodwill Amortization. Amortization of goodwill for the six months ended June
30, 1999 was $630,000 due to the Acquisitions.

  Operating Income. Operating income from continuing operations for the six
months ended June 30, 1999 was $10.4 million compared to $5.9 million for the
six months ended June 30, 1998, an increase of $4.5 million or 76.3%. As a
percentage of total revenues, operating income decreased  to 19.9% for the six
months ended June 30, 1999 from 25.3% for the six months ended June 30, 1998.

  Other Income (Expense). Other expense, net was $90,000 for the six months
ended June 30, 1999 compared to other income, net of $1,198,000 for the same six
months of 1998. The 1998 amount included income of $880,000 from the sale of an
aircraft. The balance of the decrease in income was a result of higher interest
expense attributable to increased bank borrowings in the six months ended June
30, 1999 and lower interest income due to fewer cash equivalents in 1999
compared to the same six month period of 1998.

  Income From Continuing Operations. Income from continuing operations was $6.0
million for the six months ended June 30, 1999 compared to $4.2 million for the
three months ended June 30, 1998, an increase of $1.8 million or 42.9%.

                        LIQUIDITY AND CAPITAL RESOURCES

  For the six months ended June 30, 1999, the Company's net cash used in
operating activities was approximately $3.8 million, compared to cash flows
provided by operating activities of  $2.2 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 $5.0 million for the six months
ending June 30, 1999, compared to cash flows used in investing activities of
$16.6 million for the same period of the prior year. The Company's primary uses
of funds on investing activities during the six months ended June 30, 1999 were
the acquisition of SIS in March 1999, additional costs related to the
acquisitions of DSA and SAC, and purchases of new office furniture and computer
equipment related to the east coast operations move into the Company's new
facility.

  Net cash provided by financing activities was $12.2 million in the six months
ended June 30, 1999, compared to $30.4 million for the same period of the prior
year.  The primary source of cash provided by investing activities for the six
months ended June 30, 1999, was advances on the bank line of credit of $17.8
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 $4.9
million for the repurchase of 680,000 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 $50 million revolving line of credit
facility with three banks.  The revolving line of credit will be used, as
considered necessary, for operating cash and for future acquisitions.  As of
June 30, 1999, the Company had $16.9 million of borrowings outstanding on the
line.

                                   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.

                                       20
<PAGE>

                                   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 ("Year 2000 Issues"). 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 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 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
Issues modifications 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 Issues project cost and estimates to complete exclude
the estimated costs and time associated with the impact of a third party's Year
2000 Issues, which are not yet determinable.

                                       21
<PAGE>

  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 Issues 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 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 ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). In July 1999, the FASB issued
SFAS 137 deferring the effective date of SFAS 133 until June 30, 2000. 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 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.

                                       22
<PAGE>

PART II--OTHER INFORMATION

Item 1. Legal Proceedings

   Not applicable

Item 2.  Changes in Securities and Use of Proceeds

     On June 8, 1999 the Company announced the amendment of its open market
  Stock Repurchase Program to provide authority for the repurchase of up to
  800,000 shares of its issued and outstanding common stock. As of June 23, 1999
  the Company has repurchased 680,000 shares at an average purchase price of $
  7.24.  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

     On May 18, 1999, the Company held its Annual Meeting of Shareholders. At
  the meeting, the shareholders elected as directors Steven S. Myers (with
  13,379,738 affirmative votes and 76,546 votes withheld), Michael A. Piraino
  (with 13,383,994 affirmative votes and 72,290 votes withheld), J. Christopher
  Lewis (with 13,383,994 affirmative votes and 72,290 votes withheld), James R.
  Mellor (with 13,383,994 affirmative votes and 72,290 votes withheld), and
  Malcom R. Currie (with 13,389,543 affirmative votes and 66,741 votes withheld.
  The shareholders also approved the following: (i) an amendment to the
  Company's 1997 Stock Option Plan to increase the number of shares of common
  stock available for issuance thereunder to 2,500,000 (with 12,133,216 shares
  voting for, 1,322,068 against, and 1,000 abstaining); (ii) the adoption of the
  Company's Employee Stock Purchase Plan (with 12,932,571 shares voting for,
  523,713 against, and none abstaining); and (iii) the ratification of the
  appointment of KPMG LLP as the independent public accountants for the Company
  for the fiscal year ending December 31, 1999 (with 13,452,219 shares voting
  for, 4,065 against, and none abstaining).



Item 5.  Other Information

   Not applicable

                                       23
<PAGE>

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

     Exhibit
     -------
     No.
     ---


     10.1*.  Amended and Restated Credit and Security Agreement, dated as of
             June 7, 1999 between SM&A Corporation, the Lenders set forth
             therein, Mellon Bank, N.A., as agent for the Lenders, and Wells
             Fargo Bank, N.A., as co-agent for the Lenders.

     10.2*.  Promissory Note ($15,000,000), dated June 7, 1999, payable to
             Wells Fargo  Bank, N.A.

     10.3*.  Promissory Note ($10,000,000), dated June 7, 1999, payable to
             Imperial Bank

     10.4*.  Promissory Note ($25,000,000), dated June 7, 1999, payable to
             Mellon Bank, N.A.


     10.5*.  Security Agreement dated as of June 7, 1999, between Mellon Bank,
             N.A., as agent for the Lender Group and SM&A Corporation (EAST).

     10.6*.  Security Agreement dated as of June 7, 1999, between Mellon Bank,
             N.A., as agent for the Lender Group, and Systems Integration
             Software.

     10.7*.  General Continuing Guaranty, dated as of June 7, 1999, by Systems
             Integration Software, in favor of Mellon Bank, N.A. as agent for
             the Lender Group.

     10.8*.  General Continuing Guaranty, dated as of June 7, 1999, by SM&A
             Corporation (EAST), in favor of Mellon Bank, N.A., as agent for
             the Lender Group.

     10.9*.  Allonge to Promissory Note by Summit Aviation, Inc., dated June 1,
             1999.

     10.10+. Amendment No. 1 to Common Stock Purchase Agreement between Summit
             Aviation, Inc. and SM&A Corporation (East), dated June 1, 1999.

     27.1*.  Financial Data Schedule

(b)  Reports on Form 8-K

     None

     -----------------------
     * filed herewith
     + to be filed by amendment

                                       24
<PAGE>

                                   SIGNATURE



  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: August 16, 1999

                                      By: /S/ Edward A. Beeman
                                          --------------------
                                          Edward A. Beeman
                                          Senior Vice President, Chief Financial
                                          Officer and Secretary
                                          (Principal Financial Officer)

                                       25
<PAGE>

                                 EXHIBIT INDEX


                 Description
                 -----------

10.1   Amended and Restated Credit and Security Agreement, dated as of June 7,
       1999 between SM&A Corporation, the Lenders set forth therein, Mellon
       Bank, N.A., as agent for the Lenders, and Wells Fargo Bank, N.A., as co-
       agent for the Lenders.
10.2   Promissory Note ($15,000,000), dated June 7, 1999, payable to Wells Fargo
       Bank, N.A.
10.3   Promissory Note ($10,000,000), dated June 7, 1999, payable to Imperial
       Bank.
10.4   Promissory Note ($25,000,000), dated June 7, 1999, payable to Mellon
       Bank, N.A.
10.5   Security Agreement dated as of June 7, 1999, between Mellon Bank, N.A.,
       as agent for the Lender Group and SM&A Corporation (EAST).
10.6   Security Agreement dated as of June 7, 1999, between Mellon Bank, N.A.,
       as agent for the Lender Group, and Systems Integration Software.
10.7   General Continuing Guaranty, dated as of June 7, 1999, by Systems
       Integration Software, in favor of Mellon Bank, N.A. as agent for the
       Lender Group.
10.8   General Continuing Guaranty, dated as of June 7, 1999, by SM&A
       Corporation (EAST), in favor of Mellon Bank, N.A., as agent for the
       Lender Group.
10.9   Allonge to Promissory Note by Summit Aviation, Inc., dated June 1, 1999.
10.10+ Amendment No. 1 to Common Stock Purchase Agreement between Summit
       Aviation, Inc. and SM&A Corporation (East) dated June 1, 1999.
27.1   Financial Data Schedules (EDGAR)

+ to be filed by amendment
                                       26