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, 2001

             [ ] 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, 2001, the registrant had 21,171,202 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): 20



<PAGE>





                       TELOS CORPORATION AND SUBSIDIARIES

                                      INDEX




                          PART I. FINANCIAL INFORMATION



Item 1.        Financial Statements:

     Condensed Consolidated Statements of Operations for the
         Three and Six Months Ended June 30, 2001 and 2000 (unaudited).........3

     Condensed Consolidated Balance Sheets as of June 30, 2001 (unaudited)
         and December 31, 2000 ................................................4

     Condensed Consolidated Statements of Cash Flows for the
         Six Months Ended June 30, 2001 and 2000  (unaudited) .................5

     Notes to Condensed Consolidated Financial Statements (unaudited).......6-12

Item 2.        Management's Discussion and Analysis of Financial
               Condition and Results of Operations.........................13-17

Item 3.        Quantitative and Qualitative Disclosures about Market Risk.....18



                           PART II. OTHER INFORMATION


Item 1.        Legal Proceedings..............................................19

Item 3.        Defaults Upon Senior Securities................................19

Item 6.        Exhibits and Reports on Form 8-K...............................19

SIGNATURES....................................................................20




<PAGE>


                         PART I - FINANCIAL INFORMATION

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


                                  Three Months Ended        Six Months Ended
                                        June 30,                June 30,
                                        --------                --------
                                   2001       2000       2001           2000
                                   ------------------   ---------------------
Sales
    Systems and Support Services  $16,813   $10,548     $30,700        $20,894
    Products                       18,958    16,866      46,435         31,738
    Xacta                           3,578     1,851       6,143          3,373
                                    -----     -----       -----          -----
                                   39,349    29,265      83,278         56,005
Costs and expenses
    Cost of sales                  31,924    24,358      68,964         47,937
    Selling,general and
     administrative expenses        6,838     4,237      12,551          8,447
    Goodwill amortization              63        90         125            179
                                       --        --         ---            ---
Operating income (loss)               524       580       1,638           (558)

Other income (expenses)
    Equity in net earnings of TelosOK  --     1,167          --          2,007
    Other income                       22        18          22             38
    Interest expense               (1,007)   (1,226)     (2,294)        (2,363)
                                   ------    ------      ------         ------

(Loss) income before taxes           (461)      539        (634)          (876)
Income tax benefit (provision)        150      (304)        149            183
                                      ---      ----         ---            ---

Net (loss) income                 $  (311)  $   235     $  (485)       $  (693)
                                  =======   =======     =======        =======





















              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

                                              June 30, 2001  December 31, 2000
                                              -------------  -----------------
Current assets
    Cash and cash equivalents (includes
       restricted cash of $54 at June 30,
      2001 and December 31, 2000)                $ 1,671         $   286
    Accounts receivable, net                      30,067          45,682
    Inventories, net                               6,253           7,045
    Deferred income taxes, current                 3,447           3,256
    Other current assets                           1,870             404
                                                   -----             ---

       Total current assets                       43,308          56,673
                                                  ------          ------

Property and equipment, net of
    accumulated depreciation of $10,247 and
    $9,331, respectively                          11,906          12,319
Goodwill, net                                      2,624           2,749
Investment in Enterworks                              --              --
Investment in TelosOK                                 --              --
Deferred income taxes, long term                   4,620           4,603
Other assets                                         200             746
                                                   -----           -----
                                                $ 62,658        $ 77,090
                                                ========        ========

                    LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
     Accounts payable                            $17,120         $19,049
     Other current liabilities                     2,897           2,438
     Unearned revenue                              6,834           8,609
     Senior subordinated notes                     8,179           1,151
     Senior credit facility                       15,932              --
     Accrued compensation and benefits             6,018           7,178
                                                   -----           -----
       Total current liabilities                  56,980          38,425

Senior credit facility                                --          25,460
Senior subordinated notes                             --           7,386
Capital lease obligations                         10,874          11,030
                                                  ------          ------

       Total liabilities                          67,854          82,301

Redeemable preferred stock
     Senior redeemable preferred stock             6,690           6,480
     Redeemable preferred stock                   45,106          42,352
                                                  ------          ------

       Total preferred stock                      51,796          48,832

Stockholders' investment
     Common stock                                     78              78
     Capital in excess of par                        254           2,718
     Retained deficit                            (57,324)        (56,839)
                                                 -------         -------

       Total stockholders' investment (deficit)  (56,992)        (54,043)
                                                 -------         -------
                                                $ 62,658        $ 77,090
                                                ========        ========


         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)

                                                                 Six Months
                                                                Ended June 30,
                                                                --------------
                                                               2001        2000
                                                               ----------------

Operating activities:
     Net loss                                               $  (485)    $  (693)
       Adjustments to reconcile net loss to cash
       provided by (used in) operating activities:
       Depreciation and amortization                            944         829
       Goodwill amortization                                    125         179
       Other noncash items                                      802         344
       Changes in assets and liabilities                     10,510      (5,098)
                                                             ------      ------

         Cash provided by (used in) operating activities     11,896      (4,439)
                                                             ------      ------


Investing activities:

     Purchases of property and equipment                       (449)       (961)
                                                               ----        ----

         Cash used in investing activities                     (449)       (961)
                                                               ----        ----

Financing activities:
     (Repayment of) proceeds from borrowings under senior
      credit facility                                        (9,528)      5,561
      Repayment of Series C subordinated note                  (358)         --
      Payments under capital leases                            (176)       (163)
                                                               ----        ----

         Cash (used in) provided by  financing activities   (10,062)      5,398
                                                            -------       -----

    Increase (decrease) in cash and cash equivalents          1,385          (2)
    Cash and cash equivalents at beginning of period            286         315
                                                              -----       -----

    Cash and cash equivalents at end of period             $  1,671     $   313
                                                           ========     =======












              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  management,   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, 2000.

     The  Company  currently  does not  engage  or plan to  engage in the use of
hedging or derivative  instruments.  Therefore,  the implementation of SFAS 133,
"Accounting  for Derivative  Instruments  and Hedging  Activities"  and SFAS 138
"Accounting for Certain Derivative  Instruments and Certain Hedging  Activities"
did not have a  material  impact on the  results  of  operations,  cashflows  or
financial position.

     On September 29, 2000, FASB Statement No. 140 ("SFAS 140")  "Accounting for
Transfers and Servicing of Financial Assets and  Extinguishment of Liabilities",
was issued.  The new standard  replaces FASB Statement No. 125,  "Accounting for
Transfers and Servicing of Financial Assets and  Extinguishment  of Liabilities"
and becomes  effective for transfers entered into after March 31, 2001. SFAS 140
significantly changes the collateral recognition guidance for secured borrowings
and related collateral disclosure  requirements.  The implementation of SFAS 140
did  not  have  a  material  impact  on  the  Company's  consolidated  financial
statements.

     In June 2001,  the Financial  Accounting  Standards  Board ("FASB")approved
Statements  of  Financial   Accounting   Standards  ("SFAS")No.  141,  "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets".  SFAS No. 141
addresses  financial  accounting  and reporting for business  combinations.  All
business  combinations  in the scope of this  Statement  shall be accounted  for
using the purchase method of accounting. The provisions of SFAS No. 141 apply to
all  business   combinations   initiated  after  June  30,  2001,  and  business
combinations  accounted  for by the  purchase  method  for  which  the  date  of
acquisition is July 1, 2001, or later. Certain transition provisions of SFAS No.
141 apply to business  combinations  for which the  acquisition  date was before
July 1, 2001, that were accounted for using the purchase method,  as of the date
SFAS No. 141 is initially applied in its entirety.  The adoption of SFAS No. 141
is not expected to have a material effect on the Company's  financial  position,
results of operations or cash flows.

     SFAS No. 142  addresses  financial  accounting  and  reporting for acquired
goodwill and other  intangible  assets.  Implementation  of this  Statement will
require  the Company to cease  amortization  of goodwill  and  goodwill  will be
tested for impairment at least  annually at the reporting  unit level.  Goodwill
will be  tested  for  impairment  on an  interim  basis  if an 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 provisions of SFAS 142 are required to be applied  starting
with fiscal  years  beginning  after  December  15, 2001 and will  therefore  be
applied  for the year  ending  December  31,  2002.  The  Company  is  currently
evaluating  the impact of SFAS No. 142 on its financial  statements  and related
disclosures.

     Certain  reclassifications  have been made to the  prior  year's  financial
statements to conform to the classifications used in the current period.
<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 2. Contribution of Assets

     On July 27, 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,  LLC  ("TelosOK").   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  operation) to TelosOK.  The net assets  contributed by the Company totaled
$373,000.  The  Investors  contributed  $3.0 million in cash to TelosOK,  and at
closing  TelosOK  borrowed  $4.0 million  cash from a bank.  The Company and the
Investors have each  guaranteed the loan of TelosOK.  The Company has guaranteed
$2 million and the Investors have  guaranteed $1 million.  In addition,  TelosOK
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 TelosOK (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 TelosOK:

     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  TelosOK  for a  total  consideration  of $9  million  for  the
contribution of the net assets.

     The Company and the Investors each own a 50% voting membership  interest in
TelosOK,  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 TelosOK.  The Company and the Investors  each own 50%
     of the  200,000  units of this class.  This class has all voting  rights of
     TelosOK and has the sole right to elect the directors of TelosOK. The units
     in this class do not have redemption rights.

     Class B - owns 40% of TelosOK.  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 Class B units  outstanding  beginning
     one year after the closing date, subject to certain  restrictions.  Class B
     holders  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 TelosOK as defined in the agreement.

     Class C- owns 40% of  TelosOK.  The Company  owns all 2.9 million  units of
     this  class.  This  class  does not have  voting  rights,  and has the same
     redemption 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.

     As indicated in the  operating  agreement,  one of the  Investors,  Bill W.
Burgess, will serve as Chairman of the Board and may designate a Secretary,  and
David Aldrich,  President and CEO of the Company, and Thomas Ferrara,  Treasurer
and CFO of the Company,  will serve in those same  capacities  for TelosOK.  The
Company has entered into a corporate services agreement with TelosOK whereby the
Company  will  provide  certain  administrative  support  functions  to TelosOK,
including  but not limited to finance and  accounting  and human  resources,  in
return for a monthly cash payment.
<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


     As indicated  above,  the Company owns 50% of TelosOK,  and shares  control
over  TelosOK,  and  therefore  has  changed  its method of  accounting  for the
contributed assets from the consolidation method to the equity method.  Pursuant
to this change,  the revenues,  costs and expenses  from the Ft. Sill  operation
have been excluded from their respective captions in the Company's  Consolidated
Statement of  Operations,  and the net  earnings  from the  operation  have been
reported separately as "Equity in Net Earnings of TelosOK" for the three and six
months ended June 30, 2000.  The results of operations of the Ft. Sill operation
included in the "Equity in Net Earnings of TelosOK" caption are comprised of the
following:

                                                (in thousands)
                                                June 30, 2000

                                         3-mos. ended    6-mos. ended
                                         ----------------------------

         Sales                              $ 6,211         $11,565
         Cost of Sales                       (5,044)         (9,558)
                                             ------          ------
         Gross profit                       $ 1,167         $ 2,007
                                            =======         =======


     From July 27,  2000  through  June 30,  2001,  the  Company  was  unable to
recognize its pro rata share of the income  generated  from TelosOK  because the
Company's share of TelosOK's capital accounts was negative.  Accordingly,  under
the equity method of accounting  as  prescribed by Accounting  Principles  Board
Opinion 18, the Company's carrying value in TelosOK is $0 at June 30, 2001.

Note 3.   Debt Obligations

Senior Credit Facility

     The Company has a $35 million Senior Credit  Facility  ("Facility")  with a
bank  that  matures  on March  1,  2002.  At June 30,  2001,  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.  In April 2001, the Company  retired one of its Series C subordinated
notes with a principal  amount of  $358,000.  Of the  remaining  $8.1 million in
combined  principal  of the  Series  B and  Series  C Notes  at June  30,  2001,
approximately $800,000 of the Notes became currently due and payable as of April
1,  2001,  and the  remaining  $7.4  million  becomes  payable on April 1, 2002.
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,  2001,  the  prepayment  premium  that  would be due upon a
triggering event is approximately $9.2 million.

     The  balance  of the Series B Notes was $5.5  million at June 30,  2001 and
December 31, 2000. The balances of the Series C Notes were $2.6 million and $3.0
million, respectively, at June 30, 2001 and December 31, 2000. At June 30, 2001,
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 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 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  821.4 of the
outstanding  shares of the stock on  December  31,  2001,  subject  to the legal
availability of funds. The remaining  2,178.6 shares and their accrued dividends
are required to be redeemed on April 1, 2002  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, 2001 and  December  31, 2000
cumulative  undeclared,   unpaid  dividends  relating  to  Series  A-1  and  A-2
redeemable preferred stock totaled $3,690,000 and $3,480,000 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,  2001 was
$842,000.  The Company declared stock dividends  totaling 736,863 shares in 1990
and 1991. No other dividends, in stock or cash, have been declared since 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.

     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 $24,412,000.

     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.
<PAGE>

                       TELOS CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


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 June 30, 2001, the Company has three reportable segments:

     Systems and Support  Services:  provides  software  development and support
services  for  software  and hardware  including  technology  insertion,  system
redesign and software  re-engineering.  The principal market for this segment is
the federal government and its agencies.

     Products:  delivers networking  infrastructure  solutions to its customers.
These solutions include providing commercial hardware,  software and services to
its  customers.  The  Products  group is  capable  of  staging,  installing  and
deploying  large  network   infrastructures  with  virtually  no  disruption  to
customer's  ongoing  operations.  In addition,  the Products  segment is a value
added  reseller  for  Xacta's  information  security  products  into the federal
government.  The principal market for this segment is the federal government and
its agencies.

     Xacta: offers innovative  products which leverage its extensive  consulting
experience,  domain knowledge,  and best practices  implementation in enterprise
security.  Through its core  competencies and innovative  products,  Xacta helps
manage  the  security  of  its  customers'  network   environments  through  the
integration of critical business content and processes.

     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.  Certain  businesses within
the Xacta segment in 2000 were  transferred  to the Products  segment  beginning
January  2001.  The 2000 segment  disclosure  has been amended to conform to the
2001 change.


<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     Summarized  financial  information   concerning  the  Company's  reportable
segments  for the  three  months  ended  June 30,  2001 and 2000 is shown in the
following table. The "other" column includes corporate related items.

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

June 30, 2001
External Revenues         $16,813       $18,958  $ 3,578   $    --      $39,349
Intersegment Revenues         349         3,654       --        --        4,003
Gross Profit                1,667         4,305    1,453        --        7,425
Segment profit(loss)(3)    (1,135)        2,209     (487)       --          587
Total assets                9,136        24,289    3,854    25,379       62,658
Capital Expenditures            4            26      101        10          141
Depreciation &
 Amortization(2)          $    65       $   114  $    60   $   278      $   517



                       Systems and
                     Support Services  Products   Xacta    Other (1)      Total
                     ----------------------------------------------------------
June 30, 2000
External Revenues         $10,548       $16,866  $ 1,851   $    --      $29,265
Intersegment Revenues          88            --       --        --           88
Gross Profit                1,523         3,174      210        --        4,907
Segment profit(loss)(3)        83         1,057     (470)       --          670
Total assets               11,596        19,156    3,652    24,540       58,944
Capital Expenditures           13           236      109       211          569
Depreciation &
 Amortization(2)          $   111       $    84  $     1   $   308      $   504

     (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.

     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 nine separate
facilities located in four states, Europe and Asia.
<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 6.  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
approximately  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 has 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.  In addition,  the Company will receive an
additional  $500,000 in Demand  Notes and  warrants  to  purchase an  additional
1,250,000 shares from Enterworks for the remaining  balance of rent and services
through the end of the year.  The Warrants to purchase the shares of  Enterworks
common stock have an exercise price of $0.01 per share and an exercise period of
5 years.

     During 2001, the Company's  ownership interest in Enterworks fell below 20%
and accordingly,  the Telos designated  voting  representation on the Enterworks
Board was  relinquished.  Consistent with such events,  the Company converted to
the cost method of accounting for this investment.

Note 7. Write-off of Investment in Telos International - Filinvest, Inc.

     Since  1997,  one  of  the  Company's  wholly  owned  subsidiaries,   Telos
International  Corporation  ("TIC"),  has been a 50%  owner  of a joint  venture
between TIC and  Filinvest  Capital,  Inc.,  a Philippine  company.  The Company
accounts  for this  joint  venture  under the  equity  method of  accounting  as
prescribed  by APB No. 18. In the second  quarter of 2001,  the  Company  became
uncertain as to whether  operations  under the joint  venture will continue as a
going concern.  Therefore,  the Company  determined that its investment in Telos
International - Filinvest, Inc. was impaired, and reduced its investment balance
in the joint venture to zero. The amount of the write-off totaled  approximately
$600,000, and is included in the Selling,  general and administrative caption in
the statement of  operations  for the three months and six months ended June 30,
2001.









<PAGE>



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

General

     Sales for the first six months of 2001 were $83.3  million,  an increase of
$27.3  million or 48.7% as compared to the same 2000 period.  This  increase was
primarily  attributable to a $14.7 million  increase in sales from the Company's
Products Group, which experienced increased sales from its traditional contracts
with the  federal  government  such as the  Infrastructure  Solutions 1 ("IS-1")
contract,  the  Realtime  Automated  Personnel  Identification  System  contract
("RAPIDS"),  and the Data Communication Network Contract servicing the US Courts
("DCN US Courts"). The increase in sales was also attributable to an increase in
the Company's Systems And Support Services Group sales of $9.8 million which was
primarily due to the revenue generated from long-term labor contracts. The Xacta
Group also experienced an increase in revenue,  mostly due to increased sales of
its information security products and solutions.

     Operating  income  through the first six months of 2001 was $1.6 million as
compared to an operating  loss of  approximately  $600,000  during the same 2000
period.  Operating profitability improved principally because of increased sales
volume coupled with improved  profits  realized under the Company's  traditional
businesses.

     Total backlog from existing contracts was approximately  $125.3 million and
$124.4  million as of June 30, 2001 and December 31, 2000,  respectively.  As of
June 30,  2001,  the funded  backlog of the Company  totaled  $37.5  million,  a
decrease of $5.5 million  from  December 31,  2000.  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, 2001 and 2000 are as follows:

                                   Three Months Ended         Six Months Ended
                                         June 30,                  June 30,
                                         --------                  --------
                                      2001     2000          2001         2000
                                      ----------------------------------------

Sales                                 100.0%  100.0%        100.0%       100.0%
Cost of sales                          81.1    83.2          82.8         85.6
SG&A expenses                          17.4    14.5          15.1         15.1
Goodwill amortization                   0.2     0.3           0.2          0.3
                                        ---     ---           ---          ---
Operating income (loss)                 1.3     2.0           1.9         (1.0)

Other income                            0.1     0.1            --          0.1
Equity in net earnings of TelosOK        --     4.0            --          3.6
Interest expense                       (2.6)   (4.2)         (2.8)        (4.2)
                                       ----    ----          ----         ----
(Loss) income before taxes             (1.2)    1.9          (0.9)        (1.5)

Income tax benefit (provision)          0.4    (1.0)          0.2          0.3

Net (loss) income                      (0.8)%   0.9%         (0.7)%       (1.2)%
                                       ====     ===          ====         ====


<PAGE>



Financial Data by Market Segment


         Sales, gross profit, and gross margin by market segment for the periods
designated below are as follows:
                                                (amounts in thousands)
                                Three Months Ended           Six Months Ended
                                     June 30,                     June 30,
                                     --------                     --------
                                  2001         2000         2001          2000
                                  --------------------------------------------

Sales:
   Systems and Support Services $ 16,813     $ 10,548     $30,700      $ 20,894
   Products                       18,958       16,866      46,435        31,738
   Xacta                           3,578        1,851       6,143         3,373
                                   -----        -----       -----         -----
        Total                    $39,349     $ 29,265     $83,278      $ 56,005
                                 =======     ========     =======      ========

Gross Profit:
   Systems and Support Services  $ 1,667     $  1,523     $ 2,916      $  2,718
   Products                        4,305        3,174       9,401         4,624
   Xacta                           1,453          210       1,997           726
                                   -----          ---       -----           ---
         Total                   $ 7,425     $  4,907     $14,314       $ 8,068
                                 =======     ========     =======       =======

Gross Margin:
   Systems and Support Services      9.9%        14.4%        9.5%        13.0%
   Products                         22.7%        18.8%       20.3%        14.6%
   Xacta                            40.6%        11.4%       32.5%        21.5%
         Total                      18.9%        16.8%       17.2%        14.4%


     For the three month period ended June 30,  2001,  sales  increased by $10.1
million,  or 34.5% to $39.3 million from $29.2 million for the  comparable  2000
period.  Of the $10.1 million  increase,  $2.1 million was  attributable  to the
Products  Group,   which  experienced   increased  sales  from  its  revenue  on
traditional   contracts  such  as  RAPIDS.   The  increase  in  sales  was  also
attributable  to the Systems and Support  Services Group,  which  experienced an
increase of $6.3 million in sales for the three month period ended June 30, 2001
compared to the same period in 2000. This increase is mostly due to pass-through
sales from its prime  relationship  on the Ft. Sill contract.  This contract was
contributed  to TelosOK in July 2000,  however the Company  remains as the prime
contractor  until the contract is successfully  novated by the  government.  The
2000 revenue  generated  from the Ft. Sill contract has been  deconsolidated  to
conform to an "Equity in Net Earnings of TelosOK"  presentation as prescribed by
the equity method of accounting.  These  increases  were further  enhanced by an
increase in Xacta  revenue of $1.7 million from second  quarter 2001 compared to
second  quarter 2000.  This increase is primarily due to increased  sales in the
Company's information security products and solutions.

     Sales  increased $27.3 million or 48.7% to $83.3 million for the six months
ended June 30, 2001,  from $56.0  million for the  comparable  2000 period.  The
increase for the six-month  period includes a $14.7 million  increase in Product
sales, an increase of $9.8 million in Systems and Support Services revenue,  and
an increase of $2.8  million in sales in its Xacta Group.  This  increase in the
six-month revenue is primarily due to the increases in revenue from the Products
Group  traditional  businesses as well as revenue on long-term labor  contracts.
These increases were enhanced by increased sales under the Information  Security
product line of $2.7 million.


<PAGE>


     Cost of sales was 81.1% of sales for the quarter and 82.8% of sales for the
six months  ended June 30,  2001,  as  compared  to 83.2% and 85.6% for the same
periods in 2000.  The  reductions  in cost of sales as a percentage of sales are
primarily attributable to increased profits realized on Product Group contracts,
as well as profits  from new  orders on  contracts  such as DCN U.S.  Courts and
subcontracts to the Bureau of Census,  and from new business under the Company's
information security product line.

     Gross  profit  increased  $2.5  million in the  three-month  period to $7.4
million  in 2001,  from $4.9  million  in the  comparable  2000  period.  In the
six-month period, gross profit increased $6.2 million to $14.3 million from $8.1
million in 2000.  These  increases are mostly  attributable  to the increases in
sales volume discussed above. Gross margins were 18.9% and 17.2%,  respectively,
for the three and six month  periods  of 2001 as  compared  to 16.8% and  14.4%,
respectively, for the comparable periods of 2000.

     Selling,   general,  and  administrative   expense  ("SG&A")  increased  by
approximately  $2.6 million or 61.4%,  to $6.8 million in the second  quarter of
2001 from $4.2  million  in the  comparable  period of 2000.  For the  six-month
period of 2001,  SG&A increased  $4.1 million to $12.6 million  compared to $8.4
million for the same period in 2000. The increases in S,G & A expenses from 2000
to  2001  are  primarily  due  to  an  approximately  $600,000  write-off  of an
investment  made  in  an  international  joint  venture  as  well  as  increased
investment  in the  product  development,  sales and  marketing  effort  for the
Company's Xacta subsidiary.

     SG&A as a percentage of revenues  increased to 17.4% for the second quarter
of 2001 from  14.5% in the  comparable  2000  period.  SG&A as a  percentage  of
revenues for the six-month period ended June 30, 2001 remained the same at 15.1%
compared to the same period in 2000.

     Goodwill   amortization  expense  decreased  $27,000  for  the  comparative
three-month  periods of 2001 and 2000,  and decreased by $54,000 to $125,000 for
the six months  ended June 30, 2001  compared  to the same  period in 2000.  The
reductions are  exclusively  due to the goodwill  transfer  associated  with the
TelosOK transaction.

     Operating  income  decreased  by $56,000 to  approximately  $524,000 in the
three-month  period ended June 30, 2001 from $580,000 of operating profit in the
comparable  2000  period.  This  decrease  in  operating  profit  is  due to the
increases in S,G&A expense  discussed  above.  Operating  income  increased $2.2
million to $1.6  million for the six months  ended June 30, 2001 from a $558,000
operating  loss for the six-month  period ended June 30, 2000.  This increase in
operating profit for the six-month period is mostly attributable to the increase
in gross profit discussed above.

     In order to present the statement of operations in accordance  with APB 18,
the  revenues  and  costs of sales for the Ft.  Sill  operation  contributed  to
TelosOK were  presented in one line item "Equity in Net Earnings of TelosOK" for
the three and six months  ended June 30, 2000 (See Note 2). For 2000,  the three
month and six month Equity in Net Earnings of TelosOK  were  approximately  $1.2
million and $2.0 million,  respectively. The Company, under APB 18, is unable to
recognize  it's pro rata share of the income  generated by TelosOk for 2001,  as
the Company's capital account for TelosOK is negative.

     Interest expense  decreased  approximately  $200,000 to $1.0 million in the
second quarter of 2001 from  approximately  $1.2 million in the comparable  2000
period, and decreased  approximately $100,000 to $2.3 million for the six months
ended June 30, 2001 from $2.4  million for the  comparable  2000  period.  These
decreases are primarily  due to decreased  debt levels in the second  quarter of
2001 compared to 2000.


<PAGE>


     The Company  recorded an income tax benefit for the three months ended June
30, 2001 of approximately  $150,000. The income tax benefit was $149,000 for the
six months ended June 30, 2001.  This tax benefit was principally due to the net
loss generated by the Company.  The Company's net deferred tax assets total $8.1
million  at June 30,  2001.  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
recorded an income tax provision of $304,000 and an income tax benefit  $183,000
for the  three  and six  months  ended  June  30,  2000,  respectively.  The tax
provision for the  three-month  period was primarily due to provisions for state
income taxes.  The tax benefit  recorded for the six-month period was due to the
net operating loss generated during the first quarter of 2000.


Liquidity and Capital Resources

     For the six months ended June 30, 2001, the Company generated $11.9 million
of cash in its  operating  activities.  This cash was provided by a reduction in
the Company's  accounts  receivable balance of $15.6 million offset by decreases
in accounts  payable and  unearned  revenue  totaling  $3.7  million.  Investing
activities accounted for approximately $500,000 of cash utilization. The Company
used cash to reduce  borrowings  under the  Company's  credit  facility  of $9.5
million, and to repay $358,000 of Series C Notes.

     At  June  30,  2001,  the  Company  had  outstanding   debt  and  long-term
obligations  of $35.0  million,  consisting  of $15.9  million under the secured
senior credit facility,  $8.2 million in subordinated debt, and $10.9 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.  Approximately
$790,000  of the  Company's  Series B and  Series C  subordinated  notes  became
current and payable on April 1, 2001. The Company  anticipates  the repayment of
these notes during  fiscal 2001 either from its funds  generated in the ordinary
course of business, through assets sales, or through a refinancing.

     At June 30, 2001, the Company had an  outstanding  balance of $15.9 million
on its $35 million Senior Credit Facility (the "Facility"). The Facility matures
on March 1, 2002 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,  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.  The Facility has been  classified as a
current liability at June 30, 2001 as it has a term of less than one year.

New Accounting Pronouncements

     The  Company  currently  does not  engage  or plan to  engage in the use of
hedging or derivative  instruments.  Therefore,  the implementation of SFAS 133,
"Accounting  for Derivative  Instruments  and Hedging  Activities"  and SFAS 138
"Accounting for Certain Derivative  Instruments and Certain Hedging  Activities"
did not have a  material  impact on the  results  of  operations,  cashflows  or
financial position.

     On September 29, 2000, FASB Statement No. 140 ("SFAS 140")  "Accounting for
Transfers and Servicing of Financial Assets and  Extinguishment of Liabilities",
was issued.  The new standard  replaces FASB Statement No. 125,  "Accounting for
Transfers and Servicing of Financial Assets and  Extinguishment  of Liabilities"
and becomes  effective for transfers entered into after March 31, 2001. SFAS 140
significantly changes the collateral recognition guidance for secured borrowings
and related collateral disclosure  requirements.  The implementation of SFAS 140
did  not  have  a  material  impact  on  the  Company's  consolidated  financial
statements.

     In June 2001, the Financial  Accounting  Standards  Board  ("FASB")approved
Statements  of  Financial  Accounting  Standards  ("SFAS")  No.  141,  "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets".  SFAS No. 141
addresses  financial  accounting  and reporting for business  combinations.  All
business  combinations  in the scope of this  Statement  shall be accounted  for
using the purchase method of accounting. The provisions of SFAS No. 141 apply to
all  business   combinations   initiated  after  June  30,  2001,  and  business
combinations  accounted  for by the  purchase  method  for  which  the  date  of
acquisition is July 1, 2001, or later. Certain transition provisions of SFAS No.
141 apply to business  combinations  for which the  acquisition  date was before
July 1, 2001, that were accounted for using the purchase method,  as of the date
SFAS No. 141 is initially applied in its entirety.  The adoption of SFAS No. 141
is not expected to have a material effect on the Company's  financial  position,
results of operations or cash flows.

     SFAS No. 142  addresses  financial  accounting  and  reporting for acquired
goodwill and other  intangible  assets.  Implementation  of this  Statement will
require  the Company to cease  amortization  of goodwill  and  goodwill  will be
tested for impairment at least  annually at the reporting  unit level.  Goodwill
will be  tested  for  impairment  on an  interim  basis  if an 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 provisions of SFAS 142 are required to be applied  starting
with fiscal  years  beginning  after  December  15, 2001 and will  therefore  be
applied  for the year  ending  December  31,  2002.  The  Company  is  currently
evaluating  the impact of SFAS No. 142 on its financial  statements  and related
disclosures.

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
the Company's access to ongoing development,  product support and viable channel
partner relationships with Enterworks.

     The Senior Credit Facility is a current  liability as it has a term of less
than one year. The Company is currently exploring opportunities to refinance its
Senior Credit Facility.  If the Company is unable to refinance its Senior Credit
Facility with its existing  lender or find a replacement  lender,  the Company's
liquidity position may be adversely impacted.

     While in the past 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.  The Company's U.S. Army contract at Ft. Monmouth is up for
re-bid, which, if unsuccessful, could adversely impact the Company's revenue. It
should  also be  noted  that  with  the  change  of  administration  and its key
government  personnel,  related policy  changes and detailed  program-by-program
review at each agency of the federal  government,  especially  the Department of
Defense, the Company's high percentage of revenue derived from business with the
federal government 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.


<PAGE>



Item 7a.     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.  The weighted  average  interest rate for the first six months of 2001 was
9.96%.  This facility  expires on March 1, 2002 and has  outstanding  balance of
$15.9 million at June 30, 2001.

     The Company's  other debt at June 30, 2001 consists of Senior  Subordinated
Notes B, and C, which bear  interest at fixed rates  ranging from 14% to 17%. Of
the  $8.2  million   Senior   Subordinated   Notes  balance  at  June  30,  2001
approximately $800,000 became currently due and payable as of April 1, 2001, and
the remaining  $7.4 million in principal  becomes  payable on April 1, 2002. 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.  While the results of litigation  cannot be predicted with  certainty,
based upon the Company's  present  understanding of its 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 $3.7 million for the Series A-1 and
A-2 Preferred Stock at June 30, 2001.

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, 2001 accrued for
financial reporting purposes totaled $28.4 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 $24,412,000.

     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 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.



<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 10, 2001                                           /s/  Thomas J. Ferrara
---------------                                           ---  -----------------
                                                               Thomas J. Ferrara
                                                  (Principal Financial Officer &
                                                   Principal Accounting Officer)