**SECURITIESAND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549**

**FORM 10-Q**

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

 

**For thequarterly period ended March 31, 2007**

**OR**

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

 

**For thetransition period from       to        **

**Commissionfile number 0-23585.**

**SM&A**(Exact name ofregistrant as specified in its charter)
| **Delaware**                                                                                | **33-0080929**                                |
|---------------------------------------------------------------------------------------------|-----------------------------------------------|
| (State  or other jurisdiction of incorporation or organization)

                      | (I.R.S.  Employer Identification No.)

  |
| **4695  MacArthur Court, 8****th Floor, Newport Beach, California**                    | **92660**                                     |
| (Address  of principal executive offices)

                                            | (Zip  Code)

                            |
| **(949)  975-1550**                                                                         |
| (Registrant’s  telephone number, including area code)

                           |
| **Not  applicable**                                                                         |
| (Former  name, former address and former fiscal year, if changed since last report)

  |

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes x      Noo

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule12b-2 of the Exchange Act. (Check one):

Large accelerated filer o      Accelerated filer x     Non-accelerated filer o

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

Yes o      Nox

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date:

**CommonStock, $0.0001 par value—18,725,930 shares outstanding as of March 31, 2007**

 

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**SM&A**

**Index**
|                                                 | ** ** | ** **                                                                                                       | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| **PART  I.   FINANCIAL  INFORMATION** | ** ** | ** **                                                                                                       | ** ** |
|                                            |       | Cautionary Statement Related to Forward Looking  Statements                                                      |       |       |       |
|                                            |       | How to Obtain  SM&A SEC Filings                                                                              |       |       |       |
| Item 1.                                         |       | Financial Statements:                                                                                            |       |       |       |
|                                            |       | Condensed Consolidated Balance Sheets as of March 31,  2007 (unaudited) and December 31, 2006                    |       |       |       |
|                                            |       | Condensed  Consolidated Statements of Income for the three months ended  March 31, 2007 and 2006 (unaudited)     |       |       |       |
|                                            |       | Condensed  Consolidated Statements of Cash Flows for the three months ended  March 31, 2007 and 2006 (unaudited) |       |       |       |
|                                            |       | Notes to Condensed Consolidated Financial Statements  (unaudited)                                                |       |       |       |
| Item 2.                                         |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                      |       |       |       |
| Item 3.                                         |       | Quantitative and Qualitative Disclosures About Market  Risk                                                      |       |       |       |
| Item 4.                                         |       | Controls and Procedures                                                                                          |       |       |       |
| **PART  II.   OTHER  INFORMATION**    | ** ** | ** **                                                                                                       | ** ** |
| Item  1.                                        |       | Legal  Proceedings                                                                                               |       |       |       |
| Item  1A.                                       |       | Risk Factors                                                                                                     |       |       |       |
| Item 2.                                         |       | Changes in Securities, Use of Proceeds and Issuer  Purchase of Equity Securities                                 |       |       |       |
| Item 3.                                         |       | Defaults Upon Senior Securities                                                                                  |       |       |       |
| Item 4.                                         |       | Submission of Matters to a Vote of Security Holders                                                              |       |       |       |
| Item  5.                                        |       | Other  Information                                                                                               |       |       |       |
| Item 6.                                         |       | Exhibits                                                                                                         |       |       |       |
| **SIGNATURES**                                  | ** ** | ** **                                                                                                       | ** ** |

 

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**CAUTIONARY STATEMENTRELATED TO FORWARD LOOKING STATEMENTS**

*This QuarterlyReport on Form 10-Q includes certain forward-looking statements as definedwithin Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended, relating to revenue,revenue composition, earnings, projected plans, performance, contractprocurement, demand trends, future expense levels, trends in average headcountand gross margins, and the level of expected capital expenditures. Suchforward-looking statements are based on the beliefs of, estimates made by, andinformation currently available to SM&A management and are subject tocertain risks, uncertainties and assumptions. Any statements contained herein(including without limitation statements to the effect that the Company ormanagement “estimates,” “expects,” “anticipates,” “plans,” “believes,” “projects,”“continues,” “may,” “will,” “could,” or “would” or statements concerning “potential”or “opportunity” or variations thereof or comparable terminology or thenegative thereof) that are not statements of historical fact should beconstrued as forward-looking statements. The actual results of SM&A mayvary materially from those expected or anticipated in these forward-lookingstatements.  The realization of suchforward-looking statements may be impacted by certain important unanticipatedfactors including those discussed in “Risk Factors” under Item 1A, and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,” atpages 12-14. Because of these and other factors that may affect SM&A’soperating results, past performance should not be considered as an indicator offuture performance, and investors should not use historical results toanticipate results or trends in future periods. The Company undertakes no obligation to publicly release the results ofany revisions to these forward-looking statements that may be made to reflectevents or circumstances after the date hereof or to reflect the occurrence ofunanticipated events.  Readers shouldcarefully review the risk factors described in this and other documents thatSM&A files from time to time with the Securities and Exchange Commission (“SEC”),including subsequent Current Reports on Form 8-K, Quarterly Reports on Form10-Q and Annual Reports on Form 10-K.*

**HOW TO OBTAIN SM&ASEC FILINGS**

*All reports filedby SM&A with the SEC are available free of charge via EDGAR through the SECwebsite at www.sec.gov. In addition, the public may read and copy materialsfiled by the Company with the SEC at the SEC’s public reference room located at450 Fifth St., N.W., Washington, D.C. 20549. SM&A also provides copies ofits Forms 8-K, 10-K, 10-Q, Proxy and Annual Report at no charge to investorsupon request and makes electronic copies of its most recently filed reportsavailable through its website at www.smawins.com as soon as reasonablypracticable after filing such material with the SEC.*

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**SM&ACONDENSED CONSOLIDATED BALANCE SHEETS**

**(in thousands)**
| ** **                                     | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                     | ** ** | **(unaudited)**          | ** ** | ** **                  | ** ** |
| **ASSETS**                                     |       |                     |       |                        |       |
| Current assets:                                |       |                     |       |                        |       |
| Cash and cash  equivalents                     |       | $                        | 4,645      |                        | $          | 15,143 |   |
| Investments                                    |       | 4,000                    |       | —                      |       |
| Accounts  receivable, net                      |       | 24,183                   |       | 15,759                      |       |
| Prepaid expenses  and other current assets     |       | 743                      |       | 341                         |       |
| Prepaid income  taxes                          |       | —                   |       | 286                         |       |
| Deferred tax  asset — current             |       | 197                      |       | 244                         |       |
| Total current  assets                          |       | 33,768                   |       | 31,773                      |       |
| Fixed assets, net                              |       | 3,642                    |       | 3,446                       |       |
| Goodwill                                       |       | 3,283                    |       | —                      |       |
| Intangibles, net                               |       | 1,133                    |       | —                      |       |
| Deferred tax asset                             |       | 478                      |       | 354                         |       |
| Other assets                                   |       | 167                      |       | 53                          |       |
|                                           |       | $                        | 42,471     |                        | $          | 35,626 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY** | ** ** | ** **               | ** ** | ** **                  | ** ** |
|  Current liabilities:                     |       |                     |       |                        |       |
| Accounts payable                               |       | $                        | 1,664      |                        | $          | 1,232 |   |
| Accrued  compensation and related benefits     |       | 5,119                    |       | 2,112                       |       |
| Income taxes  payable                          |       | 52                       |       | —                      |       |
| Net liabilities  of discontinued operations    |       | —                   |       | 42                          |       |
| Total current  liabilities                     |       | 6,835                    |       | 3,386                       |       |
| Deferred income taxes                          |       | 119                      |       | 91                          |       |
| Other liabilities                              |       | 551                      |       | 553                         |       |
| Total  liabilities                             |       | 7,505                    |       | 4,030                       |       |
|                                           |       |                     |       |                        |       |
| Commitments and  contingencies                 |       |                     |       |                        |       |
|                                           |       |                     |       |                        |       |
| Stockholders’ equity:                     |       |                     |       |                        |       |
| Preferred stock                                |       | —                   |       | —                      |       |
| Common stock                                   |       | 2                        |       | 2                           |       |
| Additional paid  in capital                    |       | 42,654                   |       | 39,893                      |       |
| Treasury stock                                 |       | (1,506                   | )          | (664                        | )          |
| Accumulated  deficit                           |       | (6,184                   | )          | (7,635                      | )          |
| Total  stockholders’ equity               |       | 34,966                   |       | 31,596                      |       |
|                                           |       | $                        | 42,471     |                        | $          | 35,626 |   |

 

*See accompanying notes to condensed consolidatedfinancial statements.*

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**SM&ACONDENSED CONSOLIDATED STATEMENTS OF INCOME**

**(in thousands, except per shareamounts)**(UNAUDITED)
| ** **                                        | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                        | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                                              |       |                                             |       |   |   |
| Revenue                                           |       | $                                                | 23,624     |   | $ | 17,715 |   |
| Cost of revenue                                   |       | 14,417                                           |       | 10,574 |   |
| Gross margin                                      |       | 9,207                                            |       | 7,141 |   |
|                                              |       |                                             |       |   |   |
| Selling, general  and administrative expenses     |       | 6,894                                            |       | 5,328 |   |
| Operating income                                  |       | 2,313                                            |       | 1,813 |   |
|                                              |       |                                             |       |   |   |
| Interest income                                   |       | 143                                              |       | 192 |   |
|                                              |       |                                             |       |   |   |
| Income before  income taxes                       |       | 2,456                                            |       | 2,005 |   |
|                                              |       |                                             |       |   |   |
| Income tax  expense                               |       | 1,005                                            |       | 826 |   |
|                                              |       |                                             |       |   |   |
| Net income                                        |       | $                                                | 1,451      |   | $ | 1,179 |   |
|                                              |       |                                             |       |   |   |
| Net income per  share:                            |       |                                             |       |   |   |
| Basic                                             |       | $                                                | 0.08       |   | $ | 0.06 |   |
| Diluted                                           |       | $                                                | 0.08       |   | $ | 0.06 |   |
|                                              |       |                                             |       |   |   |
| Shares used in  calculating net income per share: |       |                                             |       |   |   |
| Basic                                             |       | 18,609                                           |       | 19,819 |   |
| Diluted                                           |       | 18,800                                           |       | 20,043 |   |

 

*See accompanying notes to condensed consolidatedfinancial statements.*

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**SM&ACONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(inthousands)(UNAUDITED)**
| ** **                                                                                   | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                                                   | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**                                                   | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Net income                                                                                   |       | $                                                | 1,451      |   | $ | 1,179 |   |
| Adjustments to  reconcile net income to net cash (used in) provided by operating activities: |       |                                             |       |   |   |
| Depreciation and  amortization                                                               |       | 274                                              |       | 163 |   |
| Deferred income  taxes                                                                       |       | (49                                              | )          | (79 | ) |
| Stock-based  compensation expense                                                            |       | 400                                              |       | 315 |   |
| Changes in  operating assets and liabilities:                                                |       |                                             |       |   |   |
| Accounts  receivable                                                                         |       | (7,877                                           | )          | (1,376 | ) |
| Prepaid expense  and other assets                                                            |       | (402                                             | )          | (259 | ) |
| Prepaid income  taxes                                                                        |       | 286                                              |       | 924 |   |
| Accounts payable                                                                             |       | 432                                              |       | (342 | ) |
| Accrued  compensation and related benefits                                                   |       | 2,749                                            |       | 1,389 |   |
| Income taxes  payable                                                                        |       | 52                                               |       | 26 |   |
| Other  liabilities                                                                           |       | (2                                               | )          | 7 |   |
| Net cash (used in)  provided by operating activities                                         |       | (2,686                                           | )          | 1,947 |   |
| ** **                                                                                   | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **CASH FLOWS FROM INVESTING  ACTIVITIES:**                                                   | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Purchases of  marketable securities                                                          |       | (6,000                                           | )          | — |   |
| Proceeds from  disposal of marketable securities                                             |       | 2,000                                            |       | — |   |
| Cost of  acquisition, net of cash acquired                                                   |       | (2,674                                           | )          | — |   |
| Purchases of  fixed assets                                                                   |       | (402                                             | )          | (510 | ) |
| Net cash used in  investing activities                                                       |       | (7,076                                           | )          | (510 | ) |
| ** **                                                                                   |       |                                             | ** ** | ** ** | ** ** |
| **CASH FLOWS FROM FINANCING  ACTIVITIES:**                                                   |       |                                             | ** ** | ** ** | ** ** |
| Proceeds from  issuance of common stock                                                      |       | 148                                              |       | 160 |   |
| Payment for  repurchase of shares                                                            |       | (842                                             | )          | (1,373 | ) |
| Net cash used in  financing activities                                                       |       | (694                                             | )          | (1,213 | ) |
|                                                                                         |       |                                             |       |   |   |
| Net (decrease)  increase in cash and cash equivalents from continued operations              |       | (10,456                                          | )          | 224 |   |
| Net cash used in  discontinued operations by operating activities                            |       | (42                                              | )          | (97 | ) |
| Net (decrease)  increase in cash and cash equivalents                                        |       | (10,498                                          | )          | 127 |   |
| Cash and cash  equivalents at beginning of period                                            |       | 15,143                                           |       | 19,103 |   |
| Cash and cash  equivalents at end of period                                                  |       | $                                                | 4,645      |   | $ | 19,230 |   |
|                                                                                         |       |                                             |       |   |   |
| **SUPPLEMENTAL DISCLOSURE OF  NON-CASH TRANSACTIONS:**                                       |       |                                             |       |   |   |
| Common stock issued for an acquisition                                                       |       | $                                                | 2,213      |   | $ | — |   |

 

*See accompanying notes to condensed consolidatedfinancial statements.*

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**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**For the ThreeMonths Ended March 31, 2007 and 2006(UNAUDITED)**

**Note 1.       Basis of Presentation and SignificantAccounting Policies**

The condensed consolidated financial statements includedherein are unaudited; such financial statements contain all normal recurringaccruals and adjustments that, in the opinion of management, are necessary topresent fairly the consolidated financial position of SM&A at March 31,2007, the consolidated results of operations for the three months ended March31, 2007 and 2006, and cash flows for the three months ended March 31, 2007 and2006.  Comprehensive income is equivalentto net income for the three month periods ended March 31, 2007 and 2006,respectively.

It should be understood that accounting measurements atinterim dates inherently involve greater reliance on estimates than atyear-end.  The results of operations forthe three months ended March 31, 2007 are not necessarily indicative of theresults to be expected for the full fiscal year.

The accompanying unaudited condensed consolidated financialstatements do not include footnotes and certain financial presentationsnormally required under generally accepted accounting principles.  Therefore, these financial statements shouldbe read in conjunction with our audited consolidated financial statements andnotes thereto for the year ended December 31, 2006, included in our AnnualReport on Form 10-K/A filed with the Securities and Exchange Commission (“SEC”)on March 16, 2007.

***Recent AccountingPronouncements***

In June 2006, theFinancial Accounting Standards Board (“FASB”) issued Financial AccountingStandards Board Interpretation No. 48, *“Accountingfor Uncertainty in Income Taxes”* (“FIN 48”).  FIN 48 is aninterpretation of Statement of Financial Accounting Standards (“SFAS”)No. 109, *“Accounting for Income Taxes.”*FIN 48 prescribes a recognition threshold and measurement of a taxposition taken or expected to be taken in an enterprise’s tax return.  FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, and disclosure related to uncertain tax positions.  The Company adopted the provisions of FIN 48on January 1, 2007.

Based on our evaluation,we have concluded that there are no significant uncertain tax positionsrequiring recognition in our financial statements.  Our evaluation was performed for the taxyears which remain subject to examination by major tax jurisdictions as ofMarch 31, 2007.

We may from time to timebe assessed interest or penalties by major tax jurisdictions, although any suchassessments historically have been minimal and immaterial to our financialresults.  In the event we have receivedan assessment for interest and/or penalties, it has been classified in thefinancial statements as selling, general and administrative expense.

***SignificantAccounting Policies***

*Revenue Recognition. *We recognize revenue fromservices rendered when the following four revenue recognition criteria aremet:  persuasive evidence of anarrangement exists, delivery has occurred or services have been rendered, theselling price is fixed or determinable, and collection is reasonablyassured.  The majority of our servicesare provided under “time and expenses” billing arrangements and revenue isrecognized on the basis of hours worked plus other reimbursable contract costsincurred during the period.  Revenue isdirectly related to the total number of hours billed to clients and theassociated hourly billing rates.  A limitedamount of revenue is also derived from success fees, offered to clients as apricing option, and recorded as revenue only upon attainment of the specifiedincentive criteria.  Success fees are notbillable and revenue is not recorded until the client wins a contract.

*Cash and Cash Equivalents.*  The Companyconsiders all highly liquid investments with an original maturity of threemonths or less when purchased to be cash equivalents.

*Investments.*  Securitiesinvestments that the Company has the positive intent and ability to hold tomaturity are classified as held-to-maturity securities. Investments held to maturity mature between one and twelve months andare reported at amortized cost.

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*Stock-BasedCompensation. *On January 1, 2006, the Company adopted SFAS No.123(R) which requires the measurement and recognition of compensation expensefor all share-based payment awards made to employees and directors, includingemployee stock options and employee stock purchases related to the EmployeeStock Purchase Plan (“ESPP”), based on estimated fair values.  SFAS 123(R) supersedes the Company’s previousaccounting under Accounting Principles Board (“APB”) Opinion No. 25, “Accountingfor Stock Issued to Employees” and related interpretations, as permitted by SFASNo. 123, “Accounting for Stock-Based Compensation,” for periods beginning infiscal 2006.  In March 2005, the SECissued SAB 107 relating to SFAS 123(R). The Company has applied the provisions of Staff Accounting Bulletin (“SAB”)No. 107 in its adoption of SFAS 123(R).

*Concentrations of Credit Risk and Major Customers*.  Financial instruments that potentiallysubject the Company to concentrations of credit risk consist of accountsreceivable.  The Company’s accountsreceivable are derived from revenue earned from customers primarily in theUnited States.  The majority of theCompany’s receivables are from large companies in the aerospace and defenseindustries.  The Company controls creditrisk through credit approvals and monitoring procedures and, generally, doesnot require collateral or other security to support financial instrumentssubject to credit risk.  Management mustmake historical bad debts, customer concentrations, customer credit-worthiness,current economic trends, and changes in its customer payment terms whenevaluating the adequacy of the allowance for doubtful accounts.  Credit losses have historically been withinmanagement’s expectations.

For the threemonths ended March 31, 2007, three customers represented more than 10% of theCompany’s revenue and accounts receivable. As of March 31, 2007 and 2006, these three customers account for 54% and41% of revenues and 40% and 44% of accounts receivable, respectively.  Included in accounts receivable at March 31,2007 and December 31, 2006 is $6.5 million and $2.0 million, respectively, ofunbilled receivables related to earned revenues for which invoices have not yetbeen sent to clients.

#### **Note 2.       NetIncome Per Share**

The following table illustrates the number of sharesused in the computation of basic and diluted net income per share (inthousands):

|                                                                                                       | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                            | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Denominator for  basic income per common share weighted average shares outstanding during the  period |       | 18,609                                           |       | 19,819 |   |
| Incremental  shares attributable to dilutive outstanding stock options                                |       | 191                                              |       | 224 |   |
| Denominator for diluted  income per share                                                             |       | 18,800                                           |       | 20,043 |   |

 

Anti-dilutive shares excluded from the foregoingreconciliation are 1,329,000 and 1,178,000 for the three months ended March 31,2007 and 2006, respectively.

**Note3.       Investments in MarketableSecurities**

InJanuary 2007, the Company purchased short-term state issued securities for $6.0million.  In March 2007, the Company disposed of $2.0 million of itsmarketable securities for investment activities.  There were no realizedgains or losses upon disposal.  For the three months ended March 31, 2007and 2006, our interest income was approximately $32,000 and $35,000,respectively.

#### **Note 4.       Stock-BasedCompensation**

The Company currentlygrants stock options under its 1997 Stock Option Plan.   Under the fair value recognition provisions,stock-based compensation cost is measured at the grant date based on the fairvalue of the award and is recognized as expense on a straight-line basis overthe requisite service period, which is the vesting period.

TheCompany currently uses the Black-Scholes-Merton option pricing model todetermine the fair value of stock options. The determination of the fair value of stock-based payment awards on thedate of grant using an option-pricing model is affected by the Company’s stockprice as well as assumptions regarding a number of complex and subjectivevariables.  These variables include theexpected term of the awards, the Company’s expected stock price volatility overthe term of the awards, actual and projected employee stock option exercisebehaviors, risk-free interest rate and expected

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dividends.  The Company estimates the volatility of itscommon stock-based upon its historical stock price volatility.  The Company bases the risk-free interest ratethat it uses in the option valuation model on U.S. Treasury zero-coupon issueswith remaining maturities similar to the expected term of the options.  The Company does not anticipate paying anycash dividends in the foreseeable future and therefore uses an expecteddividend yield of zero in the option valuation model.  The Company is required to estimateforfeitures at the time of grant and revise those estimates in subsequentperiods if actual forfeitures differ from those estimates.  The Company uses historical data to estimatepre-vesting option forfeitures and record stock-based compensation expense onlyfor those awards that are expected to vest.

Thefair value of each stock option is estimated on the date of grant using theBlack-Scholes option pricing model with the following weighted averageassumptions for the three months ended March 31, 2007 and 2006:

|                                                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Stock price volatility                          |       | 78.6                                             | %          | 82.8 | % |
| Risk-free  interest rate                        |       | 4.9                                              | %          | 4.8 | % |
| Expected life  (in years)                       |       | 3.8                                              |       | 3.1 |   |
| Forfeiture rate                                 |       | 9.8                                              | %          | 12.4 | % |
| Stock dividend  yield                           |       | 0.0                                              | %          | 0.0 | % |
| Weighted-average fair  value of options granted |       | $                                                | 3.67       |   | $ | 4.42 |   |
|                                                 |            |                                                  |            |  |  |  |  |

 

Thefollowing table summarizes stock option activity for the three months endedMarch 31, 2007.

|                                   | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Weighted-Average  Fair Value of  Options Granted** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|-----------------------------------|------------|------------|------------|---------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at  December 31, 2006 |       | 1,851,787  |       | $                                           | 7.43       |                                                                |       |                            |       |   |
| Granted                           |       | 447,209    |       | 6.12                                        |       | $                                                                   | 3.67       |                            |       |   |
| Exercised                         |       | (7,837     | )          | 3.77                                        |       |                                                                |       |                            |       |
| Cancelled, Forfeited or Expired   |       | (3,000     | )          | 5.74                                        |       |                                                                |       |                            |       |
| Outstanding at  March 31, 2007    |       | 2,288,159  |       | 7.19                                        |       |                                                                |       | $                               | 16,457,000 |   |
| Exercisable at March  31, 2007    |       | 1,226,734  |       | $                                           | 7.42       |                                                                |       |                            | $          | 9,105,000 |   |
|                                   |            |            |            |                                             |            |                                                                     |            |                                 |            |  |  |  |

 

Thetotal intrinsic value of options exercised during the three months ended March31, 2007 and 2006 were $18,000 and $35,000, respectively.

TheCompany recorded $400,000 and $315,000 in stock-based compensation expensebefore income tax benefit for stock options in its results of operations forthe three months ended March 31, 2007 and 2006, respectively.  As of March 31, 2007, there was $3.3 millionof total unrecognized compensation cost related to unvested awards which willbe amortized to expense over the weighted-average period of 4.0 years.

TheCompany received $30,000 and $8,000 in cash from option exercises during thethree months ended March 31, 2007 and 2006, respectively.  The Company received $118,000 and $153,000from the purchase of shares under the ESPP during the three months ended March31, 2007 and 2006, respectively.  Uponthe exercise of options and stock purchase shares granted under the ESPP, theCompany issues new common stock from its authorized shares.

**Note5.       Acquisition**

On February 9, 2007, theCompany acquired Project Planning, Incorporated (“PPI”), a provider ofconsulting, education, implementation and support services for enterpriseproject management solutions.  The acquisition continues SM&A’s focus on adding capabilitiesto provide end-to-end customer solutions and will further expand our ProgramServices business.

The total purchase price was $6.1 million, whichconsisted of cash, shares of the Company’s common stock and other directacquisition costs.  The following tablesets forth the determination of the consideration paid for PPI at the date ofacquisition (in thousands):

| Cash                                                          |   | $     | 3,500  |   |
|---------------------------------------------------------------|--------|-------|--------|--------|
| Issuance of  common stock (333,333 shares at $6.64 per share) |   | 2,213 |   |
| Other direct  acquisition costs                               |   | 348   |   |
|                                                          |   | $     | 6,061  |   |

 

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Aspart of the purchase of PPI, SM&A could pay up to an additional $9.5million over a three year period upon satisfaction of certain revenue goals inexcess of the results realized for the twelve month period ended on February 9,2007.

ThePPI acquisition was accounted for using the purchase method of accountingwhereby the total purchase price, including transaction expenses, was allocatedto tangible and intangible assets acquired based on estimated fair marketvalues, with the remainder classified as goodwill.  Net tangible assets were valued at theirrespective historical carrying amounts as these approximate fair values.

The followingtable sets forth the preliminary allocation of the purchase price as ofFebruary 10, 2007 (in thousands):

| Cash and cash equivalents                        |   | $     | 345    |   |
|--------------------------------------------------|--------|-------|--------|--------|
| Accounts receivable, no  allowance               |   | 1,786 |   |
| Fixed assets, net                                |   | 41    |   |
| Other assets                                     |   | 114   |   |
| Assumed liabilities                              |   | (668  | )      |
| Customer relationships,  average life of 6 years |   | 1,130 |   |
| Non compete agreements,  average life of 3 years |   | 30    |   |
| Goodwill                                         |   | 3,283 |   |
|                                             |   | $     | 6,061  |   |

 

The results of operations for PPI are included in thestatements of income of the Company beginning on February 10, 2007.  The following unaudited pro forma condensedconsolidated financial information has been prepared assuming the PPIacquisition had occurred on January 1, 2007 and 2006, and is as follows:

| (in thousands, except per share amounts) | ** ** | ** ** | ** ** | **Three Months Ended  March 31, 2007** | ** ** | **Three Months Ended  March 31, 2006** | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| Revenue                                                           |       | $          | 24,363     |                                                       | $          | 19,391                                                     |       |
| Net income                                                        |       | 1,457      |       | 1,698                                                      |       |
| Net income per  share:                                            |       |       |       |                                                       |       |
| Basic                                                             |       | $          | 0.08       |                                                       | $          | 0.08                                                       |       |
| Diluted                                                           |       | $          | 0.08       |                                                       | $          | 0.08                                                       |       |

 

Theunaudited pro forma condensed consolidated financial statements have beenprepared based upon currently available information and assumptions that aredeemed appropriate by management.  Thepro forma information is for informational purposes only and is not intended tobe indicative of the actual consolidated financial position or consolidated resultsthat would have been reported had the transactions occurred on the datesindicated, nor does this information represent a forecast of the consolidatedfinancial position at any future date or the combined financial results for anyfuture period.

**Note6.       Goodwill and Intangible Assets**

Intangible assets consist of customer relationshipsand non-competition agreements. Intangible assets are stated at cost less accumulated amortization andare being amortized over their estimated useful lives of three to sixyears.   The following tables provide asummary of the carrying amounts of purchased intangible assets that continue tobe amortized (in thousands):

|                         | ** ** | **March 31, 2007** | ** ** | **Original**                  | ** ** |
|-------------------------|------------|------------------------------|------------|-------------------------------|------------|
| ** **              | ** ** | **Gross  Carrying  Amount**  | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** | **Weighted  Average  Useful Life** | ** ** |
| Customer  relationships |       | $                            | 1,130      |                          | $          | 26 |   | $ | 1,104 |   | 6.0 Years |   |
| Non compete  agreements |       | 30                           |       | 1                             |       | 29 |   | 3.0 Years |   |
| Total                   |       | $                            | 1,160      |                          | $          | 27 |   | $ | 1,133 |   |   |   |

 

The total expected future amortization related tointangible assets are as follows for the years ending December 31:

| (in thousands) | ** ** | ** ** | ** ** | **Expected Future**

**Amortization** | ** ** |
|---------------------|------------|------------|------------|--------------------------------------------|------------|
| 2007                |       | $          | 147        |                                       |
| 2008                |       | 198        |       |
| 2009                |       | 198        |       |
| 2010                |       | 190        |       |
| 2011                |       | 188        |       |
| Thereafter          |       | 212        |       |
|                |       | $          | 1,133      |                                       |

 

Goodwill of $3.3 millionis reviewed annually for impairment (or more frequently if indicators ofimpairment arise).  During the threemonths ended March 31, 2007, there were no indicators of impairment of goodwilland identified intangible assets.  Theannual review for impairment for fiscal 2007 will be completed in the fourthquarter.

10

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**Note 7.       RevolvingLine of Credit**

                The Company has a revolving credit agreement whichallows for borrowings up to $10.0 million at the prime rate minus one half ofone percent (-0.50%) per annum or LIBOR plus two and one quarter percent(2.25%) per annum.  The revolving creditagreement is renewable annually on April 30th of each year. Borrowings under the revolving credit agreement are unsecured.  The agreement requires the Company to complywith certain financial covenants pertaining to its tangible net worth, ratio oftotal liabilities to tangible net worth, and ratio of current assets to currentliabilities (as defined in the agreement). The agreement also contains certain negative covenants which, amongother things, restricts the Company’s ability to incur additional indebtednessof more than $1.0 million in excess of the $10.0 million limit set forth in thecredit agreement and make capital expenditures in excess of $3.0 millionwithout the prior written approval of the lender.  At March 31, 2007, the Company was incompliance with its covenants and had no outstanding borrowings under the lineof credit, the bank had issued a letter of credit for $64,000 and $9.9 millionwas available.

#### **Note 8.       IncomeTaxes**

The Company’s effective income tax rates for the three monthsended March 31, 2007 and 2006 were 41% and 41%, respectively.

#### **Note 9.       Stockholders’ Equity**

InMay 2004, the Company’s Board of Directors (“Board”) authorized a plan torepurchase up to $7.0 million of the Company’s common stock.  In April and October 2005, the Boardauthorized an increase of an additional $5.0 million and $8.0 million,respectively, increasing the total authorization to repurchase the Company’scommon stock to $20.0 million.  InJanuary 2006, the Board authorized an increase of an additional $10.0 millionincreasing the total authorization to repurchase the Company’s common stock to$30.0 million.  The Company intends torepurchase shares from time to time, at prevailing prices, in the openmarket.  The timing and amount of theshare repurchases will be at the discretion of management and will be based onsuch factors as the stock price, general economic and market conditions, andother factors.  The share repurchase planmay be suspended or discontinued at any time. Shares repurchased under the plan prior to our reincorporation in thestate of Delaware were cancelled.  Afterthe date of reincorporation (November 30, 2006), the shares are included intreasury shares.  For the three monthsended March 31, 2007 and 2006, the Company repurchased 139,417 shares at atotal cost of $842,000 and 205,800 shares at a total cost of $1.4 million,respectively.  Since the inception of theshare repurchase plan, the Company has repurchased 3,354,860 shares at a totalcost of $24.2 million.  Share repurchasesare being completed with cash on hand. As of March 31, 2007, the Company has approximately $5.8 millionremaining in share repurchase authorization.

On November 30, 2006, SM&A, a Californiacorporation (“SM&A-California”), consummated a merger (the “Reincorporation”)with and into its wholly owned subsidiary, SM&A, a Delaware corporation (“SM&A-Delaware”or the “Company”).  As a result of theReincorporation, the Company is now a Delaware corporation.  As provided by the Merger Agreement, eachoutstanding share of SM&A-California common stock was automaticallyconverted into one share of SM&A-Delaware common stock, $0.0001 par value.  Each stock certificate representing issuedand outstanding shares of SM&A-California common stock continues torepresent the same number of shares of SM&A-Delaware common stock.  In accordance with Rule 12g-3(a) under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), the CommonStock, $0.0001 per share, of SM&A-Delaware, are deemed to be registeredunder Section 12(b) of the Exchange Act. Following the Reincorporation, SM&A-Delaware common stock continuesto be quoted on the NASDAQ National Market under the same symbol (“WINS”) as theshares of SM&A-California common stock had been traded.  The Company’s reincorporating in Delaware hadno impact on the Company’s financial statements.

11

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In 2007, the Company’s Compensation Committee adpoted theExecutive Incentive Plan (the “Plan”) which includes a long-term incentivebased compensation component titled Long Term Incentive Plan (“LTIP”).  This Plan is designed to drive behavior toreach revenue, net income, and earnings per share targets established by theCompensation Committee.  The LTIP will reward sustained performance over athree-year period that substantially increases shareholder value and will coverthe calendar period 2007 through 2009. The Compensation Committee intends to issue performance stock on anannual basis with successive three-year performance periods.  Executives participating in the LTIP wereissued a promissory note in January 2007 indicating the criteria and the amountof the performance stock grant but no stock certificates will be issued untilthe targets are reached as discussed below. The criteria in the LTIP will be the achievement of $0.95 earnings pershare (EPS), over a twelve month period, on or before December 31, 2009.  If the $0.95 EPS is met prior to December 31,2009, the performance stock will be issued within 30 days of reaching themaximum target.  Determination that theEPS target has been achieved will be by Audit Committee of the Board ofDirectors.  If the criteria are not metby December 31, 2009, the number of shares granted will be determined inaccordance with a predetermined sliding scale. EPS performance below $0.65 a share will receive no award.

### **Note 10.     RelatedParties**

The Companyperiodically leases aircraft from SummitJets, Inc., which is owned by theCompany’s former Chairman and Chief Executive Officer who retired on April 1,2007.  The lease rate was determinedthrough a review of prevailing market rates for such services.  During the three months ended March 31, 2007and 2006, the Company recorded an expense of $0 and $62,000 respectively.  The expense is included in selling, generaland administrative expenses.

**Note 11.     Discontinued Operations**

Prior to fiscal year 2003,the Company sold and dissolved two of its business segments.  There were no balances owed at March 31, 2007as our remaining office lease commitments, net of subleases, expired on April1, 2007.  During the three months endedMarch 31, 2007, the Company paid $42,000 net of sublease receipts, related tothe leased property.

**Note 12.     Commitment and Contingencies**

TheCompany entered into employment agreements with its Chief Executive Officer andits President and Chief Operating Officer and into benefit agreements withother executives of the Company (collectively “Agreements”).  Under the terms of each of the Agreements,the Company may be obligated to pay a severance payment ranging from six monthsto one year of the respective employee’s base salary, depending on the date oftermination, if the employment is terminated by the Company without cause.  In addition, the Agreements have a change ofcontrol provisions that may require the Company to pay up to twelve months ofcurrent annual base salary and up to eighteen months of health and lifeinsurance benefits.

**Note 13.     Management Transition**

OnMarch 31, 2007, the Company’s Chairman and Chief Executive Officer, Steven S.Myers, retired and on April 1, 2007, was replaced by Cynthia Davis as ChiefExecutive Officer.  Ms. Davis was electedto the Board of Directors.   A currentboard member, Dwight Hanger, replaced Mr. Myers as Chairman of the Board.  The expense associated with this transition,which includes a retirement payment of $500,000 and legal and professional feesof approximately $200,000, and are included in SG&A for the three monthsended March 31, 2007.

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**Item 2.**                          Management’sDiscussion and Analysis of Financial Condition and Results of Operations

SM&A is theworld’s leading provider of competition management (business capture andproposal development) services, and a leading provider of program services (post-awardrisk mitigation and profit maximizing) services.  Under these two service lines, ourapproximately 350 employees and consultants provide strategy, proposalmanagement, program management, systems engineering, program planning, andother high-value technical support to major industrial customers in thedefense, homeland security, aerospace, information technology, and engineeringsectors.  Since 1982, we have managedmore than 1,000 proposals worth more than $340 billion for our clients and haveachieved an 85% win rate on awarded contracts.

**Resultsof Operations**

The followingtable sets forth certain historical operating results (in millions):

|                                               | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                             | ** ** | **2006** | ** ** | **Change** | ** ** |
| ** **                                    | ** ** | **$**                                                | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
| Revenues                                      |       | 23.6                                                 |       | 100.0 |   | $ | 17.7 |   | 100.0 |   | 5.9 |   | 33.3 |   |
| Cost of revenues                              |       | 14.4                                                 |       | 61.0 |   | 10.6 |   | 59.9 |   | 3.8 |   | 35.8 |   |
| Gross profit                                  |       | 9.2                                                  |       | 39.0 |   | 7.1 |   | 40.1 |   | 2.1 |   | 29.6 |   |
| Selling, general and  administrative expenses |       | 6.9                                                  |       | 29.2 |   | 5.3 |   | 29.9 |   | 1.6 |   | 30.2 |   |
| Operating income                              |       | 2.3                                                  |       | 9.7 |   | 1.8 |   | 10.2 |   | 0.5 |   | 27.8 |   |
| Interest income                               |       | 0.1                                                  |       | 0.4 |   | 0.2 |   | 1.1 |   | (0.1 | ) | (50.0 | ) |
| Income taxes                                  |       | 1.0                                                  |       | 4.2 |   | 0.8 |   | 4.5 |   | 0.2 |   | 25.0 |   |
| Net income                                    |       | 1.4                                                  |       | 5.9 |   | $ | 1.2 |   | 6.8 |   | $ | 0.2 |   | 16.7 |   |
|                                               |            |                                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

## ***Three MonthsEnded March 31, 2007 Compared to Three Months Ended March 31, 2006***

*Revenue.*  Revenue increased $5.9 million, or 33.3%, toa record $23.6 million for the three months ended March 31, 2007 compared to$17.7 million for the same period of the prior year.  The acquisition of PPI on February 9, 2007contributed $1.1 million or 4.6% of total revenue for the three months endedMarch 31, 2007.   The increase in ourrevenue was realized across all of our service lines and our traditionalaerospace and defense vertical.  Our nonaerospace and defense vertical, titled system integration and informationtechnology (“SIIT”) declined year over year. This decline is due to our largest client in this vertical reducing ourservices starting in the second quarter of 2006 due to their internal budgetpressures.  Excluding this one client,our SIIT revenue increased by $580,000, or 47% compared to the same period ofthe prior year.  The following table isprovided to display our revenue results compared to the same period of theprior year.

| For the quarter ended on March 31, | ** ** | **2007** | ** ** | **%  Growth** | ** ** | **2006** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|---------------|------------|----------|------------|
| **Revenues by Market Vertical (in  millions)**                   |       |     |       |          |       |     |       |
| Aerospace and Defense  (A&D)                                 |       | $        | 19.9       |          | 68         | %        | $          | 11.9 |   |
| Systems Integration  & Information Technology (SIIT)         |       | 3.7      |       | (37           | )%         | 5.8      |       |
| Total                                                            |       | $        | 23.6       |          | 33         | %        | $          | 17.7 |   |
|                                                             |       |     |       |          |       |     |       |
| **Revenues by Service Line (in  millions)**                      |       |     |       |          |       |     |       |
| Competition Management                                           |       | $        | 14.4       |          | 25         | %        | $          | 11.5 |   |
| Program Services                                                 |       | 9.2      |       | 49            | %          | 6.2      |       |
| Total                                                            |       | $        | 23.6       |          | 33         | %        | $          | 17.7 |   |
|                                                             |       |     |       |          |       |     |       |
| **Revenues by New Customers**                                    |       |     |       |          |       |     |       |
| Aerospace and Defense  (A&D)                                 |       | $        | 254,000    |          | 13         | %        | $          | 224,000 |   |
| Systems Integration  & Information Technology (SIIT)         |       | 22,000   |       | (35           | )%         | 34,000   |       |
| Total                                                            |       | $        | 276,000    |          | 6          | %        | $          | 258,000 |   |
|                                                             |       |     |       |          |       |     |       |

 

Weattribute this record revenue performance from executing on our strategy tocontinue to build client relationships with our strategic clients and offeringour services and solutions across our clients’ program life cycle.  Another significant contributor is ourAccount Executive team which has not experienced turnover in over 15months.  No turnover has allowed theCompany to better understand our clients’ needs and build valuedrelationships.   Since last year, ourfocus on expanding our Program Services business line has also producedconsistent sequential quarterly revenue growth.   The acquisition of PPI also contributed toour revenue performance.  The results inthe table above reflect the success of our efforts.

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*Gross Margin.* Gross marginincreased $2.1 million, or 29.6%, to $9.2 million for the three months endedMarch 31, 2007 compared to $7.1 million for the same period of the prioryear.  The increase in gross margindollars is due to the increase in sales as discussed above offset by a decreasein gross margin as a percentage of revenue. As a percentage of revenue, gross margin decreased to 39.0% for thethree months ended March 31, 2007 compared to 40.1% for the same period of theprior year.  The decline was due to areduction in the level of success fees earned, revenue mix, and pricingstructures offered to some of our largest customers.  We recorded success fees of $0 and $102,000for the three months ended March 31, 2007 and 2006, respectively.  We expect the gross margins to beapproximately 40.0% for fiscal year 2007.

*Selling, General and Administrative Expenses. *Selling,**general and administrative expenses consist principally ofsalary and benefit costs for executive, sales and administrative personnel,stock-based employee compensation, depreciation and amortization, professionalservices and other general corporate activities. * *Selling, general and administrativeexpenses increased $1.6 million, or 30.2%, to $6.9 million for the three monthsended March 31, 2007, as compared to $5.3 million for the same period of theprior year.

Duringthe three months ended March 31, 2007, the Company completed the acquisition ofPPI and the Company’s Founder, Chairman and Chief Executive Officer, Steven S.Myers, retired and was succeeded by Cynthia A. Davis as Chief ExecutiveOfficer.  Ms. Davis was elected to theBoard of Directors.  A current boardmember, Dwight Hanger, replaced Mr. Myers as Chairman of the Board.  The expenses related to the changes inmanagement which included a retirement payment and executive search firm feestotaled approximately $700,000.  The approximately$100,000 in expenses related to the acquisition of PPI includes travel,advisory, meeting and miscellaneous other expenses incurred outside the normalcourse of business.  The following tableis provided to display our SG&A results segregating these areas of cost forcomparison purposes

| For the quarter ended on March 31,  (in millions) | ** ** | **2007** | ** ** | **%  Growth** | ** ** | **2006** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------|------------|---------------|------------|----------|------------|
| ** **                                                                           |       |     |       |          |       |     |       |
| SG&A before PPI and  management transition expenses                              |       | $        | 5.8        |          | 9          | %        | $          | 5.3 |   |
| PPI SG&A                                                                         |       | 0.3      |       | 100           | %          | —   |       |
| PPI acquisition related  expenses                                                    |       | 0.1      |       | 100           | %          | —   |       |
| Management transition  related expenses (non-recurring)                              |       | 0.7      |       | 100           | %          | —   |       |
| Total SG&A                                                                       |       | $        | 6.9        |          | 30         | %        | $          | 5.3 |   |
|                                                                                 |       |     |       |          |       |     |       |

 

Excludingthe acquisition and management transition related expenses, SG&A as apercentage of revenue decreased to 24.2% for the three months ended March 31,2007, as compared to 27.7% for the same period of the prior year.

*Operating Income*.  Operating income increased $445,000, or 27.8%to $2.3 million for the three months ended March 31, 2007, compared to $1.8million for the same period of the prior year. As a percentage of revenue, operating income decreased to 9.7% for thethree months ended March 31, 2007, as compared to 10.2% for the same period ofthe prior year.  Operating incomeprimarily increased due to the increase in sales and gross profit offset by anincrease in selling, general and administrative expenses, as discussed above.

*IncomeTax Expense*.  Our effective income tax rates for thethree months ended March 31, 2007 and 2006 were 41% and 41%, respectively.

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**Capital Resourcesand Liquidity**

Ourworking capital decreased to $26.9 million at March 31, 2007 from $28.4 millionat December 31, 2006.  In addition, ourcash and cash equivalents plus investments decreased to $8.6 million at March31, 2007, from $15.1 million at December 31, 2006.  The decrease in cash and cash equivalentsplus investments was due to the funds used to acquire PPI and professionalservice fees associated with the acquisition, the share buyback activity inwhich the Company repurchased $842,000 of common shares during the three monthsended March 31, 2007, and the increase in the number of days sales outstanding(“DSO”).  The change in accountsreceivable was due primarily to the significant increase in sales and thetiming of cash receipts related to two of our largest clients.  Periodically, when our larger client’scontracts are under renewal we are authorized to continue providing ourservices while the contract is being processed. This process can take two to three months to finalize at which time weinvoice all unbilled amounts.  Our clientwill typically pay the balances within 60 days upon receipt of ourinvoices.  A significant portion of thepast due balances at March 31, 2007 have been collected subsequent to March 31,2007.  At April 24, our cash and cashequivalents balance has increased to $13.6 million and our DSO’s have improvedfrom 92 days to 69 days.  Our historicalaverage DSO is 70 days.

Cashflows from operating activities of continuing operations used $2.7 millionduring the three months ended March 31, 2007, compared to the $1.9 millionprovided for the same period during the prior year.  The decrease in our cash flows from operatingactivities is due primarily to the increase in our day’s sales outstandingdiscussed above offset by the timing of our payroll cycles.

InMay 2004, the Company’s Board of Directors (“Board”) authorized a plan torepurchase up to $7.0 million of the Company’s common stock.  In April and October 2005, the Boardauthorized an increase of an additional $5.0 million and $8.0 million,respectively, increasing the total authorization to repurchase the Company’scommon stock to $20.0 million.  InJanuary 2006, the Board authorized an increase of an additional $10.0 millionincreasing the total authorization to repurchase the Company’s common stock to$30.0 million.  The Company intends torepurchase shares from time to time, at prevailing prices, in the openmarket.  The timing and amount of theshare repurchases will be at the discretion of management and will be based onsuch factors as the stock price, general economic and market conditions, andother factors.  The share repurchase planmay be suspended or discontinued at any time. Shares repurchased under the plan prior to our reincorporation in thestate of Delaware were cancelled.  Afterthe date of reincorporation (November 30, 2006), the shares are included intreasury shares.  For the three monthsended March 31, 2007 and 2006, the Company repurchased 139,417 shares at atotal cost of $842,000 and 205,800 shares at a total cost of $1.4 million,respectively.  Since the inception of theshare repurchase plan, the Company has repurchased 3,354,860 shares at a totalcost of $24.2 million.  Share repurchasesare being completed with cash on hand. As of March 31, 2007, the Company has approximately $5.8 millionremaining in share repurchase authorization.

The Company has a revolving credit agreement which allows forborrowings up to $10.0 million at the prime rate minus one half of one percent(-0.50%) per annum or LIBOR plus two and one quarter percent (2.25%) perannum.  The revolving credit agreement isrenewable annually on April 30th of each year.  Borrowings under the revolving creditagreement are unsecured.  The agreementrequires the Company to comply with certain financial covenants pertaining toits tangible net worth, ratio of total liabilities to tangible net worth, andratio of current assets to current liabilities (as defined in theagreement).  The agreement also containscertain negative covenants which, among other things, restrict the Company’sability to incur additional indebtedness of more than $1.0 million in excess ofthe $10.0 million limit set forth in the credit agreement and make capitalexpenditures in excess of $3.0 million without the prior written approval ofthe lender.  At March 31, 2007, theCompany was in compliance with its covenants and had no outstanding borrowingsunder the line of credit, the bank had issued a letter of credit for $64,000and $9.9 million was available.

Webelieve we have sufficient working capital available under the line of creditand cash generated by continuing operations will be sufficient to fundoperations for at least the next twelve months.

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**Item 3.**                          Quantitative and QualitativeDisclosures About Market Risk

The Companycurrently has no instruments that are sensitive to market risk.

**Item 4.**                          Controlsand Procedures

***Evaluation of Disclosure Controls and Procedures***

                Our management, with theparticipation of our principal executive officer and principal financialofficer, has evaluated the effectiveness of the design and operation of ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)under the Securities Exchange Act of 1934, as amended) as of the end of theperiod covered by this quarterly report on Form 10-Q.  Based on this evaluation, our principalexecutive officer and principal financial officer concluded that thesedisclosure controls and procedures are effective and designed to ensure thatthe information required to be disclosed in our reports filed or submitted underthe Securities Exchange Act of 1934 is recorded, processed, summarized, andreported within the requisite time periods.

                While the Company’s disclosurecontrols and procedures provide reasonable assurance that the appropriateinformation will be available on a timely basis, this assurance is subject tolimitations inherent in any control system, no matter how well designed andadministered.

***Changes in Internal Controls***

                There was no change in ourinternal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934, as amended) identified inconnection with the evaluation of our internal control performed during ourlast fiscal quarter that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

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**PART II — OTHER INFORMATION**

**Item 1.         Legal Proceedings**

Weare involved in routine litigation incidental to the conduct of ourbusiness.  There are currently nomaterial pending litigation proceedings to which we are a party or to which anyof our property is subject.

**Item 1A.      Risk Factors**

**ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS**

*In addition to the other information in thisQuarterly Report on Form 10-Q, the following factors should be consideredcarefully in evaluating our business and prospects.*

## ***Our business dependssubstantially on the defense industry.***

Ourcompetition management and program services business depends substantially onU.S. Government expenditures for defense products.  Any decline in the future defense,information technology or homeland security procurement expenditures couldaffect the opportunities available to our clients and, indirectly, ourbusiness. A number of factors could contribute to such a decline inopportunities, including:

·                  Loss of political support for currentor increased levels of spending;

·                  Changes ofpresidential administration, particularly changes from one political party toanother, that typically result in a mass reordering of priorities that reducenew proposal activity for up to a year;

·      Threatscenarios evolving away from global conflicts to regional conflicts;

·                  Spending forongoing operations, such as the war on terrorism or the occupation of Iraq,creating downward pressure on spending for procurement of new systems andresearch and development spending; and

·                  Cancellationof programs or emphasis on government shifting programs.

In theevent expenditures for products of the type manufactured by our clients arereduced and not offset by other new programs or products, there will be areduction in the volume of contracts or subcontracts to be bid upon by ourclients and, as a result, a reduction in the volume of proposals wemanage.  Unless offset, such reductionscould materially and adversely affect our business, operating results andfinancial condition.

## ***We rely on a relatively limited number ofclients.***

Wederive a significant portion of revenue from continuing operations from arelatively limited number of clients. Our seven largest customers accounted for 77% and 80% of our revenue for2006 and 2005, respectively.  Clientstypically retain our services as needed on an engagement basis rather thanpursuant to long-term contracts, and a client can usually terminate theengagement at any time without a significant penalty.  Moreover, there can be no assurance thatexisting clients will continue to engage us for additional assignments or do soat the same revenue levels.  The loss ofany significant client could materially and adversely affect our business,financial condition and results of operations. In addition, the level of services required by an individual client maydiminish over the life of the relationship, and there can be no assurance wewill be successful in establishing relationships with new clients as thisoccurs.

***Themarkets in which we operate are highly competitive.***

The market for competition management services in theprocurement of government and commercial contracts for aerospace and defensework is a niche market with a number of competitors.  We are the largest provider of such servicesand principally compete with the in-house capability of our clients.  In addition, numerous smaller proposalmanagement companies compete in this highly specialized industry.  With sufficient resources in the form ofmoney and excellent talent with current security clearances, our competitorscould erode our current market share and such a reduction could materially andadversely affect our business, operating results and financial condition.

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***We rely heavily upon our key senior management personnel and ourability to recruit and maintain skilled professionals.***

Our success is highly dependent upon the efforts,abilities, and business generation capabilities and project execution of ourstrategic account managers and account executives.  The loss of the services of theseindividuals, for any reason, could materially and adversely affect ourbusiness, operating results and financial condition.

Our business involves the delivery of professionalservices and is highly labor-intensive. Our success depends largely on our general ability to attract, develop,motivate and retain highly skilled professionals.  The loss of some or a significant number ofour professionals or the inability to attract, hire, develop, train and retainadditional skilled personnel could have a serious negative effect on us,including our ability to obtain and successfully complete important engagementsand thus maintain or increase our revenue.

***Quarterlyresults may fluctuate.***

We mayexperience fluctuations in future quarterly operating results due to a numberof factors, including the size, timing and duration of client engagements.

***Ourstock price is subject to significant volatility.***

Ourcommon stock was first publicly traded on January 29, 1998 after our initialpublic offering at $12.00 per share. Between January 29, 1998 and March 31,2007, the closing sale price has ranged from a high of $31.13 per share to alow of $0.75 per share. The market price of our common stock could continue tofluctuate substantially due to a variety of factors, including:

·                  Quarterlyfluctuations in results of operations;

·                  Adversecircumstances affecting the introduction, or market acceptance of new serviceswe offer;

·                  Announcements ofnew services by competitors;

·                  Announcements ofpoor operating results by us or our competitors;

·                  Loss of keyemployees;

·                  Changes in theregulatory environment or market conditions affecting the defense and aerospaceindustry;

·                  Changes inearnings estimates and ratings by analysts;

·                  Lack of marketliquidity resulting from a relatively small amount of public stock float;

·                  Changes ingenerally accepted accounting principles;

·                  Sales of commonstock by existing holders;

·                  The announcementof proposed acquisitions and dispositions; and

·                  Therepurchase of common shares under the share repurchase plan.

***We cannot guarantee that future acquisitions,mergers or investments in other companies will be successful.***

**If appropriateopportunities present themselves, we may consider acquiring, merging with ormaking investments in companies or assets that we believe will complement,enhance or expand our current business or otherwise offer us growthopportunities.  We will likely competefor such opportunities with companies with greater financial and managementresources than us.  There can be noassurance that suitable acquisition or other investment opportunities will beidentified, that any of these transactions can be consummated, or that, ifacquired, the new businesses can be integrated successfully and profitably intoour operations.  These acquisitions andinvestments may also entail the following risks:**

**·**                  thediversion of our management’s attention from our existing business whileevaluating acquisitions, investments and other prospective businesscombinations and thereafter while assimilating the operations and personnel ofthe new business;

**·**                  adverseshort-term effects on our operating results;

**·**                  theinability to successfully and rapidly integrate the new businesses, personneland products with our existing business, including financial reporting,management and information technology systems;

**·**                  higherthan anticipated costs of integration;

**·**                  customerconcentration risk in the acquired business;

**·**                  unforeseenoperating difficulties and expenditures;

**·**                  theneed to manage a significantly larger business;

**·**                  potentialdilution to our stockholders to the extent we use our common stock as currencyfor an acquisition;

18

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**·**                  theassumption of liabilities;

**·**                  the use of a substantialamount of our available cash to consummate acquisitions;

**·**                  difficultiesinherent in the implementation and application of the provisions of theSarbanes-Oxley Act of 2002 to the operations of a privately-held entityacquired by the Company; and

**·**                  lossof employees of an acquired business, including employees who may have beeninstrumental to the success or growth of that business.

**·**                  Wemay not be able to successfully integrate or operate profitably any newbusiness we acquire and we cannot assure you that any other investments wemake, or strategic alliances we enter into, will be successful.

**Item 2.         Changes in Securities, Use of Proceedsand Issuer Purchase of Equity Securities**

***Issuer Purchases of EquitySecurities***

Information aboutsecurities purchased under the Company’s share repurchase program isincorporated by reference to Note 9 to the condensed consolidated financialstatements.
| **Period**                                | ** ** | **Total Number  of Shares  Purchased** | ** ** | **Average  Price Paid  Per Share** | ** ** | **Total Number  of Shares  Purchased as  Part of a  Publicly  Announced  Plan** | ** **    | **Approximate  Dollar Value of  Shares That  May Yet Be  Purchased  Under The Plan** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|---------------|-------------------------------------------------------------------------------------------------------------------------|------------|
| **Beginning  balance at January 1, 2007** | ** ** | **3,215,443**                                    | ** ** | **$**                                        | **7.27**   | ** **                                                                                               | **3,215,443** | ** **                                                                                                              | **$**      | **6,639,411** | ** ** |
| January 2007                              |       | 139,417                                          |       | 6.04                                         |       | 139,417                                                                                                  |          | 5,797,093                                                                                                               |       |
| February 2007                             |       | —                                           |       | —                                       |       | —                                                                                                   |          | —                                                                                                                  |       |
| March 2007                                |       | —                                           |       | —                                       |       | —                                                                                                   |          | —                                                                                                                  |       |
| **Total as of March 31, 2007**            | ** ** | **3,354,860**                                    | ** ** | **$**                                        | **7.21**   | ** **                                                                                               | **3,354,860** | ** **                                                                                                              | **$**      | **5,797,093** | ** ** |

 

**Item 3.         Defaults Upon Senior Securities**

**NotApplicable.**

**Item 4.         Submission of Matters to a Vote ofSecurity Holders**

**NotApplicable.**

**Item 5.         Other Information**

None.

19

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**Item 6.         Exhibits**

**INDEX TOEXHIBITS**

***Exhibits(numbered in accordance with item 601 of Regulation S-K).***
| 2.1    |   | Stock  Purchase Agreement, by and among Project Planning Inc., Richard Bowe, its  Shareholder, and SM&A. (1)                                                   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                               |
| 3.1    |   | Amended  and Restated Articles of Incorporation. (2)                                                                                                               |
|   |   |                                                                                                                                                               |
| 3.2    |   | Amended  and Restated Bylaws of the Registrant. (3)                                                                                                                |
|   |   |                                                                                                                                                               |
| 3.3    |   | Certificate  of Incorporation of SM&A, a Delaware corporation. (4)                                                                                             |
|   |   |                                                                                                                                                               |
| 3.4    |   | Bylaws of  SM&A, a Delaware corporation. (5)                                                                                                                   |
|   |   |                                                                                                                                                               |
| 3.5    |   | Agreement and  Plan of Merger, between SM&A, a California corporation, and SM&A, a  Delaware corporation. (6)                                              |
|   |   |                                                                                                                                                               |
| 10.1   |   | Amended  and Restated 1997 Stock Option Plan and related form of Stock Option  Agreement. (7)                                                                      |
|   |   |                                                                                                                                                               |
| 10.2   |   | Second  Amended and Restated Equity Incentive Plan. (8)                                                                                                            |
|   |   |                                                                                                                                                               |
| 10.3   |   | Amended  and Restated Employee Stock Purchase Plan. (9)                                                                                                            |
|   |   |                                                                                                                                                               |
| 10.4   |   | Office  Facility Lease. (10)                                                                                                                                       |
|   |   |                                                                                                                                                               |
| 10.5   |   | Amendment  No. 1 to Office Facility Lease. (11)                                                                                                                    |
|   |   |                                                                                                                                                               |
| 10.6   |   | Employment  Agreement of Steven S. Myers. (12)                                                                                                                     |
|   |   |                                                                                                                                                               |
| 10.7   |   | Amendment  No. 1 to Employment Agreement of Steven S. Myers. (13)                                                                                                  |
|   |   |                                                                                                                                                               |
| 10.8   |   | Amendment  No. 2 to Employment Agreement of Steven S. Myers. (14)                                                                                                  |
|   |   |                                                                                                                                                               |
| 10.9   |   | Amendment  No. 3 to Employment Agreement of Steven S. Myers. (15)                                                                                                  |
|   |   |                                                                                                                                                               |
| 10.10  |   | Amendment  No. 4 to Employment Agreement of Steven S. Myers. (16)                                                                                                  |
|   |   |                                                                                                                                                               |
| 10.11  |   | Amendment  No. 5 to Employment Agreement of Steven S. Myers. (17)                                                                                                  |
|   |   |                                                                                                                                                               |
| 10.12  |   | Amendment  No. 6 to Employment Agreement of Steven S. Myers. (18)                                                                                                  |
|   |   |                                                                                                                                                               |
| 10.13  |   | Amendment  No. 7 to Employment Agreement of Steven S. Myers. (19)                                                                                                  |
|   |   |                                                                                                                                                               |
| 10.14  |   | Retirement  Agreement of Steven S. Myers. (20)                                                                                                                     |
|   |   |                                                                                                                                                               |
| 10.15  |   | Employment  Agreement of Cathy L. Wood. (21)                                                                                                                       |
|   |   |                                                                                                                                                               |
| 10.16  |   | Amendment  No. 1 to Employment Agreement of Cathy L. Wood. (22)                                                                                                    |
|   |   |                                                                                                                                                               |
| 10.17  |   | Amendment  No. 2 to Employment Agreement of Cathy L. Wood. (23)                                                                                                    |
|   |   |                                                                                                                                                               |
| 10.18  |   | Amendment  No. 3 to Employment Agreement of Cathy L. Wood. (24)                                                                                                    |
|   |   |                                                                                                                                                               |
| 10.19  |   | Amendment  No. 4 to Employment Agreement of Cathy L. Wood. (25)                                                                                                    |
|   |   |                                                                                                                                                               |
| 10.20  |   | Amendment  No. 5 to Employment Agreement of Cathy L. McCarthy (formerly Wood). (26)                                                                                |
|   |   |                                                                                                                                                               |
| 10.21  |   | Amendment  No. 6 to Employment Agreement of Cathy L. McCarthy. (27)                                                                                                |
|   |   |                                                                                                                                                               |
| 10.22  |   | Employment  Agreement of Cynthia Davis-Sailar. (28)                                                                                                                |
|   |   |                                                                                                                                                               |
| 10.23  |   | Employment  Agreement of Richard Bowe. (29)                                                                                                                        |
|   |   |                                                                                                                                                               |
| 10.24  |   | Accounts  Receivable Loan Agreement dated January 10, 2002, by and between the  Registrant and City National Bank, a national banking association. (30)            |
|   |   |                                                                                                                                                               |
| 10.25  |   | Commercial  Guaranty dated January 10, 2002, executed by Steven Myers & Associates,  Inc. in favor of City National Bank, a national banking association. (31) |
|   |   |                                                                                                                                                               |
| 10.26  |   | Revolving  Loan Agreement dated October 14, 2003, by and between the registrant and City  National Bank, a national association. (32)                              |
|   |   |                                                                                                                                                               |
| 10.27  |   | Revolving  Note dated April 10, 2003, executed by SM&A, in favor of City National  Bank. (33)                                                                  |
|   |   |                                                                                                                                                               |
| 10.28  |   | Renewal of  Revolving Note dated April 27, 2004, executed by SM&A, in favor of City  National Bank. (34)                                                       |
|   |   |                                                                                                                                                               |
| 10.29  |   | Renewal of  Revolving Note dated April 29, 2005, executed by SM&A, in favor of City  National Bank. (35)                                                       |
|   |   |                                                                                                                                                               |
| 10.30  |   | Renewal of  Revolving Note dated April 24, 2006, executed by SM&A, in favor of City  National Bank. (36)                                                       |

 

20

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| 10.31  |   | Renewal of  Revolving Note dated April 27, 2007, executed by SM&A, in favor of City  National Bank. (37)                                                                           |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                   |
| 10.32  |   | Consultant  Agreement of Bowes Enterprises. (38)                                                                                                                                       |
|   |   |                                                                                                                                                                                   |
| 10.33  |   | Consultant  Agreement of Joseph B. Reagan. (39)                                                                                                                                        |
|   |   |                                                                                                                                                                                   |
| 10.34  |   | Indemnification  Agreements. (40)                                                                                                                                                      |
|   |   |                                                                                                                                                                                   |
| 21.1   |   | Subsidiaries  of the Registrant. (41)                                                                                                                                                  |
|   |   |                                                                                                                                                                                   |
| 31.1   |   | Certificate  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002. (42)                                                                               |
|   |   |                                                                                                                                                                                   |
| 31.2   |   | Certificate  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002. (43)                                                                               |
|   |   |                                                                                                                                                                                   |
| 32     |   | Certification  of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002. (44) |

----

Footnote #

(1)             Filed onFebruary 12, 2007 as Exhibit 99.2 to the registrant’s Current Report on Form8-K and incorporated herein by reference.

(2)             Filed onMarch 15, 2002 as Exhibit 3.1 to the registrant’s Annual Report on Form 10-Kand incorporated herein by reference.

(3)             Filed on May3, 2002 as Exhibit 3.2 to the registrant’s Quarterly Report on Form 10-Q andincorporated herein by reference.

(4)             Filed onDecember 6, 2006 as Exhibit 3.1 to the registrant’s Current Report on Form 8-Kand incorporated herein by reference.

(5)             Filed onDecember 6, 2006 as Exhibit 3.3 to the registrant’s Current Report on Form 8-Kand incorporated herein by reference.

(6)             Filed on December6, 2006 as Exhibit 2.1 to the registrant’s Current Report on Form 8-K andincorporated herein by reference.

(7)             Filed onApril 17, 2001 as Exhibit 10.1 to the registrant’s Annual Report on Form 10-Kand incorporated herein by reference.

(8)             Filed onFebruary 24, 2006, as Exhibit 10.2 to the registrant’s Annual Report on Form10-K and incorporated herein by reference.

(9)             Filed onApril 29, 2002 as Exhibit C to the registrant’s Annual Proxy Statement on Form14A and incorporated herein by reference.

(10)       Filed onNovember 21, 1997 as Exhibit 10.3 to the registrant’s Registration Statement333-4075 on Form S-1 (Registration No. 333-4075) and incorporated herein byreference.

(11)       Filed onOctober 22, 2004 as Exhibit 10.25 to the registrant’s Quarterly Report on Form10-Q and incorporated herein by reference.

(12)       Filed onApril 17, 2001 as Exhibit 10.17 to the registrant’s Annual Report on Form 10-Kand incorporated herein by reference.

(13)       Filed onMarch 15, 2002 as Exhibit 10.7 to the registrant’s Annual Report on Form 10-Kand incorporated herein by reference.

(14)       Filed on May3, 2002 as Exhibit 10.8 to the registrant’s Quarterly Report on Form 10-Q andincorporated herein by reference.

(15)       Filed onMarch 11, 2003 as Exhibit10.7 to the registrant’s Annual Report on Form 10-Kand incorporated herein by reference.

(16)       Filed onFebruary 6, 2004 as Exhibit 10.8 to the registrant’s Annual Report on Form 10-Kand incorporated herein by reference.

(17)       Filed onOctober 22, 2004 as Exhibit 10.21 to the registrant’s Quarterly Report on Form10-Q and incorporated herein by reference.

(18)       Filed onApril 21, 2006 as Exhibit 99.1 to the registrant’s Current Report on Form 8-Kand incorporated herein by reference.

(19)       Filed onDecember 20, 2006 as Exhibit 99.1 to the registrant’s Current Report on Form8-K and incorporated herein by reference.

(20)       Filed onMarch 13, 2007 as Exhibit 10.2 to the registrant’s Current Report on Form 8-Kand incorporated herein by reference.

(21)       Filed onMarch 15, 2002 as Exhibit 10.8 to the registrant’s Annual Report on Form 10-Kand incorporated herein by reference.

(22)       Filed onNovember 4, 2002 as Exhibit 10.10 to the registrant’s Quarterly Report on Form10-Q and incorporated herein by reference.

(23)       Filed onMarch 11, 2003 as Exhibit 10.10 to the registrant’s Annual Report on Form 10-Kand incorporated herein by reference.

(24)       Filed onFebruary 6, 2004 as Exhibit 10.12 to the registrant’s Annual Report on Form10-K and incorporated herein by reference.

(25)       Filed onOctober 22, 2004 as Exhibit 10.22 to the registrant’s Quarterly Report on Form10-Q and incorporated herein by reference.

(26)       Filed onApril 21, 2006 as Exhibit 99.1 to the registrant’s Current Report on Form 8-Kand incorporated herein by reference.

(27)       Filed onAugust 23, 2006 as Exhibit 99.1 to the registrant’s Current Report on Form 8-Kand incorporated herein by reference.

(28)       Filed onMarch 13, 2007 as Exhibit 10.1 to the registrant’s Current Report on Form 8-Kand incorporated herein by reference.

(29)       Filed onFebruary 12, 2007 as Exhibit 99.3 to the registrant’s Current Report on Form8-K and incorporated herein by reference.

(30)       Filed onJanuary 25, 2002 as Exhibit 99.2 to the registrant’s Current Report on Form 8-Kand incorporated herein by reference.

(31)       Filed onJanuary 25, 2002 as Exhibit 99.3 to the registrant’s Current Report on Form 8-Kand incorporated herein by reference.

(32)       Filed onFebruary 6, 2004 as Exhibit 10.18 to the registrant’s Annual Report on Form10-K and incorporated herein by reference.

(33)       Filed onJuly 31, 2003 as Exhibit 10.16 to the registrant’s Quarterly Report on Form10-Q and incorporated herein by reference.

(34)       Filed onJuly 21, 2004 as Exhibit 10.20 to the registrant’s Quarterly Report on Form10-Q and incorporated herein by reference.

(35)       Filed onJuly 14, 2005 as Exhibit 10.25 to the registrant’s Quarterly Report on Form10-Q and incorporated herein by reference.

(36)       Filed on May15, 2006 as Exhibit 10.29 to the registrant’s Quarterly Report on Form 10-Q andincorporated herein by reference.

(37)       Filedherewith.

(38)       Filed onOctober 22, 2004 as Exhibit 10.23 to the registrant’s Quarterly Report on Form10-Q and incorporated herein by reference.

(39)       Filed onOctober 22, 2004 as Exhibit 10.24 to the registrant’s Quarterly Report on Form10-Q and incorporated herein by reference.

(40)       Filed onDecember 6, 2006 as Exhibits 10.1 through 10.10 to the registrant’s CurrentReport on Form 8-K and incorporated herein by reference.

(41)       Filed on March16, 2007 as Exhibit 21.1 to the registrant’s Annual Report on Form 10-K/A andincorporated herein by reference.

(42)       Filedherewith.

(43)       Filedherewith.

(44)       Filedherewith.

21

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**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.
|               | SM&A                                       |   |
|--------------------|------------------------------------------------|--------|
|               | (Registrant)                                   |
|               |                                           |
| Dated: May 4, 2007 | /s/ STEVE D. HANDY                             |   |
|               | Steve D. Handy                                 |
|               | Senior Vice President, Chief Financial Officer |
|               | and Secretary                                  |
|               |                                           |
| Dated: May 4, 2007 | /s/ CYNTHIA A. DAVIS                           |   |
|               | Cynthia A. Davis                               |
|               | Chief Executive Officer                        |

 

22

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