### UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWASHINGTON, D.C. 20549

### FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or
15(d)of the Securities Exchange Act of 1934

For the quarterly period
ended: March 31, 2002

[ ] Transition Report Pursuant to Section 13 or
15(d)of the Securities Exchange Act of 1934Commission file number:
1-8443

TELOS CORPORATION
(Exact name of registrant as specified in its
charter)

|Maryland(State of
Incorporation) | 52-0880974(I.R.S. Employer
      Identification No.)
|-------------------------------- | ----------------------------------------------------

19886 Ashburn Road, Ashburn, Virginia
20147-2358(Address of principal executive offices) (Zip
Code)Registrant's Telephone Number,including area code: (703)
724-3800

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 May 1, 2002 the registrant had 21,171,202 shares of Class A Common
Stock, no par value, 4,037,628 shares of Class B Common Stock, no par value; and
3,185,586 shares of 12% Cumulative Exchangeable Redeemable Preferred Stock, par
value $.01 per share, outstanding.

No public market exists for the registrant's Common Stock.

Number of pages in this report (excluding exhibits): 21

TELOS CORPORATION AND SUBSIDIARIESINDEX

PART I.      FINANCIAL INFORMATION

`Item 1. Financial Statements:

Condensed Consolidated Statements of Operations for the Three Months
  Ended March 31, 2002 and 2001 (Unaudited)....................................3

Condensed Consolidated Balance Sheets as of March 31, 2002 (Unaudited)
  and December 31, 2001........................................................4

Condensed Consolidated Statements of Cash Flows for the Three Months Ended
  March 31, 2002 and 2001 (Unaudited)..........................................5

Notes to Condensed Consolidated Financial Statements (Unaudited)............6-11

Item 2. Management's Discussion and Analysis of  Financial
          Condition and Results of Operations..............................12-16

Item 3. Quantitative and Qualitative Disclosures About Market Risk............17`

PART II.      OTHER INFORMATION

`Item 1. Legal Proceedings.....................................................18

Item 3. Defaults Upon Senior Securities.......................................18

Item 6. Exhibits and Reports on Form 8-K......................................18

SIGNATURES....................................................................19`

`PART I - FINANCIAL INFORMATION

                       TELOS CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                             (amounts in thousands)


                                                            Three Months Ended
                                                                  March 31,
                                                         -----------------------
                                                          2002           2001
                                                          ----           ----
Sales
    Systems and Support Services                        $14,355        $13,887
    Products                                             16,581         27,477
    Xacta                                                 2,403          2,565
                                                          -----          -----

                                                         33,339         43,929
Costs and expenses
    Cost of sales                                        29,929         37,039
    Selling, general and  administrative expenses         5,271          5,713
    Goodwill amortization                                    --             62
                                                         ------          -----
Operating (loss) income                                  (1,861)         1,115

Other income (expenses)
    Other income                                              2             --
    Interest expense                                       (796)        (1,287)
                                                           ----         ------

Loss before taxes                                        (2,655)          (172)
Income tax benefit (provision)                            1,088             (1)
                                                          -----          -----
Net loss                                               $ (1,567)       $  (173)
                                                       ========        =======














         The accompanying notes are an integral part of these condensed
                       consolidated financial statements.`

`TELOS CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (amounts in thousands)
                                   (unaudited)

                                                                     ASSETS

                                                        March 31, 2002  December 31, 2001
                                                        --------------  -----------------

Current assets
   Cash and cash equivalents (includes restricted cash of
      $54 at March 31, 2002 and December 31, 2001)           $   349        $  115
   Accounts receivable, net                                   26,241        26,353
   Inventories, net                                            3,811         4,227
   Deferred income taxes, current                              3,269         3,146
   Other current assets                                           64           540
                                                              ------        ------
       Total current assets                                   33,734        34,381
                                                              ------        ------

Property and equipment, net of accumulated depreciation of
   $10,868 and $10,628, respectively                          11,065        11,370
Goodwill                                                       2,499         2,499
Deferred income taxes, long term                               6,145         5,143
Other assets                                                     260           168
                                                               -----         -----

                                                             $53,703       $53,561
                                                             =======       =======

                                      LIABILITIES AND STOCKHOLDERS' INVESTMENT (DEFICIT)

Current liabilities
     Accounts payable                                        $11,368       $10,603
     Other current liabilities                                 1,899         1,394
     Unearned revenue                                          7,413         8,710
     Senior credit facility                                   14,573            --
     Accrued compensation and benefit                          6,608         6,948
                                                              ------        ------
         Total current liabilities                            41,861        27,655

Senior credit facility                                            --        12,387
Senior subordinated notes                                      8,179         8,179
Capital lease obligations                                     10,612        10,722
                                                              ------        ------
         Total liabilities                                    60,652        58,943

Redeemable preferred stock
     Senior redeemable preferred stock                         7,008         6,903
     Redeemable preferred stock                               48,337        47,876
                                                              ------        ------
         Total preferred stock                                55,345        54,779

Stockholders' investment (deficit)
     Common stock                                                 78            78
     Capital in excess of par                                     --            --
     Retained deficit                                        (62,372)      (60,239)
                                                             --------     --------
         Total stockholders' investment
           (deficit)                                         (62,294)      (60,161)
                                                             --------     --------
                                                             $53,703       $53,561
                                                             =======       =======


         The accompanying notes are an integral part of these condensed
                       consolidated financial statements.`

`TELOS CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                             (amounts in thousands)

                                                               Three Months
                                                              Ended March 31,
                                                            -----------------
                                                              2002      2001
                                                              ----      ----
Operating activities:
     Net loss                                              $(1,567)   $  (173)
     Adjustments to reconcile net loss to
       cash (used in) provided by operating activities:
         Depreciation and amortization                         447        490
         Goodwill amortization                                  --         62
         Other non-cash items                                  130        308
         Changes in assets and liabilities, net               (786)     1,904
                                                             -----      -----
         Cash (used in) provided by operating activities    (1,776)     2,591
                                                             -----      -----

Investing activities:
     Purchase of property and equipment                        (91)      (308)
                                                               ---       ----
         Cash used in investing activities                     (91)      (308)
                                                             -----      ------

Financing activities:
    Proceeds from(repayments of) senior credit
    facility, net                                            2,186     (2,359)
    Payments under capital leases                              (85)       (96)
                                                             -----     -------
         Cash provided by (used in) financing activities     2,101     (2,455)
                                                             -----     -------

Increase(decrease) in cash and cash equivalents                234       (172)
Cash and cash equivalents at beginning of period               115        286
                                                             -----      ------
Cash and cash equivalents at end of period                 $   349    $   114
                                                           =======    =======




















              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.`

TELOS CORPORATION AND SUBSIDIARIESNOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

Note 1. General

The accompanying condensed consolidated
financial statements are unaudited and include the accounts of Telos Corporation
("Telos") and its wholly owned subsidiaries Telos Corporation (California), ubIQuity.com, Inc., Telos International Corporation, Xacta Corporation, Telos.com, Inc., and Telos Delaware, Inc.(collectively, the "Company").
Significant intercompany transactions have been eliminated. In the opinion of
the Company, the accompanying financial statements reflect all adjustments and
reclassifications (which include only normal recurring adjustments) necessary
for their fair presentation in conformity with generally accepted accounting
principles. Interim results are not necessarily indicative of fiscal year
performance for a variety of reasons including the impact of seasonal and
short-term variations. These financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended December 31,
2001.

In June 2001, the Financial Accounting Standards
Board ("FASB") approved Statement of Financial Accounting Standards ("SFAS") No 142,
"Goodwill and Other Intangible Assets". SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets.  Implementation of this
Statement requires the Company to cease amortization of goodwill, and goodwill
is tested for impairment at least annually at the reporting unit level.  Goodwill
is tested for impairment on an interim basis if any event occurs or circumstances
change that would "more likely than not" reduce the fair value of a reporting unit
below its carrying value.  Intangible assets that are subject to amortization will be
reviewed for impairment in accordance with SFAS 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of".  The Company adopted the
provisions of SFAS 142 on January 1, 2002. The Company no longer amortizes goodwill
to expense, but instead reviews goodwill periodically for impairment.  The adoption
of SFAS 142 reduced goodwill amortization expense by $250,000 annually. No material
changes to the carrying value of goodwill were made as a result of the adoption of SFAS 142.

In September 2001, FASB Statement No. 143 (SFAS 143) "Accounting
for Asset Retirement Obligations" was issued.  SFAS 143 provides guidance on the initial measurement
and subsequent accounting for obligations associated with the sale, abandonment, or other type
of disposal of long-lived tangible assets.  The Company is currently evaluating the provisions
of SFAS 143, but does not anticipate the implementation of SFAS 143 to have a material
impact on the results of operations, cash flows or financial position.

In October 2001, FASB Statement No. 144 (SFAS 144) "Accounting for the
Impairment of Disposal of Long-Lived Assets" was issued.  SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and this statement supercedes FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-lived Assets to be Disposed of".
The Company has adopted the provisions of SFAS 144, and the adoption of SFAS 144 did not have a material impact on the Company's financial statements.

Note 2. Investment in Enterworks

During  the  first  quarter  of 2001,  the  Company  and  Enterworks,  Inc.
("Enterworks")  entered into an agreement whereby the Company,  as a participant
in an additional  round of financing for Enterworks,  substituted  approximately
$530,000 of receivables  owed to the Company and in addition  funded  Enterworks
$470,000 of cash in three equal installments during the quarter. The receivables
included  rent owed to the Company,  services  performed by the Company  under a
service agreement  between the Company and Enterworks,  and expenses advanced by
the  Company on behalf of  Enterworks  for which the Company is  reimbursed.  In
return,  the Company  received four separate Demand 10%  Convertible  Promissory
Notes from Enterworks  totaling $1 million,  as well as warrants to purchase 2.5
million of  underlying  shares of  Enterworks  common  stock.  The  warrants  to
purchase  2.5  million  underlying  shares of  Enterworks  common  stock have an
exercise price of $0.01 per share and an exercise period of five years.

During the second quarter of 2001, the Company and Enterworks  entered into
an agreement  whereby the Company,  as a participant  in an additional  round of
financing for Enterworks, committed an additional $800,000 which represented the
estimate of amounts owed to the Company for the period May through December 2001
for rent and services  performed by the Company  under a service  agreement.  In
return,  the Company received a $300,000 Demand 10% Convertible  Promissory Note
from Enterworks,  as well as a warrant to purchase 750,000 of underlying  shares
of Enterworks  common  stock.  The warrants to purchase the shares of Enterworks
common stock have an exercise price of $0.01 per share and an exercise period of
five years.

During the third and fourth  quarters of 2001,  the Company  received  five
separate  Demand  10%  Convertible  Promissory  Notes from  Enterworks  totaling
$500,000,  as well as warrants to purchase  1,250,000  of  underlying  shares of
Enterworks  common  stock.  The  warrants to purchase  the shares of  Enterworks
common stock have an exercise price of $0.01 per share and an exercise period of
five years.

In
accordance with APB 18 and EITF 98-13 "Accounting by an Equity Method Investor for Investee
Losses when the Investor has Loans to and Investments in Other Securities of the
Investee",  the  Company  has reduced the  carrying  amounts of the Notes to zero during 2001 and at
March 31, 2002, as the Company's share of the Enterworks  losses exceeded the
carrying value of the Notes.

Note 3. Debt Obligations

Senior Credit Facility

The Company has a $20 million Senior Credit
Facility ("the Facility") with Endeavour, LLC which matures on January 15, 2003. At March
31, 2002, the Facility was classified as a current liability as the Facility has
a term of less than one year. Borrowings under the Facility are collateralized
by a majority of the Company's assets including accounts receivable, inventory,
and Telos' stock in its subsidiaries and affiliates. The amount of available borrowings
fluctuates based on the underlying asset borrowing base, as defined in the
Facility agreement.

Senior Subordinated Notes

In 1995 the Company issued Senior Subordinated
Notes ("Notes") to certain shareholders. The Notes are classified as either
Series B or Series C. Series B Notes are collateralized by fixed assets of the
Company. Series C Notes are unsecured. The Notes mature on May 23, 2003. The Notes have interest
rates ranging from 14% to 17%. Interest is paid quarterly on January 1, April 1, July 1, and October 1 of each
year. The Notes can be prepaid at the Company's option. Additionally, these
Notes have a cumulative payment premium of 13.5% per annum payable only upon
certain circumstances. These circumstances include, but are not limited to, an initial public offering of
the Company's common stock or a significant refinancing, to the extent that net
proceeds from either of the above events are received and are sufficient to pay
the premium. Due to the contingent nature of the premium payment, the associated
premium expense will only be recorded subsequent to the occurrence of a triggering
event. At March 31, 2002, the prepayment premium that would be due upon a
triggering event is approximately $10.9 million.

In April 2001, the Company retired one of its
Series C Subordinated notes with a principal amount of $358,000.

The balances of the Series B and Series C
Notes were $5.5 million and $2.6 million, respectively, at March 31, 2002 and
December 31, 2001.

In November 1998, the Company issued additional Senior  Subordinated  Notes
to certain  shareholders  which were  classified as Series D. The Series D Notes
totaled  $1.8  million and were  unsecured.  In  connection  with the debt,  the
Company  issued two  warrants  to  purchase a total of  1,500,000  shares of the
Company's  Class A Common Stock.  As previously  discussed,  the Warrants had an
exercise  price of $.01 and an  exercise  period of 22  months  and  expired  on
October  1,  2000.  The Series D Notes  were  retired  in  conjunction  with the
Enterworks private placement in 1999.

Note 4. Preferred Stock

Senior Redeemable Preferred Stock

The components of the senior redeemable
preferred stock are Series A-1 and Series A-2, each with $.01 par value and
1,250 and 1,750 shares authorized, issued and outstanding, respectively. The
Series A-1 and Series A-2 carry a cumulative per annum dividend rate of 14.125%
of their liquidation value of $1,000 per share. The dividends are payable
semi-annually on June 30th and December 31st of each year. The liquidation
preference of the preferred stock is the face amount of the Series A-1 and A-2
Stock ($1,000 per share), plus all accrued and unpaid dividends. The Company is
required to redeem all of the outstanding shares of the stock on May 23, 2003,
subject to the legal availability of funds. Mandatory redemptions are required from
excess cash flows, as defined in the stock agreements. The Series A-1 and A-2
redeemable preferred stock is senior to all other present and future equity of
the Company. The Series A-1 is senior to the Series A-2. The Company has not
declared dividends on its senior redeemable preferred stock since its issuance.
At March 31, 2002 and December 31, 2001 undeclared, unpaid dividends relating to
Series A-1 and A-2 redeemable preferred stock totaled $4,008,000 and $3,903,000,
respectively.

12% Cumulative Exchangeable Redeemable Preferred Stock

A maximum of 6,000,000 shares of 12%
Cumulative Exchangeable Redeemable Preferred Stock (the "Public Preferred
Stock"), par value $.01 per share, has been authorized for issuance. The Company
initially issued 2,858,723 shares of the Public Preferred Stock pursuant to the acquisition of
the Company during fiscal year 1990. The Public Preferred Stock was recorded at
fair value on the date of original issue, November 21, 1989, and the Company is
making periodic accretions under the interest method of the excess of the
redemption value over the recorded value. Accretion for the three months ended
March 31, 2002 was $461,000. The Company declared stock dividends totaling 736,863
shares in 1990 and 1991. No other stock dividends have been declared since
1991.  In November 1998, the Company retired 410,000 shares of the Public Preferred
Stock held by certain shareholders.

The Public Preferred Stock has a 20-year
maturity; however, the Company must redeem, out of funds legally available, 20%
of the Public Preferred Stock on the 16th, 17th, 18th and 19th anniversaries of
November 21, 1989, leaving 20% to be redeemed at maturity. On any dividend
payment date after November 21, 1991, the Company may exchange the Public
Preferred Stock, in whole or in part, for 12% Junior Subordinated Debentures
that are redeemable upon terms substantially similar to the Public Preferred
Stock and subordinated to all indebtedness for borrowed money and like
obligations of the Company.

The Public Preferred Stock accrues a
semi-annual dividend at an annual rate of 12% ($1.20) per share, based on the
liquidation preference of $10 per share, and is cumulative. Through November 21,
1995, the Company had the option to pay dividends in additional shares of
Preferred Stock in lieu of cash. Dividends in additional shares of the Preferred
Stock are paid at the rate of 6% of a share of the Preferred Stock for each $.60
of such dividends not paid in cash. Dividends are payable by the Company,
provided the Company has legally available funds under Maryland law, when and if
declared by the Board of Directors, commencing June 1, 1990, and on each six
month anniversary thereof. For the years 1992 through 1994 and for the dividend
payable June 1, 1995, the Company has accrued undeclared dividends in additional
shares of preferred stock. These accrued dividends are valued at $3,950,000. Had
the Company accrued such dividends on a cash basis, the total amount accrued
would have been $15,101,000. For the cash dividends payable since December 1,
1995, the Company has accrued $26,323,000.

Based upon the Company's interpretation of charter
provisions pertaining to restrictions upon payment of dividends, similar dividend
payment restrictions contained in its Senior Credit Facility, and limitations pursuant
to Maryland law, the Company has not declared or paid dividends on its Public Preferred
Stock since 1991.

Note 5. Reportable Business Segments

The Company adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information" in 1998 which changes
the way the Company reports information about its operating segments.

At March 31, 2002, the Company has three
reportable segments:

Systems and Support Services - provides post-deployment and post-production
software  and systems  development  and support  services  including  technology
insertion,  system  redesign and software  re-engineering.  This Group's largest
customer is the U.S. Army's Communications and Electronics Command ("CECOM") and
has  significant  operations  at Ft.  Monmouth  in New  Jersey  and Ft.  Sill in
Oklahoma.  Tasks are performed on a time and materials basis and on a firm fixed
price basis.

Products - delivers solutions that
combine information  technology products and  services  to  solve  customer  problems.
These  solutions  consist  of  a combination  of  commercial-off-the-shelf  (COTS)
products from major  original equipment   manufacturers  (OEM's),   Telos
proprietary  products,   Telos  and subcontractor  services and Telos proprietary
practices.  Key customers of this group include agencies of the US Government such
as: military services,  Defense Agencies,  Treasury  Department,  US Courts and
others.  Significant  government procurement vehicles for customers of the Products
Group include: Infrastructure Solutions  -  1   (government-wide);   GSA
schedule   (government-wide);   Data Communications Network  Equipment/Software
(US Courts); and Treasury Distributed Processing Infrastructure (Treasury).

In  addition to the above,  The
Product's  Group  includes  the  Company's wireless  networking,  secure messaging
solutions and is a value added reseller for Xacta's information security products
into the federal government.

Xacta - develops  enterprise risk management
software to help organizations to proactively manage and monitor the security of
their network  environments in accordance with information  security and privacy
standards.  The applications, Xacta  Web  C&A  and  Xacta  Commerce  Trust,
leverage  information  assurance technology and processes that Xacta has proven
in the  government's  most secure and demanding agencies,  departments, and branches
(Defense,  Intelligence,  and Treasury).  Xacta customers include agencies of the
U.S. Government and a number of commercial credit unions.

The Company evaluates the performance of its
operating segments based on revenue, gross profit and income before goodwill
amortization, income taxes, non-recurring items and interest income or expense.

Summarized financial information concerning the
Company's reportable segments for the three months ended March 31, 2002 and 2001
is shown in the following table. The "other" column includes corporate related
items.

`Systems and
                           Support Services    Products   Xacta     Other(1)  Total
                           ----------------    --------   -----     ------    -----

       March 31, 2002
External Revenues            $14,355          $16,581   $ 2,403    $    --    $33,339
Intersegment Revenues            216            1,944        --         --      2,160
Gross Profit                   1,258            1,891       261         --      3,410
Segment profit (loss)(3)        (276)             281    (1,866)        --     (1,861)
Total assets                   9,510           19,802     1,608     22,783     53,703
Capital Expenditures              --               47        12         32         91
Depreciation & Amortiz-
  ation (2)                       11               97        67        272        447


       March 31, 2001

External Revenues            $13,887          $27,477   $ 2,565         --    $43,929
Intersegment Revenues            569            1,963        --         --      2,532
Gross Profit                   1,249            5,095       546         --      6,890
Segment profit (loss)(3)        (434)           2,651    (1,040)        --      1,177
Total assets                   8,521           32,830     5,149     23,273     69,773
Capital Expenditures             136               10        95         67        308
Depreciation & Amortiz-
  ation (2)                       90               93        52        317        552

(1) Corporate assets are principally property and equipment, cash and other assets.
(2) Depreciation and amortization includes amounts relating to property and equipment,
    goodwill, capital leases and spare parts inventory.
(3) Segment profit (loss) represents operating income (loss) before goodwill
    amortization.`

The Company does not have material
international revenues, profit (loss), assets or capital expenditures. The
Company's business is not concentrated in a specific geographical area within
the United States, as it has 5 separate facilities located in various states, the District of
Columbia and Europe.

Note 6. Subsequent Event

On April 30, 2002, the Company received a Senior Demand Promissory Note from Enterworks totaling $305,945. This Note
represents amounts owed to the Company for rent and services performed by the Company under a service agreement during the first
quarter 2002. The billings represented in this Note have been fully reserved for at March 31, 2002. This Note contains a maturity date
of April 30, 2007, and also includes a provision for repayment of four times principal and accrued interest in the event that
Enterworks liquidates, enters into dissolution or seeks the protection of bankruptcy.

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

General

Sales for the first three months of 2002 were
$33.3 million, a decrease of $10.6 million or 24.1% as compared to the same 2001
period. This decrease was primarily attributable to a $10.9 million decrease in
sales from the Company's Products Group, which was impacted by decreased order volume
under both its traditional businesses and its wireless product line.

The Company incurred an operating loss of approximately
$1.9 million for the three months ended March 31, 2002 as compared to an operating profit of $1.1 million during the same 2001 period.
Operating profitability declined principally because of the decreased sales volume discussed above coupled
with reduced profit margins on the Company's traditional business contracts and information security product line.

Total backlog from existing contracts was
approximately $808.1 million and $830.0 million as of March 31, 2002 and December
31, 2001, respectively. As of March 31, 2002, the funded backlog of the Company
totaled $29.4 million, an increase of $1.4 million from December 31, 2001.
Funded backlog represents aggregate contract revenues remaining to be earned by
the Company at a given time, but only to the extent, in the case of government
contracts, funded by a procuring government agency and allotted to the
contracts.

Results of Operations

The condensed consolidated statements of
operations include the results of operations of Telos Corporation and its wholly
owned subsidiaries. The major elements of the Company's operating expenses as a
percentage of sales for the three-month periods ended March 31, 2002 and 2001
were as follows:

`Three Months Ended
                                                     March 31,
                                                --------------------
                                               2002          2001
                                               ----          ----
Sales                                          100.0%       100.0%
Cost of sales                                  (89.8)       (84.3)
SG&A expenses                                  (15.8)       (13.1)
Goodwill amortization                             --         (0.1)
                                               ------       -----
Operating (loss) income                         (5.6)         2.5
Other income                                      --           --
Interest expense                                (2.4)        (2.9)
                                               -----        -----
Loss before taxes                               (8.0)        (0.4)
Income tax benefit (provision)                   3.3           --
                                               -----        -----
Net loss                                        (4.7)%       (0.4)%
                                                ====         ====






Financial Data by Market Segment

Sales, gross profit, and gross margin by market segment for the first quarter
of 2002 and 2001 were as follows:

                                                Three Months Ended
                                                      March 31,
                                           ---------------------------
                                           2002                   2001
                                           ----                   ----
                                             (amounts in thousands)
Sales:
     Systems and Support Services       $ 14,355                $13,887
     Products                             16,581                 27,477
     Xacta                                 2,403                  2,565
                                          -----                  ------
         Total                          $ 33,339                $43,929
                                        ========                =======


Gross Profit:
     Systems and Support Services       $  1,258                $ 1,249
     Products                              1,891                  5,095
     Xacta                                   261                    546
                                           -----                  -----
         Total                          $  3,410                $ 6,890
                                        ========                =======

Gross Margin:
     Systems and Support Services            8.8%                   9.0%
     Products                               11.4%                  18.5%
     Xacta                                  10.9%                  21.3%
         Total                              10.2%                  15.7%`

For the three-month period ended March 31,
2002, sales decreased by $10.6 million, or 24.1%, to $33.3 million from $43.9 million
for the comparable 2001 period. Of the $10.6 million decrease, $10.9 million was
attributable to the Products Group. The Products Group's comparable revenues declined principally
due to decreased sales under the Group's traditional contracts such as Infrastructure Solutions-1
and DCN Courts, as well as decreased sales from
the Group's wireless product line. The decreases in revenue were partially offset by
increases in the revenue of the Systems and Support Services Group, which experienced
revenue growth of $468,000. The sales levels in the Xacta Group remained unchanged
in the comparable periods.

Cost of sales was 89.8% of sales for the
three-month period ended March 31, 2002, as compared to 84.3% in the comparable
2001 period. The increase in cost of sales as a percentage of sales is mainly attributable
to decreased profits realized under the Products Group's wireless product line, as well as reduced
profits on some of the Xacta Group's firm fixed price contracts.

Gross profit decreased by $3.5 million in the
first quarter of 2002 to $3.4 million from $6.9 million in the comparable 2001
period as a result of the decrease in sales and increases in cost of sales
discussed above. Total Company gross margins were 10.2% and 15.7% for the
three-month periods ended March 31, 2002 and 2001, respectively.

Selling, general and administrative costs
decreased for the three-month period by approximately $442,000 to $5.3 million
in 2002 from $5.7 million in 2001. This decrease is primarily due to indirect cost
control measures implemented in early 2002. SG&A as a percentage of sales was 15.8% and 13.1% for the
three-month periods ended March 31, 2002 and 2001, respectively.

Goodwill amortization expense was zero for
the three months ended March 31, 2002 compared to $62,000 for the period ended
March 2001. The decrease in goodwill amortization was a result of the application
of SFAS 142.  Under SFAS 142, the Company no longer depreciates its goodwill asset.

Operating profitability declined by $3.0
million during the three months ended March 31, 2002 to approximately $1.9
million in operating loss. The Company had an operating profit of $1.1 million
in the comparable period of 2001. The decrease in operating profit resulted
primarily from the aforementioned gross profit decreases.

Interest expense decreased by approximately
$491,000 to $796,000 during the three-month period ended March 31, 2002, from
$1.3 million in the comparable period of 2001. The decrease was attributable to
decreased debt levels in 2002.

The Company recorded a tax benefit of
approximately $1.1 million and a tax provision of approximately $1,000 for the three-month
periods ended March 31, 2002 and 2001, respectively.  The tax benefit recorded
for the first quarter of 2002 is attributable to the net operating loss generated by the Company.

Liquidity and Capital Resources

For the three months ended March 31, 2002,
the Company used $1.8 million of cash for operating activities. This usage of
cash was principally due to losses incurred in operations. Cash used in investing
activities was approximately $91,000. The Company generated cash during the quarter
by drawing on its credit facility in the amount of $2.2 million.

At March 31, 2002, the Company had outstanding
debt and long-term obligations of $33.4 million, consisting of $14.6 million under
the secured senior credit facility, $8.2 million in subordinated debt, and $10.6
million in capital lease obligations.

At March 31, 2002, the Company had an
outstanding balance of $14.6 million on its $20 million Senior Credit Facility
(the "Facility"). The Facility matures on January 15, 2003 and is collateralized by
a majority of the Company's assets (including inventory, accounts receivable and
Telos' stock in its subsidiaries and affiliates). The amount of borrowings fluctuates based on
the underlying asset borrowing base as well as the Company's working capital
requirements. The Facility has various covenants that may, among other things,
restrict the ability of the Company to merge with another entity, to sell or
transfer certain assets, the payment of dividends and other distributions beyond
certain limitations. The Facility also requires the Company to meet certain
fixed coverage and operating goals. The Company is currently in the process of negotiating a replacement for the Facility.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards
Board ("FASB") approved Statement of Financial Accounting Standards ("SFAS") No 142,
"Goodwill and Other Intangible Assets". SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets.  Implementation of this
Statement requires the Company to cease amortization of goodwill, and goodwill
is tested for impairment at least annually at the reporting unit level.  Goodwill
is tested for impairment on an interim basis if any event occurs or circumstances
change that would "more likely than not" reduce the fair value of a reporting unit
below its carrying value.  Intangible assets that are subject to amortization will be
reviewed for impairment in accordance with SFAS 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of".  The Company adopted the
provisions of SFAS 142 on January 1, 2002. The Company no longer amortizes goodwill
to expense, but instead reviews goodwill periodically for impairment.  The adoption
of SFAS 142 reduced goodwill amortization expense by $250,000 annually. No material
changes to the carrying value of goodwill were made as a result of the adoption of SFAS 142.

In September 2001, FASB Statement No. 143 (SFAS 143) "Accounting
for Asset Retirement Obligations" was issued.  SFAS 143 provides guidance on the initial measurement
and subsequent accounting for obligations associated with the sale, abandonment, or other type
of disposal of long-lived tangible assets.  The Company is currently evaluating the provisions
of SFAS 143, but does not anticipate the implementation of SFAS 143 to have a material
impact on the results of operations, cash flows or financial position.

In October 2001, FASB Statement No. 144 (SFAS 144) "Accounting for the
Impairment of Disposal of Long-Lived Assets" was issued.  SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and this statement supercedes FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-lived Assets to be Disposed of".
The Company has adopted the provisions of SFAS 144, and the adoption of SFAS 144 did not have a material impact on the Company's financial statements.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains
forward-looking statements. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects" and similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause the Company's actual results to differ materially from those indicated by
such forward-looking statements. These factors include, without limitation,
those set forth below under the caption "Certain Factors That May Affect Future
Results."

Certain Factors That May Affect Future Results

The following important factors,  among others,  could cause actual results
to differ materially from those indicated by forward-looking  statements made in
this Quarterly Report on Form 10-Q and presented  elsewhere by management from time
to time.

A number of  uncertainties  exist that could  affect the  Company's  future
operating results,  including,  without limitation,  general economic conditions
which in the present  period of economic  downturn  may include,  and  adversely
affect,  the cost and continued  availability  of the Company to secure adequate
capital and  financing to support its business;  the impact of adverse  economic
conditions on the Company's customers and suppliers;  the ability to sell assets
or to obtain alternative sources of commercially  reasonable refinancing for the
Company's debt; or the ability to successfully restructure its debt obligations.
Additional  uncertainties  include  the  Company's  ability to convert  contract
backlog to revenue,  the success of the Company's  investment in Enterworks  and
Xacta and the  Company's  access to ongoing  development,  product  support  and
viable channel partner relationships with Enterworks and Xacta.

While in the past the Company  has not  experienced  contract  terminations
with the U.S. Government,  the U.S. Government can terminate at its convenience.
Should such a  termination  occur,  the  Company's  operating  results  could be
adversely  impacted.  The Company's  total  backlog  (referenced
above) includes $700 million attributable  to the dual award of the U.S.  Army CECOM SEC
contract to the Company's 50% owned joint venture,  ITel Solutions.  The Company
will be a  subcontractor  to this joint  venture,  and  estimates  that upon the
successful  award of each  competing task order,  its total backlog  relating to
such contract could be up to $700 million. Conversely, failure to be awarded the
majority of the competing task orders for such contract would  adversely  impact
the Company.

It should also be noted that post September 11, 2001,  all U.S.  Government
programs, especially those pertaining to national security, have been subject to
review  and  reprioritization.  While the  Company  believes  its  products  and
services are well positioned to benefit from such post September 11 demands, the
magnitude of such events  certainly  serves to emphasize how the Company's  high
percentage  of revenue  derived from  business  with the U.S.  Government  could
alternatively be dramatically, swiftly and adversely impacted.

The Company has many patents and patents pending, trademarks and copyrights
and other valuable proprietary information, and the Company has taken reasonable
and prudent steps to so protect its  intellectual  property.  With regard to the
Company's  wholly owned  subsidiary,  Xacta,  whose  software  products  require
constant  monitoring  as it develops  future  releases  and  creates  additional
intellectual  property,  vigilant oversight of such intellectual property rights
is imperative. Similarly, the intellectual property associated with our wireless
division and our automated  message  handling system division  require  constant
oversight  with regard to the  development  and  protection of their  respective
intellectual  property.  Accordingly,  any event that brings into  question  the
Company's ownership of its intellectual  property could,  therefore,  materially
and adversely impact the Company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company's exposure to market risk for
changes in interest rates relates primarily to the Company's long-term debt
obligations.

The Company is exposed to interest rate
volatility with regard to its variable rate debt obligations under its Senior
Credit Facility. This facility bears interest at 1.5%, subject to certain
adjustments, over the bank's base rate. This rate will escalate 25 basis points
every other month from April 1, 2002 until expiration. The weighted average interest rate in
the first three months of 2002 was 6.5%. This facility expires on January 15, 2003
and had an outstanding balance of $14.6 million at March 31, 2002.

The Company's other debt at March 31, 2002
consists of Senior Subordinated Notes B and C which bear interest at fixed rates
ranging from 14% to 17%. The Senior Subordinated Notes principal balance at
March 31, 2002 is $8.2 million, and this principal amount matures on May 23, 2003.
The Company has no cash flow exposure due to rate changes for its Senior
Subordinated Notes.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is party to various lawsuits
arising in the ordinary course of business. While the results of litigation
cannot be predicted with certainty, based upon the Company's present
understanding of its pending legal matters, it is of the opinion such matters
for this quarter will not have a material adverse effect on the Company's
consolidated financial position, results of operations, or of cash flows.

Item 3.Defaults Upon Senior Securities

Senior Redeemable Preferred Stock

The Company has not declared dividends on its
Senior Redeemable Preferred Stock, Series A-1 and A-2, since its issuance. Total
undeclared unpaid dividends, accrued for financial reporting purposes, are
$4,008,000 for the Series A-1, A-2 Preferred stock at March 31, 2002.

12% Cumulative Exchangeable Redeemable Preferred Stock

Through November 21, 1995, the Company had the
option to pay dividends in additional shares of Preferred Stock in lieu of cash,
(provided there were no blocks on payment as further discussed below). Dividends
are payable by the Company, provided the Company has legally available funds
under Maryland law and is able to pay dividends under its charter and other
corporate documents, when and if declared by the Board of Directors, commencing
June 1, 1990, and on each six month anniversary thereof. Dividends in additional
shares of the Preferred Stock were paid at the rate of 6% of a share for each
$.60 of such dividends not paid in cash. Cumulative undeclared dividends as of
March 31, 2002 accrued for financial reporting purposes totaled $30.3 million.
Dividends for the years 1992 through 1994 and for the dividend payable June 1,
1995 were accrued under the assumption that the dividend will be paid in
additional shares of preferred stock and are valued at $3,950,000. Had the
Company accrued these dividends on a cash basis, the total amount accrued would
have been $15,101,000. For the cash dividends payable since December 1, 1995,
the Company has accrued $26,323,000.

Based upon the Company's interpretation of charter
provisions pertaining to restrictions upon payment of dividends, similar dividend
payment restrictions contained in its Senior Credit Facility, and limitations
pursuant to Maryland law, the Company has not declared or paid dividends on its
public preferred stock since 1991.

Item 5.Other Events

On March 20, 2002, Dr. Stephen Bryen resigned as both a Proxy Holder and Director. On March 26, 2002, Dr. Fred Ikle resigned as Chairman of the Board of Directors, but remains on the Board as a Director and Proxy Holder.

Item 6.Exhibits and Reports on Form 8-K

(a) Exhibits: None

(b) Reports on Form 8-K:
None

Items 2, 4, and 5 are not
applicable and have been omitted.

SIGNATURES

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 thereunto duly authorized.

|DATE: May 14, 2002 | TELOS CORPORATION/s/Thomas J.
      FerraraThomas J. Ferrara(Principal Financial
Officer)
|------------------ | -----------------------------------------------------------------------------------------