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UNITED
STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q


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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THESECURITIES EXCHANGE ACT OF 1934

|For the Quarter
    Ended: |  | Commission File
    Number:
|-------------------------- |  | ---------------------------
|March 31, 2000             |  | 333-36447                  

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FEDERAL DATA CORPORATION(Exact
name of Registrant as specified in its charter)


|DELAWARE                            |  | 52-0940566                         
|----------------------------------- |  | -----------------------------------
|(State or other jurisdiction
    of |  | (I.R.S. Employer
    Identification
|incorporation)                      |  | Number)                            

4800 Hampden Lane Bethesda, MD
20814(Address of principal executive offices) (Zip
Code)

(301) 986-0800(Registrant's telephone number, including area code)

Not Applicable(Former name, former
address, and former fiscal year. ifchanged since last report)

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

Yes
[X] No [ ]

As of the close of business April 30, 2000, the Registrant had
outstanding 2,917,996 shares of Common Stock, par value $.01 per
share.

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INDEX

Part I. Financial
Information

Item 1.
Consolidated Financial Statements

Consolidated Balance Sheets
as of December 31, 1999 and March 31, 2000 (Unaudited)

Consolidated
Statements of Operations (Unaudited) for the Three Months Ended March 31, 1999
and 2000

Consolidated Statements of
Cash Flows (Unaudited) for the Three Months Ended March 31, 1999 and
2000

Notes to
Consolidated Financial Statements (Unaudited)

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

Item 3.
Quantitative and Qualitative Disclosure about Market Risk

Part II. Other
Information

Item 6. Exhibits
and Reports on Form 8-K



PART I. Financial
Information

Item 1. Consolidated Financial
Statements





Federal Data CorporationConsolidated Balance
Sheets(In thousands, except share data)

|                                                                         | December 31, |   | March 31,   |  
|------------------------------------------------------------------------ | ------------ | - | ----------- | -
|                                                                         | 1999         |   | 2000        |  
|Assets                                                                   |              |   | (Unaudited) |  
|                                                                         |              |   |             |  
|Cash and cash
      equivalents                                          | $4,095       |   | $1,226      |  
|Accounts
      receivable                                                | 129,774      |   | 118,428     |  
|Net investment in
      sales-type leases                                | 5,672        |   | 6,014       |  
|Inventory                                                                | 6,020        |   | 5,908       |  
|Other
      assets                                                       | 3,317        |   | 5,102       |  
|Total
      current assets                                               | 148,878      |   | 136,678     |  
|                                                                         |              |   |             |  
|Net
      investment in sales-type leases                                | 2,714        |   | 1,140       |  
|Leased and other property
      and equipment                            | 6,071        |   | 6,003       |  
|Goodwill and
      intangibles                                           | 57,718       |   | 55,992      |  
|Other
    assets                                                         | 10,783       |   | 10,685      |  
|Total
      assets                                                       | $226,164     |   | $210,498    |  
|                                                                         |              |   |             |  
|Liabilities and stockholders'
    deficit                                |              |   |             |  
|                                                                         |              |   |             |  
|Accounts
      payable and other liabilities                             | $95,667      |   | $66,787     |  
|Recourse
      notes payable                                             | 2,000        |   | -           |  
|Nonrecourse
      obligations under capital leases                       | 1,691        |   | 1,216       |  
|Total
      current liabilities                                          | 99,358       |   | 68,003      |  
|                                                                         |              |   |             |  
|Recourse notes
      payable                                             | 131,000      |   | 150,440     |  
|Other
      liabilities                                                  | 2,058        |   | 939         |  
|Total
      liabilities                                                  | 232,416      |   | 219,382     |  
|Stockholders' deficit                                                    |              |   |             |  
|                                                                         |              |   |             |  
|Common
      stock, $.01 par value: 8,000,000 shares authorized;         |              |   |             |  
|2,932,196
      shares issued and 2,917,996 outstanding in 1999 and 2000 | 29           |   | 29          |  
|Capital in
      excess of par value                                     | 43,968       |   | 44,019      |  
|Accumulated
      deficit                                                | (50,249      | ) | (52,932     | )
|Total
      stockholders' deficit                                        | (6,252       | ) | (8,884      | )
|Commitments and contingencies                                            |              |   |             |  
|Total
      liabilities and stockholders' deficit                        | $226,164     |   | $210,498    |  

See notes to consolidated financial
statements





Federal Data CorporationConsolidated
Statements of Operations(In thousands)(Unaudited)



|                                          | Three Months EndedMarch
      31, |  
|----------------------------------------- | --------------------------------- | -
|                                          | 1999                              |  
|Revenue                                   |                                   |  
|Product
      sales                       | $62,650                           |  
|Professional and support services         | 40,114                            |  
|Interest and
      other                  | 447                               |  
|Total
      revenue                       | 103,211                           |  
|Expenses                                  |                                   |  
|Cost of sales and
      services          | 90,013                            |  
|Selling,
      general and administrative | 11,404                            |  
|Goodwill and
      intangibles            | 2,796                             |  
|Interest                                  | 3,866                             |  
|Total
      expenses                      | 108,079                           |  
|                                          |                                   |  
|Loss before income tax
benefit            | (4,868                            | )
|Income tax benefit                        | (1,270                            | )
|Net loss                                  | ($3,598                           | )

See notes to consolidated financial
statements





Federal Data CorporationConsolidated
Statements of Cash Flows(In thousands)(Unaudited)



|                                                          | Three Months Ended 
        March 31, |  
|--------------------------------------------------------- | ------------------------------------- | -
|                                                          | 1999                                  |  
|Cash flows from operating activities:                     |                                       |  
|Net
        loss                                          | ($3,598                               | )
|Adjustments to reconcile
        net loss to              |                                       |  
|net
        cash flows from operating activities:         |                                       |  
|Depreciation and amortization                             | 3,324                                 |  
|Amortization of deferred
        financing cost           | 237                                   |  
|Non-cash compensation
related
        to stock options    | 1,142                                 |  
|Gain on sale of
assets                                    | (125                                  | )
|Income recorded on
sales-type
        leases              | (237                                  | )
|Collections from sales-type
        leases                | 2,546                                 |  
|(Increase) decrease in
        inventory                  | (3,667                                | )
|Decrease in accounts receivable                           | 21,229                                |  
|Decrease in accounts payable
        and accrued expenses | (25,752                               | )
|Net change in other assets
        and liabilities        | 2,671                                 |  
|Net cash flows from
        operating activities          | (2,230                                | )
|Cash flows from investing activities:                     |                                       |  
|Net
      proceeds from sale of property and equipment    | 488                                   |  
|Purchase of equipment for
        sales-type leases       | (1,318                                | )
|Purchase of property and
        equipment                | (366                                  | )
|Net cash flows from
        investing activities          | (1,196                                | )
|Cash flows from financing activities:                     |                                       |  
|Net
        borrowings under line of credit               | 3,000                                 |  
|Repayments of borrowings                                  | -                                     |  
|Repayments of capital lease
        obligations           | (506                                  | )
|Net
        cash flows from financing activities          | 2,494                                 |  
|Net change in cash and cash equivalents                   | (932                                  | )
|Cash and cash equivalents, beginning of period            | 3,942                                 |  
|Cash and cash equivalents, end of period                  | $3,010                                |  



See notes to consolidated financial
statements






Federal Data CorporationNotes to
Consolidated Financial Statements(In thousands, except share
data)(Unaudited)



Note 1 - Basis of Presentation

The accompanying unaudited consolidated financial statements
include the accounts of Federal Data Corporation and its wholly-owned
subsidiaries (collectively, the Company) and have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in the annual financial
statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading.

In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all necessary adjustments and
reclassifications (all of which are of a normal, recurring nature) that are
necessary for fair presentation for the periods presented. It is suggested that
these unaudited consolidated financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's latest annual report to the Securities and Exchange Commission on Form
10-K 405 for the year ended December 31, 1999.

The results of operations for the three months ended March 31,
  2000, are not necessarily indicative of the results to be expected for the full
  fiscal year ending December 31, 2000.

All of the Company's direct and indirect wholly-owned subsidiaries
  have fully and unconditionally guaranteed, on a joint and several basis, the
  Company's obligations under its Senior Subordinated Notes. The Company is a
  holding company with no assets or operations other than its investments in its
  subsidiaries. The separate financial statements of the subsidiary guarantors
  are not presented because the Company's management believes that such financial
  statements are not material to investors.

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Note 2 - Recent Accounting Pronouncements

In December 1999, the Securities and Exchange Commission issued
  Staff Accounting Bulletin 101 (SAB 101), "Revenue Recognition in Financial Statements"
  which summarizes certain of the staff's views on revenue recognition. The Company's
  revenue recognition policies have been and continue to be in accordance with
  SAB 101.



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Note 3- Reclassification

Certain amounts have been reclassified in the prior period
  to conform to the current period presentations. These reclassifications had
  no effect on net loss or retained earnings as previously reported.



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Note 4- Stockholders' Equity

In December 1995, FDC Holdings, Inc. merged with and into the
  Company with the Company continuing as the surviving corporation. In accordance
  with the merger agreement, the Company was to replace options previously outstanding
  at the merger date with options in the surviving corporation that provide substantially
  the same economic benefit to the option holder as the benefits provided prior
  to the merger. To fulfill this obligation, in March 1999, the Company issued
  fully vested options to purchase 40,425 shares of the Company's common stock
  at an exercise price of $2.00 per share. These options expire ten years from
  the date of grant. Accordingly, the Company recorded non-cash compensation of
  $1,011 and a related increase in capital in excess of par value based on the
  difference between the exercise price of the stock options and the then current
  fair market value.

During the three months ended March 31, 2000, the Company issued
  options to purchase 43,000 shares of the Company's common stock at an exercise
  price of $27.00 per share.

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

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS
ENDED MARCH 31, 1999

The following table sets forth, for the periods indicated,
selected consolidated statements of operations data as a percentage of total
revenue:

|                                          | Three Months EndedMarch 31,
|----------------------------------------- | ---------------------------
|                                          | 1999                       
|Revenue                                   |                            
|Product
    sales                         | 60.7                       
|Professional and support
      services   | 38.9                       
|Interest and
      other                  | 0.4                        
|                                          |                            
|Total
      revenue                       | 100.0                      
|                                          |                            
|Expenses                                  |                            
|Cost of
      sales and services          | 87.2                       
|Selling,
      general and administrative | 11.0                       
|Goodwill
      and intangibles            | 2.7                        
|Interest                                  | 3.7                        
|                                          |                            
|Total
      expenses                      | 104.7                      
|                                          |                            
|Loss
      before income tax benefit      | -4.7                       
|                                          |                            

REVENUE

Revenue for the three months ended March 31, 2000 was $118.4
million, up $15.2 million or 15% over the comparable period of 1999. Revenue
from product sales was $80.7 million, up $18.1 million or 29% over the
comparable period of 1999. The increase in revenue from product sales is
primarily due to increased volume as a result of repeat customer business,
partner referrals, outbound solicitation and electronic commerce. Revenue from
professional and support services was $37.0 million, down $3.1 million or 8%
from the comparable period of 1999. The decrease in professional and support
services revenue is primarily due to the expiration of existing contracts which
were originally awarded to acquired companies under small business set-aside
programs or contracts which became set-aside programs after their expiration.

GROSS MARGIN

Gross margin is revenue from product sales and professional and
  support services less cost of sales and services, which includes product purchase
  costs and personnel and other professional and support services costs. The Company's
  gross margin for the three months ended March 31, 2000 was $12.4 million, down
  $0.4 million or 3% from the comparable period of 1999. The Company's gross margin
  percentages vary over time and change depending on the product sold, the contract
  vehicle used and the portion of the work performed by Company personnel versus
  subcontractors. Gross margin as a percentage of product sales and professional
  and support services revenue was 10.5% for the three months ended March 31,
  2000, down from 12.4% in the comparable period of 1999. This decrease in gross
  margin was primarily the result of specific sales and marketing initiatives
  in the value-added product marketplace.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

Selling, general and administrative expense for the three months
  ended March 31, 2000 was $11.2 million, down $0.2 million or 2% from the comparable
  period of 1999. During the three months ended March 31, 1999, the Company issued
  stock options in accordance with the Company's merger with FDC Holdings, Inc.
  in 1995. Accordingly, the Company recorded non-cash compensation of $1.0 million
  during the three months ended March 31, 1999 and a related increase in capital
  in excess of par value based on the difference between the exercise price of
  the stock options and the then current fair market value. Excluding the effect
  of the non-cash compensation, selling, general and administrative expense for
  the three months ended March 31, 2000 was 9% of revenue compared with 10% of
  revenue for the comparable period of 1999.

AMORTIZATION OF GOODWILL AND INTANGIBLES

The excess of the cost of acquisitions over the fair value of
  identifiable net tangible and intangible assets acquired was $65.0 million and
  is being amortized on a straight-line basis over fifteen years. The present
  value of the contract profits of $16.5 million acquired in acquisitions is being
  amortized over the remaining terms of the acquired contracts in relation to
  the recognition of related contract revenue. Other identified intangibles, including
  covenants not to compete, work force and trade names and trademarks of $5.1
  million acquired in acquisitions, are being amortized over periods up to three
  years. Amortization of goodwill and intangibles for the three months ended March
  31, 2000 was $1.7 million, down $1.1 million, or 38% from the comparable period
  of 1999, primarily due to the reduction in the amortization of the present value
  of contract profits acquired through the acquisitions.

INTEREST EXPENSE

Interest expense for the three months ended March 31, 2000 was
  $3.9 million, up $0.1 million, or 1% over the comparable period of 1999.

INCOME TAX BENEFIT

The income tax benefit for the three months ended March 31,
  2000 is based on an estimated annual effective rate, excluding expenses not
  deductible for income tax purposes. Before giving effect to the non-deductibility
  of the amortization of goodwill and the value assigned to other identified intangibles
  associated with certain acquisitions and the non-cash compensation related to
  stock options, the effective tax provision rate for the year ending December
  31, 2000 is estimated to be 40%, approximately the same rate recorded during
  the three months ended March 31, 1999.

NET LOSS

Net loss for the three months ended March 31, 2000 was $2.7
million, a $0.9 million reduction from the net loss of $3.6 million recorded in
the comparable period of 1999 based on the reasons discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company's primary source of liquidity has been cash provided by
  operations and financing activities. In general, the Company's liquidity requirements
  vary seasonally with revenue, which are historically higher in the third and
  fourth quarters of each fiscal year. Cash flow from the collection of accounts
  receivable from the U.S. Government (the Government) has generally been predictable
  and dependable. Cash and cash equivalents were $1.2 million at March 31, 2000,
  down $2.9 million from December 31, 1999 primarily as a result of net cash used
  in operating activities of $19.3 million and net cash used in investing activities
  of $0.6 million being partially offset by cash generated from financing activities
  of $17.0 million. Net cash used from operating activities was primarily a result
  of the decrease in accounts payable and accrued expenses of $27.3 million, which
  was partially offset by decreases in accounts receivable of $11.3 million. Net
  cash used in investing activities amounted to $0.6 million for the three months
  ended March 31, 2000, primarily as a result of purchases of property and equipment.
  Net cash flow from financing activities was $17.0 million for the three months
  ended March 31, 2000 primarily as a result of net borrowings under the Company's
  working capital line of credit of $19.5 million. In March 2000, certain financial
  covenants within the Company's Senior Credit Facility were amended.

EBITDA, as calculated below, represents the sum of loss before
  income tax benefit, net recourse interest expense, depreciation and amortization
  and one-time non-cash charges. EBITDA is not a measure of performance or financial
  condition under generally accepted accounting principles, but is presented to
  provide additional information related to debt service capability. EBITDA should
  not be considered in isolation or as a substitute for other measures of financial
  performance or liquidity under generally accepted accounting principles. While
  EBITDA is frequently used as a measure of operations and the ability to meet
  debt service requirements, it is not necessarily comparable to other similarly
  titled captions of other companies due to the potential inconsistencies in the
  method of calculation.

The following presentation represents the Company's computation
of EBITDA (in thousands):

|                                                     | Three Months Ended March 31, |  
|---------------------------------------------------- | ---------------------------- | -
|                                                     | 1999                         |  
|Loss before income tax
      benefit                 | ($4,868                      | )
|Net
      recourse interest expense                  | 3,768                        |  
|Non-cash compensation
      related to stock options | 1,142                        |  
|Depreciation and
      amortization                  | 3,324                        |  
|EBITDA                                               | $3,366                       |  

YEAR 2000 COMPLIANCE

To date, the Company has not experienced any significant
failures or disruptions in its internal operating systems or in its dealings
with third party suppliers and customers. The Company continues to monitor its
infrastructure and its critical business partners to ensure continued Year 2000
compliance. There can be no assurance that the Company will not experience
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in the technology used in its internal systems, which are
comprised of third party products, or by unidentified problems experienced by
its suppliers or customers. However, the Company does not believe that a
material adverse effect from Year 2000 issues is likely. The Company incurred
$0.9 million in connection with Year 2000 compliance, and does not anticipate
any significant future costs.

###

This quarterly report on Form 10-Q contains statements which, to
the extent that they are not recitations of historical fact, constitute
"forward-looking statements" that are based on management's expectations,
estimates, projections and assumptions. Words such as "expects," "anticipates,"
"plans," "believes," "estimates," variations of such words and similar
expressions are intended to identify such forward-looking statements that
include, but are not limited to, projections of future performance, assessment
of contingent liabilities and expectations concerning liquidity, cash flow and
contract awards. Such forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These
statements are not guarantees of future performance and involve certain risks
and uncertainties that are difficult to predict. Therefore, actual future
results and trends may differ materially from what is forecast in
forward-looking statements due to a variety of factors, including the Company's
successful execution of internal performance plans; performance issues with key
suppliers and subcontractors; developments with respect to contingencies such as
legal proceedings or administrative proceedings challenging any contract award;
labor negotiations; changing priorities or reductions in the budgets of
Government agencies who purchase products or services from the Company;
termination of Government contracts due to unilateral Government action; and the
impact of the "Year 2000" issue on the Company and its customers and suppliers.
For additional information, see "Risk Factors" in the Company's Registration
Statement on Form S-4, SEC File Number 333-36447.

The previous discussion and analysis should be read in
conjunction with the consolidated financial statements and related notes included elsewhere
in this report.

###

Item 3. Quantitative and Qualitative
Disclosure about Market Risk

The Company is exposed to market risk from changes in interest
rates due to investments in instruments made for non-trading purposes. The
interest rate risk relates primarily to the Company's portfolio of short-term
investment grade securities. The Company is also subject to risk relating to
fluctuating interest rates under its Senior Credit Facility. The Company
believes that interest rate risk is immaterial to the Company.

Part II. Other Information

Item 6 (a). Exhibits.

4.16     Amendment to the Senior
Credit Facility.

21.1     Subsidiaries of Federal Data
Corporation.

27        Financial
Data Schedule.

Item 6 (b). Reports on Form 8-K.

None.

SIGNATURE

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

|    | FEDERAL DATA CORPORATION                                                          
|--- | ----------------------------------------------------------------------------------
|    |                                                                                   
|By: | / s/ James M.
      Dean                                                          
|    | James M.
      Dean        Vice President and
       Chief Financial
      Officer
|    | Date: May 12,
      2000                                                          





QUICKLINKS





Part I
  Item 1.Consolidated Financial StatementsConsolidated Balance Sheets as
of December 31, 1999 and March 31, 2000 (Unaudited)Consolidated Statements of
Operations (Unaudited) for the Three Months Ended March 31, 1999 and 2000Consolidated Statements of Cash Flows
(Unaudited) for the Three Months Ended March 31, 1999 and
  2000Notes to Consolidated Financial Statements
(Unaudited)Note 1 - Basis of PresentationNote 2 - Recent Accounting PronouncementsNote 3 - ReclassificationsNote 4 - Stockholders'
  EquityItem 2. Management's
Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosure about Market
  RiskPart IIItem 6. Exhibits and Reports on Form 8-KSignature