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: March 31, 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 May 1, 2001 the registrant had 21,171,202  shares of Class A Common Stock,
no par  value,  4,037,628  shares of Class B Common  Stock,  no par  value;  and
3,185,586 shares of 12% Cumulative  Exchangeable Redeemable Preferred Stock, par
value $.01 per share, outstanding.

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

Number of pages in this report (excluding exhibits): 16


<PAGE>



                       TELOS CORPORATION AND SUBSIDIARIES

                                      INDEX




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



Item 1.       Financial Statements:

 Condensed Consolidated Statements of Operations for the Three Months
   Ended March 31, 2001 and 2000 (Unaudited)...................................3

 Condensed Consolidated Balance Sheets as of March 31, 2001 (Unaudited)
   and December 31, 2000.......................................................4

 Condensed Consolidated Statements of Cash Flows for the Three Months
   Ended March 31, 2001 and 2000 (Unaudited)...................................5

 Notes to Condensed Consolidated Financial Statements (Unaudited)...........6-10

Item 2.       Management's Discussion and Analysis of
              Financial Condition and Results of Operations................11-14


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


Item 1.        Legal Proceedings..............................................15

Item 3.        Defaults Upon Senior Securities................................15

Item 6.        Exhibits and Reports on Form 8-K...............................15

SIGNATURES....................................................................16




<PAGE>



                         PART I - FINANCIAL INFORMATION

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

                             (amounts in thousands)


                                                        Three Months Ended
                                                              March 31,
                                                   -----------------------------
                                                        2001        2000
                                                        ----        ----
Sales
    Systems and Support Services                       $13,887    $10,346
    Products                                            27,477     14,872
    Xacta                                                2,565      1,522
                                                        ------     ------

                                                        43,929     26,740
Costs and expenses
    Cost of sales                                       37,039     23,579
    Selling, general and administrative expenses         5,713      4,210
    Goodwill amortization                                   62         89
                                                        ------     ------
Operating income (loss)                                  1,115     (1,138)

Other income (expenses)
  Equity in net earnings of Telos OK                        --        840
  Other income                                              --         20
  Interest expense                                      (1,287)    (1,137)
                                                       -------    -------
Loss before taxes                                         (172)    (1,415)
Income tax (provision) benefit                              (1)       487
                                                        ------     ------
Net loss                                               $  (173)   $ ( 928)
                                                       ========   ========
















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


<PAGE>


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

                                     ASSETS

                                     March 31, 2001   December 31, 2000
                                     --------------   -----------------

Current assets
     Cash and cash equivalents
       (includes restricted cash of
        $54 at March 31, 2001 and
        December 31, 2000)                $   114         $   286
     Accounts receivable, net              38,041          45,682
     Inventories, net                       6,404           7,045
     Deferred income taxes, current         3,363           3,256
     Other current assets                   1,685             404
                                           ------          ------
         Total current assets              49,607          56,673
                                           ------          ------

Property and equipment, net of
     accumulated depreciation of
     $9,838 and $9,331, respectively       12,177          12,319
Goodwill                                    2,686           2,749
Investment in Enterworks                       --              --
Investment in TelosOK                          --              --
Deferred income taxes, long term            4,558           4,603
Other assets                                  745             746
                                            -----           -----

                                          $69,773         $77,090
                                          =======         =======

               LIABILITIES AND STOCKHOLDERS' INVESTMENT (DEFICIT)

Current liabilities
     Accounts payable                     $16,234         $19,049
     Other current liabilities              2,615           2,438
     Unearned revenue                       7,398           8,609
     Senior subordinated notes, current     1,151           1,151
     Senior credit facility                23,101              --
     Accrued compensation and benefits      6,324           7,178
                                           ------          ------
         Total current liabilities         56,823          38,425

Senior credit facility                         --          25,460
Senior subordinated notes                   7,386           7,386
Capital lease obligations                  10,949          11,030
                                           ------          ------
         Total liabilities                 75,158          82,301

Redeemable preferred stock
     Senior redeemable preferred stock      6,584           6,480
     Redeemable preferred stock            42,773          42,352
                                           ------          ------
         Total preferred stock             49,357          48,832

Stockholders' (deficit) investment
     Common stock                              78              78
     Capital in excess of par               2,192           2,718
     Retained deficit                     (57,012)        (56,839)
                                         --------        --------
         Total stockholders' investment
            (deficit)                     (54,742)        (54,043)
                                         --------        --------
                                          $69,773         $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)

                                                              Three Months
                                                             Ended March 31,
                                                             ---------------
                                                        2001               2000
                                                        ----               ----
Operating activities:
     Net loss                                        $  (173)           $ (928)
     Adjustments to reconcile net loss to
       cash provided by (used in) operating activities:
         Depreciation and amortization                   490               415
         Goodwill amortization                            62                89
         Other non-cash items                            308               124
         Changes in assets and liabilities, net        1,904            (6,119)
                                                       -----            -------
         Cash provided by (used in) operating
           activities                                  2,591            (6,419)
                                                       -----            -------

Investing activities:
         Purchase of property and equipment             (308)             (392)
                                                        ----              ----
         Cash used in investing activities              (308)             (392)
                                                        ----              ----


Financing activities:
     (Repayments of) proceeds from senior credit
      facility, net                                   (2,359)            6,733
     Payments under capital leases                       (96)              (87)
                                                       -----             -----

Cash (used in) provided by financing activities       (2,455)            6,646
                                                      -------           ------

Decrease in cash and cash equivalents                   (172)             (165)
Cash and cash equivalents at beginning of period         286               315
                                                       ------            -----
Cash and cash equivalents at end of period           $   114          $    150
                                                      =======         ========



















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



<PAGE>


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


Note 1.       General

     The accompanying  condensed consolidated financial statements are unaudited
and include the  accounts of Telos  Corporation  ("Telos")  and its wholly owned
subsidiaries   (collectively,    the   "Company").    Significant   intercompany
transactions  have  been  eliminated.   In  the  opinion  of  the  Company,  the
accompanying  financial statements reflect all adjustments and reclassifications
(which  include  only normal  recurring  adjustments)  necessary  for their fair
presentation  in  conformity  with  generally  accepted  accounting  principles.
Interim results are not necessarily  indicative of fiscal year performance 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, 2000.

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

     In June  2000,  the FASB  issued  SFAS No.  138,  "Accounting  for  Certain
Derivative  Instruments and Certain Hedging  Activities"  which amends SFAS 133.
SFAS 138 amends SFAS 133 to 1) expand the scope of the "normal  sales and normal
purchases"  exception;  2) introduce the benchmark rate as an interest rate that
may be hedged; 3) permit a recognized  foreign currency  denominated asset to be
hedged and; 4) allow certain intercompany  derivatives that are offset net to be
designated as hedging instruments. The Company did not have a material impact on
its results of operations, cash flows or financial position from the adoption of
SFAS 138.

     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 Company does not anticipate
SFAS 140 will have a material  impact on the  Company's  consolidated  financial
statements.

     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 each have guaranteed a portion of the loan of TelosOK. The Company has
guaranteed $2 million and the Investors have guaranteed $1 million. In addition,
Telos OK entered  into a $500,000  senior  credit  facility  with the same bank,
which expires  August 1, 2001.  Borrowings  under the facility,  should there be
any, will be  collateralized  by certain assets of 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.

     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 and DSTATS
businesses  have been excluded from their  respective  captions in the Company's
Consolidated Statement of Operations, and the net earnings from these businesses
have been  reported  separately  as "Equity in Net Earnings of Telos OK" for the
three months ended March 31, 2000. The results of operations of the Ft. Sill and
DSTATS  businesses  included in the "Equity in Net Earnings of TelosOK"  caption
are comprised of the following:

                                 (in thousands)
                               Three months ended

                                 March 31, 2000
                                 --------------

Sales                              $ 5,354
Cost of Sales                       (4,514)
                                     -----
Gross Profit                       $   840
                                       ===
<PAGE>

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

     From July 27, 2000  through  March 31,  2001,  the  Company's  share in the
cumulative equity of TelosOk was still 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 March 31, 2001.

Note 3.  Debt Obligations

Senior Credit Facility

     The Company has a $35 million Senior Credit Facility ("the  Facility") with
a bank which  matures on March 1, 2002.  At March 31,  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.  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.  Of the $8.5 million in combined principal of the Series B and Series
C Notes at March 31, 2001,  approximately  $1.2 million of Notes mature on April
1, 2001,  and the remaining  $7.3 million  become  payable on April 1, 2002. The
Notes have interest rates ranging from 14% to 17%. Interest is paid quarterly on
January 1, April 1, July 1, and October 1 of each year. The Notes can be prepaid
at the Company's  option.  Additionally,  these Notes have a cumulative  payment
premium  of 13.5%  per annum  payable  only upon  certain  circumstances.  These
circumstances  include 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 March 31, 2001,
the  prepayment   premium  that  would  be  due  upon  a  triggering   event  is
approximately $9.0 million.

     In conjunction with the Enterworks  private placement offering of 1999, the
Company retired  approximately  $1.0 million of Series B Notes,  $4.8 million of
Series C Notes,  and $1.8  million of Series D Notes in  exchange  for shares of
Enterworks'  common stock owned by the Company at an exchange ratio of one share
of Enterworks' common stock for each $1.00 principal amount of notes payable. In
addition to the  retirement of these notes,  accrued  interest of  approximately
$300,000  was forgiven and the holders of these notes waived their rights to the
prepayment premium associated with these notes.

     The  balances of the Series B and Series C Notes were $5.5 million and $3.0
million, respectively, at March 31, 2001 and December 31, 2000.

Note 4.       Preferred Stock

Senior Redeemable Preferred Stock

     The components of the senior redeemable  preferred stock are Series A-1 and
Series  A-2,  each with $.01 par  value and 1,250 and 1,750  shares  authorized,
issued  and  outstanding,  respectively.  The  Series A-1 and Series A-2 carry a
cumulative  per annum  dividend  rate of 14.125% of their  liquidation  value of
$1,000 per share.  The  dividends  are  payable  semi-annually  on June 30th and
December 31st of each year. The liquidation preference of the preferred stock is
the face amount of the Series A-1 and A-2 Stock  ($1,000  per  share),  plus all
accrued and unpaid  dividends.  The  Company is required to redeem  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 redeemable  preferred stock is
senior to all other present and future equity of the Company.  The Series A-1 is
senior to the Series A-2. The Company has not  declared  dividends on its senior
redeemable  preferred  stock since its issuance.  At March 31, 2001 and December
31, 2000 undeclared,  unpaid dividends relating to Series A-1 and A-2 redeemable
preferred stock totaled $3,584,000 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
12% Cumulative  Exchangeable  Redeemable  Preferred Stock (the "Public Preferred
Stock")  pursuant to the acquisition of the Company during fiscal year 1990. The
Public Preferred Stock was recorded at fair value on the date of original issue,
November  21,  1989,  and the Company is making  periodic  accretions  under the
interest  method of the excess of the redemption  value over the recorded value.
Accretion  for the three months ended March 31, 2001 was  $421,000.  The Company
declared  stock  dividends  totaling  736,863  shares in 1990 and 1991. No other
stock dividends have been declared since 1991.
<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     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 21, 1989, leaving 20%
to be redeemed at  maturity.  On any dividend  payment  date after  November 21,
1991, the Company may exchange the Public  Preferred Stock, in whole or in part,
for  12%  Junior   Subordinated   Debentures  that  are  redeemable  upon  terms
substantially  similar to the Public  Preferred  Stock and  subordinated  to all
indebtedness for borrowed money and like obligations of the Company.

     The Public Preferred Stock accrues a semi-annual dividend at an annual rate
of 12% ($1.20) per share, based on the liquidation  preference of $10 per share,
and is cumulative.  Through November 21, 1995, the Company had the option to pay
dividends in additional shares of Preferred Stock in lieu of cash.  Dividends in
additional  shares of the Preferred  Stock are paid at the rate of 6% of a share
of the  Preferred  Stock  for  each  $.60 of such  dividends  not  paid in cash.
Dividends are payable by the Company, provided the Company has legally available
funds  under  Maryland  law,  when and if  declared  by the Board of  Directors,
commencing  June 1, 1990,  and on each six month  anniversary  thereof.  For the
years 1992 through 1994 and for the dividend  payable June 1, 1995,  the Company
has accrued undeclared  dividends in additional shares of preferred stock. These
accrued  dividends  are  valued at  $3,950,000.  Had the  Company  accrued  such
dividends on a cash basis, the total amount accrued would have been $15,101,000.
For the cash  dividends  payable since December 1, 1995, the Company has accrued
$22,500,000.

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

Note 5.  Reportable Business Segments

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

     At March 31, 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.  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 this
2001 change.

     Summarized  financial  information   concerning  the  Company's  reportable
segments  for the three  months  ended  March 31,  2001 and 2000 is shown in the
following table. The "other" column includes corporate related items.


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


                                                Systems and
                                               Support Services  Products    Xacta       Other      Total
                                               ----------------------------------------------------------
<S>    <C>                                          <C>         <C>         <C>        <C>         <C>

       March 31, 2001
External Revenues ...............................   $ 13,887    $ 27,477    $  2,565        --     $ 43,929
Intersegment Revenues ...........................   $    569    $  1,963    $   --          --     $  2,532
Gross Profit ....................................   $  1,249    $  5,095    $    546        --     $  6,890
Segment profit (loss) ...........................   $   (434)   $  2,651    $ (1,040)       --     $  1,177
Total assets ....................................   $  8,521    $ 32,830    $  5,149    $ 23,273   $ 69,773
Capital Expenditures ............................   $    136    $     10    $     95    $     67   $    308
Depreciation & Amortization .....................   $     90    $     93    $     52    $    317   $    552


       March 31, 2000
External Revenues ...............................   $ 10,346    $ 14,872    $  1,522    $   --     $ 26,740
Intersegment Revenues ...........................       --          --          --      $   --         --
Gross Profit ....................................   $  1,195    $  1,450    $    516    $   --     $  3,161
Segment profit (loss) ...........................   $   (533)   $   (294)   $   (222)   $   --     $ (1,049)
Total assets ....................................   $ 11,631    $ 19,774    $  2,673    $ 23,929   $ 58,007
Capital Expenditures ............................   $     80    $      2    $    112    $    198   $    392
Depreciation & Amortization .....................   $    111    $     79    $     10    $    304   $    504
</TABLE>

     The Company does not have material international  revenues,  profit (loss),
assets or capital expenditures.  The Company's business is not concentrated in a
specific  geographical  area  within  the  United  States,  as it has 9 separate
facilities located in 4 states and Europe.

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
substituted included rent owed to the Company, services performed by the Company
under a service agreement between the Company and Enterworks,  and expenses paid
for by the Company on behalf of Enterworks. 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.  There was no impact to income for
the quarter as a result of this transaction.

<PAGE>




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

General

     Sales for the first three months of 2001 were $43.9 million, an increase of
$17.2  million or 64.3% as compared to the same 2000 period.  This  increase was
primarily  attributable to a $12.6 million  increase in sales from the Company's
Products  Group,  which was  impacted by  increased  sales orders under both its
traditional  businesses  and its newer  wireless  product line.  The increase in
sales was also  attributable to an increase in the Company's Systems and Support
Services  Group sales of $3.5  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.

     Operating  profit through the first three months of 2001 was  approximately
$1.1  million as compared to an operating  loss of $1.1 million  during the same
2000 period.  Operating  profitability improved principally because of increased
sales volume  coupled with  improved  profits  realized  under the Company's new
businesses.

     Total backlog from existing contracts was approximately  $135.1 million and
$124.4 million as of March 31, 2001 and December 31, 2000,  respectively.  As of
March 31, 2001,  the funded  backlog of the Company  totaled $45.4  million,  an
increase of $2.4 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-month periods ended March 31, 2001 and 2000 were as follows:

                                       Three Months Ended
                                             March 31,
                                      -----------------------
                                      2001              2000
                                      ----              ----
Sales                                100.0%             100.0%
Cost of sales                        (84.3)             (88.2)
SG&A expenses                        (13.1)             (15.7)
Goodwill amortization                 (0.1)              (0.3)
                                      ----               ----
Operating income (loss)                2.5               (4.2)

Other income                             --               0.1
Equity in net earnings of TelosOK        --               3.1
Interest expense                      (2.9)              (4.3)
                                      -----              -----
Loss before taxes                     (0.4)              (5.3)
Income tax (provision) benefit          --                1.8
                                       ---               ----
Net loss                              (0.4)%             (3.5)%
                                      ======             ======


<PAGE>


Financial Data by Market Segment

     Sales,  gross  profit,  and gross  margin by market  segment  for the first
quarter of 2001 and 2000 were as follows:

                                                Three Months Ended
                                                      March 31,
                                             ---------------------------
                                              2001                   2000
                                              ----                   ----
                                                (amounts in thousands)
Sales:
     Systems and Support Services            $13,887                 $10,346
     Products                                 27,477                  14,872
     Xacta                                     2,565                   1,522
                                              ------                  ------
         Total                               $43,929                 $26,740
                                              ======                  ======

Gross Profit:
     Systems and Support Services            $ 1,249                 $ 1,195
     Products                                  5,095                   1,450
     Xacta                                       546                     516
                                               -----                   -----
         Total                               $ 6,890                 $ 3,161
                                               =====                   =====
Gross Margin:
     Systems and Support Services                9.0%                   11.6%
     Products                                   18.5%                    9.7%
     Xacta                                      21.3%                   33.9%
         Total                                  15.7%                   11.8%

     For the three-month  period ended March 31, 2001,  sales increased by $17.2
million,  or 64.3%,  to $43.9 million from $26.7 million for the comparable 2000
period.  Of the $17.2 million  increase,  $12.6 million was  attributable to the
Products Group. The Group's comparable revenues were enhanced by increased sales
under the Group's traditional  contracts such as IS-1, ATWCS and Courts, as well
as increased  sales under new businesses  such as the Group's  wireless  product
line. The increases in revenue were also attributable to the Systems and Support
Services Group, which experienced  revenue growth of $3.5 million.  The increase
was further  enhanced by increases in Xacta Group sales of $1.1 million,  due to
increased orders under its information security product line.

     Cost of sales was 84.3% of sales the  three-month  period  ended  March 31,
2001, as compared to 88.2% in the comparable 2000 period.  The reduction in cost
of sales is attributable to increased  profits  realized on the Products Group's
Courts contracts as well as increased profits under the Group's wireless product
line.

         Gross profit increased by $3.7 million in the first quarter of 2001 to
$6.9 million from $3.2 million in the comparable 2000 period as a result of the
increase in sales and decreases in cost of sales discussed above. Total Company
gross margins were 15.7% and 11.8% for the three-month periods ended March 31,
2001 and 2000, respectively.

     Selling,  general and  administrative  costs  increased for the three-month
period by  approximately  $1.5 million to $5.7 million in 2001 from $4.2 million
in 2000. This increase is primarily due to the increased investment in the sales
and marketing effort for the Company's Xacta subsidiary. SG&A as a percentage of
sales were 13.1% and 15.7% for the three-month  periods ended March 31, 2001 and
2000, respectively.

     Goodwill  amortization expense was $62,000 for the three months ended March
31, 2001  compared to $89,000 for the period  ended March 2000.  The decrease in
goodwill  amortization was a result of the goodwill transfer associated with the
TelosOK transaction.

     Operating  profitability  improved by $2.3 million  during the three months
ended March 31, 2001 to  approximately  $1.1  million in operating  profit.  The
Company had an operating loss of $1.1 million in the comparable  period of 2000.
The increase in operating  profit  resulted  primarily  from the  aforementioned
gross profit increases.

     Interest expense increased by approximately $150,000 to $1.3 million during
the three-month period ended March 31, 2001, from $1.1 million in the comparable
period of 2000. The increase was attributable to increased debt levels in 2001.

     The Company  recorded a tax  provision  of  approximately  $1,000 and a tax
benefit of  approximately  $500,000 for the three-month  periods ended March 31,
2001 and 2000, respectively.

Liquidity and Capital Resources

     For the three months ended March 31, 2001,  operating  activities  provided
$2.6 million of cash flow to the  Company.  This cash was provided by a decrease
in the  Company's  accounts  receivable  balance  of  $7.6  million,  offset  by
decreases in accounts payable of $2.8 million and losses incurred in operations.
Cash used in investing activities was approximately  $300,000.  The Company used
cash during the quarter to pay down the  Company's  credit  facility  balance by
$2.4 million.

     At  March  31,  2001,  the  Company  had  outstanding  debt  and  long-term
obligations  of $42.5  million,  consisting  of $23.1  million under the secured
senior credit facility,  $8.5 million in subordinated debt, and $10.9 million in
capital lease obligations.

     At March 31, 2001, the Company had an outstanding  balance of $23.1 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).
The amount of borrowings fluctuates based on the underlying asset borrowing base
as well as the Company's working capital requirements.  The Facility has various
covenants that may,  among other things,  restrict the ability of the Company to
merge with another entity,  sell or transfer  certain assets,  pay dividends and
make other distributions beyond certain limitations.  The Facility also requires
the Company to meet certain leverage, net worth, interest coverage and operating
goals.




<PAGE>


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.

     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.

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 in the first three months of 2001 was
10.9%. This facility expires on March 1, 2002 and has an outstanding  balance of
$23.1 million at March 31, 2001.

     The Company's other debt at March 31, 2001 consists of Senior  Subordinated
Notes B and C which bear interest at fixed rates ranging from 14% to 17%. Of the
$8.5 million Senior  Subordinated  Notes balance at March 31, 2001, $1.2 million
of this  principal  amount  matures on April 1,  2001,  and the  remaining  $7.3
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 pending legal matters, it
is of the opinion such matters for this quarter will not have a material adverse
effect on the Company's consolidated financial position,  results of operations,
or of cash flows.

Item 3.       Defaults Upon Senior Securities

Senior 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  $3,584,000 for the
Series A-1, A-2 Preferred stock at March 31, 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 March 31, 2001 accrued for
financial reporting purposes totaled $26.5 million. Dividends for the years 1992
through  1994 and for the dividend  payable June 1, 1995 were accrued  under the
assumption  that the  dividend  will be paid in  additional  shares of preferred
stock and are valued at $3,950,000. Had the Company accrued these dividends on a
cash basis, the total amount accrued would have been  $15,101,000.  For the cash
dividends payable since December 1, 1995, the Company has accrued $22,500,000.

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

Item 6.       Exhibits and Reports on Form 8-K

        (a)   Exhibits:

                  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:      May 14, 2001                                        TELOS CORPORATION


                                                          /s/  Thomas J. Ferrara
                                                        ------------------------
                                                               Thomas J. Ferrara
                                                   (Principal Financial Officer)