##### Table of Contents



SECURITIES AND EXCHANGE COMMISSIONWashington, 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 September 30, 2002

OR

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

Commission file number 0-23585

(SM&A)

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

|                                                                          |  |                                                
|------------------------------------------------------------------------- |  | -----------------------------------------------
|California
(State or other jurisdiction of
incorporation or organization) |  | 33-0080929
(I.R.S. Employer
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. YesxNoo

The number of shares outstanding of the registrants common stock as of
October 31, 2002 was 19,685,380.





---

TABLE OF CONTENTS



|                                                                                             |                                                                                               |                                                      |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|                                                                                             |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                                                                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                                                                             |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS               
|                                                                                             |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                                                                             | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                                                             | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II  OTHER INFORMATION                                                                 
|                                                                                             | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                                                                                             | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                                                                                             | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                                                                                             | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                                                                                             | ITEM 5. OTHER INFORMATION                                                                    
|                                                                                             | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                                                                  
|CERTIFICATION OF CHIEF EXECUTIVE OFFICER UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|CERTIFICATION OF CHIEF FINANCIAL OFFICER UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|CERTIFICATION OF CHIEF EXECUTIVE OFFICER UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
|CERTIFICATION OF CHIEF FINANCIAL OFFICER UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
|EXHIBIT INDEX                                                                               
|EXHIBIT 10.10                                                                               
|EXHIBIT 10.11                                                                               



---



##### Table of Contents



SM&A

INDEX

PART I. FINANCIAL INFORMATION

|                           |  |                                                                                       |    |                                                                                                                             |    |      |   |  |  |  |  | 
|-------------------------- |  | ------------------------------------------------------------------------------------- | -- | --------------------------------------------------------------------------------------------------------------------------- | -- | ---- | - |  |  |  |  | 
|                           |  |                                                                                       |    |                                                                                                                             |    | Page |   |  |  | 
|                           |  |                                                                                       |    |                                                                                                                             |    |      |   |  |  | 
|Item 1.                    |  | Financial Statements:                                                                 |    |                                                                                                                             |    |     
|                           |  |                                                                                       |    | Condensed Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001                            |    |      | 3 | 
|                           |  |                                                                                       |    | Condensed Consolidated Statements of Operations for the three and nine months ended
September 30, 2002 and 2001 (unaudited) |    |      | 4 | 
|                           |  |                                                                                       |    | Condensed Consolidated Statements of Cash Flows for the three and nine months ended
September 30, 2002 and 2001 (unaudited) |    |      | 5 | 
|                           |  |                                                                                       |    | Notes to Condensed Consolidated Financial Statements (unaudited)                                                            |    |      | 6 | 
|Item 2.                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |    |                                                                                                                             | 10 |     
|Item 3.                    |  | Quantitative and Qualitative Disclosures About Market Risk                            |    |                                                                                                                             | 18 |     
|                          
|PART II. OTHER INFORMATION
|                          
|Item 1.                    |  | Legal Proceedings                                                                     |    |                                                                                                                             | 19 |     
|Item 2.                    |  | Changes in Securities and Use of Proceeds                                             |    |                                                                                                                             | 19 |     
|Item 3.                    |  | Defaults Upon Senior Securities                                                       |    |                                                                                                                             | 19 |     
|Item 4.                    |  | Submission of Matters to a Vote of Security Holders                                   |    |                                                                                                                             | 19 |     
|Item 5.                    |  | Other Information                                                                     |    |                                                                                                                             | 19 |     
|Item 6.                    |  | Exhibits and Reports on Form 8-K                                                      |    |                                                                                                                             | 20 |     
|                          
|Signatures                 |  |                                                                                       | 23 |                                                                                                                            
|Certifications             |  |                                                                                       | 24 |                                                                                                                            

2



---



##### Table of Contents






SM&A

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                                  |                                                                      |                            |                                      |         |        |               |        |              |        |  |  | 
|------------------------------------------------- | -------------------------------------------------------------------- | -------------------------- | ------------------------------------ | ------- | ------ | ------------- | ------ | ------------ | ------ |  |  | 
|                                                  |                                                                      |                            |                                      |         |        | September 30, |        | December 31,
|                                                  |                                                                      |                            |                                      |         |        | 2002          |        | 2001        
|                                                  |                                                                      |                            |                                      |         |        |               |        |             
|                                                  |                                                                      |                            |                                      |         |        | (unaudited)   |        |              |        | 
|                                                  |                                                                      |                            |                                      | ASSETS  |        |               |        |              |        |  |  | 
|Current assets:                                   |                                                                      |                            |                                      |         |        |               |        |             
|                                                  | Cash
and cash equivalents                                            |                            | $                                    | 3,437   |        |               | $      | 26,270       |       
|                                                  | Restricted cash                                                      |                            |                                      |        |        |               |        | 3,265        |       
|                                                  | Accounts receivable, net                                             |                            |                                      | 9,022   |        |               |        | 9,022        |       
|                                                  | Prepaid income taxes                                                 |                            |                                      |        |        |               |        | 1,860        |       
|                                                  | Prepaid expenses and other current assets                            |                            |                                      | 550     |        |               |        | 385          |       
|                                                  | Deferred income taxes                                                |                            |                                      | 1,703   |        |               |        | 2,395        |       
|                                                  |                                                                      |                            |                                      |         |        |               |        |             
|                                                  |                                                                      | Total current assets       |                                      |         | 14,712 |               |        |              | 43,197 | 
|Property and equipment, net                       |                                                                      |                            | 1,005                                |         |        |               | 557    |             
|Deferred income taxes                             |                                                                      |                            | 729                                  |         |        |               | 729    |             
|Other assets                                      |                                                                      |                            | 108                                  |         |        |               | 118    |             
|                                                  |                                                                      |                            |                                      |         |        |               |        |             
|                                                  |                                                                      | $                          | 16,554                               |         |        | $             | 44,601 |             
|                                                  |                                                                      |                            |                                      |         |        |               |        |             
|                                                  |                                                                      |                            | LIABILITIES AND SHAREHOLDERS EQUITY |         |        |               |        |              |        |  | 
|Current liabilities:                              |                                                                      |                            |                                      |         |        |               |        |             
|                                                  | Trade accounts payable                                               |                            | $                                    | 1,353   |        |               | $      | 1,487        |       
|                                                  | Accrued compensation and related benefits                            |                            |                                      | 2,134   |        |               |        | 3,479        |       
|                                                  | Income taxes payable                                                 |                            |                                      | 3,599   |        |               |        | 3,351        |       
|                                                  | Current portion of long-term debt and capital lease obligations, net |                            |                                      | 70      |        |               |        | 22,232       |       
|                                                  | Interest payable                                                     |                            |                                      |        |        |               |        | 695          |       
|                                                  | Net liabilities of discontinued operations                           |                            |                                      | 3,100   |        |               |        | 7,483        |       
|                                                  |                                                                      |                            |                                      |         |        |               |        |             
|                                                  |                                                                      | Total current liabilities  |                                      |         | 10,256 |               |        |              | 38,727 | 
|Deferred rent                                     |                                                                      |                            | 220                                  |         |        |               | 215    |             
|Interest rate swap, at fair value                 |                                                                      |                            |                                     |         |        |               | 1,786  |             
|Capital lease obligations, net of current portion |                                                                      |                            | 133                                  |         |        |               | 188    |             
|Commitments and contingencies                     |                                                                      |                            |                                      |         |        |               |        |             
|Shareholders equity:                             |                                                                      |                            |                                      |         |        |               |        |             
|                                                  | Preferred stock                                                      |                            |                                      |        |        |               |        |             |       
|                                                  | Common stock                                                         |                            |                                      | 49,325  |        |               |        | 48,754       |       
|                                                  | Accumulated deficit                                                  |                            |                                      | (43,380 | )      |               |        | (45,069      | )     
|                                                  |                                                                      |                            |                                      |         |        |               |        |             
|                                                  |                                                                      | Total shareholders equity |                                      |         | 5,945  |               |        |              | 3,685  | 
|                                                  |                                                                      |                            |                                      |         |        |               |        |             
|                                                  |                                                                      | $                          | 16,554                               |         |        | $             | 44,601 |             
|                                                  |                                                                      |                            |                                      |         |        |               |        |             

See accompanying notes to consolidated financial statements

3



---



##### Table of Contents






SM&A

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

|                                                                             |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |        |   |        |  
|---------------------------------------------------------------------------- | -------------------------------------------- | - | --------------------------- | ------ | ------------------ | ----- | ----------------- | ------ | ----------- | ------ | ----------- | ------ | - | ------ | ------- | ------ | - | ------ | -
|                                                                             |                                              |   |                             |        | Three Months Ended |       | Nine Months Ended
|                                                                             |                                              |   |                             |        | September 30,      |       | September 30,    
|                                                                             |                                              |   |                             |        |                    |       |                  
|                                                                             |                                              |   |                             |        | 2002               |       | 2001              |        | 2002        |        | 2001       
|                                                                             |                                              |   |                             |        |                    |       |                   |        |             |        |            
|                                                                             |                                              |   |                             |        | (Unaudited)        |       | (Unaudited)       |        | (Unaudited) |        | (Unaudited)
|Revenue                                                                      |                                              | $ | 14,315                      |        |                    | $     | 11,391            |        |             | $      | 40,521      |        |   | $      | 33,927  |       
|Cost of revenue                                                              |                                              |   | 8,361                       |        |                    |       | 6,844             |        |             |        | 23,933      |        |   |        | 19,748  |       
|                                                                             |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|                                                                             |                                              |   | Gross margin                |        |                    | 5,954 |                   |        |             | 4,547  |             |        |   | 16,588 |         |        |   | 14,179 |  
|Selling, general and administrative expenses                                 |                                              |   | 2,985                       |        |                    |       | 2,837             |        |             |        | 8,878       |        |   |        | 8,826   |       
|                                                                             |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|                                                                             |                                              |   | Operating income            |        |                    | 2,969 |                   |        |             | 1,710  |             |        |   | 7,710  |         |        |   | 5,353  |  
|Other income (expense):                                                      |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|                                                                             | Interest expense, net                        |   |                             | (150   | )                  |       |                   | (333   | )           |        |             | (890   | ) |        |         | (1,216 | )
|                                                                             | Unrealized gain (loss) on interest rate
swap |   |                             | (86    | )                  |       |                   | (690   | )           |        |             | 5      |   |        |         | (974   | )
|                                                                             |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|                                                                             |                                              |   | Other income (expense), net |        |                    | (236  | )                 |        |             | (1,023 | )           |        |   | (885   | )       |        |   | (2,190 | )
|                                                                             |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|Income from continuing operations before income
taxes                        |                                              |   | 2,733                       |        |                    |       | 687               |        |             |        | 6,825       |        |   |        | 3,163   |       
|Income tax expense                                                           |                                              |   | 1,122                       |        |                    |       | 227               |        |             |        | 2,637       |        |   |        | 1,231   |       
|                                                                             |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|Income from continuing operations                                            |                                              |   | 1,611                       |        |                    |       | 460               |        |             |        | 4,188       |        |   |        | 1,932   |       
|Loss from discontinued businesses, net of
income taxes                       |                                              |   |                            |        |                    |       | (4,706            | )      |             |        |            |        |   |        | (6,267  | )     
|Loss on disposal of discontinued businesses, net
of income taxes             |                                              |   |                            |        |                    |       | (14,431           | )      |             |        |            |        |   |        | (14,431 | )     
|Extraordinary loss from early extinguishment of
debt, net of income taxes    |                                              |   |                            |        |                    |       |                  |        |             |        | (2,499      | )      |   |        |        |       
|Cumulative effect of adoption of FASB
Statement No. 133, net of income taxes |                                              |   |                            |        |                    |       |                  |        |             |        |            |        |   |        | (668    | )     
|                                                                             |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|Net income (loss)                                                            |                                              | $ | 1,611                       |        |                    | $     | (18,677           | )      |             | $      | 1,689       |        |   | $      | (19,434 | )     
|                                                                             |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|Income per share from continuing operations:                                 |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|                                                                             | Basic                                        |   | $                           | 0.08   |                    |       | $                 | 0.02   |             |        | $           | 0.22   |   |        | $       | 0.11   |  
|                                                                             | Diluted                                      |   | $                           | 0.08   |                    |       | $                 | 0.02   |             |        | $           | 0.21   |   |        | $       | 0.11   |  
|Loss per share from discontinued operations:                                 |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|                                                                             | Basic                                        |   | $                           |       |                    |       | $                 | (1.00  | )           |        | $           |       |   |        | $       | (1.09  | )
|                                                                             | Diluted                                      |   | $                           |       |                    |       | $                 | (1.00  | )           |        | $           |       |   |        | $       | (1.09  | )
|Loss per share from early extinguishment of debt:                            |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|                                                                             | Basic                                        |   | $                           |       |                    |       | $                 |       |             |        | $           | (0.13  | ) |        | $       |       |  
|                                                                             | Diluted                                      |   | $                           |       |                    |       | $                 |       |             |        | $           | (0.12  | ) |        | $       |       |  
|Loss per share from cumulative effect of change
in accounting:               |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|                                                                             | Basic                                        |   | $                           |       |                    |       | $                 |       |             |        | $           |       |   |        | $       | (0.04  | )
|                                                                             | Diluted                                      |   | $                           |       |                    |       | $                 |       |             |        | $           |       |   |        | $       | (0.04  | )
|                                                                             |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|Net income (loss) per share:                                                 |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|                                                                             | Basic                                        |   | $                           | 0.08   |                    |       | $                 | (0.98  | )           |        | $           | 0.09   |   |        | $       | (1.02  | )
|                                                                             | Diluted                                      |   | $                           | 0.08   |                    |       | $                 | (0.98  | )           |        | $           | 0.08   |   |        | $       | (1.02  | )
|                                                                             |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|Shares used in calculating net income (loss) per
share:                      |                                              |   |                             |        |                    |       |                   |        |             |        |             |        |   |        |         |       
|                                                                             | Basic                                        |   |                             | 19,602 |                    |       |                   | 19,137 |             |        |             | 19,483 |   |        |         | 18,993 |  
|                                                                             | Diluted                                      |   |                             | 20,510 |                    |       |                   | 19,152 |             |        |             | 20,447 |   |        |         | 19,027 |  

See accompanying notes to consolidated financial statements.

4



---



##### Table of Contents






SM&A

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                      |                                                                                          |                                                       |                                                         |                                                        |       |                   |         |             |        |        |        |  
|------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------------ | ----- | ----------------- | ------- | ----------- | ------ | ------ | ------ | -
|                                      |                                                                                          |                                                       |                                                         |                                                        |       | Nine Months Ended
|                                      |                                                                                          |                                                       |                                                         |                                                        |       | September 30,    
|                                      |                                                                                          |                                                       |                                                         |                                                        |       |                  
|                                      |                                                                                          |                                                       |                                                         |                                                        |       | 2002              |         | 2001       
|                                      |                                                                                          |                                                       |                                                         |                                                        |       |                   |         |            
|                                      |                                                                                          |                                                       |                                                         |                                                        |       | (unaudited)       |         | (unaudited)
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                          |                                                       |                                                         |                                                        |       |                   |         |            
|                                      | Net income (loss)                                                                        |                                                       | $                                                       | 1,689                                                  |       |                   | $       | (19,434     | )     
|                                      | Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                                       |                                                         |                                                        |       |                   |         |             |       
|                                      |                                                                                          | Loss from discontinued operations, net of tax         |                                                         |                                                        |      |                   |         |             | 20,698 |       
|                                      |                                                                                          | Cumulative effect of adoption of FASB 133, net of tax |                                                         |                                                        |      |                   |         |             | 668    |       
|                                      |                                                                                          | Change in fair value of interest rate swap            |                                                         |                                                        | (5    | )                 |         |             | 974    |       
|                                      |                                                                                          | Depreciation and amortization                         |                                                         |                                                        | 190   |                   |         |             | 193    |       
|                                      |                                                                                          | Deferred income taxes                                 |                                                         |                                                        | 692   |                   |         |             | (1,209 | )     
|                                      |                                                                                          | Amortization of debt issuance costs                   |                                                         |                                                        | 4,165 |                   |         |             | 393    |       
|                                      |                                                                                          | Changes in operating assets and liabilities:          |                                                         |                                                        |       |                   |         |             |        |       
|                                      |                                                                                          |                                                       | Decrease (Increase) in accounts receivable              |                                                        |       |                  |         |             |        | (1,866 | )     
|                                      |                                                                                          |                                                       | Decrease in prepaid income taxes                        |                                                        |       | 1,860             |         |             |        | 1,287  |       
|                                      |                                                                                          |                                                       | (Increase) Decrease in prepaid expense and other assets |                                                        |       | (155              | )       |             |        | 365    |       
|                                      |                                                                                          |                                                       | Decrease in trade accounts and interest payable         |                                                        |       | (829              | )       |             |        | (259   | )     
|                                      |                                                                                          |                                                       | Decrease in accrued compensation and related benefits   |                                                        |       | (1,345            | )       |             |        | (448   | )     
|                                      |                                                                                          |                                                       | Increase in income taxes payable                        |                                                        |       | 248               |         |             |        | 776    |       
|                                      |                                                                                          |                                                       | Increase (Decrease) in other liabilities                |                                                        |       | 5                 |         |             |        | 1,309  |       
|                                      |                                                                                          |                                                       |                                                         |                                                        |       |                   |         |            
|                                      |                                                                                          |                                                       |                                                         | Net cash provided by operating activities              |       |                   | 6,515   |             |        |        | 3,447  |  
|                                      |                                                                                          |                                                       |                                                         |                                                        |       |                   |         |            
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                          |                                                       |                                                         |                                                        |       |                   |         |            
|                                      | Purchases of property and equipment                                                      |                                                       |                                                         | (638                                                   | )     |                   |         | (47         | )     
|                                      | Disposal of property and equipment                                                       |                                                       |                                                         |                                                       |       |                   |         | 440         |       
|                                      | Decrease in restricted cash                                                              |                                                       |                                                         | 3,265                                                  |       |                   |         |            |       
|                                      |                                                                                          |                                                       |                                                         |                                                        |       |                   |         |            
|                                      |                                                                                          |                                                       |                                                         | Net cash provided by (used in) investing activities    |       |                   | 2,627   |             |        |        | 393    |  
|                                      |                                                                                          |                                                       |                                                         |                                                        |       |                   |         |            
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                          |                                                       |                                                         |                                                        |       |                   |         |            
|                                      | Repayment of subordinated notes                                                          |                                                       |                                                         | (25,000                                                | )     |                   |         |            |       
|                                      | Payment of early payment penalty on subordinated notes                                   |                                                       |                                                         | (1,250                                                 | )     |                   |         |            |       
|                                      | Payments on termination of interest rate swap agreement                                  |                                                       |                                                         | (1,781                                                 | )     |                   |         |            |       
|                                      | Proceeds from issuance of common stock                                                   |                                                       |                                                         | 571                                                    |       |                   |         | 415         |       
|                                      | Repayments under revolving line of credit facility                                       |                                                       |                                                         |                                                       |       |                   |         | (4,750      | )     
|                                      | Repayments under capital lease obligations                                               |                                                       |                                                         | (132                                                   | )     |                   |         |             |       
|                                      |                                                                                          |                                                       |                                                         |                                                        |       |                   |         |            
|                                      |                                                                                          |                                                       |                                                         | Net cash used in financing activities                  |       |                   | (27,592 | )           |        |        | (4,335 | )
|                                      |                                                                                          |                                                       |                                                         |                                                        |       |                   |         |            
|                                      |                                                                                          |                                                       |                                                         | Net decrease in cash from continuing operations        |       |                   | (18,450 | )           |        |        | (495   | )
|                                      |                                                                                          |                                                       |                                                         | Net cash provided by (used in) discontinued operations |       |                   | (4,383  | )           |        |        | 401    |  
|                                      |                                                                                          |                                                       |                                                         |                                                        |       |                   |         |            
|                                      |                                                                                          |                                                       |                                                         | Net decrease in cash                                   |       |                   | (22,833 | )           |        |        | (94    | )
|                                      | Cash and cash equivalents at beginning of period                                         |                                                       |                                                         | 26,270                                                 |       |                   |         | 1,548       |       
|                                      |                                                                                          |                                                       |                                                         |                                                        |       |                   |         |            
|                                      | Cash
and cash equivalents at end of period                                               |                                                       | $                                                       | 3,437                                                  |       |                   | $       | 1,454       |       
|                                      |                                                                                          |                                                       |                                                         |                                                        |       |                   |         |            

See accompanying notes to consolidated financial statements.

5



---



##### Table of Contents






SM&A
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended September 30, 2002 and 2001
(unaudited)

NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The condensed 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
our
consolidated financial position at September 30, 2002 and the
consolidated results of our operations and our cash flows for the three and
nine months ended September 30, 2002 and 2001.

It should be understood that accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the three and nine months ended September 30, 2002 are not
necessarily indicative of the results to be expected for the full fiscal year.

The accompanying unaudited condensed consolidated financial statements do
not include all 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, 2001,
included in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 15, 2002.

Cash and Cash
Equivalents. We consider all highly-liquid investments with an
original maturity of three months or less to be cash equivalents.

Recent Accounting Pronouncements.We adopted Financial Accounting
Standards Board (FASB) Statement No. 141, Business Combinations (Statement
No. 141), and No. 142, Goodwill and Other Intangible Assets (Statement No.
142), effective January 1, 2002. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with Statement Nos. 141 and
142. Other intangible assets will continue to be amortized over their useful
lives. The adoption of Statement Nos. 141 and 142 did not have a material
effect on our results of operations, financial position or cash flows.

We also adopted FASB Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, effective January 1, 2002. Statement No. 144
supersedes Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and portions of Accounting
Principles Bulletin Opinion 30, Reporting the Results of Operations. This
Statement provides a single accounting model for long-lived assets to be
disposed of and significantly changes the criteria that would have to be met to
classify an asset as held-for-sale. Classification as held-for-sale is an
important distinction since such assets are not depreciated and are stated at
the lower of fair value and carrying amount. This Statement also requires
expected future operating losses from discontinued operations to be displayed
in the period(s) in which the losses are incurred, rather than as of the
measurement date as presently required. The adoption of Statement 144 did not
have a material effect on our results of operations, financial position or cash
flows.

Reclassifications.Certain items in the 2001 financial statements have
been reclassified to conform to the current period presentation.

6



---



##### Table of Contents



NOTE 2. NET INCOME (LOSS) PER SHARE

The following table illustrates the number of shares used in the computation of
basic and diluted net income (loss) per share (in thousands):

|                                                                                                           |  |                    |        |                   |  |      |        |      |  |  |        |  |  |  |        | 
|---------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                                                                                                           |  | Three Months Ended |        | Nine Months Ended
|                                                                                                           |  | September 30,      |        | September 30,    
|                                                                                                           |  |                    |        |                  
|                                                                                                           |  | 2002               |        | 2001              |  | 2002 |        | 2001
|                                                                                                           |  |                    |        |                   |  |      |        |     
|Denominator for basic income (loss) per common
share weighted average shares outstanding
during the period |  |                    | 19,602 |                   |  |      | 19,137 |      |  |  | 19,483 |  |  |  | 18,993 | 
|Incremental common shares attributable to
dilutive outstanding stock options                               |  |                    | 908    |                   |  |      | 15     |      |  |  | 964    |  |  |  | 34     | 
|                                                                                                           |  |                    |        |                   |  |      |        |      |  |  |        |  |  |  |        | 
|Denominator for diluted income (loss) per
common share                                                     |  |                    | 20,510 |                   |  |      | 19,152 |      |  |  | 20,447 |  |  |  | 19,027 | 
|                                                                                                           |  |                    |        |                   |  |      |        |      |  |  |        |  |  |  |        | 

NOTE 3. DISCONTINUED OPERATIONS

On November 30, 2001, we completed the sale of our interest in the common
stock of Emergent-East (also known as the Government Services Group or GSG), a
provider of system engineering, scientific research, program management and
technical support services. Accordingly, the operating results of
Emergent-East for all periods prior to the closing date are reflected as
discontinued operations.

Following is summary financial information for our discontinued
operations (in thousands):

|                                                                |                                               |   |               |         |               |   |         |         |  
|--------------------------------------------------------------- | --------------------------------------------- | - | ------------- | ------- | ------------- | - | ------- | ------- | -
|                                                                |                                               |   | Three months  |         | Nine months  
|                                                                |                                               |   | ended         |         | ended        
|                                                                |                                               |   | September 30, |         | September 30,
|                                                                |                                               |   | 2001          |         | 2001         
|                                                                |                                               |   |               |         |              
|Revenue                                                         |                                               | $ | 15,095        |         |               | $ | 49,663  |        
|Income (loss) from operations of discontinued business:         |                                               |   | (7,024        | )       |               |   | (9,637  | )      
|Income tax (expense) benefit                                    |                                               |   | 2,318         |         |               |   | 3,370   |        
|                                                                |                                               |   |               |         |               |   |         |        
|                                                                | Loss from operations of discontinued business |   | $             | (4,706  | )             |   | $       | (6,267  | )
|                                                                |                                               |   |               |         |               |   |         |        
|Loss on disposal of discontinued businesses before income
taxes |                                               | $ | (16,841       | )       |               | $ | (16,841 | )      
|Income tax benefit                                              |                                               |   | 2,410         |         |               |   | 2,410   |        
|                                                                |                                               |   |               |         |               |   |         |        
|                                                                | Loss from disposal of discontinued businesses |   | $             | (14,431 | )             |   | $       | (14,431 | )
|                                                                |                                               |   |               |         |               |   |         |        

Liabilities of the discontinued businesses totaled $3.1 million at
September 30, 2002, including reserves for lease termination costs and
contingent liabilities related to the sale of Emergent-East. Under the terms
of the sale agreement, we indemnified the purchaser for potential liabilities
for items such as environmental matters, breach of warranty, and earn-out
payments for the two-year period ending November 30, 2003.

7



---



##### Table of Contents



NOTE 4. REVOLVING LINE OF CREDIT

In January 2002, we entered into a line of credit agreement with a bank
for working capital purposes. The line of credit, which expires on April 30,
2003, provides for maximum borrowings of $7.5 million, based on eligible
receivables, at the prime rate. Borrowings under the revolving credit
agreement are secured by a lien on substantially all of our assets. The
agreement requires us to comply with certain financial covenants pertaining to
our tangible net worth and ratio of total liabilities to tangible net worth (as
defined in the agreement) and also contains certain negative covenants which,
among other things, restrict our ability to incur additional indebtedness, sell
our assets, make certain types of investments and engage in certain types of
mergers and acquisitions.

At September 30, 2002, we had no outstanding borrowings under the line of
credit, the bank had issued letters of credit for $515,000 and we had $6.0
million in remaining availability.

On May 12, 2000, we entered into an interest rate swap agreement to manage
our interest rate risk exposure related to the former senior credit facility of
the Company, which was repaid in November 2001. The agreement required that we
pay a fixed rate of 7.5225% on $20 million and in turn receive a variable rate
of interest based on one-month LIBOR. Beginning January 1, 2001, the interest
rate swap has been marked to market on a quarterly basis and the resulting gain
or loss recognized in the statement of operations. During the three and nine
months ended September 30, 2002 and 2001, we recognized a loss of $86,000, a
gain of $5,000, a loss of $690,000, and a loss of $974,000, respectively,
related to the change in the fair value of the interest rate swap. During the
third quarter ended September 30, 2002, we paid in full the remaining value of
the interest rate swap and, as a result, the interest rate swap agreement was
terminated.

NOTE 5. LONG-TERM DEBT

We entered into a Note and Stock Purchase Agreement (the Subordinated
Debt Agreement) dated December 29, 2000 with various investors (the
Purchasers). In consideration of a $25.0 million investment, we issued to
the Purchasers (i) 13% unsecured, Senior Subordinated Notes due in 2005 in the
aggregate principal amount of $25.0 million (the Notes), and (ii) 2,250,000
shares of our common stock with a fair value of $1,968,750. The Subordinated
Debt Agreement required payment of a premium if the Notes were prepaid within
three years of the closing.

The value of the common stock issued and related financing costs of $3.5
million were reflected as a discount on the Notes and were being amortized over
the term of the Notes. On January 11, 2002, the Notes were repaid in full. In
connection with the repayment, we incurred a prepayment penalty of $1.25
million, and wrote off the remaining original issue discount and debt issuance
costs. This retirement of the Notes resulted in a loss of $2.5 million, net of
tax, and is reflected as an extraordinary item in the accompanying condensed
consolidated statements of operations.

NOTE 6. RELATED PARTIES

We entered into a contract with the Precept Group, for which one of the
members of our Board of Directors serves as the President and CEO. During
June 2002, The Precept Group was engaged to advise us on our executive
compensation and to perform a human resources assessment. The contract value
was determined through a review of prevailing market rates for such services.
We paid the total contract value of $22,000 during the nine months ended
September 30, 2002.

In addition, we entered into a contract with ProView, a subsidiary of the
Precept Group, for which one of our members of our Board of Directors serves as
the President and CEO. We have agreed to outsource our employee benefits
administration which requires us to pay a $2,500 setup fee, $10.50 per employee
per month for enrollment activity, benefit administration and billing
administration, $25 per qualifying or $100 monthly minimum for COBRA
processing, $4.00 per participant per month for flexible spending account
administration and $1.50 per

8



---



##### Table of Contents



NOTE 6. RELATED PARTIES  (contd)

employee per month for use of a human resources intranet website. The contract
value was determined through a review of prevailing market rates for such
services. Under this contract, we paid $41,000 and $43,000 during the three
and nine months ended September 30, 2002, respectively.

During June 2002, we entered into a right of offset and barter agreement with
SummitJets, Inc. (SummitJets), which is owned by our CEO. The agreement
provides for the offset of the existing accounts receivable and accounts
payable balances between the companies. After giving effect to the offset,
we were owed $114,000, which amounts 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 their own facilities and
cancelled the existing location sharing agreement. During the three and nine
months ended September 30, 2002, total credits used were $42,000 and are
included in Selling, General and Administrative Expenses.

One of the members of our Board of Directors assisted us in brokering our
excess real estate related to the sale of our discontinued operations. We paid
him $44,300 during the nine months ended September 30, 2002.

9



---



##### Table of Contents






ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are a provider of integrated proposal management services through a
proprietary proposal management strategy and process. In conjunction with this
process, we typically assume a leadership role and place dedicated teams at
client facilities to manage all aspects of the competitive proposal development
process. We also leverage success in winning business for our clients and our
involvement in the project life cycle to extend our services beyond proposal
development to our comprehensive capabilities in the areas of information
technology services, systems engineering, program integration, and other
technical areas. We have been expanding its management consulting practice
with traditional aerospace and defense companies, as well as other commercial
customers.

Forward-Looking Statements

From time to time, we may make forward-looking public statements, such as
statements concerning expected future revenue or earnings or concerning
projected plans, performance, contract procurement as well as other estimates
relating to future operations. Forward-looking statements may appear in this
report or in other reports filed by us under the Securities Exchange Act of
1934, as amended (the Exchange Act), in press releases, investor
presentations or in informal statements made with the approval of an authorized
executive officer. The words or phrases will likely result, are expected
to, will continue, is anticipated, estimate, projected, or similar
expressions are intended to identify forward-looking statements within the
meaning of Section 21E of the Exchange Act and Section 27A of the Securities
Act of 1933, as amended, as enacted by the Private Securities Litigation Reform
Act of 1995.

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

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

In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, we are hereby filing cautionary statements
identifying important factors that could cause our actual results to differ
materially from those projected in forward-looking statements made by or on
behalf of us, and those statements should be read together with this discussion
and analysis.

Discontinued Operations

On November 30, 2001, we completed the sale of our interest in the common
stock of Emergent-East (also known as the Government Services Group or GSG), a
provider of system engineering, scientific research, program management and
technical support services. Accordingly, the operating results of
Emergent-East for all periods prior to the closing date are reflected as
discontinued operations.

10



---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (contd)

Following is summary financial information for our discontinued
operations (in thousands):

|                                                                |                                               |   |               |         |               |   |         |         |  
|--------------------------------------------------------------- | --------------------------------------------- | - | ------------- | ------- | ------------- | - | ------- | ------- | -
|                                                                |                                               |   | Three months  |         | Nine months  
|                                                                |                                               |   | ended         |         | ended        
|                                                                |                                               |   | September 30, |         | September 30,
|                                                                |                                               |   | 2001          |         | 2001         
|                                                                |                                               |   |               |         |              
|Revenue                                                         |                                               | $ | 15,095        |         |               | $ | 49,663  |        
|Income (loss) from operations of discontinued business:         |                                               |   | (7,024        | )       |               |   | (9,637  | )      
|Income tax (expense) benefit                                    |                                               |   | 2,318         |         |               |   | 3,370   |        
|                                                                |                                               |   |               |         |               |   |         |        
|                                                                | Loss from operations of discontinued business |   | $             | (4,706  | )             |   | $       | (6,267  | )
|                                                                |                                               |   |               |         |               |   |         |        
|Loss on disposal of discontinued businesses before income
taxes |                                               | $ | (16,841       | )       |               | $ | (16,841 | )      
|Income tax benefit                                              |                                               |   | 2,410         |         |               |   | 2,410   |        
|                                                                |                                               |   |               |         |               |   |         |        
|                                                                | Loss from disposal of discontinued businesses |   | $             | (14,431 | )             |   | $       | (14,431 | )
|                                                                |                                               |   |               |         |               |   |         |        

Liabilities of the discontinued businesses totaled $3.1 million at
September 30, 2002, including reserves for lease termination costs and
contingent liabilities related to the sale of Emergent-East. Under the terms
of the sale agreement, we indemnified the purchaser for potential liabilities
for items such as environmental matters, breach of warranty, and earn-out
payments for the two-year period ending November 30, 2003.

RESULTS OF CONTINUING OPERATIONS

The following table sets forth certain historical operating results as a
percentage of revenue:

|                                             |              |  |                    |      |                   |  |       |      |      |  |       |      |  |  |       |      | 
|-------------------------------------------- | ------------ |  | ------------------ | ---- | ----------------- |  | ----- | ---- | ---- |  | ----- | ---- |  |  | ----- | ---- | 
|                                             |              |  | Three Months Ended |      | Nine Months Ended
|                                             |              |  | September 30,      |      | September 30,    
|                                             |              |  |                    |      |                  
|                                             |              |  | 2002               |      | 2001              |  | 2002  |      | 2001
|                                             |              |  |                    |      |                   |  |       |      |     
|Revenue                                      |              |  | 100.0              | %    |                   |  | 100.0 | %    |      |  | 100.0 | %    |  |  | 100.0 | %   
|Cost of revenue                              |              |  | 58.4               |      |                   |  | 60.1  |      |      |  | 59.1  |      |  |  | 58.2  |     
|                                             |              |  |                    |      |                   |  |       |      |      |  |       |      |  |  |       |     
|                                             | Gross margin |  |                    | 41.6 |                   |  |       | 39.9 |      |  |       | 40.9 |  |  |       | 41.8 | 
|Selling, general and administrative expenses |              |  | 20.9               |      |                   |  | 24.9  |      |      |  | 21.9  |      |  |  | 26.0  |     
|                                             |              |  |                    |      |                   |  |       |      |      |  |       |      |  |  |       |     
|Operating income                             |              |  | 20.7               |      |                   |  | 15.0  |      |      |  | 19.0  |      |  |  | 15.8  |     
|Income from continuing operations            |              |  | 11.3               | %    |                   |  | 0.0   | %    |      |  | 10.3  | %    |  |  | 5.7   | %   

The foregoing table and the comparison that follows do not include the
discontinued operations of Emergent-East and other discontinued operations.

11



---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (contd)

Three Months Ended September 30, 2002 Compared to Three Months Ended
September 30, 2001

Revenue.We derive our revenue from the various consulting services that
we provide: proposal management; program support; management consulting; and
competitive strategy services. Revenue increased $2.9 million, or 25.7%, to
$14.3 million for the three months ended September 30, 2002 compared to $11.4
million for the three months ended September 30, 2001. The increase is
primarily the result of an increase in program support services revenue. This
increase was partially offset by a decrease in proposal management revenue
related to a lower number of major procurements due to a delay in procurements
while the government reassesses national priorities after the events of
September 11, 2001.

Gross Margin.Gross margin increased $1.4 million, or 30.9%, to $6.0
million, for the three months ended September 30, 2002 as compared to $4.5
million for the three months ended September 30, 2001. As a percentage of
revenue, gross margin increased to 41.6% compared to 39.9% for the three months
ended September 30, 2001. The increase in gross margin percentage is a result
of managements focus on reducing travel related direct costs as a percentage
of revenue during the third quarter of 2002. These costs are a pass through
expense billed to our clients.

Selling, General and Administrative Expenses.Selling, general and
administrative expenses consist principally of salary and benefit costs for
management and administrative personnel, professional services and other
general corporate activities such as facility rent, insurance and utilities.
Selling, general and administrative expenses increased $148,000, or 5.2%, to
$3.0 million for the three months ended September 30, 2002, as compared to $2.8
million for the three months ended September 30, 2001. As a percentage of
revenue, selling, general and administrative expenses decreased to 20.9% for
the three months ended September 30, 2002, as compared to 24.9% for the same
period of the prior year. The decrease as a percentage of revenue is the
result of reductions in executive personnel and general corporate overhead
resulting from cost control initiatives implemented in fiscal 2001 and
continued in 2002. We plan to invest in our infrastructure over the next few
quarters, primarily in recruiting and training. Therefore, we expect that the
level of selling, general and administrative expenses may be somewhat higher as
a percentage of revenue for the remainder of the year.

Operating Income.Operating income was $3.0 million for the three months
ended September 30, 2002 compared to $1.7 million for the three months ended
September 30, 2001, an increase of $1.3 million. As a percentage of revenue,
operating income increased to 20.7% for the three months ended September 30,
2002, from 15.0% in the same period of the prior year. Operating income
increased due to the increased revenue and gross margin and the decreased
selling, general and administrative expenses, as discussed above.

Interest Expense, net.Interest expense, net was $150,000 for the three
months ended September 30, 2002 compared to $333,000 for the three months ended
September 30, 2001, a decrease of $183,000. Included in interest expense is the
amortization of debt discount in 2001, and interest on interim borrowings on
our line of credit in 2002, and our interest rate swap through July 2002.

Unrealized Gain (Loss) on Interest Rate Swap.In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
133), as amended. SFAS 133 requires that an entity recognize all derivatives
as either assets or liabilities and measure those instruments at fair value and
requires that changes in the derivatives fair value be recognized in earnings
unless specific hedging criteria are met. We had one interest rate swap
agreement that does not qualify as a cash flow hedge. Accordingly, during the
third quarter of fiscal 2002 and 2001, we recorded a loss of $86,000, and
$690,000, respectively, to recognize the change in the fair value of our
interest rate swap. The interest rate swap was paid in full during the third
quarter 2002 and, as a result, the interest rate swap agreement was terminated.

Income Tax Expense.Our effective income tax rate for the three months
ended September 30, 2002 was 41.1% compared to 33.0% rate incurred in the three
months ended September 30, 2001. The prior year rate reduction was related to
tax benefits derived from our discontinued operations.

12



---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (contd)

Nine Months Ended September 30, 2002 Compared to Nine Months Ended September
30, 2001

Revenue.Revenue increased $6.6 million, or 19.4%, to $40.5 million for
the nine months ended September 30, 2002 compared to $34.0 million for the nine
months ended September 30, 2001. The increase is primarily the result of an
increase in program support services revenue. This increase was partially
offset by a decrease in proposal management revenue related to a lower number
of major procurements due to a delay in procurements while the government
reassesses national priorities after the events of September 11, 2001.

Gross Margin.Gross margin increased $2.4 million, or 17.0%, to $16.6
million for the nine months ended September 30, 2002 as compared to $14.2
million for the nine months ended September 30, 2001. As a percentage of
revenue, gross margin decreased to 40.9% compared to 41.8% for the nine months
ended September 30, 2001. The decrease in gross margin percentage is a result
of increased revenue from program support services which carry slightly lower
margins than our other services, but they are generally at the 40% level.

Selling, General and Administrative Expenses.Selling, general and
administrative expenses consist principally of salary and benefit costs for
management and administrative personnel, professional services and other
general corporate activities such as facility rent, insurance and utilities.
Selling, general and administrative expenses increased $52,000, or 0.1%, to
$8.9 million for the nine months ended September 30, 2002, as compared to $8.8
million for the nine months ended September 30, 2001. As a percentage of
revenue, selling, general and administrative expenses decreased to 21.9% for
the nine months ended September 30, 2002, as compared to 26.0% for the same
period of the prior year. The decrease as a percentage of revenue is the
result of reductions in executive personnel and general corporate overhead
resulting from cost control initiatives implemented in fiscal 2001 and
continued in 2002. We plan to invest in our infrastructure over the next few
quarters, primarily in recruiting and training. Therefore, we expect that the
level of selling, general and administrative expenses may be somewhat higher as
a percentage of revenue for the remainder of the year.

Operating Income.Operating income was $7.7 million for the nine months
ended September 30, 2002 compared to $5.4 million for the nine months ended
September 30, 2001, an increase of $2.4 million. As a percentage of revenue,
operating income increased to 19.0% for the nine months ended September 30,
2002, from 15.8% in the same period of the prior year. Operating income
increased due to the increased revenue and the decreased selling, general and
administrative expenses, as discussed above.

Interest Expense, net.Interest expense, net was $890,000 for the nine
months ended September 30, 2002 compared to $1.2 million for the three months
ended September 30, 2001, a decrease of $326,000. Included in interest expense
is the amortization of debt discount in 2001, and interest on interim
borrowings on our line of credit in 2002, and our interest rate swap through
July 2002.

Unrealized Gain (Loss) on Interest Rate Swap.In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
133), as amended. SFAS 133 requires that an entity recognize all derivatives
as either assets or liabilities and measure those instruments at fair value and
requires that changes in the derivatives fair value be recognized in earnings
unless specific hedging criteria are met. We had one interest rate swap
agreement that does not qualify as a cash flow hedge. Accordingly, during the
first nine months of fiscal 2002 and 2001, we recorded a gain of $5,000, and a
loss of $974,000, respectively, to recognize the change in the fair value of
our interest rate swap. The interest rate swap was paid in full during the
third quarter 2002, and as a result, the interest rate swap agreement was
terminated.

Income Tax Expense.Our effective income tax rate for the nine months
ended September 30, 2002 was 38.6% and was comparable to the 38.9% rate
incurred in the nine months ended September 30, 2001. During the second
quarter of fiscal 2002, we received an income tax refund of $145,000, which
decreased our income tax expense. The excess refund was due to a recent change
in tax law relating to alternative minimum taxes.

13



---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (contd)

LIQUIDITY AND CAPITAL RESOURCES

Net Cash Provided by Operating Activities.For the nine months ended
September 30, 2002, net cash provided by operating activities of $6.5 million
reflected our income from continuing operations of $4.2 million, increased by
non-cash charges for depreciation, amortization and the amortization of debt
issuance costs offset by an increase in deferred tax assets and an increase in
working capital.

During the fourth
quarter of 2002, we plan to invest in its
sales force to manage the increase in opportunities and to serve our existing
client base. We also plan to hire an additional four to five sales
representatives by the end of the first quarter of 2003.
Additionally, we are planning an offsite meeting for all employees to take place in
November 2002, to provide training and review operational matters. We
estimate that total costs for the offsite meeting will be approximately
$500,000.

Net Cash Provided by Investing Activities.For the nine months ended
September 30, 2002, net cash provided by investing activities was $2.6 million,
which primarily related to a decrease in restricted cash. A portion of our
cash acted as collateral for a stand-by letter of credit that guaranteed our
obligations under the interest rate swap until the swap agreement was
terminated in July 2002.

We have delayed the implementation of our back office software package
until at least the first quarter of 2003. Therefore, we do not expect any
impact to our cash flows related to this implementation through the end of this
year.

Net Cash Used in Financing Activities.For the nine months ended September
30, 2002, net cash of $27.6 million was used in financing activities primarily
for repayment in full of our subordinated notes and to terminate the interest
rate swap agreement, net of proceeds from the issuance of common stock under
our Employee Stock Purchase Plan and from exercise of stock options.

In January 2002, we entered into a line of credit agreement with a bank
for working capital purposes. The line of credit, which expires on April 30,
2003, provides for maximum borrowings of $7.5 million, based on eligible
receivables, at the prime rate, reduced in October 2002 from prime plus
one-half percent. Borrowings under the revolving credit agreement are secured
by a lien on substantially all of our assets. The agreement requires us to
comply with certain financial covenants pertaining to our tangible net worth
and ratio of total liabilities to tangible net worth (as defined in the
agreement) and also contains certain negative covenants which, among other
things, restrict our ability to incur additional indebtedness, sell our assets,
make certain types of investments and engage in certain types of mergers and
acquisitions.

At September 30, 2002, we had no outstanding borrowings under the line of
credit, the bank had issued letters of credit for $515,000 and we had $6.0
million in remaining availability.

On May 12, 2000, we entered into an interest rate swap agreement to manage
our interest rate risk exposure related to our former senior credit facility which was repaid in November 2001. The agreement required that we
pay a fixed rate of 7.5225% on $20 million and in turn receive a variable rate
of interest based on one-month LIBOR. Beginning January 1, 2001, the interest
rate swap has been marked to market on a quarterly basis and the resulting gain
or loss recognized in the statement of operations. During the three and nine
months ended September 30, 2002 and 2001, we recognized a loss of $86,000, a
gain of $5,000, a loss of $690,000, and a loss of $974,000, respectively,
related to the change in the fair value of the interest rate swap. During the
third quarter ended September 30, 2002, we paid in full the remaining value of
the interest rate swap and, as a result, the interest rate swap agreement was
terminated.

14



---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (contd)

On November 30, 2001, we completed the sale of Emergent-East. We used the
proceeds from the sale to pay off our revolving credit facility in November
2001. At December 31, 2001, our outstanding debt for subordinated notes was
$25.0 million. On January 11, 2002, we repaid all amounts outstanding and a
$1.25 million prepayment penalty. Concurrent with the repayment of our
long-term debt, we entered into the line of credit agreement discussed above
with a bank for working capital purposes.

Our contractual obligations are as follows at September 30,
2002:

|                                                    |  |       |       |         |  |                        |       |       |  |       |       |         |  |   |       |  |  |   |    | 
|--------------------------------------------------- |  | ----- | ----- | ------- |  | ---------------------- | ----- | ----- |  | ----- | ----- | ------- |  | - | ----- |  |  | - | -- | 
|Contractual Obligations                             |  |       |       |         |  | Payments Due By Period
|                                                    |  |       |       |         |  | 1 Year                 |       | 2-3   |  | 4-5   |       | After 5
|(In thousands)                                      |  | Total |       | or Less |  | Years                  |       | Years |  | Years
|                                                    |  |       |       |         |  |                        |       |       |  |      
|Capital lease obligations                           |  | $     | 203   |         |  | $                      | 70    |       |  | $     | 133   |         |  | $ |      |  |  | $ |   | 
|Operating leases                                    |  |       | 2,284 |         |  |                        | 489   |       |  |       | 979   |         |  |   | 816   |  |  |   |   | 
|Operating leases related to
discontinued operations |  |       | 1,686 |         |  |                        | 779   |       |  |       | 581   |         |  |   | 310   |  |  |   | 16 | 
|                                                    |  |       |       |         |  |                        |       |       |  |       |       |         |  |   |       |  |  |   |    | 
|Total                                               |  | $     | 4,173 |         |  | $                      | 1,338 |       |  | $     | 1,693 |         |  | $ | 1,126 |  |  | $ | 16 | 
|                                                    |  |       |       |         |  |                        |       |       |  |       |       |         |  |   |       |  |  |   |    | 

Operating leases related to discontinued operations represents office
space previously occupied by the Emergent-East and Emergent-Central divisions.
The amounts above represent the remaining lease commitments over the term of
the leases. During the nine months ended September 30, 2002, we bought out
leases for two properties for $810,000 and reduced our net liabilities of
discontinued operations by the same amount. We have entered into subleases for
three of our properties. These subleases cover a portion of our lease
commitment for these properties and we expect these subleases to continue in
effect for the life of our lease obligations with respect to these properties.
We are continuing the process of identifying sub-lessees for our
remaining leased property or negotiating lease buy-outs with the lessors.
Specifically, we are currently in negotiations with a third party for the
buyout of a lease relating to our discontinued operations. Though the buyout
amount for the lease will likely be substantial, we do not believe it will be
material to our cash position as a whole.

In addition to our
contractual obligations, we maintain certain
commercial commitments. We have deposited $515,000 with a financial
institution as collateral for letters of credit that guarantee
certain of our contractual obligations related to certain property leases. The
expiration of those commitments is December 31, 2003.

We believe that we have sufficient working capital, availability under the
line of credit and cash generated by continuing operations to fund operations
for at least the next twelve months.

15



---



##### 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 proposal management business depends substantially on U.S. Government
expenditures for defense products. Any decline in the future defense
procurement expenditures could affect the opportunities available to our
clients and, indirectly, us. A number of factors could contribute to such a
decline in opportunities, including:



| |  |  | Large weapon systems being replaced with smaller, more precise high
technology systems;                                                                   
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Multiple procurements for similar weapons being consolidated
into joint service procurements, such as the Joint Strike Fighter
program;                   
|
| |  |  | Threat scenarios evolving away from global conflicts to regional
conflicts; and                                                                           
|
| |  |  | Spending for ongoing operations, such as the War on
Terrorism, crowding out spending for procurement of new systems and
research and development spending.

In the event expenditures for products of the type manufactured by our
clients are reduced and not offset by other new programs or products, there
will be a reduction in the volume of contracts or subcontracts to be bid upon
by our clients and, as a result, a reduction in the volume of proposals managed
by us. Unless offset, such reductions could materially and adversely affect our
business, operating results and financial condition.

We rely on a relatively limited number of clients.

We derive a significant portion of revenue from continuing operations from
a relatively limited number of clients. In 2001, our seven largest customers
accounted for 91% of our revenue from continuing operations. Clients typically
retain our services as needed on an engagement basis rather than pursuant to
long-term contracts, and a client can usually terminate the engagement at any
time without a 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 proposal 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 numerous smaller proposal management
companies in this highly specialized industry. We also compete with some of our
clients internal proposal development resources. Our competitors could erode
our current market share and such a reduction could materially and adversely
affect our business, operating results and financial condition.

16



---



##### 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 employees.

Our success is highly dependent upon the efforts, abilities, and business
generation capabilities and project execution of our executive officers, in
particular those of Steven S. Myers, President, Chief Executive Officer and Chairman of
the Board, Cathy L. Wood, Executive Vice President and Chief Financial Officer,
and Bennett Beaudry, Executive Vice President and Chief Operating Officer. 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 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 thus maintain or increase our
revenue. Qualified consultants are in great demand and are likely to remain a
limited resource for the foreseeable future.

Our stock price is subject to significant volatility.

Our common stock was first publicly traded on January 29, 1998 after our
initial public offering at $12.00 per share. Between January 29, 1998 and
September 30, 2002, the closing sale price has ranged from a low of $0.75 per
share to a high of $31.13 per share. The market price of our common stock could
continue to fluctuate substantially due to a variety of factors, including:



| |  |  | 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;                                                                                                                                                                                 
|
| |  |  | The announcement and market acceptance of proposed acquisitions and dispositions; and                                                                                                                                      
|
| |  |  | Financial performance for any period resulting in the
violation of debt covenants with any of our lenders which they are
not willing to amend or waive and the subsequent loss of available
bank lines for working capital.

Principal shareholder has significant control.

Steven S. Myers,
President, Chief Executive Officer and Chairman of the Board,
beneficially owns or controls approximately 37.1% 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 concentration of ownership 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.

Loss of liquidity.

We have a revolving credit agreement with a bank, which expires April 30,
2003. If we are unable to satisfy financial and other covenants associated
with this commitment, adverse action by the lender could result in the loss of
our ability to borrow under the revolving credit agreement. If, as a result,
we cannot fund our working capital needs, the effect would be materially
adverse to our business.

17



---



##### Table of Contents






ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The principal market risk (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which we are exposed is interest rate
risk on our revolving line of credit. At September 30, 2002 no borrowings were
outstanding under the line of credit.

On May 12, 2000, we entered into an interest rate swap agreement whereby
we pay a fixed rate of interest of 7.5225% on $20 million, and receive a
variable rate of interest based on one-month LIBOR. During the third quarter
ended September 30, 2002, we paid a total of $1.7 million in two installments
which amount represented the full remaining value of the interest rate swap.
As a result of these payments, the interest rate swap agreement was terminated.

18



---



##### 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

Not Applicable.




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.




ITEM 5. OTHER INFORMATION

We entered into a contract with the Precept Group, for which one of the
members of our Board of Directors serves as the President and CEO. During
June 2002, The Precept Group was engaged to advise us on our executive
compensation and to perform a human resources assessment. The contract value
was determined through a review of prevailing market rates for such services.
We paid the total contract value of $22,000 during the nine months ended
September 30, 2002.

In addition, we entered into a contract with ProView, a subsidiary of the
Precept Group, for which one of our members of our Board of Directors serves as
the President and CEO. We have agreed to outsource our employee benefits
administration which requires us to pay a $2,500 setup fee, $10.50 per employee
per month for enrollment activity, benefit administration and billing
administration, $25 per qualifying or $100 monthly minimum for COBRA
processing, $4.00 per participant per month for flexible spending account
administration and $1.50 per employee per month for use of a human resources
intranet website. The contract value was determined through a review of
prevailing market rates for such services. Under this contract, we paid
$41,000 and $43,000 during the three and nine months ended September 30, 2002,
respectively.

During June 2002, we entered into
a right of offset and barter agreement
with SummitJets, Inc. (SummitJets), which is owned by our CEO. The agreement
provides for the offset of the existing accounts receivable and accounts
payable balances between the companies. After giving effect to the offset,
we were owed $114,000, which amounts 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 their own facilities and
cancelled the existing location sharing agreement. During the three and nine
months ended September 30, 2002, total credits used were $42,000 and are
included in Selling, General and Administrative Expenses.

One of the members of our Board of Directors had assisted us in brokering
our excess real estate related to the sale of our discontinued operations. We
paid him $44,300 during the nine months ended September 30, 2002, respectively.

19



---



##### Table of Contents






ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

EXHIBIT LIST

(a)  Exhibits (numbered in accordance with item 601 of Regulation S-K).

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1 |  | Asset Purchase Agreement dated January 11, 2001, by and between
the Registrant and Lynch & Company, Inc. (filed on August 14, 2001 as
Exhibit 10.16 to the Registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001 and incorporated herein by
reference)                                                                                                                                                                                                                                                                                                    
|   
|2.2 |  | Asset Sale and Purchase Agreement dated March 23, 2001, by and
between the Registrant and ICCE Technologies, Inc. (filed on August
14, 2001 as Exhibit 10.17 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001 and incorporated herein
by reference)                                                                                                                                                                                                                                                                                           
|   
|2.3 |  | Stock Purchase and Sale Agreement dated November 19, 2001, by and
among the Registrant, Steven Myers Holding Inc. and L-3
Communications Corporation (filed on December November 27, 2001 as
Exhibit 10.1 to the Registrants Current Report of Form 8-K and
incorporated herein by reference)                                                                                                                                                                                                                                                                                     
|   
|2.4 |  | Amendment No. 1 to Stock Purchase and Sale Agreement dated
November 29, 2001, by and among the Registrant, Steven Myers Holding
Inc. and L-3 Communications Corporation (filed on December 14, 2001
as Exhibit 10.1 to the Registrants Current Report of Form 8-K and
incorporated herein by reference)                                                                                                                                                                                                                                                                           
|   
|3.1 |  | Amended and Restated Articles of Incorporation of the Registrant,
as amended by that certain Certificate of Ownership filed with the
Secretary of State of the State of California on August 6, 1998, that
certain Certificate of Ownership filed with the Secretary of State of
the State of California on April 25, 2000, and that certain
Certificate of Ownership filed with the Secretary of State of the
State of California on January 24, 2002 (filed on March 15, 2002 as
Exhibit 3.1 to the Registrants Annual Report on Form 10-K and
incorporated herein by reference)
|   
|3.2 |  | Amended and Restated Bylaws of the Registrant (filed on May 3,
2002, 2002 as Exhibit 3.2 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002 and incorporated
herein by reference.)                                                                                                                                                                                                                                                                                                                                                             
|   
|4.1 |  | Registration and Antidilution Rights Agreement dated December 29,
2000, by and among the Registrant and the Holders listed on the
signature pages thereto (filed on January 8, 2001 as Exhibit 99.5 to
the Registrants Current Report on Form 8-K and incorporated herein
by reference)                                                                                                                                                                                                                                                                                           
|   
|4.2 |  | Controlling Shareholder Agreement dated December 29, 2000, by and
among the Registrant, Steven S. Myers as Common Stockholder and the
Purchasers listed on the signature pages thereto (filed on January 8,
2001 as Exhibit 99.6 to the Registrants Current Report on Form 8-K
and incorporated herein by reference)                                                                                                                                                                                                                                                              
|   
|4.3 |  | Registration Rights Agreement dated May 29, 1998, by and among
the Registrant and certain shareholders of Space Applications
Corporation identified therein (filed on June 4, 1998 as Exhibit 2 to
the Registrants Current Report on Form 8-K and incorporated herein
by reference)                                                                                                                                                                                                                                                                                               
|   
|4.4 |  | Registration Rights Agreement dated August 20, 1998, by and among
the Registrant and certain shareholders of Decision-Science
Applications, Inc. set forth therein (filed on August 21, 1998 as
Exhibit 10.1 to the Registrants Current Report on Form 8-K and
incorporated herein by reference)                                                                                                                                                                                                                                                                                  

20



---



##### Table of Contents



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  (contd)

|      |  |                                                                                                                                                                                                                                                                                              
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1  |  | Amended and Restated 1997 Stock Option Plan and related form of
Stock Option Agreement (filed on April 17, 2001 as Exhibit 10.1 to
Registrants Annual Report on Form 10-K and incorporated herein by
reference)                                                                             
|     
|10.2  |  | Amended and Restated Employee Stock Purchase Plan (filed on April
29, 2002 as Exhibit C to the Registrants Definitive Revised Proxy
Statement on Form 14A and incorporated herein by reference)                                                                                             
|     
|10.3  |  | Office Facilities Lease (filed on November 21, 1997 as Exhibit
10.3 to the Registrants Registration Statement on Form S-1
(Registration No. 333-4075) and incorporated herein by reference)                                                                                                 
|     
|10.4  |  | Note and Stock Purchase Agreement dated December 29, 2000, by and
among the Registrant and the Guarantors and Purchasers listed on the
signature pages thereto (filed on January 8, 2001 as Exhibit 99.3 to
the Registrants Current Report on Form 8-K and incorporated herein
by reference)
|     
|10.5  |  | Management Rights Agreement dated December 29, 2000, by and
between Libra Mezzanine Partners II-A, L.P. and the Registrant (filed
on January 8, 2001 as Exhibit 99.7 to the Registrants Current Report
on Form 8-K and incorporated herein by reference)                                    
|     
|10.6  |  | Employment Agreement dated as of February 1, 2000, by and between
the Registrant and Steven S. Myers (filed on April 17, 2001 as
Exhibit 10.17 to the Registrants Current Report on Form 10-K and
incorporated herein by reference)                                                         
|     
|10.7  |  | Amendment No. 1 to Employment Agreement dated as of December 29,
2000 by and between the Registrant and Steven S. Myers (filed on
March 15, 2002 as Exhibit 10.7 to the Registrants Current Report on
Form 10-K and incorporated herein by reference)                                       
|     
|10.8  |  | Amendment No. 2 to Employment Agreement dated as of April 12,
2002 by and between the Registrant and Steven S. Myers (filed on May
3, 2002, 2002 as Exhibit 3.2 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002 and incorporated
herein by reference.)
|     
|10.9  |  | Employment Agreement dated as of November 13, 2001 by and between
the Registrant and Cathy L. Wood (filed on March 15, 2002 as Exhibit
10.8 to the Registrants Annual Report on Form 10-K and incorporated
herein by reference)                                                             
|     
|10.10 |  | Amendment No. 1 to Employment Agreement dated October 4, 2002 by
and between the Registrant and Cathy L. Wood.*                                                                                                                                                                              
|     
|10.11 |  | Employment Agreement dated as of October 4, 2002 by and between
the Registrant and Bennett C. Beaudry.*                                                                                                                                                                                      
|     
|10.12 |  | Accounts Receivable Loan Agreement dated January 10, 2002, by and
between the Registrant and City National Bank, a national banking
association (filed on January 25, 2002 as Exhibit 99.2 to the
Registrants Current Report on Form 8-K and incorporated herein by
reference)              
|     
|10.13 |  | Commercial Guaranty dated January 10, 2002, executed by Steven
Myers & Associates, Inc. in
favor of City National Bank, a national banking association
(filed on January 25, 2002 as Exhibit 99.3 to the Registrants
Current Report on Form 8-K and incorporated herein by reference)       



---

|* |  | Filed herewith.
|- |  | ---------------

21



---



##### Table of Contents



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  (contd)

(b)  Reports on Form 8-K:

None.

22



---



##### Table of Contents






SIGNATURES

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
|                       
|Dated: November 1, 2002 |  | By:  |  | /s/ CATHY L. WOOD                                                              
|                        |  |      |  |                                                                                
|                        |  |      |  | Cathy L. Wood
Executive Vice President,
Chief Financial Officer and Secretary  
|                       
|                        |  | By:  |  | /s/ JUDY L. BEDAR                                                              
|                        |  |      |  |                                                                                
|                        |  |      |  | Judy L. Bedar
Vice President, Corporate Controller and
Chief Accounting Officer

23



---



##### Table of Contents






CERTIFICATION OF CHIEF EXECUTIVE OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven S. Myers, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of SM&A;                                                                                                                                                                                                                                                                   
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                        

|   |  |                                                                                                                                                                                                                                                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
|  
|b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                  
|  
|c) |  | presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|   |  |                                                                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
|  
|b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                                                      
|----------------------- |  | -----------------------------------------------------
|Dated: November 1, 2002 |  | /s/ STEVEN S. MYERS                                  
|                        |  |                                                      
|                        |  | Steven S. Myers
President and Chief Executive Officer

24



---



##### Table of Contents






CERTIFICATION OF CHIEF FINANCIAL OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Cathy L. Wood, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of SM&A;                                                                                                                                                                                                                                                                   
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                        

|   |  |                                                                                                                                                                                                                                                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
|  
|b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                  
|  
|c) |  | presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|   |  |                                                                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|d) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
|  
|e) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                                                                              
|----------------------- |  | -----------------------------------------------------------------------------
|Dated: November 1, 2002 |  | /s/ CATHY L. WOOD                                                            
|                        |  |                                                                              
|                        |  | Cathy L. Wood
Executive Vice President,
Chief Financial Officer and Secretary

25



---



##### Table of Contents






CERTIFICATION OF CHIEF EXECUTIVE OFFICER
UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Steven S.
Myers, hereby certify that the quarterly report on Form 10-Q for the quarter
ended September 30, 2002, fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and that the information
contained in this periodic report fairly presents, in all material respects,
the financial condition and results of operations of SM&A.

|                        |  |                                                      
|----------------------- |  | -----------------------------------------------------
|Dated: November 1, 2002 |  | /s/ STEVEN S. MYERS                                  
|                        |  |                                                      
|                        |  | Steven S. Myers
President and Chief Executive Officer

26



---



##### Table of Contents






CERTIFICATION OF CHIEF FINANCIAL OFFICER
UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Cathy L.
Wood, hereby certify that the quarterly report on Form 10-Q for the quarter
ended September 30, 2002, fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and that the information
contained in this periodic report fairly presents, in all material respects,
the financial condition and results of operations of SM&A.

|                        |  |                                                                              
|----------------------- |  | -----------------------------------------------------------------------------
|Dated: November 1, 2002 |  | /s/ CATHY L. WOOD                                                            
|                        |  |                                                                              
|                        |  | Cathy L. Wood
Executive Vice President,
Chief Financial Officer and Secretary

27



---



##### Table of Contents






EXHIBIT INDEX

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Exhibits
(numbered in accordance with item 601 of Regulation S-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|2.1 |  | Asset Purchase Agreement dated January 11, 2001, by and between
the Registrant and Lynch & Company, Inc. (filed on August 14, 2001 as
Exhibit 10.16 to the Registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001 and incorporated herein by
reference)                                                                                                                                                                                                                                                                                                    
|   
|2.2 |  | Asset Sale and Purchase Agreement dated March 23, 2001, by and
between the Registrant and ICCE Technologies, Inc. (filed on August
14, 2001 as Exhibit 10.17 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001 and incorporated herein
by reference)                                                                                                                                                                                                                                                                                           
|   
|2.3 |  | Stock Purchase and Sale Agreement dated November 19, 2001, by and
among the Registrant, Steven Myers Holding Inc. and L-3
Communications Corporation (filed on December November 27, 2001 as
Exhibit 10.1 to the Registrants Current Report of Form 8-K and
incorporated herein by reference)                                                                                                                                                                                                                                                                                     
|   
|2.4 |  | Amendment No.1 to Stock Purchase and Sale Agreement dated
November 29, 2001, by and among the Registrant, Steven Myers Holding
Inc. and L-3 Communications Corporation (filed on December 14, 2001
as Exhibit 10.1 to the Registrants Current Report of Form 8-K and
incorporated herein by reference)                                                                                                                                                                                                                                                                            
|   
|3.1 |  | Amended and Restated Articles of Incorporation of the Registrant,
as amended by that certain Certificate of Ownership filed with the
Secretary of State of the State of California on August 6, 1998, that
certain Certificate of Ownership filed with the Secretary of State of
the State of California on April 25, 2000, and that certain
Certificate of Ownership filed with the Secretary of State of the
State of California on January 24, 2002 (filed on March 15, 2002 as
Exhibit 3.1 to the Registrants Annual Report on Form 10-K and
incorporated herein by reference)
|   
|3.2 |  | Amended and Restated Bylaws of the Registrant (filed on May 3,
2002, 2002 as Exhibit 3.2 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002 and incorporated
herein by reference.)                                                                                                                                                                                                                                                                                                                                                             
|   
|4.1 |  | Registration and Antidilution Rights Agreement dated December 29,
2000, by and among the Registrant and the Holders listed on the
signature pages thereto (filed on January 8, 2001 as Exhibit 99.5 to
the Registrants Current Report on Form 8-K and incorporated herein
by reference)                                                                                                                                                                                                                                                                                           
|   
|4.2 |  | Controlling Shareholder Agreement dated December 29, 2000, by and
among the Registrant, Steven S. Myers as Common Stockholder and the
Purchasers listed on the signature pages thereto (filed on January 8,
2001 as Exhibit 99.6 to the Registrants Current Report on Form 8-K
and incorporated herein by reference)                                                                                                                                                                                                                                                              
|   
|4.3 |  | Registration Rights Agreement dated May 29, 1998, by and among
the Registrant and certain shareholders of Space Applications
Corporation identified therein (filed on June 4, 1998 as Exhibit 2 to
the Registrants Current Report on Form 8-K and incorporated herein
by reference)                                                                                                                                                                                                                                                                                               
|   
|4.4 |  | Registration Rights Agreement dated August 20, 1998, by and among
the Registrant and certain shareholders of Decision-Science
Applications, Inc. set forth therein (filed on August 21, 1998 as
Exhibit 10.1 to the Registrants Current Report on Form 8-K and
incorporated herein by reference)                                                                                                                                                                                                                                                                                  





---



##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                                              
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1  |  | Amended and Restated 1997 Stock Option Plan and related form of
Stock Option Agreement (filed on April 17, 2001 as Exhibit 10.1 to
Registrants Annual Report on Form 10-K and incorporated herein by
reference)                                                                             
|     
|10.2  |  | Amended and Restated Employee Stock Purchase Plan (filed on April
29, 2002 as Exhibit C to the Registrants Definitive Revised Proxy
Statement on Form 14A and incorporated herein by reference)                                                                                             
|     
|10.3  |  | Office Facilities Lease (filed on November 21, 1997 as Exhibit
10.3 to the Registrants Registration Statement on Form S-1
(Registration No. 333-4075) and incorporated herein by reference)                                                                                                 
|     
|10.4  |  | Note and Stock Purchase Agreement dated December 29, 2000, by and
among the Registrant and the Guarantors and Purchasers listed on the
signature pages thereto (filed on January 8, 2001 as Exhibit 99.3 to
the Registrants Current Report on Form 8-K and incorporated herein
by reference)
|     
|10.5  |  | Management Rights Agreement dated December 29, 2000, by and
between Libra Mezzanine Partners II-A, L.P. and the Registrant (filed
on January 8, 2001 as Exhibit 99.7 to the Registrants Current Report
on Form 8-K and incorporated herein by reference)                                    
|     
|10.6  |  | Employment Agreement dated as of February 1, 2000, by and between
the Registrant and Steven S. Myers (filed on April 17, 2001 as
Exhibit 10.17 to the Registrants Current Report on Form 10-K and
incorporated herein by reference)                                                         
|     
|10.7  |  | Amendment No. 1 to Employment Agreement dated as of December 29,
2000 by and between the Registrant and Steven S. Myers (filed on
March 15, 2002 as Exhibit 10.7 to the Registrants Current Report on
Form 10-K and incorporated herein by reference)                                       
|     
|10.8  |  | Amendment No. 2 to Employment Agreement dated as of April 12,
2002 by and between the Registrant and Steven S. Myers (filed on May
3, 2002, 2002 as Exhibit 3.2 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002 and incorporated
herein by reference.)
|     
|10.9  |  | Employment Agreement dated as of November 13, 2001 by and between
the Registrant and Cathy L. Wood (filed on March 15, 2002 as Exhibit
10.8 to the Registrants Annual Report on Form 10-K and incorporated
herein by reference)                                                             
|     
|10.10 |  | Amendment No. 1 to Employment Agreement dated October 4, 2002 by
and between the Registrant and Cathy L. Wood.*                                                                                                                                                                              
|     
|10.11 |  | Employment Agreement dated as of October 4, 2002 by and between
the Registrant and Bennett C. Beaudry.*                                                                                                                                                                                      
|     
|10.12 |  | Accounts Receivable Loan Agreement dated January 10, 2002, by and
between the Registrant and City National Bank, a national banking
association (filed on January 25, 2002 as Exhibit 99.2 to the
Registrants Current Report on Form 8-K and incorporated herein by
reference)              
|     
|10.13 |  | Commercial Guaranty dated January 10, 2002, executed by Steven
Myers & Associates, Inc. in
favor of City National Bank, a national banking association
(filed on January 25, 2002 as Exhibit 99.3 to the Registrants
Current Report on Form 8-K and incorporated herein by reference)       



---

|* |  | Filed herewith.
|- |  | ---------------