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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One) x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Quarter ended June 30, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission file number 0-23585 (SM&A LOGO) SM&A (Exact name of registrant as specified in its charter)
 California
    
    33-0080929(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 4695 MacArthur Court, 8th Floor, Newport Beach, California 92660
(Address of principal executive offices, including zip code) (949) 975-1550
(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
x      No o Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b of the Act). Yes x     No o Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date. Class
    
    Outstanding at July 15, 2004Common stock, no par value
    
    20,560,376 shares




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SM&A INDEX PART I. FINANCIAL INFORMATION  
 PageCautionary Statement Related to Forward Looking Statements
    
    
    3How to Obtain SM&A SEC Filings
    
    
    3Item 1.
    
    Financial Statements:Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003
    
    
    4Consolidated Statements of Income for the three and six months ended June 30, 2004 and 2003 (unaudited)
    
    
    5Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003 (unaudited)
    
    
    6Notes to Consolidated Financial Statements (unaudited)
    
    
    7Item 2.
    
    Managements
Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4.
    
    Controls and Procedures
    
    
    17PART II.  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    18Item 2.
    
    Changes in Securities and Use of Proceeds
    
    
    18Item 3.
    
    Defaults Upon Senior Securities
    
    
    18Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    18Item 5.
    
    Other Information
    
    
    19Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    20Signatures
    
    
    23EXHIBIT 10.20EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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CAUTIONARY STATEMENT RELATED TO FORWARD LOOKING STATEMENTS This Quarterly Report onForm 10-Qincludes certain forward-looking
statements as defined within Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
relating to revenue, revenue composition, demand trends, future expense levels,
trends in average headcount and gross margins, and the level of expected
capital expenditures. Such forward-looking statements are based on the beliefs
of, estimates made by, and information currently available to SM&A ( the
Company) management and are subject to certain risks, uncertainties and
assumptions. Any statements contained herein (including without limitation
statements to the effect that the Company or management estimates, expects,
anticipates, plans, believes, projects, continues, may, will,
could, or would or statements concerning potential or opportunity or
variations thereof or comparable terminology or the negative thereof) that are
not statements of historical fact should be construed as forward-looking
statements. The actual results of SM&A may vary materially from those expected
or anticipated in these forward-looking statements. The realization of such
forward-looking statements may be impacted by certain important unanticipated
factors including those discussed in  Risk Factors under Item 2, and
Managements Discussion and Analysis of Financial Condition and Results of
Operations, at pages 10-16. Because of these and other factors that may affect
SM&As operating results, past performance should not be considered as an
indicator of future performance and investors should not use historical results
to anticipate results or trends in future periods. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Readers should carefully review the risk factors described in this and other
documents that SM&A files from time to time with the Securities and Exchange
Commission (SEC), including subsequent Current Reports onForm 8-K, Quarterly
Reports onForm 10-Qand Annual Reports onForm 10-K. 
 HOW TO OBTAIN SM&A SEC FILINGS All reports filed by SM&A with the SEC are available free of charge via
EDGAR through the SEC website at www.sec.gov. In addition, the public may read
and copy materials filed by the Company with the SEC at the SECs public
reference room located at 450 Fifth St., N.W., Washington, D.C. 20549. SM&A
also provides copies of its Forms 8-K, 10-K, 10-Q, Proxy and Annual Report at
no charge to investors upon request and makes electronic copies of its most
recently filed reports available through its website at www.smawins.com as soon
as reasonably practicable after filing such material with the SEC. 3




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SM&A 
 CONSOLIDATED BALANCE SHEETS
 (in thousands)
 June 30
    
    December 312004
    
    2003(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,430
    
    
    $
    17,712Accounts receivable, net
    
    
    13,906
    
    
    
    12,178Prepaid expenses and other current assets
    
    
    257
    
    
    
    310Deferred income taxes
    
    
    752
    
    
    
    752Total current assets
    
    
    36,345
    
    
    
    30,952Fixed assets, net
    
    
    740
    
    
    
    723Other assets
    
    
    147
    
    
    
    128$
    37,232
    
    
    $
    31,803LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    511
    
    
    $
    683Accrued
compensation and related benefits
    
    
    3,810
    
    
    
    3,637Income taxes payable
    
    
    1,089
    
    
    
    1,440Net
liabilities of discontinued operations
    
    
    1,023
    
    
    
    1,359Total current liabilities
    
    
    6,433
    
    
    
    7,119Deferred income taxes
    
    
    45
    
    
    
    45Other liabilities
    
    
    195
    
    
    
    206Total liabilities
    
    
    6,673
    
    
    
    7,370Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    53,118
    
    
    
    52,215Accumulated deficit
    
    
    (22,559
    )
    
    
    (27,782
    )Total shareholders equity
    
    
    30,559
    
    
    
    24,433$
    37,232
    
    
    $
    31,803
 See accompanying notes to consolidated financial statements 4




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SM&A 
 CONSOLIDATED STATEMENTS OF INCOME
 (in thousands, except per share data)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(Unaudited)
    
    (Unaudited)
    
    (Unaudited)
    
    (Unaudited)Revenue
    
    $
    16,159
    
    
    $
    18,782
    
    
    $
    34,646
    
    
    $
    37,527Cost of revenue
    
    
    8,670
    
    
    
    10,469
    
    
    
    18,814
    
    
    
    21,181Gross margin
    
    
    7,489
    
    
    
    8,313
    
    
    
    15,832
    
    
    
    16,346Selling, general and administrative expenses
    
    
    4,188
    
    
    
    3,422
    
    
    
    7,578
    
    
    
    6,746Operating income
    
    
    3,301
    
    
    
    4,891
    
    
    
    8,254
    
    
    
    9,600Interest income, net
    
    
    48
    
    
    
    9
    
    
    
    78
    
    
    
    10Income before income taxes
    
    
    3,349
    
    
    
    4,900
    
    
    
    8,332
    
    
    
    9,610Income tax expense
    
    
    1,066
    
    
    
    2,010
    
    
    
    3,109
    
    
    
    2,942Net income
    
    $
    2,283
    
    
    $
    2,890
    
    
    $
    5,223
    
    
    $
    6,668Net income per share:Basic
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.26
    
    
    $
    0.34Diluted
    
    $
    0.11
    
    
    $
    0.14
    
    
    $
    0.24
    
    
    $
    0.32Shares used in calculating net income per
share:Basic
    
    
    20,541
    
    
    
    19,876
    
    
    
    20,470
    
    
    
    19,802Diluted
    
    
    21,661
    
    
    
    21,360
    
    
    
    21,701
    
    
    
    21,110
 See accompanying notes to consolidated financial statements. 5




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SM&A 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Six Months EndedJune 30,2004
    
    2003(unaudited)
    
    (unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    5,223
    
    
    $
    6,668Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    169
    
    
    
    142Gain on disposal of fixed assets
    
    
    
    
    
    
    (31
    )Deferred income taxes
    
    
    
    
    
    
    147Income tax effect from exercise of stock options
    
    
    73
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,728
    )
    
    
    (2,984
    )Prepaid expense and other assets
    
    
    34
    
    
    
    (59
    )Accounts payable
    
    
    (172
    )
    
    
    296Accrued compensation and related benefits
    
    
    173
    
    
    
    728Income taxes payable
    
    
    (351
    )
    
    
    (678
    )Other liabilities
    
    
    (11
    )
    
    
    (23
    )Net cash provided by operating activities
    
    
    3,410
    
    
    
    4,206CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of fixed assets
    
    
    (186
    )
    
    
    (129
    )Net cash used in investing activities
    
    
    (186
    )
    
    
    (129
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repurchase of common stock
    
    
    (274
    )
    
    
    Proceeds from issuance of common stock
    
    
    1,104
    
    
    
    1,275Net cash provided by financing activities
    
    
    830
    
    
    
    1,275Net increase in cash from continued operations
    
    
    4,054
    
    
    
    5,352Net cash used in discontinued operations
    
    
    (336
    )
    
    
    (593
    )Net increase in cash
    
    
    3,718
    
    
    
    4,759Cash at beginning of period
    
    
    17,712
    
    
    
    5,956Cash at end of period
    
    $
    21,430
    
    
    $
    10,715
 See accompanying notes to consolidated financial statements 6




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SM&A 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For the Three and Six Months Ended June 30, 2004 and 2003
 (unaudited)
 Note 1. Basis of Presentation and Significant Accounting Policies The consolidated financial statements included herein are unaudited;
however, they contain all normal recurring accruals and adjustments that, in
the opinion of management, are necessary to present fairly the consolidated
financial position of SM&A at June 30, 2004, the consolidated results of
operations for the three and six months ended June 30, 2004 and 2003, and cash
flows for the six months ended June 30, 2004 and 2003. Comprehensive income is
equivalent to net income for the three and six month periods ended June 30,
2004 and 2003, respectively. It should be understood that accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the three and six months ended June 30, 2004 are not
necessarily indicative of the results to be expected for the full fiscal year. The accompanying unaudited consolidated financial statements do not
include footnotes and certain financial presentations normally required under
generally accepted accounting principles. Therefore, these financial statements
should be read in conjunction with our audited consolidated financial
statements and notes thereto for the year ended December 31, 2003, included in
our Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 6, 2004. Recent Accounting Pronouncements In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities. The Interpretation requires an investor with a
majority of the variable interests in a variable interest entity to consolidate
the entity and also requires majority and significant variable interest
investors to provide certain disclosures. A variable interest entity is an
entity in which the equity investors do not have a controlling interest or the
equity investment at risk is insufficient to finance the entitys activities
without receiving additional subordinated financial support from the other
parties. This pronouncement requires the consolidation of variable interest
entities created after January 31, 2003. Consolidation provisions apply for
periods ending after March 15, 2004 for variable interest entities, other than
special purpose entities, created prior to February 1, 2003. In response to a number of comment letters and implementation questions,
in December 2003 the FASB issued FIN No. 46(R), which delayed the effective
date of FIN No. 46 for certain entities until March 31, 2004. We do not have
any variable interest entities, including special purpose entities, that must
be consolidated and therefore the adoption of the provision of FIN
46(R) did
not have an impact on our financial position or results of operations. Significant Accounting Policies Revenue Recognition.We recognize revenue from services rendered when the
following four revenue recognition criteria are met: persuasive evidence of an
arrangement exists, delivery has occurred or services have been rendered, the
selling price is fixed or determinable, and collection is reasonably assured.
The majority of our services are provided under time and expenses billing
arrangements and revenue is recognized on the basis of hours worked, plus
other reimbursable contract costs incurred during the period. Revenue is
directly related to the total number of hours billed to clients and the
associated hourly billing rates. A limited amount of revenue is also derived
from success fees, offered to clients as a pricing option, and recorded as
revenue only upon attainment of the specified incentive criteria. Success fees
are not billable and revenue is not recorded until the client wins a contract. Cash and Cash Equivalents.The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. 7




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Note 2. Net Income Per Share The following table illustrates the number of shares used in the
computation of basic and diluted net income per share (in thousands): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Denominator
for basic income per share: weightedaverage shares outstanding
during the period
    
    
    20,541
    
    
    
    19,876
    
    
    
    20,470
    
    
    
    19,802Incremental shares attributable to dilutive
outstanding stock options
    
    
    1,120
    
    
    
    1,484
    
    
    
    1,231
    
    
    
    1,308Denominator for diluted income per share:
    
    
    21,661
    
    
    
    21,360
    
    
    
    21,701
    
    
    
    21,110
 Note 3. Stock-Based Compensation The Company has elected to follow APB Opinion No. 25, Accounting for
Stock Issued to Employees, to account for options to purchase common stock
of the Company issued pursuant to the Companys stock-based compensation
plans. Under APB Opinion No. 25, no compensation cost is recognized because
the exercise price of options granted under the Companys stock-based
compensation plans is at least equal to the market price of the underlying
stock on the date of grant. Had compensation costs for these plans been
determined at the grant dates for awards under the alternative accounting
method provided for in SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure-an Amendment to FASB Statement No.
123, net income and earnings per share, on a pro forma basis, would have
been (in thousands except for per share information): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income  as reported
    
    $
    2,283
    
    
    $
    2,890
    
    
    $
    5,223
    
    
    $
    6,668Less: stock compensation expense  net of tax
    
    
    (611
    )
    
    
    (113
    )
    
    
    (986
    )
    
    
    (243
    )Net income  SFAS No. 123 pro forma
    
    $
    1,672
    
    
    $
    2,777
    
    
    $
    4,237
    
    
    $
    6,425Basic income per share  as reported
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.26
    
    
    $
    0.34Basic income per share  SFAS No. 123 pro
forma
    
    $
    0.08
    
    
    $
    0.14
    
    
    $
    0.21
    
    
    $
    0.32Diluted income per share  as reported
    
    $
    0.11
    
    
    $
    0.14
    
    
    $
    0.24
    
    
    $
    0.32Diluted income per share  SFAS No. 123 pro
forma
    
    $
    0.08
    
    
    $
    0.13
    
    
    $
    0.20
    
    
    $
    0.30
  Note 4.
    
    Revolving Line of Credit The Company has a revolving credit agreement which allows for borrowings
up to $10.0 million at the prime rate minus one half of one percent (-0.50%)
per annum or LIBOR plus two and one quarter percent (2.25%) per annum. The
revolving credit agreement requires is renewable annually on
April 30th of
each year. Borrowings under the revolving credit agreement are unsecured.
The agreement requires the Company to comply with certain financial covenants
pertaining to its tangible net worth, ratio of total liabilities to tangible
net worth, and ratio of current assets to current liabilities (as defined in
the agreement). The agreement also contains certain negative covenants
which, among other things, restricts the Companys ability to incur
additional indebtedness of more than $1.0 million in excess of the $10.0
million limit set forth in the credit agreement and make capital expenditures
in excess of $2.0 million without the prior written approval of the lender.
At June 30, 2004, we had no outstanding borrowings under the line of credit
with $10.0 million in availability. 8




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Note 5. Income Taxes The Companys effective income tax rates for the three and six months
ended June 30, 2004 and 2003 were 31.8%, 37.3%, 41.0% and 30.6%,
respectively. In the second quarter ended June 30, 2004, the Company
completed and filed its federal and state income tax returns for the calendar
year ended December 31,2003. Based on the income returns filed, the Company
recorded an adjustment to its state effective tax rate in the second quarter
resulting in a reduction of income tax expense of $182,000. This reduction
in the rate was due primarily to a favorable difference in the state tax
effective rate estimated in the prior year tax provision compared to actual
amounts per the filed state tax returns. Furthermore, the Company also
adjusted its current year state tax provision rate by $125,000 for the six
months ended June 30, 2004. In the first quarter ended March 31, 2003, the
Internal Revenue Service completed their examination for the calendar years
1998 through 2001. Based on the conclusion of the examination, the Company
recorded a decrease its tax contingency reserve leading to a reduction of
income tax expense of $0.05 per diluted share in the first quarter of 2003. Note 6. Stockholders equity In May 2004, the Companys Board of Directors authorized a plan to
repurchase up to $7.0 million of the Companys common stock. The Company
intends to repurchase shares from time to time, at prevailing prices, in the
open market. The timing and amount of the share repurchases will be at the
discretion of management and will be based on such factors as the stock price,
general economic and market conditions, and other factors. The share repurchase
plan may be suspended or discontinued at any time. Shares repurchased under the
plan will be restored to the status of authorized but unissued shares. As of
June 30, 2004, management has repurchased 34,200 shares at a total cost of
$274,000. Note 7. Related Parties The Company entered into a contract in April 2002 with ProView, a
subsidiary of the Precept Group, for which one of the members of the
Companys Board of Directors serves as the President and Chief Executive
Officer. The Company has agreed to outsource its employee benefits
administration to ProView. The contract value was determined through a
review of prevailing market rates for such services. Under this contract,
the Company paid $8,000, $16,000, $6,000 and $12,000 during the three and six
months ended June 30, 2004 and 2003, respectively. In June 2002, we entered into a right of offset and barter agreement
with SummitJets, Inc. (SummitJets), which is owned by the Companys Chairman
and Chief Executive Officer. The agreement provided for the offset of the
existing accounts receivable and accounts payable balances between the
companies. After giving effect to the offset, SM&A was owed $114,000, which
amount SummitJets agreed to pay in the form of credits to use SummitJets
aircraft. The $114,000 owed represents expenses incurred related to a former
location sharing agreement for rent and related utilities. In June 2002,
SummitJets moved into its own facilities and cancelled the existing location
sharing agreement. During the three months ended March 31, 2003, total
credits used were $48,000 that is included in Selling, General and
Administrative Expenses and SummitJets paid the Company the remaining unused
credits owed of $17,000 and the contract was terminated. Note 8. Discontinued Operations In 2002 and 2001, the Company sold and dissolved one of its business
segments, respectively. The balance owed at June 30, 2004 of $1.0 million
represents the remaining office lease commitments, net of subleases and
estimated broker fees, over the remaining terms of the leases. During the
six months ended June 30, 2004, the Company paid $336,000 net of sublease
receipts, related to the leased property. The Company continues the process
of identifying sub-lessees for our remaining leased property. 9




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Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations SM&A is one of the worlds leading providers of competition management
services (formerly known as proposal management services), and a leading
provider of high-value performance assurance services (formerly known as
program support services). Our more than 315 employees and consultants provide
program management, systems engineering, and expert support to major industrial
customers in the defense, homeland security, aerospace, information technology,
and architect and engineering sectors. Since 1982, we have managed more than
820 proposals worth more than $270 billion for our clients and have achieved an
85% win rate on awarded contracts. We also provide systems engineering, program
planning and other high-value technical support services to such high priority
national programs as the Joint Strike Fighter program and Americas missile
defense efforts. RESULTS OF OPERATIONS The following table sets forth certain historical operating results (in
thousands): For the three months ended June 30,2004
    
    2003
    
    Change $
    
    Change %Revenue
    
    $
    16,159
    
    
    $
    18,782
    
    
    
    (2,623
    )
    
    
    (14.0
    %)Cost of revenue
    
    
    8,670
    
    
    
    10,469
    
    
    
    (1,799
    )
    
    
    (17.2
    %)Gross margin
    
    
    7,489
    
    
    
    8,313
    
    
    
    (824
    )
    
    
    (9.9
    %)Selling, general and administrative expenses
    
    
    4,188
    
    
    
    3,422
    
    
    
    766
    
    
    
    22.4
    %Operating income
    
    
    3,301
    
    
    
    4,891
    
    
    
    (1,590
    )
    
    
    (32.5
    %)Income tax expense
    
    
    1,066
    
    
    
    2,010
    
    
    
    (944
    )
    
    
    (47.0
    %)Net income
    
    $
    2,283
    
    
    $
    2,890
    
    
    
    (607
    )
    
    
    (21.0
    %)
 Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003 Revenue.During the forth quarter of 2003 and the first quarter of 2004,
the Company reported record revenues for its competition management services.
We believe this was due to the fast pace of competitive procurements in those
quarters. Competition management activity decreased significantly in April and
May, but is expected to increase going forward as the Company began to see a
rebound in proposal activity in June. As the Company experienced record
revenues supporting competitive procurements, the follow-on awards for these
procurements and other contract awards are expected to be announced in the
coming months. The Company believes that the large number of anticipated award
announcements will result in a significant increase in performance assurance
revenues. Due to the slowdown in competitive procurements stated above, revenue
decreased $2.6 million, or 14.0% to $16.2 million for the three months ended
June 30, 2004 compared to $18.8 million for the same period of the prior year.
Revenues from our top five customers decreased 23.3% to $11.8 million compared
to $15.4 million for the same period of the prior year. We added eleven new
customers, which generated $1.5 million in revenue or 9.3% of total revenues.
The increase in growth from new customers is directly related to our hiring of
more account executives, which has enabled us to focus on developing new
markets outside of our traditional aerospace and defense concentration. We
believe that this growth validates our strategy and conviction that our
services are portable across multiple vertical markets. The percentage of revenues from competition management services and
performance assurance services was 55% and 45% for the three months ended June
30, 2004, respectively, compared to 53% and 47% for the same period of the
prior year. Gross Margin.Gross margin decreased $824,000, or 9.9%, to $7.5 million
for the three month ended June 30, 2004 compared to $8.3 million for the same
period of the prior year. As a percentage of revenue, gross margin increased
to 46.3% for the three months ended June 30, 2004 compared to 44.3% for the
same period of the prior year. The decrease in gross margin dollars is due to
the decrease in sales as discussed above. The increase in gross 10




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Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations  (contd) margin as a percentage of sales is due to an increase in our success fees for
the period, which were $641,000 for the three months ended June 30, 2004.
There were no success fees for the same period of the prior year. Excluding
the success fees, gross margins would have been consistent at 44.1% for the
comparable quarter. Selling, General and Administrative Expenses.Selling, general and
administrative expenses consist principally of salary and benefit costs for
executive, sales and administrative personnel, professional services and other
general corporate activities. Selling, general and administrative expenses
increased $766,000, or 22.4%, to $4.2 million for the three months ended June
30, 2004, as compared to $3.4 million for the same period of the prior year.
As a percentage of revenue, selling, general and administrative expenses
increased to 25.9% for the three months ended June 30, 2004, as compared to
18.2% for the same period of the prior year. The increase in expenses is
attributable to the increase in the number of account executives and staff to
support and service our new and existing client base. Operating Income.Operating income decreased $1.6 million, or 32.5% to
$3.3 million for the three months ended June 30, 2004, compared to $4.9 million
for the same period of the prior year. As a percentage of revenue, operating
income decreased to 20.4% for the three months ended June 30, 2004, as compared
to 26.0% for the same period of the prior year. Operating income decreased due
to the decrease in sales and gross profit and the increase in selling, general
and administrative expenses, as discussed above. Income Tax Expense. Our effective income tax rates for the three months
ended June 30, 2004 and 2003 were 31.8% and 41.0%, respectively. In the
second quarter ended June 30, 2004, we completed and filed our federal and
state income tax returns for the calendar year ended December 31, 2003.
Based on the income tax returns filed, we recorded an adjustment to our state
effective tax rate in the second quarter resulting in a reduction of income
tax expense of $182,000. This reduction in our rate was due primarily to a
favorable difference in our state tax effective rate estimated in the prior
year tax provision compared to actual amounts per our filed state tax
returns. Furthermore, we also adjusted our current year state tax provision
rate by $125,000 for the three months ended June 30, 2004. Our estimated
effective tax rate for the remainder of this year is expected to 39.5%. 11




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations  (contd) RESULTS OF OPERATIONS The following table sets forth certain historical operating results (in thousands): For the six months ended June 30,2004
    
    2003
    
    Change $
    
    Change %Revenue
    
    $
    34,646
    
    
    $
    37,527
    
    
    
    (2,881
    )
    
    
    (7.7
    %)Cost of revenue
    
    
    18,814
    
    
    
    21,181
    
    
    
    (2,367
    )
    
    
    (11.2
    %)Gross margin
    
    
    15,832
    
    
    
    16,346
    
    
    
    (514
    )
    
    
    (3.1
    %)Selling, general and administrative expenses
    
    
    7,578
    
    
    
    6,746
    
    
    
    832
    
    
    
    12.3
    %Operating income
    
    
    8,254
    
    
    
    9,600
    
    
    
    (1,346
    )
    
    
    (14.0
    %)Income tax expense
    
    
    3,109
    
    
    
    2,942
    
    
    
    167
    
    
    
    5.7
    %Net income
    
    $
    5,223
    
    
    $
    6,668
    
    
    
    (1,445
    )
    
    
    (21.7
    )
 Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003 Revenue.During the forth quarter of 2003 and the first quarter of 2004,
the Company reported record revenues for its competition management services.
We believe this was due to the fast pace of competitive procurements in those
quarters. Competition management activity decreased significantly in April and
May, but is expected to increase going forward as the Company began to see a
rebound in proposal activity in June. As the Company experienced record
revenues supporting competitive procurements, the follow-on awards for these
procurements and other contract awards are expected to be announced in the
coming months. The Company believes that the large number of anticipated award
announcements will result in a significant increase in performance assurance
revenues. Due to the slowdown in competitive procurements stated above, revenue
decreased $2.9 million, or 7.7% to $34.7 million for the six months ended June
30, 2004 compared to $37.5 million for the same period of the prior year.
Revenues from our top five customers decreased 16.6% to $26.2 million compared
to $31.4 million for the same period of the prior year. We added twenty-one
new customers, which generated $2.7 million in revenue or 7.8% of total
revenues. The increase in growth from new customers is directly related to
our hiring of more account executives, which has enabled us to focus on
developing new markets outside of our traditional aerospace and defense
concentration. We believe that this growth validates our strategy and
conviction that our services are portable across multiple vertical markets. The percentage of revenues from competition management services and
performance assurance services was 59% and 41% for the six months ended June
30, 2004, respectively, compared to 50% and 50% for the same period of the
prior year. Gross Margin.Gross margin decreased $514,000, or 3.1%, to $15.8 million
for the six months ended June 30, 2004 compared to $16.3 million for the same
period of the prior year. As a percentage of revenue, gross margin increased
to 45.7% for the six months ended June 30, 2004 compared to 43.6% for the same
period of the prior year. The decrease in gross margin dollars is due to the
decrease in sales as discussed above. The increase in gross margin as a
percentage of sales is due to an increase in our success fees for the period,
which were $751,000 for the six months ended June 30, 2004. There were no
success fees for the same period of the prior year. Excluding the success
fees, gross margins would have been 44.5% compared to the same period of the
prior year. Selling, General and Administrative Expenses.Selling, general and
administrative expenses consist principally of salary and benefit costs for
executive, sales and administrative personnel, professional services and other
general corporate activities. Selling, general and administrative expenses
increased $832,000, or 12.3%, to $7.6 million for the six months ended June 30,
2004, as compared to $6.7 million for the same period of the prior year. As a
percentage of revenue, selling, general and administrative expenses increased
to 21.9% for the six months ended June 30, 2004, as compared to 18.0% for the
same period of the prior year. The increase in expenses is attributable to the increase in the number of account executives and
staff to support and service our new and existing client base. 12




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations  (contd) Operating Income.Operating income decreased $1.3 million, or 14.0% to
$8.3 million for the six months ended June 30, 2004, compared to $9.6 million
for the same period of the prior year. As a percentage of revenue, operating
income decreased to 23.8% for the six months ended June 30, 2004, as compared
to 25.6% for the same period of the prior year. Operating income decreased due
to the decrease in sales and gross profit and the increase in selling, general
and administrative expenses, as discussed above. Income Tax Expense. Our effective income tax rates for six months ended
June 30, 2004 and 2003 were 37.3% and 30.6%, respectively. In the second
quarter ended June 30, 2004, we completed and filed our federal and state
income tax returns for the calendar year ended December 31, 2003. Based on
the income tax returns filed, we recorded an adjustment to our state
effective tax rate in the second quarter resulting in a reduction of income
tax expense of $182,000. This reduction in our rate was due primarily to a
favorable difference in our state tax effective rate estimated in the prior
year tax provision compared to actual amounts per our filed state tax
returns. Furthermore, the Company also adjusted its current year state tax
provision rate by $125,000 for the six months ended June 30, 2004. In the
first quarter ended March 31, 2003, the Internal Revenue Service completed
their examination for the calendar years 1998 through 2001. Based on the
conclusion of the examination, we recorded a decrease in our tax contingency
reserve leading to a reduction of income tax expense of $0.05 per diluted
share in the first quarter of 2003. Our estimated effective tax rate for
the remainder of this year is expected to 39.5%. 13




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations  (contd) Capital Resources and Liquidity Our working capital increased to $29.9 million at June 30, 2004 from $23.8
million at December 31, 2003. In addition, our cash and cash equivalents
increased to $21.4 million at June 30, 2004, from $17.7 million at December 31,
2003. Cash flow from operating activities provided $3.4 million during the six
months ended June 30, 2004, compared to $4.2 million for the same period during
the prior year. Cash flow from financing activities included $830,000 from the
receipt of cash related to our employee stock purchase plan and stock option
exercises less repurchases of common stock, for the six months ended June 30,
2004, as compared to $1.3 million for the same period prior year. In May 2004, the Companys Board of Directors authorized a plan to
repurchase up to $7.0 million of the Companys common stock. The Company
intends to repurchase shares from time to time, at prevailing prices, in the
open market. The timing and amount of the share repurchases will be at the
discretion of management and will be based on such factors as the stock price,
general economic and market conditions, and other factors. The share repurchase
plan may be suspended or discontinued at any time. Shares repurchased under the
plan will be restored to the status of authorized but unissued shares. As of
June 30, 2004, we have repurchased 34,200 shares at a total cost of $274,000. The Company has a revolving credit agreement which allows for borrowings
up to $10.0 million at the prime rate minus one half of one percent (-0.50%)
per annum or LIBOR plus two and one quarter percent (2.25%) per annum. The
revolving credit agreement is renewable annually on
April 30th of each year.
Borrowings under the revolving credit agreement are unsecured. The agreement
requires the Company to comply with certain financial covenants pertaining to
its tangible net worth, ratio of total liabilities to tangible net worth, and
ratio of current assets to current liabilities (as defined in the agreement).
The agreement also contains certain negative covenants which, among other
things, restrict the Companys ability to incur additional indebtedness of more
than $1.0 million in excess of the $10.0 million limit set forth in the credit
agreement and make capital expenditures in excess of $2.0 million without the
prior written approval of the lender. At June 30, 2004, we had no outstanding
borrowings under the line of credit with $10.0 million in availability. We believe we have sufficient working capital available under the line of
credit and cash generated by continuing operations will be sufficient to fund
operations for at least the next twelve months. The following table illustrates the remaining contractual obligations
outstanding as of June 30, 2004: Contractual Obligations Payments Due By Period as of June 30, 2004
(In thousands) Contractual
    
    
    
    
    
    1 YearObligations
    
    Total
    
    or Less
    
    1-3 Years
    
    3-5 Years
    
    After 5 YearsOperating
leases
    
    $
    1,974
    
    
    $
    623
    
    
    $
    1,260
    
    
    $
    91
    
    
    $
    Operating leases
related to
discontinued operations, net of
subleases
    
    
    1,007
    
    
    
    186
    
    
    
    712
    
    
    
    109
    
    
    
    Total
    
    $
    2,981
    
    
    $
    809
    
    
    $
    1,972
    
    
    $
    200
    
    
    $
    
 14




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations  (contd) RISK FACTORS In addition to the other information in this Quarterly Report on Form 10-Q, the
following factors should be considered carefully in evaluating our business and
prospects. Our business depends substantially on the defense industry. Our competition management and performance assurance services business
depends substantially on U.S. Government expenditures for defense products.
Any decline in the future defense, information technology or homeland
security procurement expenditures could affect the opportunities available to
our clients and, indirectly, our business. A number of factors could
contribute to such a decline in opportunities, including:  
    
    Loss of political support for current or increased levels
of spending;
    
    Changes of presidential administration, particularly
changes from one political party to another, that typically result
in a mass reordering of priorities that reduce new proposal
activity for up to a year;
    
    Threat scenarios evolving away from global conflicts to regional
conflicts;
    
    Spending for ongoing operations, such as the war on
terrorism, the occupation of Iraq, downward pressure on spending
for procurement of new systems and research and development
spending; and
    
    Cancellation of programs or emphasis on government shifting
programs. In the event expenditures for products of the type manufactured by our
clients are reduced and not offset by other new programs or products, there
will be a reduction in the volume of contracts or subcontracts to be bid upon
by our clients and, as a result, a reduction in the volume of proposals we
managed. Unless offset, such reductions could materially and adversely affect
our business, operating results and financial condition. We rely on a relatively limited number of clients. We derive a significant portion of revenue from a relatively limited
number of clients. In 2003, our seven largest customers accounted for 91.8%
of our revenue. Clients typically retain our services as needed on an
engagement basis rather than pursuant to long-term contracts, and a client
may terminate the engagement at any time without significant penalty.
Moreover, there can be no assurance that existing clients will continue to
engage us for additional assignments or do so at the same revenue levels. The
loss of any significant client could materially and adversely affect our
business, financial condition and results of operations. In addition, the
level of services required by an individual client may diminish over the life
of the relationship, and there can be no assurance we will be successful in
establishing relationships with new clients as this occurs. The markets in which we operate are highly competitive. The market for competition management services in the procurement of
government and commercial contracts for aerospace and defense work is a niche
market with a number of competitors. We are the largest provider of such
services and principally compete with the in-house resources of our clients.
In addition, numerous smaller competition management companies compete in
this highly specialized industry. With sufficient resources in the form of
money and excellent talent with current security clearances, our competitors
could erode our current market share, and such a reduction could materially
and adversely affect our business, operating results and financial condition. 15




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations  (contd) We rely heavily upon our key senior management personnel and our ability to
recruit and maintain skilled professionals. Our success is highly dependent upon the efforts, abilities, and
business generation capabilities and project execution of our three principal
executive officers, our account executives, and senior staff such as our Vice
President of Recruiting and Vice President of Operations. In particular,
Steven S. Myers, Chief Executive Officer and Chairman of the Board, Cathy L.
Wood, Executive Vice President, Chief Financial Officer and Corporate
Secretary, and Bennett C. Beaudry, President and Chief Operating Officer have
a significant role in our success. The loss of the services of these key
individuals, for any reason, could materially and adversely affect our
business, operating results and financial condition. Our business involves the delivery of professional services and is
highly labor-intensive. Our success depends largely on our general ability
to attract, develop, motivate and retain highly skilled professionals. The
loss of some or a significant number of our professionals and/or the
inability to attract, hire, develop, train and retain additional skilled
personnel could have a serious negative effect on us, including our ability
to obtain and successfully complete important engagements and maintain or
increase our revenue. Quarterly results may fluctuate. We may experience fluctuations in future quarterly operating results due
to a number of factors, including the size, timing and duration of client
engagements. Our stock price is subject to significant volatility. Our common stock was first publicly traded on January 29, 1998, after
our initial public offering at $12.00 per share. Between January 29, 1998 and
June 30, 2004, the closing sale price has ranged from a high of $31.13 per
share to a low of $0.75 per share. The market price of our common stock could
continue to fluctuate substantially due to a variety of factors, including:  
    
    Quarterly fluctuations in results of operations;  
    
    Adverse circumstances affecting the introduction or market acceptance of new services we offer;  
    
    Announcements of new services by competitors;  
    
    Loss of key employees;  
    
    Changes in the regulatory environment or market conditions affecting
the defense and aerospace industry;  
    
    Changes in earnings estimates and ratings by analysts;  
    
    Lack of market liquidity resulting from a relatively small amount of public stock float;  
    
    Changes in generally accepted accounting principles;  
    
    Sales of common stock by existing holders; and  
    
    The announcement of proposed acquisitions and dispositions. Principal shareholder has significant control. At June 30, 2004, Steven S. Myers, Chief Executive Officer and Chairman
of the Board, beneficially owned or controlled approximately 24.2% of our
outstanding common stock and will have the ability to control or
significantly influence the election of directors and the results of other
matters submitted to a vote of shareholders. This ownership concentration may
have the effect of delaying or preventing a change in control and may
adversely affect the ability of other holders of our common stock to pass
shareholder resolutions and control our actions. Our board of directors is
currently comprised entirely of individuals nominated with the approval of
Mr. Myers. 16




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company currently has no instruments that are sensitive to market
risk. 
 Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our principal executive officer
and principal financial officer, has evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
as of the end of the period covered by this quarterly report on Form 10-Q.
Based on this evaluation, our principal executive officer and principal
financial officer concluded that these disclosure controls and procedures are
effective and designed to ensure that the information required to be disclosed
in our reports filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized, and reported within the requisite time
periods. While the Companys disclosure controls and procedures provide reasonable
assurance that the appropriate information will be available on a timely basis,
this assurance is subject to limitations inherent in any control system, no
matter how well designed and administered. Changes in Internal Controls There was no change in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934, as amended) identified in connection with the evaluation of our internal
control performed during our last fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting. 17




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##### Table of Contents



PART II  OTHER INFORMATION 
 Item 1. Legal Proceedings We are involved in routine litigation incidental to the conduct of our
business. There are currently no material pending litigation proceedings to
which we are a party or to which any of our property is subject. 
 Item 2. Changes in Securities and Use of Proceeds and Issuer Purchase of Equity Securities Issuer Purchases of Equity Securities TotalNumber of
    
    ApproximateShares
    
    $ Value ofPurchased
    
    Shares ThatTotal
    
    Average
    
    as Part of a
    
    May Yet BeNumber of
    
    Price Paid
    
    Publicly
    
    PurchasedShares
    
    per
    
    Announced
    
    Under thePeriod
    
    Purchased
    
    Share
    
    Plan
    
    PlanApril 1, 2004 to
April 30, 2004
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    7,000,000May 1, 2004 to
May 31, 2004
    
    
    17,500
    
    
    
    8.00
    
    
    
    17,500
    
    
    
    6,860,000June 1, 2004 to
June 30, 2004
    
    
    16,700
    
    
    
    8.02
    
    
    
    34,200
    
    
    
    6,726,000Total
    
    
    34,200
    
    
    $
    8.01
    
    
    
    34,200
    
    
    $
 In May 2004, the Companys Board of Directors authorized a plan to
repurchase up to $7.0 million of the Companys common stock. The Company
intends to repurchase shares from time to time, at prevailing prices, in the
open market. The timing and amount of the share repurchases will be at the
discretion of management and will be based on such factors as the stock price,
general economic and market conditions, and other factors. The share repurchase
plan may be suspended or discontinued at any time. Shares repurchased under the
plan will be restored to the status of authorized but unissued shares. As of
June 30, 2004, we have repurchased 34,200 shares at a total cost of $274,000. 
 Item 3. Defaults Upon Senior Securities Not Applicable. 
 Item 4. Submission of Matters to a Vote of Security Holders  (a)
    
    The Annual Meeting of Shareholders was held on June 8, 2004.(b)
    
    Elected Directors:
William C. Bowes, J. Christopher Lewis, Steven S. Myers, Albert S.
Nagy, Luther J. Nussbaum, John P. Stenbit, Robert J. Untracht and
John R. Woodhull. 18




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders  (contd)  (c)(i) Election of eight directors as follows: For
    
    WithheldWilliam C. Bowes
    
    
    18,883,406
    
    
    
    78,130J. Christopher Lewis
    
    
    18,878,156
    
    
    
    83,380Steven S. Myers
    
    
    18,834,587
    
    
    
    126,949Albert S. Nagy
    
    
    15,843,866
    
    
    
    3,117,670Luther J. Nussbaum
    
    
    18,852,259
    
    
    
    109,277John P. Stenbit
    
    
    18,883,431
    
    
    
    78,105Robert J. Untracht
    
    
    18,849,859
    
    
    
    111,677John R. Woodhull
    
    
    18,850,759
    
    
    
    110,777
  (c)(ii) To approve the amendment to the Amended & Restated Employee Stock Purchase Plan. For: 15,726,813
Broker Non-Vote: 2,878,086
    
    Against: 345,481
    
    Abstain: 11,156
  (c)(iii) To ratify and approve the appointment of Ernst
& Young LLP as independent auditors of SM&A for the year ending
December 31, 2004. For: 18,835,416
    
    Against: 121,798
    
    Abstain: 4,322
 
 Item 5. Other Information The Company entered into a contract in April 2002 with ProView, a
subsidiary of the Precept Group, for which one of the members of the
Companys Board of Directors serves as the President and Chief Executive
Officer. The Company has agreed to outsource its employee benefits
administration to ProView. The contract value was determined through a
review of prevailing market rates for such services. Under this contract,
the Company paid $8,000, $16,000, $6,000 and $12,000 during the three and six
months ended June 30, 2004 and 2003, respectively. In June 2002, we entered into a right of offset and barter agreement
with SummitJets, Inc. (SummitJets), which is owned by the Companys Chairman
and Chief Executive Officer. The agreement provided for the offset of the
existing accounts receivable and accounts payable balances between the
companies. After giving effect to the offset, SM&A was owed $114,000, which
amount SummitJets agreed to pay in the form of credits to use SummitJets
aircraft. The $114,000 owed represents expenses incurred related to a former
location sharing agreement for rent and related utilities. In June 2002,
SummitJets moved into its own facilities and cancelled the existing location
sharing agreement. During the three months ended March 31, 2003, total
credits used were $48,000 that is included in Selling, General and
Administrative Expenses and SummitJets paid the Company the remaining unused
credits owed of $17,000 and the contract was terminated. Since the adoption of the Amended & Restated Employee Stock Purchase Plan
(the ESPP), the Company has offered a fifteen (15) percent discount on the
purchase of shares of the Companys Common Stock through this program. Recent
accounting rule changes now require that any discount in excess of five (5)
percent be treated as an expense, which would likely negatively impact the
Companys earnings, and consequently, shareholder value. On June 8, 2004, the shareholders of the Company approved an amendment to
the Companys ESPP. The amendment reduces the discount factor from fifteen (15)
percent to five (5) percent for purchases of stock under the ESPP made on or
after April 1, 2004. 19




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##### Table of Contents



Item 6. Exhibits and Reports on Form 8-K INDEX TO EXHIBITS Exhibits (numbered in accordance with item 601 of Regulation S-K). 2.1
    
    Stock Purchase and Sale Agreement, by and among the Registrant, Steven
Myers Holding Inc. and L-3 Communications Corporation. (1)2.2
    
    Amendment No.1 to Stock Purchase and Sale Agreement, by and among the
Registrant, Steven Myers Holding Inc. and L-3 Communications
Corporation. (2)3.1
    
    Amended and Restated Articles of Incorporation. (3)3.2
    
    Amended and Restated Bylaws of the Registrant. (4)10.1
    
    Amended and Restated 1997 Stock Option Plan and related form of Stock Option Agreement. (5)10.2
    
    Amended and Restated Employee Stock Purchase Plan. (6)10.3
    
    Office Facility Lease. (7)10.4
    
    Employment Agreement of Steven S. Myers. (8)10.5
    
    Amendment No. 1 to Employment Agreement of Steven S. Myers. (9)10.6
    
    Amendment No. 2 to Employment Agreement of Steven S. Myers. (10)10.7
    
    Amendment No. 3 to Employment Agreement of Steven S. Myers. (11)10.8
    
    Amendment No. 4 to Employment Agreement of Steven S. Myers. (12)10.9
    
    Employment Agreement of Cathy L. Wood. (13)10.10
    
    Amendment No. 1 to Employment Agreement of Cathy L. Wood. (14)10.11
    
    Amendment No. 2 to Employment Agreement of Cathy L. Wood. (15)10.12
    
    Amendment No. 3 to Employment Agreement of Cathy L. Wood. (16)10.13
    
    Employment Agreement of Bennett C. Beaudry. (17)10.14
    
    Amendment No. 1 to Employment Agreement of Bennett C. Beaudry. (18)10.15
    
    Amendment No. 2 to Employment Agreement of Bennett C. Beaudry. (19)10.16
    
    Accounts Receivable Loan Agreement dated January 10, 2002, by and
between the Registrant and City National Bank, a national banking
association. (20)10.17
    
    Commercial Guaranty dated January 10, 2002, executed by Steven Myers &
Associates, Inc. in favor of City National Bank, a national banking
association. (21)10.18
    
    Revolving Loan Agreement dated October 14, 2003, by and between the
registrant and City National Bank, a national association. (22)
 20




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##### Table of Contents



Item 6. Exhibits and Reports on Form 8-K  (contd) 10.19
    
    Revolving Note dated April 10, 2003, executed by SM&A, in favor of City National Bank. (23)10.20
    
    Renewal of Revolving Note dated April 27, 2004, executed by SM&A, in
favor of City National Bank. (24)21.1
    
    Subsidiaries of the Registrant. (25)31.1
    
    Certificate of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(26)31.2
    
    Certificate of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(27)32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (28)32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (29)
 Footnote # (1)
    
    Filed on November 27, 2001 as Exhibit 10.1 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(2)
    
    Filed on December 14, 2001 as Exhibit 10.1 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(3)
    
    Filed on March 15, 2002 as Exhibit 3.1 to the registrants Annual Report
on Form 10-K and incorporated herein by reference.(4)
    
    Filed on May 3, 2002 as Exhibit 3.2 to the registrants Quarterly Report
on Form 10-Q and incorporated herein by reference.(5)
    
    Filed on April 17, 2001 as Exhibit 10.1 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(6)
    
    Filed on April 29, 2002 as Exhibit C to the registrants Annual Proxy
Statement on Form 14A and incorporated herein by reference.(7)
    
    Filed on November 21, 1997 as Exhibit 10.3 to the registrants
Registration Statement 333-4075 on Form S-1 (Registration No. 333-4075) and
incorporated herein by reference.(8)
    
    Filed on April 17, 2001 as Exhibit 10.17 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(9)
    
    Filed on March 15, 2002 as Exhibit 10.7 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(10)
    
    Filed on May 3, 2002 as Exhibit 10.8 to the registrants Quarterly
Report on Form 10-Q and incorporated herein by reference.(11)
    
    Filed on March 11, 2003 as
Exhibit 10.7 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(12)
    
    Filed on February 6, 2004 as Exhibit 10.8 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(13)
    
    Filed on March 15, 2002 as Exhibit 10.8 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(14)
    
    Filed on November 4, 2002 as Exhibit 10.10 to the registrants
Quarterly Report on Form 10-Q and incorporated herein by reference.(15)
    
    Filed on March 11, 2003 as Exhibit 10.10 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(16)
    
    Filed on February 6, 2004 as Exhibit 10.12 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(17)
    
    Filed on November 4, 2002 as Exhibit 10.11 to the registrants
Quarterly Report on Form 10-Q and incorporated herein by reference.(18)
    
    Filed on March 11, 2003 as Exhibit 10.12 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(19)
    
    Filed on February 6, 2004 as Exhibit 10.15 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(20)
    
    Filed on January 25, 2002 as Exhibit 99.2 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(21)
    
    Filed on January 25, 2002 as Exhibit 99.3 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(22)
    
    Filed on February 6, 2004 as Exhibit 10.18 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(23)
    
    Filed on July 31, 2003 as Exhibit 10.16 to the registrants Quarterly
Report on Form 10-Q and incorporated herein by reference.(24)
    
    Filed herewith.(25)
    
    Filed on March 11, 2003 as Exhibit 21.1 to the registrants Annual
Report on Form 10-K and incorporated herein by
reference.
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Item 6. Exhibits and Reports on Form 8-K  (contd) (26)
    
    Filed herewith.(27)
    
    Filed herewith.(28)
    
    Filed herewith.(29)
    
    Filed herewith.
  (a)
    
    Reports on Form 8-K:  Form 8-K dated and filed on April 14, 2004, to report the issuance
of a press release announcing financial results for the fiscal
quarter ended March 31, 2004.  Form 8-K dated and filed on April 16, 2004, to report the issuance of a
press release announcing the election of two new independent directors to the
Companys Board of Directors.Form 8-K dated and filed on April 30, 2004, to report the issuance of a
press release announcing changes to its Board of Directors.Form 8-K dated and filed on May 11, 2004, to report the issuance of a
press release announcing the Board of Directors approval of a share repurchase
plan.Form 8-K dated and filed on May 25, 2004, to report the issuance of a
press release updating guidance. 22




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##### Table of Contents



SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized. SM&A By:
    
    /s/ CATHY L. WOODDated:  July
21, 2004
    
    
    
    Cathy L. WoodExecutive Vice President, Chief Financial Officer and SecretaryBy:
    
    /s/ STEVEN S. MYERSSteven S. MyersChairman and Chief Executive Officer
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##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    Description2.1
    
    Stock Purchase and Sale Agreement, by and among the Registrant, Steven
Myers Holding Inc. and L-3 Communications Corporation.(1)2.2
    
    Amendment No.1 to Stock Purchase and Sale Agreement, by and among the
Registrant, Steven Myers Holding Inc. and L-3 Communications
Corporation.(2)3.1
    
    Amended and Restated Articles of Incorporation. (3)3.2
    
    Amended and Restated Bylaws of the Registrant. (4)10.1
    
    Amended and Restated 1997 Stock Option Plan and related form of Stock Option Agreement. (5)10.2
    
    Amended and Restated Employee Stock Purchase Plan. (6)10.3
    
    Office Facility Lease. (7)10.4
    
    Employment Agreement of Steven S. Myers. (8)10.5
    
    Amendment No. 1 to Employment Agreement of Steven S. Myers. (9)10.6
    
    Amendment No. 2 to Employment Agreement of Steven S. Myers. (10)10.7
    
    Amendment No. 3 to Employment Agreement of Steven S. Myers. (11)10.8
    
    Amendment No. 4 to Employment Agreement of Steven S. Myers. (12)10.9
    
    Employment Agreement of Cathy L. Wood. (13)10.10
    
    Amendment No. 1 to Employment Agreement of Cathy L. Wood. (14)10.11
    
    Amendment No. 2 to Employment Agreement of Cathy L. Wood. (15)10.12
    
    Amendment No. 3 to Employment Agreement of Cathy L. Wood. (16)10.13
    
    Employment Agreement of Bennett C. Beaudry. (17)10.14
    
    Amendment No. 1 to Employment Agreement of Bennett C. Beaudry. (18)10.15
    
    Amendment No. 2 to Employment Agreement of Bennett C. Beaudry. (19)10.16
    
    Accounts Receivable Loan Agreement dated January 10, 2002, by and
between the Registrant and City National Bank, a national banking
association. (20)10.17
    
    Commercial Guaranty dated January 10, 2002, executed by Steven Myers &
Associates, Inc. in favor of City National Bank, a national banking
association. (21)10.18
    
    Revolving Loan Agreement dated October 14, 2003, by and between the
registrant and City National Bank, a national association. (22)
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EXHIBIT INDEX Exhibit No.
    
    Description10.19
    
    Revolving Note dated April 10, 2003, executed by SM&A, in favor of City National Bank.(23)10.20
    
    Renewal of Revolving Note dated April 27, 2004, executed by SM&A, in
favor of City National Bank. (24)21.1
    
    Subsidiaries of the Registrant. (25)31.1
    
    Certificate of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(26)31.2
    
    Certificate of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(27)32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (28)32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (29)
 Footnote# (1)
    
    Filed on November 27, 2001 as Exhibit 10.1 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(2)
    
    Filed on December 14, 2001 as Exhibit 10.1 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(3)
    
    Filed on March 15, 2002 as Exhibit 3.1 to the registrants Annual Report
on Form 10-K and incorporated herein by reference.(4)
    
    Filed on May 3, 2002 as Exhibit 3.2 to the registrants Quarterly Report
on Form 10-Q and incorporated herein by reference.(5)
    
    Filed on April 17, 2001 as Exhibit 10.1 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(6)
    
    Filed on April 29, 2002 as Exhibit C to the registrants Annual Proxy
Statement on Form 14A and incorporated herein by reference.(7)
    
    Filed on November 21, 1997 as Exhibit 10.3 to the registrants
Registration Statement 333-4075 on Form S-1 (Registration No. 333-4075) and
incorporated herein by reference.(8)
    
    Filed on April 17, 2001 as Exhibit 10.17 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(9)
    
    Filed on March 15, 2002 as Exhibit 10.7 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(10)
    
    Filed on May 3, 2002 as Exhibit 10.8 to the registrants Quarterly
Report on Form 10-Q and incorporated herein by reference.(11)
    
    Filed on March 11, 2003 as
Exhibit 10.7 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(12)
    
    Filed on February 6, 2004 as Exhibit 10.8 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(13)
    
    Filed on March 15, 2002 as Exhibit 10.8 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(14)
    
    Filed on November 4, 2002 as Exhibit 10.10 to the registrants
Quarterly Report on Form 10-Q and incorporated herein by reference.(15)
    
    Filed on March 11, 2003 as Exhibit 10.10 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(16)
    
    Filed on February 6, 2004 as Exhibit 10.12 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(17)
    
    Filed on November 4, 2002 as Exhibit 10.11 to the registrants
Quarterly Report on Form 10-Q and incorporated herein by reference.(18)
    
    Filed on March 11, 2003 as Exhibit 10.12 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(19)
    
    Filed on February 6, 2004 as Exhibit 10.15 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(20)
    
    Filed on January 25, 2002 as Exhibit 99.2 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(21)
    
    Filed on January 25, 2002 as Exhibit 99.3 to the registrants Current
Report on Form 8-K and incorporated herein by reference.(22)
    
    Filed on February 6, 2004 as Exhibit 10.18 to the registrants Annual
Report on Form 10-K and incorporated herein by reference.(23)
    
    Filed on July 31, 2003 as Exhibit 10.16 to the registrants Quarterly
Report on Form 10-Q and incorporated herein by reference.(24)
    
    Filed herewith.(25)
    
    Filed on March 11, 2003 as Exhibit 21.1 to the registrants Annual
Report on Form 10-K and incorporated herein by
reference.
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(26)
    
    Filed herewith.(27)
    
    Filed herewith.(28)
    
    Filed herewith.(29)
    
    Filed herewith.
 26