UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, 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: June 30, 2000

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


                         Commission file number: 1-8443

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


          Maryland                                        52-0880974
(State of Incorporation)                    (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 August 1, 2000, the  registrant  had  21,241,980  shares of Class A Common
Stock, no par value, and 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): 24
                                                     --




<PAGE>

                                   TELOS CORPORATION AND SUBSIDIARIES

                                                 INDEX

                                    PART I.   FINANCIAL INFORMATION
                                    ------    ---------------------

<TABLE>
<CAPTION>


Item 1.        Financial Statements:
<S>                                                                                                        <C>
     Condensed Consolidated Statements of Operations for the

         Three and Six Months Ended June 30, 2000 and 1999 (unaudited).........................................4

     Condensed Consolidated Balance Sheets as of June 30, 2000 (unaudited)
         and December 31, 1999 ................................................................................5

     Condensed Consolidated Statements of Cash Flows for the

         Six Months Ended June 30, 2000 and 1999  (unaudited) .................................................6

     Notes to Condensed Consolidated Financial Statements (unaudited).......................................7-19

Item 2.        Management's Discussion and Analysis of Financial

               Condition and Results of Operations.........................................................20-23

Item 3.        Quantitative and Qualitative Disclosures about Market Risk.....................................23



                                      PART II.   OTHER INFORMATION
                                      -------    -----------------


Item 1.        Legal Proceedings..............................................................................24

Item 3.        Defaults Upon Senior Securities................................................................24

Item 6.        Exhibits and Reports on Form 8-K...............................................................24

SIGNATURES....................................................................................................25

</TABLE>



<PAGE>

                         PART I - FINANCIAL INFORMATION

                       TELOS CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (Unaudited)

                             (amounts in thousands)
<TABLE>
<CAPTION>

                                                       Three Months Ended                 Six Months Ended

                                                             June 30,                          June 30,
                                                             --------                          --------

                                                       2000            1999              2000              1999
                                                       ----            ----              ----              ----
<S>                                                    <C>            <C>                <C>              <C>

Sales

    Systems and Support Services                       $16,759        $23,068            $32,459          $43,402
    Products                                            15,046         30,876             29,297           47,979
    Xacta                                                3,671          2,196              5,814            3,390
                                                        ------         ------             ------           ------
                                                        35,476         56,140             67,570           94,771
Costs and expenses

    Cost of sales                                       29,402         46,418             57,495           80,594
    Selling, general and administrative expenses         4,237          4,073              8,447            8,454
    Goodwill amortization                                   90            132                179              264
                                                        ------         ------             ------           ------
Operating income                                         1,747          5,517              1,449            5,459
Other income (expenses)
Equity in net losses of Enterworks                          --         (5,145)                --           (9,168)
Other income                                                18             21                 38               52
Interest expense                                        (1,226)        (1,469)            (2,363)          (3,019)
                                                        ------         ------             ------           ------

Income(loss) before taxes                                  539         (1,076)              (876)          (6,676)

Income tax(provision)benefit                              (304)            71                183            1,548
                                                          -----         -----             ------           ------

Net income (loss)                                      $   235        $(1,005)           $  (693)         $(5,128)
                                                        ======        ========           ========         ========






</TABLE>















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

<PAGE>

                       TELOS CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                   (Unaudited)

                             (amounts in thousands)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                   June 30, 2000                 December 31, 1999
                                                                   -------------                 -----------------
Current assets
<S>                                                                  <C>                            <C>
    Cash and cash equivalents (includes
       restricted cash of $54 at June 30,
      2000 and December 31, 1999)                                    $    313                       $    315
    Accounts receivable, net                                           28,114                         27,030
    Inventories, net                                                    5,008                          4,779
    Deferred income taxes, current                                      5,129                          4,802
    Other current assets                                                  570                             83
                                                                       ------                         ------
       Total current assets                                            39,134                         37,009

Property and equipment, net of accumulated depreciation
  of $9,059 and $23,093, respectively                                  12,307                         12,236
Goodwill, net                                                           4,106                          4,284
Investment in Enterworks                                                   --                             --
Deferred income taxes, long term                                        2,886                          2,930
Other assets                                                              511                            427
                                                                       ------                         ------
                                                                     $ 58,944                       $ 56,886
                                                                       ======                         ======

                    LIABILITIES AND STOCKHOLDERS' INVESTMENT

Current liabilities

     Accounts payable                                                $  9,618                        $13,792
     Other current liabilities                                          2,533                          3,421
     Unearned revenue                                                   6,544                          5,183
     Senior subordinated notes                                          8,537                             --
     Accrued compensation and benefits                                  8,191                          7,645
                                                                       ------                         ------
       Total current liabilities                                       35,423                         30,041

Senior credit facility                                                 22,069                         16,508
Senior subordinated notes                                                  --                          8,537
Capital lease obligations                                              11,190                         11,362
                                                                       ------                         ------

       Total liabilities                                               68,682                         66,448

Redeemable preferred stock

     Senior redeemable preferred stock                                  6,266                          6,054
     Redeemable preferred stock                                        39,656                         36,975
                                                                       ------                         ------

       Total preferred stock                                           45,922                         43,029
                                                                       ------                         ------

Stockholders' investment

     Common stock                                                          78                             78
     Capital in excess of par                                              --                             --
     Retained deficit                                                 (55,738)                       (52,669)
                                                                       -------                       --------

       Total stockholders' investment (deficit)                       (55,660)                       (52,591)
                                                                       -------                        ------
                                                                     $ 58,944                       $ 56,886
                                                                       ======                        =======
</TABLE>

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

<PAGE>

                       TELOS CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)

                             (amounts in thousands)
<TABLE>
<CAPTION>

                                                                                            Six Months
                                                                                           Ended June 30,
                                                                                           --------------
                                                                                       2000              1999
                                                                                       ----              ----

<S>                                                                                   <C>               <C>
Operating activities:
  Net loss                                                                            $  (693)         $(5,128)
    Adjustments to reconcile net loss to cash (used in)
     provided by operating activities:
       Gain on sale of fixed assets                                                        --              (88)
       Depreciation and amortization                                                      829            2,146
       Goodwill amortization                                                              179              264
       Other noncash items                                                                344            1,003
       Changes in assets and liabilities                                               (5,098)          14,283
                                                                                        -----           ------
         Cash (used in) provided by operating activities                               (4,439)          12,480
                                                                                       -------          ------

Investing activities:
  Proceeds from sale of fixed assets                                                       --              171
  Investment in capitalized software and other assets                                      --             (762)
  Purchase of property and equipment                                                     (961)            (666)
                                                                                        -------        -------
         Cash used in investing activities                                               (961)          (1,257)
                                                                                       -------          -------
Financing activities:
  Proceeds from (repayment of) borrowings under senior credit facility                  5,561          (10,688)
  Payments under capital leases                                                          (163)            (191)
                                                                                         ----             ----

         Cash provided by (used in) financing activities                                5,398          (10,879)
                                                                                        ------        --------
  (Decrease) increase in cash and cash equivalents                                         (2)             344

   Cash and cash equivalents at beginning  of period                                      315              408
                                                                                       ------          -------
     Cash and cash equivalents at end of period                                       $   313          $   752
                                                                                      =======          =======



</TABLE>


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

<PAGE>

                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES 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   (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
because of 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, 1999.

     In June 1998,  the FASB  issued  SFAS No. 133,  "Accounting  or  Derivative
Instruments  and  Hedging  Activities."  SFAS  133  establishes  accounting  and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS 133, as amended by
SFAS 137,  "Accounting  for  Derivative  Instruments  and Hedging  Activities  -
Deferral of the effective  date of SFAS No. 133, an amendment of FASB  Statement
No. 133" is effective for all quarters of the Company's year ending December 31,
2001.  The  Company  currently  does not  engage or plan to engage in the use of
derivative  instruments,  and does not expect SFAS 133 to have a material impact
on the results of operations.

     In June 2000, the FASB issued SFAS 138,  "Accounting for Certain Derivative
Instruments  and Certain  Hedging  Activities"  which amends SFAS 133.  SFAS 138
amends SFAS 133 to 1)expand the scope of the "normal sales and normal purchases"
exception;  2)introduce  the  benchmark  rate as an  interest  rate  that may be
hedged;  3)permit a recognized  foreign currency  denominated asset to be hedged
and;  4)allow  certain  intercompany  derivatives  that  are  offset  net  to be
designated as hedging  instruments.  The Company does not anticipate SFAS 138 to
have a material impact on its financial statements.

     In December  1999,  the  Securities  and Exchange  Commission  issued Staff
Accounting   Bulletin  101  "Revenue   Recognition   in  Financial   Statements"
("SAB101")to  provide  guidance  regarding  the  recognition,  presentation  and
disclosure of revenue in the financial statements.  The Company expects to adopt
the  provisions  of  SAB  101  (as  amended  by  SAB  101B  which  deferred  the
implementation  date by three quarters) on October 1, 2000.  Management does not
anticipate  the adoption of SAB 101 to have a material  impact on its results of
operations or financial condition.

         In April 2000, the FASB issued FASB  Interpretation  No. 44 "Accounting
for Certain  Transactions  Involving Stock  Compensation;  Interpretation of APB
Opinion No.25" ("FIN 44"). The Company is evaluating the provisions of FIN 44.

         Certain  reclassifications have been made to the prior year's financial
statements to conform to the classifications used in the current period.

Note 2.  Deconsolidation of Enterworks, Inc. Subsidiary

         On December 30, 1999, Enterworks, Inc. ("Enterworks"), a majority-owned
subsidiary of the Company, completed a private placement of 21,739,127 shares of
Series A Convertible Preferred Stock ("Preferred Stock") at a price of $1.15 per
share.  The sale  generated  gross  proceeds of  $25,000,000.  In addition,  the
Company entered into a series of concurrent  transactions  pursuant to which the
Company's voting interest in Enterworks was reduced to approximately  34.8%. The
concurrent transactions were as follows:

1.   The Company converted approximately $7.6 million of its Senior Subordinated
     Notes,  Series B, C and D held by investors,  plus the accrued interest and
     the waiver of prepayment  premium  associated with these notes, into shares
     of  Enterworks'  Common Stock owned by the Company at an exchange  ratio of
     one share of Enterworks'  Common Stock for each $1.00  principal  amount of
     notes payable.  These  subordinated notes had a maturity date of October 1,
     2000.

2.   Enterworks  purchased 5,000,000 shares of Enterworks' Common Stock owned by
     the  Company at a price of $1.00 per share.  This amount was reduced by 20%
     of the Agent's fee, the  Company's  pro rata share of the proceeds from the
     transaction.  The net amount received was $4.7 million.  This  transaction,
     together with the one described above,  resulted in an extraordinary  gain,
     net of tax of $5.3  million,  of $8.0  million,  which is  included  in the
     Company's statement of operations for the year ended December 31, 1999.
<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)
3.   Enterworks'  payable to the Company,  which was approximately $24.4 million
     at December 30, 1999, was cancelled in its entirety  before the issuance of
     Series A Preferred  Stock.  The  forgiveness  of the payable  increased the
     Company's  investment in Enterworks.  Funding required to cover Enterworks'
     working  capital  needs from  November  30, 1999 to the date of closing was
     funded by the Company and was repaid through  collections  from Enterworks'
     trade accounts  receivable.  This funding  approximated $2.0 million.  This
     forgiveness  of  intercompany  debt is deemed by  management to be a normal
     occurrence of a capital raising transaction.

4.   Enterworks  issued  4,000,000  shares of Enterworks'  Common Stock to Telos
     concurrent with the issuance of the Enterworks'  Series A Preferred  Stock.
     This  issuance  increased  the  Company's  investment  in  Enterworks as it
     increased the number of shares the Company owned in Enterworks.

5.   Enterworks issued a warrant to acquire 350,000 shares of Enterworks' Common
     Stock to  Telos'  primary  lender,  Bank of  America,  in  connection  with
     obtaining the necessary approvals for this offering.  The exercise price of
     the warrant equaled $1.15 per share, the same per share price of the Series
     A Preferred Stock.  This warrant was recorded at its fair market value as a
     charge to interest  expense and a reduction to the Company's  investment in
     Enterworks.

6.   Telos contributed 210,912 shares of Enterworks' Common Stock owned by Telos
     to the  Enterworks  Treasury  for the  subsequent  grant of warrants to the
     Agent,  Deutsche Bank Alex.  Brown. This issuance of warrants was also part
     of the  Agent's  fee.  This  contribution  of  shares  was also a charge to
     interest expense and a reduction to the Company's investment in Enterworks.

         As a result of the reduction of the Company's  ownership  percentage in
Enterworks  the Company  changed its method of accounting  for its investment in
Enterworks from the consolidation method to the equity method.  Pursuant to this
change the  Company's  interest in the losses of  Enterworks  have been reported
separately as "Equity in Net Losses of Enterworks" in the Company's consolidated
statement of  operations  for the six months ended June 30, 2000.  Additionally,
the Company established an "Investment in Enterworks" account in accordance with
APB 18. As of June 30, 2000 and December 31, 1999, respectively,  the balance is
zero in the Investment in Enterworks  account due to the fact that the Company's
share of cumulative losses exceeds its investment basis.

<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

Note 3.       Sale of Assets

         On September 29, 1999, the Company sold substantially all of the assets
of its computer maintenance and service business, Telos Field Engineering,  Inc.
("TFE"), to TFE Technology Holdings, LLC ("TFE Holdings"),  an affiliate of Carr
& Company,  for $10 million.  As a result of this sale,  the Company  recorded a
gain of $4.7 million in its  consolidated  statement of operations  for the year
ended  December  31,  1999.  This gain  included a write-off  of $2.1 million of
goodwill allocated to TFE operations.  The Company and TFE Holdings entered into
a one-year corporate services agreement on the date of the sale. Under the terms
of the Agreement,  Telos will continue to provide certain administrative support
functions to TFE Holdings,  including but not limited to finance and  accounting
and human resources, in return for a monthly payment.

Note 4.   Debt Obligations

Senior Credit Facility

         The Company has a $35 million Senior Credit Facility  ("Facility") with
a bank that matures on July 1, 2001.  As of July 1, 2000,  the Facility  will be
classified as a current  liability as the Facility will have 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
Enterworks,  Inc. The amount of  available  borrowings  fluctuates  based on the
underlying asset borrowing base.

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.
Fixed  assets of the Company  collateralize  Series B Notes.  Series C Notes are
unsecured. Both the Series B and Series C Notes have a maturity date of April 1,
2001 and 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 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  after the occurrence of a triggering  event.  At June 30,
2000, the prepayment  premium that would be due upon a triggering  event is $7.4
million.

         In conjunction with the Enterworks private placement offering (Note 2),
the  Company  retired  approximately  $1.0  million of Series B Notes,  and $4.8
million of Series C Notes,  in exchange for shares of  Enterworks'  common stock
owned by the Company at an  exchange  ratio of one share of  Enterworks'  common
stock for each $1.00  principal  amount of notes  payable.  In  addition  to the
retirement  of these  notes,  accrued  interest of  approximately  $300,000  was
forgiven and the holders of these notes  waived  their rights to the  prepayment
premium associated with these notes.

         The  balances of the Series B and Series C Notes were $5.5  million and
  $3.0  million,  respectively,  at June 30, 2000 and December 31, 1999. At June
  30,  2000,  the  Series  B and  Series  C  notes  are  classified  as  current
  liabilities as they have a term of less than one year.

<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

Note 5.       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 30 and
December 31 of each year.  The  liquidation  preference of the senior  preferred
stock is the face amount of the Series A-1 and A-2 ($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  December  31,  2001,  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  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 June 30, 2000
and December 31, 1999 cumulative undeclared, unpaid dividends relating to Series
A-1 and  A-2  redeemable  preferred  stock  totaled  $3,266,000  and  $3,054,000
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 six  months  ended  June 30,  2000 was
$770,000.  The Company declared stock dividends  totaling 736,863 shares in 1990
and 1991.

         In November  1998,  the Company  retired  410,000  shares of the Public
Preferred Stock held by certain shareholders.  The Company repurchased the stock
at $4.00 per share. The carrying value of these shares was determined to be $3.8
million,  and the $2.2 million excess of the carrying  amount of these shares of
Public Preferred Stock over the redemption price of $1.6 million was recorded as
an increase in capital in excess of par; there was no impact on income from this
transaction.

<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

         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 12, 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 the annual
rate of 12% ($1.20) per share,  based on the  liquidation  preference of $10 per
share and is fully  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 were paid at the rate of
6% of a share 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 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 $20,588,000.

         The  Company  has not  declared or paid  dividends  since 1991,  due to
restrictions  and  ambiguities  relating to the payment of  dividends  contained
within its charter,  its working capital facility agreement,  and under Maryland
law.

Note 6.  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 the beginning of the second
quarter 2000,  management determined that it evaluates the financial performance
of the Company in three reportable operating segments:

          Systems  and  Support  Services:  provides  software  development  and
     support  services  for  software  including  technology  insertion,  system
     redesign  and  software  re-engineering.   This  segment  consists  of  two
     divisions - solutions and international.

          Products:    delivers    enterprise    integration    and   networking
     infrastructure   solutions  to  its  customers.   These  solutions  include
     providing commercial hardware, software and services to its customers. This
     group is  capable  of  staging,  installing  and  deploying  large  network
     infrastructures   with  virtually  no  disruption  to  customer's   ongoing
     operations.

          Xacta:  an emerging  e-commerce  integrator  providing  "B2B"  trusted
     e-marketplace  solutions  to global 2000  companies  and  emerging  digital
     businesses. Xacta professionals architect,  engineer, integrate and support
     complex  "B2B"   e-marketplaces   and  extranets,   focusing  on  security,
     reliability,   scalability  and  integration   with  existing  systems  and
     processes.

<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

         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  June 30,  2000 and 1999 is shown in the
following table. The "other" column includes corporate related items.

          Enterworks,  Inc.  (Note 2) was  disclosed  as a segment in 1999 filed
     reports  and  therefore  it is still  identified  as a segment  in the 1999
     captions below.
<TABLE>
<CAPTION>

                  Systems and
                  Support Services     Products    Xacta    Enterworks    Other (1)       Total
                  ----------------     --------    -----    ----------    ---------        -----
June 30, 2000
<S>                   <C>             <C>        <C>         <C>          <C>             <C>
External Revenues     $16,759         $ 15,046   $ 3,671     $   --       $       --      $35,476
Intersegment Revenues      88               --        --         --               --           88
Gross Profit            2,689            2,055     1,330         --               --        6,074
Segment profit(loss)(3) 1,250              424       163         --               --        1,837
Total assets           11,596           17,375     5,433         --           24,540       58,944
Capital Expenditures       13              219       126         --              211          569
Depreciation &
 Amortization(2)      $   111         $     73   $    12     $   --       $      308      $   504


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

June 30, 1999

External Revenues     $23,068          $30,876   $ 2,196     $  --        $     --        $56,140
Intersegment Revenues      --              --        151        --              --            151
Gross Profit            4,181            4,205     1,336        --              --          9,722
Segment profit(loss)(3) 3,137            2,198       314        --              --          5,649
Total assets           26,200           13,766     4,237     6,190          26,402         76,795
Capital Expenditures       10                3        24       133             114            284
Depreciation &
 Amortization(2)      $   229          $    56   $     8     $ 635        $    323        $ 1,251

<FN>

     (1) Corporate assets are principally property and equipment, cash and other
assets.
     (2) Depreciation and amortization includes amounts relating to property and
equipment,  goodwill,  deferred  software costs and spare parts  inventory.
     (3)  Segment  profit  (loss)  represents  operating  income  (loss)  before
goodwill amortization.
</FN>
</TABLE>

         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
12 separate facilities located in 4 states and Europe and Asia.

<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)
Note 7. Subsequent Event

     On July 28, 2000, the Company  entered into a  Subscription  Agreement with
certain investors ("Investors"), which provided for the formation of an Oklahoma
Limited  Liability  Company  named Telos OK, L.L.C.  ("Telos  OK").  The Company
contributed  all  of the  assets  of  its  Digital  Systems  Test  and  Training
Simulators  ("DSTATS")  business  as well as its  Government  Contract  with the
Department of the Army at Ft. Sill  (hereafter  referred to as the Company's Ft.
Sill  business) to Telos OK. The Investors  contributed  $3.0 million in cash to
Telos OK, and at closing  Telos OK borrowed  $4.0 million cash from a bank.  The
Company and the Investors have each guaranteed the loan of Telos OK. The Company
has  guaranteed $2 million and the  Investors  have  guaranteed  $1 million.  In
addition,  Telos OK entered into a $500,000 senior credit facility with the same
bank, which expires August 1, 2001. Borrowings under the facility,  should there
be any, will be collateralized by certain assets of Telos OK (primarily accounts
receivable).  The Company and the Investors have agreed to guarantee this credit
facility in the amount of $250,000 each, when and if drawn.

         In compliance with the subscription  agreement, on the closing date the
following  consideration was given to the Company for its contribution of assets
to Telos OK:

     The Company  received $6 million in cash,  retained  $2.5  million in trade
receivables  of the Ft.  Sill and  DSTATS  businesses,  and  received a $500,000
receivable  from  Telos  OK for a total  consideration  of $ 9  million  for the
contribution of the net assets.

     The  Company  and the  Investors  on the  closing  date will each own a 50%
voting membership  interest in Telos OK, and have signed an operating  agreement
which provides for three subclasses of membership units, Classes A, B and C. The
ownership of these classes is as follows and can change upon Class B redemption:

Class A - owns 20% of Telos OK. The  Company and the  Investors  each own 50% of
the 200,000  units of this class.  This class has all voting  rights of Telos OK
and has the sole  right to elect the  directors  of Telos OK.  The units in this
class do not have redemptive rights.

Class B - owns 40% of Telos OK. The Investors own  all 2.9 million units of this
class. This class does not have voting rights, but can request the redemption of
all or a portion of the units Class B  outstanding  beginning one year after the
closing date, subject to certain  restrictions.  Class B can redeem no more than
500,000 units per quarter at a price of $1.00 per unit, and such  redemption can
only be made from the excess cash flow of Telos OK as defined in the agreement.

Class C- owns 40% of Telos OK. The Company  owns all 2.9  million  units of this
class.  This  class does not have  voting  rights,  and has the same  redemptive
rights as class B above, except that no right of redemption will exist until all
Class B units have been  redeemed.  In  addition,  when any of the Class B units
have been  redeemed,  the Company will receive a warrant to purchase a number of
Class C units  equal to the amount of the Class B units  redeemed  at a price of
$0.01 per unit.

<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

     As  indicated  in  the  operating  agreement,  one of  the  Investors  will
initially  serve as Chairman of the Board and may  designate  a  Secretary,  and
David Aldrich,  President and CEO of the Company, and Thomas Ferrara,  Treasurer
of the Company,  will initially serve in those same capacities for Telos OK. The
Company has entered into a corporate  services  agreement  with Telos OK whereby
the Company will provide certain  administrative  support functions to Telos OK,
including  but not limited to finance and  accounting  and human  resources,  in
return for a monthly payment.

<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

         The following unaudited Pro Forma Consolidated Balance Sheet as of June
30, 2000 presents the pro forma impact of the  transaction  as if it occurred on
June 30, 2000. The unaudited Pro Forma Consolidated Statements of Operations for
the year ended  December  31,  1999 and for the six months  ended June 30,  2000
("pro  forma  financial  information")  present  the  pro  forma  effect  of the
transaction as if it occurred as of January 1, 1999.

     The objective of pro forma  financial  information is to provide  investors
with information about the estimated  continuing impact of particular  completed
or probable  transactions by indicating how the transactions might have affected
historical financial statements had they occurred at an earlier date.

<PAGE>

                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

                       TELOS CORPORATION AND SUBSIDIARIES

            PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                     FOR THE SIX MONTHS ENDED JUNE 30, 2000

                                   (Unaudited)

                             (amounts in thousands)
<TABLE>
<CAPTION>


                                                                        Elimination
                                                      Form 10-Q        of Operations                    Pro Forma
                                                       Balances         of Telos OK      Adjustments     Balances
                                                       --------          ----------      -----------     --------

Sales
<S>                                                    <C>              <C>               <C>            <C>
    Systems and Support Services                       $32,459          $(11,565)(d)      $    --        $20,894
    Products                                            29,297                --               --         29,297
    Xacta                                                5,814                --               --          5,814
                                                        ------           -------              ---         ------
                                                        67,570           (11,565)              --         56,005
Costs and expenses

    Cost of sales                                       57,495            (9,558)(d)           --         47,937
    Selling, general and administrative expenses         8,447                --               --          8,447
    Goodwill amortization                                  179                --               --            179
                                                       -------             -----            -----         ------
Operating income (loss)                                  1,449            (2,007)              --           (558)
Other income (expenses)
    Equity in net losses of Enterworks                      --                --               --             --
    Equity in earnings of Telos OK                          --                --            1,004 (e)      1,004
    Other income                                            38                --               --             38
    Interest expense                                    (2,363)               --               --         (2,363)
                                                        ------               ---              ---        --------

(Loss) income before taxes                                (876)           (2,007)           1,004         (1,879)

Income tax benefit                                         183                --              459 (f)        642
                                                           ---             -----           -------          ----

Net (loss)income                                      $   (693)          $(2,007)        $  1,463        $(1,237)
                                                       ========          ========        ========        ========


</TABLE>









Please see Notes to the unaudited Pro Forma Consolidated Statement of Operations
and Consolidated Balance Sheet.

<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

                       TELOS CORPORATION AND SUBSIDIARIES

            PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                      FOR THE YEAR ENDED DECEMBER 31, 1999

                                   (Unaudited)

                             (amounts in thousands)
<TABLE>
<CAPTION>


                                                                       Elimination
                                                       Form 10-K      of Operations                      Pro Forma
                                                        Balances       of Telos OK        Adjustments     Balances
                                                       --------          --------         -----------     --------
<S>                                                      <C>            <C>               <C>            <C>
Sales

    Systems and Support Services                         $93,538        $(19,614)(d)      $    --        $73,924
    Products                                              77,826              --               --         77,826

    Enterworks                                                --              --               --             --
                                                        --------        --------              ---        -------
                                                         171,364         (19,614)              --        151,750
Costs and expenses

    Cost of sales                                        151,216         (17,806)(d)           --        133,410
    Selling, general and administrative expenses          17,459              --               --         17,459
    Goodwill amortization                                    489              --               --            489
                                                         -------           -----            -----         ------
Operating income (loss)                                    2,200          (1,808)              --            392
Other income (expenses)
    Equity in net losses of Enterworks                   (18,765)             --               --        (18,765)
    Equity in earnings of Telos OK                            --              --              904 (e)        904
    Other income                                              67              --               --             67
    Gain on sale of assets                                 4,731              --               --          4,731
    Interest expense                                      (6,065)             --               --         (6,065)
                                                           ------            ---              ---        --------

(Loss) income before taxes                               (17,832)         (1,808)             904        (18,736)

Income tax benefit                                         7,853              --              404 (f)      8,257
                                                           -----           -----           -------        ------

(Loss) income before extraordinary item                   (9,979)         (1,808)           1,308        (10,479)

Extraordinary item                                         8,015              --               --          8,015
                                                           -----              --               --          -----

Net (loss)income                                      $   (1,964)        $(1,808)        $  1,308        $(2,464)
                                                       ==========        ========        ========        ========

</TABLE>










Please see Notes to the unaudited Pro Forma Consolidated Statement of Operations
and Consolidated Balance Sheet.

<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

                       TELOS CORPORATION AND SUBSIDIARIES

                 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

                                AT JUNE 30, 2000

                                   (Unaudited)

                             (amounts in thousands)

                                     ASSETS
<TABLE>
<CAPTION>

                                                                  Adjustments and
                                                      Form 10-Q    Contribution                       Pro Forma
                                                      Balances     to Telos OK       Adjustments       Balances
                                                      --------     -----------       -----------       --------
<S>                                                   <C>              <C>            <C>                <C>
Current assets
    Cash and cash equivalents                        $   313          $6,500(a)      $  (500)(g)        $ 6,313
    Accounts receivable, net                          28,114          (1,322)b)           --             26,792
    Inventories, net                                   5,008              --              --              5,008
    Deferred income taxes, current                     5,129              --             367(f)           5,496
    Other current assets                                 570             (31)(b)         500(g)           1,039
                                                      ------          -------           -----           -------

       Total current assets                           39,134           5,147             367             44,648

Property and equipment, net                           12,307             (50)(b)          --             12,257
Goodwill, net                                          4,106          (1,232)(b)          --              2,874
Investment in Enterworks                                  --              --              --                 --
Investment in Telos OK                                    --              --              --                 --
Deferred income taxes, long term                       2,886              --              --              2,886
Other assets                                             511              --              --                511
                                                      ------          ------           ------            ------
                                                     $58,944          $3,865          $  367            $63,176
                                                      ======          ======           ======           =======

                             LIABILITIES AND STOCKHOLDERS' INVESTMENT

Current liabilities

    Accounts payable                                 $ 9,618          $ (216)(b)      $   --            $ 9,402
    Other current liabilities                          2,533             (16)(b)         (92)(f)          2,425
    Unearned revenue                                   6,544              --              --              6,544
    Senior subordinated notes                          8,537              --              --              8,537
    Accrued compensation and benefits                  8,191          (1,873)(b)          --              6,318
                                                       -----           ------           -----            ------

       Total current liabilities                      35,423          (2,105)            (92)            33,226

Senior credit facility                                22,069              --              --             22,069
Capital lease obligations                             11,190              --              --             11,190
                                                      ------           -----           -----             ------
       Total liabilities                              68,682          (2,105)            (92)            66,485

Redeemable preferred stock

    Senior redeemable preferred stock                  6,266              --              --              6,266
    Redeemable preferred stock                        39,656              --              --             39,656
                                                      ------           ------           -----            ------

       Total preferred stock                          45,922              --              --             45,922
                                                      ------           ------           -----            ------

Stockholders' investment

    Common stock                                          78              --               --                78
    Capital in excess of par                              --           5,970 (c)           --             5,970
    Retained deficit                                 (55,738)             --              459(f)        (55,279)
                                                    --------           -----            ------          --------

    Total stockholders' investment                   (55,660)          5,970              459           (49,231)
                                                    --------           -----            ------          --------
                                                    $ 58,944          $3,865           $  367           $63,176
                                                    ========          ======           ======           =======

</TABLE>


Please see Notes to the unaudited Pro Forma Consolidated Statement of Operations
and Consolidated Balance Sheet.

<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

Pro Forma Adjustments

          The pro forma adjustments  outlined below present  adjustments related
to the  transaction:



a)   Reflects the net receipt of $6.0 million from Telos OK in  connection  with
     the  subscription  agreement.  The Company  received $7.0 million less $1.0
     million retained in the business of Telos OK.

b)   Reflects  the  elimination  of the  June  30,  2000  FT.  Sill  and  DSTATS
     businesses'  accounts from the Company's  balance  sheet.  These net assets
     consist of the following:
<TABLE>
<CAPTION>

                                                        (in thousands)
        <S>                                                  <C>
        Accounts receivable                                  $ 1,322
        Property and equipment, net                               50
        Other current assets                                      31
        Goodwill                                               1,232
        Accounts payable                                        (216)
        Accrued expenses                                      (1,889)
                                                             -------
                                                             $   530
                                                             =======


c)   Reflects the $6.0 million  excess of the cash  received over the net assets
     contributed. There is no impact on income from this transaction.

d)   Reflects the  adjustment to the  Statements of Operations for the six month
     period ended June 30, 2000 and the year ended December 31, 1999 to separate
     the  operations of the Ft. Sill and DSTATS  businesses  from the respective
     periods.

e)   Reflects the  Company's  50% interest in the net income of Telos OK for the
     six months ended June 30, 2000 and the year ended December 31, 1999.

f)   Reflects the changes to the income tax provision and corresponding deferred
     tax assets and  liabilities  in order to present a  stand-alone  income tax
     provision  for the Company in  accordance  with SFAS 109 for the six months
     ended June 30, 2000 and for the year ended December 31, 1999.

g)   Reflects additional $500,000 to be received from Telos OK at a future  date
     for the Company's contribution of receivables.


</TABLE>


<PAGE>

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


General

         Sales for the first six months of 2000 were $67.6  million,  a decrease
of $27.2 million or 28.7% as compared to the same 1999 period. This decrease was
primarily  attributable to a $18.7 million  decrease in sales from the Company's
Products  Group  which  experienced  decreased  sales from its Joint  Recruitive
Information Support Services Blanket Purchase  Agreement.  This decrease is also
attributable to the sale of the Company's Field Engineering  division ("TFE") in
September 1999.

         Operating  income through the first six months of 2000 was $1.4 million
as compared to  operating  income of $5.5  million  during the same 1999 period.
Operating  profitability declined principally as a result of the sale of TFE and
the decline in sales in the Products Group as discussed above.

         Total backlog from existing contracts was approximately  $237.2 million
and $242.2 million as of June 30, 2000 and December 31, 1999,  respectively.  As
of June 30, 2000,  the funded backlog of the Company  totaled $56.9 million,  an
increase of $12.2  million from  December 31, 1999.  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 and six month periods ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>


                                                            Three Months Ended            Six Months Ended
                                                                  June 30,                      June 30,
                                                            ----------------------       ---------------------
                                                            2000            1999          2000            1999
                                                            ----            ----          ----            ----
<S>                                                         <C>            <C>             <C>           <C>
Sales                                                       100.0%         100.0%          100.0%        100.0%
Cost of sales                                                82.9           82.7            85.1          85.0
SG&A expenses                                                11.9            7.3            12.5           8.9
Goodwill amortization                                         0.3            0.2             0.3           0.3
                                                            -----           ----            ----          ----

Operating income                                              4.9            9.8             2.1           5.8
Other income                                                  0.1             --             0.1           0.1
Equity in net losses of Enterworks                             --           (9.1)             --          (9.7)
Interest expense                                             (3.4)          (2.6)           (3.5)         (3.2)
Income tax(provision) benefit                                (0.9)           0.1             0.3           1.6
                                                             ----            ---             ---           ---

Net income (loss)                                             0.7%          (1.8)%          (1.0)%        (5.4)%
                                                              ===           ====             ===           ===

</TABLE>

<PAGE>

Financial Data by Market Segment

         Sales, gross profit, and gross margin by market segment for the periods
designated below are as follows:
<TABLE>
<CAPTION>


                                                   Three Months Ended                      Six Months Ended
                                                       June 30,                               June 30,
                                                  -------------------                     -----------------
                                                    2000           1999                   2000            1999
                                                    ----           ----                   ----            ----

                                                                     (amounts in thousands)
<S>                                               <C>            <C>                    <C>            <C>
Sales:
   Systems and Support Services                   $ 16,759       $ 23,068               $ 32,459       $ 43,402
   Products                                         15,046         30,876                 29,297         47,979
   Xacta                                             3,671          2,196                  5,814          3,390
                                                    ------         ------                -------         ------
         Total                                    $ 35,476       $ 56,140               $ 67,570       $ 94,771
                                                    ======         ======                =======         ======

Gross Profit:
   Systems and Support Services                   $  2,689       $  4,181               $  4,725       $  7,562
   Products                                          2,055          4,205                  3,423          5,134
   Xacta                                             1,330          1,336                  1,927          1,481
                                                     -----          -----                  -----         ------
         Total                                    $  6,074       $  9,722               $ 10,075       $ 14,177
                                                     =====         ======                 ======         ======

Gross Margin:
   Systems and Support Services                     16.1%           18.1%                  14.6%          17.4%
   Products                                         13.7%           13.6%                  11.7%          10.7%
   Xacta                                            36.2%           60.9%                  33.2%          43.7%
         Total                                      17.1%           17.3%                  14.9%          15.0%
</TABLE>


         For the three month  period  ended June 30,  2000,  sales  decreased by
$20.7  million,  or 36.8% to $35.5 million from $56.1 million for the comparable
1999 period.  Of the $20.7 million  decrease,  $15.8 million was attributable to
the Products Group, which experienced  decreased sales from its Joint Recruitive
Information  Support  Services  Blanket  Purchase  Agreement  ("JRISS BPA"). The
decrease in sales was also  attributable  to the  Systems  and Support  Services
Group,  which experienced a decline of $6.3 million in sales for the three month
period ended June 30, 2000 compared to the same period in 1999.  This decline is
mostly due to the sale of TFE in September 1999. TFE sales were $8.6 million for
the second quarter of 1999.  Offsetting these decreases was an increase in Xacta
revenue of $1.5 million  from second  quarter  2000  compared to second  quarter
1999.  This  increase  is  primarily  due to  increased  sales in the  Company's
information security product line.

         Sales  decreased  $27.2  million or 28.7% to $67.6  million for the six
months ended June 30, 2000,  from $94.8 million for the comparable  1999 period.
The  decrease  for the six month period  includes an $18.7  million  decrease in
Product  sales,  a decrease of $10.9  million in Systems  and  Support  Services
revenue,  partially  offset  by a $2.4  million  increase  in sales in its Xacta
group.  This  decrease in the six month revenue is primarily due to the decrease
in revenue from the JRISS BPA as well as the sale of TFE.  These  decreases were
slightly offset by increased sales under the Information  Security  product line
of $2.0 million.

<PAGE>

     Cost of sales was 82.9% of sales for the quarter and 85.1% of sales for the
six months  ended June 30,  2000,  as  compared  to 82.7% and 85.0% for the same
periods in 1999. The slight  increases in cost of sales as a percentage of sales
are primarily attributable to a one-time high margin transaction with one of the
Company's partners recorded in the second quarter of 1999.

     Gross  profit  decreased  $3.6  million in the  three-month  period to $6.1
million in 2000,  from $9.7 million in the  comparable  1999 period.  In the six
month period,  gross profit  decreased  $4.1 million to $10.1 million from $14.2
million in 1999.  These  declines are mostly  attributable  to the  decreases in
sales volume discussed above. Gross margins were 17.1% and 14.9%,  respectively,
for the three and six month  periods  of 2000 as  compared  to 17.3% and  15.0%,
respectively, for the comparable periods of 1999.

     Selling,   general,   and  administrative   expense   ("SG&A")increased  by
approximately  $164,000 or 4.0%,  to $4.2 million in the second  quarter of 2000
from $4.1 million in the comparable  period of 1999. For the six-month period of
2000, SG&A remained at $8.4 million compared to the same period in 1999.

     SG&A as a percentage of revenues  increased to 11.9% for the second quarter
of 2000  from  7.3% in the  comparable  1999  period.  SG&A as a  percentage  of
revenues for the  six-month  period ended June 30, 2000  increased to 12.5% from
8.9% compared to the same period in 1999.

     Goodwill   amortization  expense  decreased  $42,000  for  the  comparative
three-month  periods of 2000 and 1999,  and decreased by $85,000 to $179,000 for
the six months  ended June 30, 2000  compared  to the same  period in 1999.  The
reductions are due to a write off of the goodwill  balance  associated  with the
sale of TFE in September 1999.

     Operating  income  decreased  by $3.8  million to $1.7 million in the three
month period  ended June 30, 2000 from $5.5  million of operating  profit in the
comparable 1999 period.  Operating income decreased $4.0 million to $1.5 million
for the six  months  ended  June 30,  2000 from $5.5  million  for the six month
period ended June 30, 1999.  These  decreases in operating  profit for the three
and six-month periods are mostly attributable to the decrease in gross profit.

     Interest expense  decreased  approximately  $200,000 to $1.2 million in the
second  quarter of 2000 from $1.4 million in the  comparable  1999  period,  and
decreased  approximately  $700,000 to $2.3 million for the six months ended June
30, 2000 from $3.0 million for the comparable  1999 period.  These decreases are
due to decreased debt levels in 2000.

     The Company  recorded an income tax  provision  for the three  months ended
June 30,  2000 of  approximately  $300,000.  This tax  provision  was  primarily
attributable  to provisions  for state income taxes.  The income tax benefit was
$183,000  for the  six  months  ended  June  30,  2000.  This  tax  benefit  was
principally  due  to the  net  operating  loss  carryforwards  generated  by the
Company.  The Company's net deferred tax asset includes  substantial  amounts of
net operating loss  carryforwards.  Failure to achieve forecasted taxable income
may affect the ultimate  realization of the net deferred tax assets.  Management
believes the Company will generate  taxable income in excess of operating losses
sufficient in amounts to realize the net deferred tax assets.  The Company has a
valuation allowance of approximately  $600,000 for primarily state net operating
losses it does not  believe it will  realize.  The Company  recorded  income tax
benefits of $71,000 and $1.5 million for the three and six months ended June 30,
1999,  respectively.  These tax  benefits  were also due to net  operating  loss
carryforwards generated during the first quarter of 1999.

Liquidity and Capital Resources

     For the six months  ended June 30,  2000,  the Company used $4.4 million of
cash in its  operating  activities.  This cash was used to reduce the  Company's
accounts payable balance by $4.2 million and fund losses incurred in operations.
Cash used in investing  activities  was  approximately  $1.0  million.  Cash was
provided by financing  activities  during the quarter under borrowings under the
Company's credit facility of $5.6 million.

     At  June  30,  2000,  the  Company  had  outstanding  debt  and  long  term
obligations  of $41.8  million,  consisting  of $22.1  million under the secured
senior credit facility,  $8.5 million in subordinated debt, and $11.2 million in
capital lease obligations. The Company believes it will generate enough funds in
the  ordinary  course of  business  during  the next  twelve  months to fund its
operations and service its debt and capital lease obligations.

     At June 30, 2000, the Company had an  outstanding  balance of $22.1 million
on its $35 million Senior Credit Facility (the "Facility"). The Facility matures
on July 1, 2001 and is  collateralized  by a majority  of the  Company's  assets
(including inventory,  accounts receivable and Telos' stock in Enterworks).  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,  sell or transfer  certain assets,  pay dividends and
make other distributions beyond certain limitations.  The Facility also requires
the Company to meet certain leverage, net worth, interest coverage and operating
goals.

<PAGE>

New Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting or Derivative Instruments and Hedging Activities." SFAS 133
establishes  accounting  and  reporting  standards for  derivative  instruments,
including derivative  instruments  embedded in other contracts,  and for hedging
activities.  SFAS 133,  as  amended  by SFAS  137,  "Accounting  for  Derivative
Instruments  and Hedging  Activities  - Deferral of the  effective  date of FASB
Statement No. 133, an amendment of FASB  Statement No. 133" is effective for all
quarters of the Company's year ending  December 31, 2001. The Company  currently
does not engage or plan to engage in the use of derivative instruments, and does
not expect SFAS 133 to have a material impact on the results of operations.

     In June 2000, the FASB issued SFAS 138,  "Accounting for Certain Derivative
Instruments  and Certain  Hedging  Activities"  which amends SFAS 133.  SFAS 138
amends  SFAS  133 to 1)  expand  the  scope  of the  "normal  sales  and  normal
purchases"  exception;  2) introduce the benchmark rate as an interest rate that
may be hedged; 3) permit a recognized  foreign currency  denominated asset to be
hedged and; 4) allow certain intercompany  derivatives that are offset net to be
designated as hedging  instruments.  The Company does not anticipate SFAS 138 to
have a material impact on its financial statements.

     In December  1999,  the  Securities  and Exchange  Commission  issued Staff
Accounting  Bulletin 101 "Revenue  Recognition  in Financial  Statements"  ("SAB
101") to provide guidance regarding the recognition, presentation and disclosure
of  revenue  in the  financial  statements.  The  Company  expects  to adopt the
provisions of SAB 101 (as amended by SAB 101B which deferred the  implementation
date by three  quarters) on October 1, 2000.  Management does not anticipate the
adoption of SAB 101 to have a material  impact on its results of  operations  or
financial condition.

     In April 2000, the FASB issued FASB  Interpretation  No. 44 "Accounting for
Certain Transactions Involving Stock Compensation; Interpretation of APB Opinion
No.25" ("FIN 44"). The Company is evaluating the provisions of FIN 44.

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,
the timing and approval of the federal government's fiscal year budget, business
growth through obtaining new business and, once obtained,  the Company's ability
to successfully  perform at a profit,  the Company's ability to convert contract
backlog to  revenue,  the  Company's  ability  to secure  adequate  capital  and
financing  to support  continued  business  growth,  and the risk of the Federal
government  terminating  contracts  with the Company.  While the Company has not
experienced  contract  terminations  with the  Federal  government,  the Federal
government can terminate at its  convenience.  Should this occur,  the Company's
operating results could be adversely impacted.

     As a high percentage of the Company's revenue is derived from business with
the federal  government,  the  Company's  operating  results  could be adversely
impacted  should the Federal  government  not approve and  implement  its annual
budget in a timely fashion.

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 1.00%,  subject to certain  adjustments,  over the bank's base
rate.  The weighted  average  interest rate for the first six months of 2000 was
9.86%.  This  facility  expires on July 1, 2001 and has  outstanding  balance of
$22.1 million at June 30, 2000.

     The  Company's  other  long-term  debt at June 30, 2000  consists of Senior
Subordinated Notes B, and C, which bear interest at fixed rates ranging from 14%
to 17%. The Senior  Subordinated  Notes mature as to principal in the  aggregate
amount of $8,537,000 on April 1, 2001. The Company has no cash flow exposure due
to rate changes for its Senior Subordinated Notes.

<PAGE>

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         The Company is party to various lawsuits arising in the ordinary course
of  business.  In the opinion of  management,  while the  results of  litigation
cannot be predicted with  certainty,  the final outcome of such matters 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 $3.3 million for the
Series A-1 and A-2 Preferred Stock at June 30, 2000.

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 June 30, 2000 accrued for
financial reporting purposes totaled $24.5 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 $20,588,000.

         The  Company  has not  declared or paid  dividends  since 1991,  due to
restrictions  and  ambiguities  relating to the payment of  dividends  contained
within its charter,  its working capital facility agreement,  and under Maryland
law.

Item 6.  Exhibits and Reports on Form 8-K

        (a)   Exhibits:


              27          Financial Data Schedule

(b)      Reports on Form 8-K:       None.

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

<PAGE>

                                   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:                                                     Telos Corporation



August 14, 2000                                           /s/  Thomas J. Ferrara
                                                          ----------------------
                                                               Thomas J. Ferrara
                                                  (Principal Financial Officer &
                                                   Principal Accounting Officer)