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, 2002

[  ]             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,  2002,  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): 22



<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, 2002 and 2001 (unaudited)..............3

 Condensed Consolidated Balance Sheets as of June 30, 2002 (unaudited)
   and December 31, 2001 .....................................................4

 Condensed Consolidated Statements of Cash Flows for the
   Six Months Ended June 30, 2002 and 2001  (unaudited) ......................5

 Notes to Condensed Consolidated Financial Statements (unaudited)..........6-13

Item 2.     Management's Discussion and Analysis of Financial
             Condition and Results of Operations..........................14-18

Item 3.     Quantitative and Qualitative Disclosures about Market Risk.......19



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


Item 1.     Legal Proceedings............................................... 20

Item 3.     Defaults Upon Senior Securities..................................20

Item 6.     Exhibits and Reports on Form 8-K.................................21

SIGNATURES...................................................................22




<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,
                            ----------------------     -----------------------
                                2002       2001          2002           2001
                                ----       ----          ----           ----
Sales
 Systems and Support Services $9,063     $16,813        $23,418       $30,700
 Products                     16,537      18,958         33,118        46,435
 Xacta                         3,025       3,578          5,428         6,143
                               -----      ------          -----        ------
                              28,625      39,349         61,964        83,278
Costs and expenses
 Cost of sales                24,628      31,924         54,557        68,964
 Selling,general and
   administrative expenses     5,251       6,838         10,522        12,551
 Goodwill amortization            --          63             --           125
                              ------      ------          -----        ------
Operating (loss) income       (1,254)        524         (3,115)        1,638
Other income (expenses)
 Other income                     (2)         22             --            22
 Interest expense               (859)     (1,007)        (1,655)       (2,294)
                               -----      ------        -------      --------
Loss before taxes             (2,115)       (461)        (4,770)         (634)

Income tax benefit               146         150          1,234           149
                                ----         ---          -----        ------

Net loss                    $ (1,969)   $   (311)      $ (3,536)      $  (485)
                           =========    ========      =========      ========





















                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, 2002            December 31, 2001
                                    -------------            -----------------
Current assets
 Cash and cash equivalents (includes
   restricted cash of $54 at June 30,
    2002 and December 31, 2001)       $   109                        $   115
 Accounts receivable, net              24,571                         26,353
 Inventories, net                       4,001                          4,227
 Deferred income taxes, current         3,307                          3,146
 Other current assets                     106                            540
                                     --------                         ------

       Total current assets            32,094                         34,381

Property and equipment, net of
 accumulated depreciation of $11,132
  and $10,628, respectively            10,834                         11,370
Goodwill, net                           2,499                          2,499
Deferred income taxes, long term        6,216                          5,143
Other assets                              549                            168
                                       ------                          -----
                                      $52,192                       $ 53,561
                                       ======                         ======

                    LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
 Accounts payable                     $11,834                       $ 10,603
 Other current liabilities              1,293                          1,394
 Unearned revenue                       8,402                          8,710
 Senior subordinated notes              8,179                             --
 Senior credit facility                13,278                             --
 Accrued compensation and benefits      7,615                          6,948
                                        -----                         ------

       Total current liabilities       50,601                         27,655

Senior credit facility                     --                         12,387
Senior subordinated notes                  --                          8,179
Capital lease obligations              10,509                         10,722
                                       ------                         ------

       Total liabilities               61,110                         58,943

Redeemable preferred stock
 Senior redeemable preferred stock      7,113                          6,903
 Redeemable preferred stock            50,709                         47,876
                                       ------                         ------

       Total preferred stock           57,822                         54,779

Stockholders' investment
 Common stock                              78                             78
 Capital in excess of par                  --                             --
 Retained deficit                     (66,818)                       (60,239)
                                     --------                       --------
        Total stockholders'
         investment (deficit)         (66,740)                       (60,161)
                                     --------                       --------
                                      $52,192                       $ 53,561
                                       ======                         ======


          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,
                                                       --------------
                                                   2002              2001
                                                   ----              ----

Operating activities:
 Net loss                                       $ (3,536)         $  (485)
  Adjustments to reconcile net loss to cash
   (used in) provided by operating activities:
   Depreciation and amortization                     902              944
   Goodwill amortization                              --              125
   Other  noncash items                              260              802
   Changes in assets and liabilities               1,903           10,510
                                                   -----           ------

 Cash(used in)provided by operating activities      (471)          11,896
                                                   -----           ------

Investing activities:

 Purchase of property and equipment                 (248)            (449)
                                                  ------          -------
 Cash used in investing activities                  (248)            (449)
                                                 -------          -------
Financing activities:

 Proceeds from (repayment of) borrowings under
   senior credit  facility                           891           (9,528)
 Repayment of Series C subordinated note              --             (358)
 Payments under capital leases                      (178)            (176)
                                                 -------          -------

 Cash provided by (used in) financing
      activities                                     713          (10,062)
                                                     ---        ---------

(Decrease) increase in cash and cash equivalents      (6)           1,385

Cash and cash equivalents at beginning of period     115              286
                                                  ------           ------
Cash and cash equivalents at end of period       $   109        $   1,671
                                                   =====        =========












                     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   Telos  Corporation   (California),   ubIQuity.com,   Inc.,  Telos
International  Corporation,  Xacta  Corporation,   Telos.com,  Inc.,  and  Telos
Delaware,  Inc.   (collectively,   the  "Company").   Significant   intercompany
transactions have been eliminated.

     As discussed in Note 7 - Subsequent  Events,  on July 19, 2002, the Company
sold all of the issued and outstanding  shares of its  wholly-owned  subsidiary,
Telos  Corporation  (California),  to L-3  Communications  Corporation  for  $20
million.

     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
accounting  principles generally accepted in the United States.  Interim results
are not  necessarily  indicative  of fiscal  year  performance  for a variety of
reasons  including  the impact of  seasonal  and  short-term  variations.  These
financial  statements  should  be  read in  conjunction  with  the  consolidated
financial  statements and notes thereto  included in the Company's annual report
on Form 10-K for the fiscal year ended December 31, 2001.

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

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

     In October  2001,  FASB  Statement No. 144 (SFAS 144)  "Accounting  for the
Impairment  or Disposal of  Long-Lived  Assets" was issued.  SFAS 144  addresses
financial  accounting and reporting for the impairment or disposal of long-lived
assets and this statement supercedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived  Assets and for  Long-lived  Assets to be Disposed of".
The Company has adopted the provisions of SFAS 144, and the adoption of SFAS 144
did not have a material impact on the Company's financial  statements.  The sale
of TCC in the third quarter of 2002 (see Note 7) has qualified for  discontinued
operations treatment under SFAS 144.
<PAGE>

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

     In April 2002, SFAS No. 145 (SFAS 145) "Rescission on FASB Statements 4, 44
and 64,  Amendment  of FASB  Statement  No. 13 and  Technical  Corrections"  was
issued.  Under SFAS 145, gains and losses related to the  extinguishment of debt
should no longer be segregated on the income statement as  extraordinary  items.
Instead,  such gains and losses should be included as a component of income from
continuing  operations.  The provisions of SFAS No. 145 are effective for fiscal
years  beginning  after May 15,  2002.  The Company is currently  reviewing  the
provisions  of SFAS 145,  but does not  believe  that its  adoption  will have a
material impact on the Company's financial statements.

     In July 2002, SFAS No. 146 (SFAS 146) "Accounting for Costs Associated with
Exit or Disposal  Activities"  was issued.  The standard  requires  companies to
recognize  costs  associated  with  exit or  disposal  activities  when they are
incurred  rather than at the date of a commitment  to an exit or disposal  plan.
SFAS 146 replaces  EITF Issue.  No.  94-3,  "Liability  recognition  for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (including
Certain  Costs  Incurred  in  a  Restructuring)." SFAS  146  is  to  be  applied
prospectively to exit or disposal activities  initiated after December 31, 2002.
The Company is currently  evaluating the provisions of SFAS 146 to determine the
Statements impact on the Company's financial statements.

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

Note 2. Investment in Enterworks


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

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

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

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

     All of the notes  issued to the  Company  in 2001  include  provisions  for
repayment  of two  times  principal  and  accrued  interest  in the  event  that
Enterworks  liquidates,  enters  into  dissolution  or seeks the  protection  of
bankruptcy. The fair value of all warrants received from Enterworks is zero.

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

     During the second quarter of 2002,  the Company  received two Senior Demand
Promissory Note from Enterworks totaling $156,594. These Notes represent amounts
owed to the  Company for rent and  services  performed  by the  Company  under a
service  agreement  during April and May of 2002.  The billings  represented  in
these Notes have been fully  reserved for at June 30, 2002.  These Notes contain
maturity dates of June 2007,  and also include  provisions for repayment of four
times principal and accrued  interest in the event that  Enterworks  liquidates,
enters into dissolution or seeks the protection of bankruptcy.

     In accordance  with APB 18 and EITF 98-13  "Accounting  by an Equity Method
Investor for Investee  Losses when the Investor has Loans to and  Investments in
Other Securities of the Investee",  the Company has reduced the carrying amounts
of the Notes to zero during 2001 and at June 30, 2002, as the Company's share of
the Enterworks losses exceeded the carrying value of the Notes.



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

Note 3.   Debt Obligations

Senior Credit Facility

     The Company has a $20 million Senior Credit  Facility  ("Facility")  with a
bank that  matures on January 15,  2003.  At June 30,  2002,  the  Facility  was
classified  as a current  liability  as the Facility has a term of less than one
year.  Borrowings  under the  Facility are  collateralized  by a majority of the
Company's assets including accounts receivable,  inventory,  and Telos' stock in
its subsidiaries and affiliates.  The amount of available borrowings  fluctuates
based  on the  underlying  asset-borrowing  base,  as  defined  in the  Facility
agreement.

     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 fixed charge
and operating  goals.  At June 30, 2002, the Company was not in compliance  with
one of the financial covenants contained in the Facility. The Company's bank has
waived this noncompliance.

     See Note 7 - Subsequent Events for changes made to the Credit Facility.

Senior Subordinated Notes

     In 1995 the Company issued Senior  Subordinated  Notes ("Notes") to certain
shareholders.  The Notes are classified as either Series B or Series C. Series B
Notes are  collateralized  by fixed  assets of the  Company.  Series C Notes are
unsecured.  The Notes  mature on May 23,  2003,  and have been  classified  as a
current  liability  as the Notes have a term of less than one year at June 30,
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, but are not limited to, an
initial  public  offering  of  the  Company's  common  stock  or  a  significant
refinancing, to the extent that net proceeds from either of the above events are
received and are sufficient to pay the premium.  Due to the contingent nature of
the  premium  payment,  the  associated  premium  expense  will only be recorded
subsequent  to the  occurrence  of a triggering  event.  At June 30,  2002,  the
prepayment  premium that would be due upon a triggering  event is  approximately
$11.6 million.

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

     The  balances of the Series B and Series C Notes were $5.5 million and $2.6
million, respectively, at June 30, 2002 and December 31, 2001.

     In November 1998, the Company issued additional Senior  Subordinated  Notes
to certain  shareholders  which were  classified as Series D. The Series D Notes
totaled  $1.8  million and were  unsecured.  In  connection  with the debt,  the
Company  issued two  warrants  to  purchase a total of  1,500,000  shares of the
Company's  Class A Common Stock.  As previously  discussed,  the Warrants had an
exercise  price of $.01 and an  exercise  period of 22  months  and  expired  on
October  1,  2000.  The Series D Notes  were  retired  in  conjunction  with the
Enterworks private placement in 1999.
<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 all of the
outstanding  shares  of the  stock  on  May  23,  2003,  subject  to  the  legal
availability  of funds.  Mandatory  redemptions  are  required  from excess cash
flows,  as defined  in the stock  agreements.  The Series A-1 and A-2  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, 2002
and December 31, 2001 cumulative undeclared, unpaid dividends relating to Series
A-1 and  A-2  redeemable  preferred  stock  totaled  $4,113,000  and  $3,903,000
respectively.


12% Cumulative Exchangeable Redeemable Preferred Stock

     A maximum of 6,000,000  shares of 12%  Cumulative  Exchangeable  Redeemable
Preferred Stock (the "Public  Preferred  Stock"),  par value $.01 per share, has
been authorized for issuance.  The Company  initially issued 2,858,723 shares of
the Public  Preferred  Stock  pursuant to the  acquisition of the Company during
fiscal year 1990. The Public  Preferred  Stock was recorded at fair value on the
date of original  issue,  November 21, 1989, and the Company is making  periodic
accretions  under the interest method of the excess of the redemption value over
the  recorded  value.  Accretion  for the six  months  ended  June 30,  2002 was
$922,000.  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 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  $28,234,000 as of June
30, 2002.

     The Company  has not  declared or paid  dividends  on its Public  Preferred
Stock since 1991, 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.

<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, 2002, the Company has three reportable segments:


     Systems and Support Services:  provides post-deployment and post-production
software  and systems  development  and support  services  including  technology
insertion,  systems  redesign and software  re-engineering.  The Group's largest
customer is the U.S. Army's  Communications  and Electronics  Command ("CECOM").
The System and Support Services Group's principal operations are located at Fort
Monmouth, NJ and Ft. Sill, OK. This Group was part of the Company's wholly owned
subsidiary,  Telos Corporation  (California) ("TCC"), which was sold on July 19,
2002 (See Note 7).  Results from the Systems and Support  Services  Group at Ft.
Sill were included in the Company's  financial results until its deconsolidation
in July 2000. During July 2000 the Company  contributed its Ft. Sill business to
TelosOK,  LLC. The Company continues to have a 50% investment in TelosOK.

     Products:  delivers solutions that combine information  technology products
and services to solve customer problems. Customers of the Products Group include
agencies of the U.S.  Government such as: military  services,  Defense Agencies,
Treasury Department,  U.S. Courts and others.  Solutions from the Products Group
consist of a  combination  of  commercial-off-the-shelf  ("COTS")  products from
major original equipment  manufacturers  ("OEMs"),  Telos proprietary  products,
Telos and subcontractor services and Telos proprietary  practices.  For example,
the  Products  Group  sells  secure  wireless  networking  and secure  messaging
solutions.  Telos'  secure  wireless  networking  solutions  allow  customers to
securely access databases from non-networked  locations so that they can perform
a variety of tasks  safely.  Telos'  secure  messaging  solution is known as the
Automated  Message  Handling  System  ("AMHS")  and  is a  standard  within  the
Department of Defense.  The AMHS allows users to securely access,  send, search,
and profile message traffic.

     Xacta:  develops enterprise risk management solutions to help organizations
proactively  manage and monitor the security of their  network  environments  in
accordance  with  internationally  recognized  industry and security  standards.
Xacta  currently  provides its  solutions to agencies of the U.S.  Government as
well as credit unions.

     Xacta has developed  and is selling two  products:  Xacta Web C&A and Xacta
Commerce Trust. Xacta Web C&A automates the rigorous and time-consuming  process
of  security   certification  and   accreditation.   Xacta  Web  C&A  simplifies
certification and accreditation by guiding users through a step-by-step  process
which determines the customer's information security posture and assesses system
and network configuration compliance with applicable regulations, standards, and
industry best practices and processes. With Xacta Commerce Trust,  organizations
are able to perform  holistic  security risk management on a continuous basis in
accordance  with   internationally   recognized   industry  standards  and  best
practices.

     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.

<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,  2002 and 2001 is shown in the
following table. The "other" column includes corporate related items.
                         Systems and
                        Support Services  Products  Xacta   Other(1)    Total
                        ----------------  --------  -----   --------    -----

June 30, 2002
External Revenues            $9,063       $16,537  $3,025   $    --   $28,625
Intersegment Revenues            64         2,668      --        --     2,732
Gross Profit                    875         2,367     755        --     3,997
Segment profit(loss)(3)        (308)          387  (1,333)       --    (1,254)
Total assets                  7,544        20,948     822    22,878    52,192
Capital Expenditures             --            45      20        92       157
Depreciation &
 Amortization(2)             $    5       $   101 $    74    $  275   $   455


                           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

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

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


Note 6. 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>
                  TELOS CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note 7. Subsequent Events

Amendment to Credit Facility

     On July 19,  2002,  the  Company  signed the  thirteenth  amendment  to its
Amended and Restated Credit Agreement. This amendment included a consent for the
Company's sale of Telos  Corporation  (California),  the Company's  wholly owned
subsidiary,  to L-3 Communications,  Inc. Under this new amendment,  the maximum
principal amount of the facility was reduced from $20,000,000 to $5,000,000. The
amendment also changed the maturity date of the facility to August 18, 2002, and
reduced the borrowing ratios used to calculate the borrowing base.

     Substantially  all of the  proceeds  from  the  sale of  Telos  Corporation
(California)  discussed below were used to pay down the facility balance to zero
at July 19, 2002.

     On August 13,  2002,  the Company  signed the  fourteenth  amendment to its
Amended and Restated Credit Agreement.  This amendment  included a waiver of the
June 30,  2002  financial  covenants  and a reduction  of the maximum  principal
amount of the Facility from $5,000,000 to $3,000,000. The amendment also changed
the maturity date of the facility to August 30, 2002.

Disposition of Business

     On July 19, 2002 Telos Corporation,  a Maryland corporation ("the Company")
and L-3  Communications  Corporation  ("L-3") entered into a purchase  agreement
whereby the Company sold all of the issued and outstanding  shares of its wholly
owned subsidiary,  Telos Corporation - California  ("TCC") to L-3 for a purchase
price of approximately $20 million. The parties agreed to pay the full amount of
the purchase price as follows:  1) approximately $15.3 million to the Company at
closing;  2) $2.0  million held in an escrow  account  which will be paid to the
Company over the next 30 months.  During the 30 month period after July 19, 2002
the  escrow   amount  may  be  subject  to  a   reduction   if  any  claims  for
indemnification by L-3 arise that are finally determined in favor of L-3 per the
terms and conditions of the mutually agreed upon dispute resolution  process; 3)
approximately  $2.7 million held back as deposits  for  liabilities  relating to
leased properties in which at the time of closing TCC was a lessee or guarantor.
It is anticipated  that $1 million will be released in the immediate future with
the  remaining  $1.7  million  being  released  upon certain  events,  terms and
conditions over the course of the next five years.

     The  purchase  price shall be increased or decreased on a dollar for dollar
basis by the  amount by which the  closing  date net  assets,  as defined in the
Purchase Agreement, deviate from $2.3 million. This adjustment of the sale price
will be determined  within 75 days from the date of closing.  In accordance with
the  Company's  loan  agreement all proceeds from the sale have been used to pay
down the Company's Senior Revolving Credit Facility.

     As additional  consideration for the sale of the shares of TCC, the Company
and its  affiliates  committed to certain  "Non-Compete"  and "No  Solicitation"
provisions relating primarily to the business and employees  associated with its
TCC/Ft. Monmouth operations.

     The sale of TCC has been treated as a discontinued  operation in accordance
with SFAS 144, "Accounting for the Impairment or Disposal of long-Lived Assets."



<PAGE>



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

     Sales for the first six months of 2002 were $62.0  million,  a decrease  of
$21.3  million or 25.6% as compared to the same 2001 period.  This  decrease was
primarily  attributable to a $13.3 million  decrease in sales from the Company's
Products Group, which experienced decreased 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 decreased order volume from the Group's  wireless product line.
The  decrease  in sales was also  attributable  to a decrease  in the  Company's
Systems And Support Services Group sales of $7.3 million which was primarily due
to the novation of the Ft. Sill contract  during the second quarter of 2002. The
Xacta Group also  experienced  a decrease in  revenue,  mostly due to  decreased
orders of its information security products and solutions.

     The Company's  operating loss through the first six months of 2002 was $3.1
million as compared to an operating income of approximately  $1.6 million during
the same 2001 period.  Operating  profitability  declined principally because of
decreased  sales volume and reduced  profit  margins in the Product's  Group and
increased investment in Xacta.

     Total   backlog   (funded  and  unfunded)   from  existing   contracts  was
approximately  $37.9 million and $830.0 million as of June 30, 2002 and December
31, 2001,  respectively.  The significant decline in total backlog is due to the
sale of Telos  Corporation  (California) in July 2002, which holds the Company's
50% interest in Itel Solutions,  Inc. Itel Solutions,  Inc. was the recipient of
the dual award of the US Army CECOM SEC  contract.  TCC was a  subcontractor  to
this joint venture,  and had estimated that upon  successful  award of competing
task orders under the contract, total backlog from this contract would have been
$700 million.  As of June 30, 2002,  the funded  backlog of the Company  totaled
$34.3  million,  an increase of $6.3  million from  December  31,  2001.  Funded
backlog  represents  aggregate  contract revenues  remaining to be earned by the
Company  at a given  time,  but only to the  extent,  in the case of  government
contracts,  funded  by  a  procuring  government  agency  and  allotted  to  the
contracts.

Results of Operations

     The condensed consolidated  statements of operations include the results of
operations of Telos  Corporation  and its wholly owned  subsidiaries.  The major
elements of the  Company's  operating  expenses as a percentage of sales for the
three and six month periods ended June 30, 2002 and 2001 are as follows:

                             Three Months Ended            Six Months Ended
                                  June 30,                      June 30,
                            ----------------------        ---------------------
                            2002            2001          2002           2001
                            ----            ----          ----           ----

Sales                      100.0%          100.0%        100.0%         100.0%
Cost of sales               86.0            81.1          88.0           82.8
SG&A expenses               18.3            17.4          17.0           15.1
Goodwill amortization         --             0.2            --            0.2
                             ---           -----           ---           ----

Operating (loss) income     (4.3)            1.3          (5.0)           1.9
Other income                  --             0.1            --             --
Interest expense            (3.0)           (2.6)         (2.7)          (2.8)
                           -----           -----         -----          -----
Loss before taxes           (7.3)           (1.2)         (7.7)          (0.9)
Income tax benefit           0.5             0.4           2.0            0.2
                             ---            ----           ---           ----
Net loss                    (6.8)%          (0.8)%        (5.7)%         (0.7)%
                           =====            ====         =====            ===


<PAGE>



Financial Data by Market Segment


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

                                   Three Months Ended     Six Months Ended
                                         June 30,              June 30,
                                  -------------------     -----------------
                                     2002        2001     2002      2001
                                     ----        ----     ----       ----
                                           (amounts in thousands)
Sales:
   Systems and Support Services     $ 9,063   $ 16,813  $23,418    $ 30,700
   Products                          16,537     18,958   33,118      46,435
   Xacta                              3,025      3,578    5,428       6,143
                                     ------     ------   ------     -------
         Total                      $28,625   $ 39,349  $61,964    $ 83,278
                                     ======     ======   ======    ========

Gross Profit:
   Systems and Support Services     $   875   $  1,667   $2,132    $  2,916
   Products                           2,367      4,305    4,259       9,401
   Xacta                                755      1,453    1,016       1,997
                                        ---    -------    -----      ------
         Total                      $ 3,997   $  7,425   $7,407    $ 14,314
                                      =====      =====    =====      ======

Gross Margin:
   Systems and Support Services       9.7%        9.9%     9.1%        9.5%
   Products                          14.3%       22.7%    12.9%       20.3%
   Xacta                             25.0%       40.6%    18.7%       32.5%
         Total                       14.0%       18.9%    12.0%       17.2%

     For the three month period ended June 30,  2002,  sales  decreased by $10.7
million,  or 27.3% to $28.6 million from $39.3 million for the  comparable  2001
period.  Of the $10.7 million  decrease,  $2.4 million was  attributable  to the
Products  Group,   which  experienced   decreased  sales  from  its  revenue  on
traditional   contracts  such  as  RAPIDS.   The  decrease  in  sales  was  also
attributable  to the Systems and Support  Services  Group,  which  experienced a
decrease of $7.7 million in sales for the three month period ended June 30, 2002
compared to the same period in 2001. This decrease is mostly due to the novation
of the Ft. Sill contract  during the second quarter of 2002. In addition,  Xacta
revenue  declined  approximately  $500,000 from second  quarter 2002 compared to
second  quarter 2001.  This decrease is primarily due to decreased  sales in the
Xacta group's firm-fixed price contracts.

     Sales for the first six months of 2002 were $62.0  million,  a decrease  of
$21.3  million or 25.6% as compared to the same 2001 period.  This  decrease was
primarily  attributable to a $13.3 million  decrease in sales from the Company's
Products Group, which experienced decreased 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 decreased order volume from the Group's  wireless product line.
The  decrease  in sales was also  attributable  to a decrease  in the  Company's
Systems And Support Services Group sales of $7.3 million which was primarily due
to the novation of the Ft. Sill contract  during the second quarter of 2002. The
Xacta Group also  experienced  a decrease in  revenue,  mostly due to  decreased
orders of its information security products and solutions.

     Cost of sales was 86.0% of sales for the quarter and 88.0% of sales for the
six months  ended June 30,  2002,  as  compared  to 81.1% and 82.8% for the same
periods in 2001.  The  increases in cost of sales as a  percentage  of sales are
primarily  attributable to decreased profits realized on Product Group contracts
such as the  Company's  subcontracts  to the Bureau of Census,  and from reduced
profits  under the  Company'  information  security  product  line and  wireless
products business.

     Gross  profit  decreased  $3.4  million in the  three-month  period to $4.0
million  in 2002,  from $7.4  million  in the  comparable  2001  period.  In the
six-month period, gross profit decreased $6.9 million to $7.4 million from $14.3
million in 2001.  These  decreases are mostly  attributable  to the decreases in
sales volume discussed above. Gross margins were 14.0% and 12.0%,  respectively,
for the three and six month  periods  of 2002 as  compared  to 18.9% and  17.2%,
respectively, for the comparable periods of 2001.

     Selling,   general,  and  administrative   expense  ("SG&A")  decreased  by
approximately  $1.5 million or 23.2%,  to $5.3 million in the second  quarter of
2002 from $6.8  million  in the  comparable  period of 2001.  For the  six-month
period of 2002,  SG&A decreased $2.1 million to $10.5 million  compared to $12.6
million for the same period in 2001. The decreases in S,G & A expenses from 2001
to 2002 are primarily due to indirect cost control measures implemented in early
2002.
<PAGE>

     SG&A as a percentage of revenues  increased to 18.3% for the second quarter
of 2002 from  17.4% in the  comparable  2001  period.  SG&A as a  percentage  of
revenues for the  six-month  period ended June 30, 2002  increased to 17.0% from
15.1% in the same period in 2001.

     Goodwill   amortization  expense  decreased  $63,000  for  the  comparative
three-month  periods of 2002 and 2001, and decreased $125,000 for the six months
ended June 30,  2002  compared to the same period in 2001.  The  reductions  are
exclusively  due to the  application of SFAS 142. Under SFAS 142, the Company no
longer depreciates its goodwill asset.

     Operating income decreased by $1.8 million to a loss of approximately  $1.3
million  in the  three-month  period  ended  June 30,  2002  from  approximately
$500,000 of operating  profit in the  comparable  2001 period.  This decrease in
operating profit is due to the gross profit decreases discussed above. Operating
income  decreased  $4.7  million to a $3.1 million loss for the six months ended
June 30, 2002 from a $1.6  million  operating  profit for the  six-month  period
ended June 30, 2001. This decrease in operating  profit for the six-month period
is mostly attributable to the decrease in gross profit discussed above.

     Interest expense decreased approximately $150,000 to $850,000 in the second
quarter of 2002 from  approximately  $1.0 million in the comparable 2001 period,
and  decreased  approximately  $600,000 to $1.7 million for the six months ended
June 30, 2002 from $2.3 million for the comparable 2001 period.  These decreases
are  primarily  due to  decreased  debt  levels in the  second  quarter  of 2002
compared to 2001.

     The  Company  recorded  an income tax  benefit  for the three and six month
periods  ended  June  30,  2002 of  approximately  $150,000  and  $1.2  million,
respectively.  The income tax benefit was  approximately  $150,000 for the three
and six months ended June 30, 2001.  These tax benefits were  principally due to
the net losses  generated by the Company.  The Company's net deferred tax assets
totaled  $9.5 million at June 30, 2002.  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.

Liquidity and Capital Resources

     For the six months ended June 30, 2002,  the Company used  $500,000 of cash
for its operating  activities.  This usage of cash was principally due to losses
incurred  in  operations.   Investing  activities  accounted  for  approximately
$200,000 of cash  utilization.  The Company generated cash from borrowings under
the Company's credit facility of approximately  $900,000.

     At  June  30,  2002,  the  Company  had  outstanding   debt  and  long-term
obligations  of $32.0  million,  consisting  of $13.3  million under the secured
senior credit facility,  $8.2 million in subordinated debt, and $10.5 million in
capital lease obligations.

     At June 30, 2002, the Company had an  outstanding  balance of $13.3 million
on its $20 million Senior Credit  Facility (the  "Facility").  Subsequent to the
sale of the Company's wholly owned subsidiary, Telos Corporation (California) on
July 19,  2002 (see note 7), the balance on the  Facility  was paid off from the
proceeds of the sale.  The Facility was amended on August 13, 2002 to reduce the
maximum balance of the Facility to $3 million, and the maturity date was changed
to August  30,  2002.  The  Facility  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
fixed  charge and  operating  goals.  At June 30,  2002,  the Company was not in
compliance with one of the financial  covenants  contained in the Facility.  The
Company's bank has waived this  noncompliance.  The Facility has been classified
as a current  liability at June 30, 2002 as it has a term of less than one year.
The Company is currently in the process of  negotiating  a  replacement  for the
Facility.

<PAGE>

New Accounting Pronouncements

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

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

     In October  2001,  FASB  Statement No. 144 (SFAS 144)  "Accounting  for the
Impairment  or Disposal of  Long-Lived  Assets" was issued.  SFAS 144  addresses
financial  accounting and reporting for the impairment or disposal of long-lived
assets and this statement supercedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived  Assets and for  Long-lived  Assets to be Disposed of".
The Company has adopted the provisions of SFAS 144, and the adoption of SFAS 144
did not have a material impact on the Company's financial  statements.  The sale
of TCC in the third quarter of 2002 (see Note 7) has qualified for  discontinued
operations treatment under SFAS 144.

     In April 2002, SFAS No. 145 (SFAS 145) "Rescission on FASB Statements 4, 44
and 64,  Amendment  of FASB  Statement  No. 13 and  Technical  Corrections"  was
issued.  Under SFAS 145, gains and losses related to the  extinguishment of debt
should no longer be segregated on the income statement as  extraordinary  items.
Instead,  such gains and losses should be included as a component of income from
continuing  operations.  The provisions of SFAS No. 145 are effective for fiscal
years  beginning  after May 15,  2002.  The Company is currently  reviewing  the
provisions  of SFAS 145,  but does not  believe  that its  adoption  will have a
material impact on the Company's financial statements.

     In July 2002, SFAS No. 146 (SFAS 146) "Accounting for Costs Associated with
Exit or Disposal  Activities"  was issued.  The standard  requires  companies to
recognize  costs  associated  with  exit or  disposal  activities  when they are
incurred  rather than at the date of a commitment  to an exit or disposal  plan.
SFAS 146 replaces  EITF Issue.  No.  94-3,  "Liability  recognition  for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (including
Certain  Costs  Incurred  in a  Restructuring)."  SFAS  146  is  to  be  applied
prospectively to exit or disposal activities  initiated after December 31, 2002.
The Company is currently  evaluating the provisions of SFAS 146 to determine the
Statements impact on the Company's financial statements.

Forward-Looking Statements

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

Certain Factors That May Affect Future Results


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

<PAGE>

     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 Company's  investment in  Enterworks  and TelosOK,  the
success of the  Company's  wholly-owned  subsidiary,  Xacta,  and the  Company's
continued access to ongoing development and product support.

     While in the past the Company  has not  experienced  contract  terminations
with the U.S. Government,  the U.S. Government can terminate at its convenience.
Should such a  termination  occur,  the  Company's  operating  results  could be
adversely impacted.

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

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

<PAGE>



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 2.0%,  subject to certain  adjustments,  over the bank's base
rate.  This  rate  will  escalate  25  basis  points  every  other  month  until
expiration.  The weighted average interest rate for the first six months of 2002
was 6.6%. This facility  expires on August 18, 2002 and has outstanding  balance
of $13.3 million at June 30, 2002.

     The Company's  other debt at June 30, 2002 consists of Senior  Subordinated
Notes B, and C, which bear  interest at fixed rates ranging from 14% to 17%. The
Senior  Subordinated  Notes principal  balance at June 30, 2002 is approximately
$8.2 million,  and this  principal  matures on May 23, 2003.  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 $4.1 million for the Series A-1 and
A-2 Preferred Stock at June 30, 2002.

12% Cumulative Exchangeable Redeemable Preferred Stock

     Through  November 21, 1995,  the Company had the option to pay dividends in
additional  shares of Preferred  Stock in lieu of cash  (provided  there were no
blocks on payment as further  discussed  below).  Dividends  are  payable by the
Company, provided the Company has legally available funds under Maryland law and
is able to pay dividends under its charter and other corporate  documents,  when
and if declared by the Board of Directors,  commencing June 1, 1990, and on each
six month anniversary  thereof.  Dividends in additional shares of the Preferred
Stock were paid at the rate of 6% of a share for each $.60 of such dividends not
paid in cash.  Cumulative  undeclared  dividends as of June 30, 2002 accrued for
financial reporting purposes totaled $32.2 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 $28,234,000.

     The Company  has not  declared or paid  dividends  on its public  preferred
stock since 1991, 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.

<PAGE>




Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits:  1) 99.1  Certification  Pursuant to 18 U.S.C.  Section  1350, as
     Adopted Pursuant to Section 906 of the  Sarbanes-Oxley  Act of 2002; 2)99.2
     Certification  Pursuant to 18 U.S.C.  Section 1350, as Adopted  Pursuant to
     Section 906 of the Sarbanes-Oxley Act of 2002

(b)  Reports on Form 8-K:  The  Company  reported  its sale of its  wholly-owned
     subsidiary,  Telos  Corporation  (California)  on Form 8-K  filed  with the
     Commission on August 5, 2002.

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 13, 2002                                           /s/  Thomas J. Ferrara
                                                          ----------------------
                                                          Thomas J. Ferrara
                                                  (Principal Financial Officer &
                                                   Principal Accounting Officer)