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, 1999

[ ]               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, 1999 the registrant had 21,240,980  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): 18


<PAGE>

<TABLE>
<CAPTION>


                             TELOS CORPORATION AND SUBSIDIARIES

                                          INDEX


                             PART I.   FINANCIAL INFORMATION


<S>                                                                                                        <C>
Item 1.       Financial Statements:

     Condensed Consolidated Statements of Operations for the Three Months
       Ended March 31, 1999 and 1998 (Unaudited)...........................................................3

     Condensed Consolidated Balance Sheets as of March 31, 1999 (Unaudited)
       and December 31, 1998...............................................................................4

     Condensed Consolidated Statements of Cash Flows for the Three Months
       Ended March 31, 1999 and 1998 (Unaudited)...........................................................5

     Notes to Condensed Consolidated Financial Statements (Unaudited)......................................6-9

Item 2.       Management's Discussion and Analysis of
              Financial Condition and Results of Operations................................................10-16


                                 PART II.   OTHER INFORMATION


Item 1.        Legal Proceedings...........................................................................17

Item 3.        Defaults Upon Senior Securities.............................................................17

Item 6.        Exhibits and Reports on Form 8-K............................................................17

SIGNATURES.................................................................................................18

</TABLE>



<PAGE>
<TABLE>
<CAPTION>



                              PART I - FINANCIAL INFORMATION

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

                                  (amounts in thousands)

 
                                                                         Three Months Ended
                                                                              March 31,           

                                                                       1999                 1998
                                                                       -------------------------
<S>                                                                  <C>                  <C> 
    Systems and Support Services                                     $21,932              $26,300
    Products                                                          16,699               16,193
    Enterworks,Inc.                                                    1,917                1,301                            
                                                                      ------               ------        

                                                                      40,548               43,794
Costs and expenses
    Cost of sales                                                     35,847               40,380
    Selling, general and
      administrative expenses                                          8,400                6,343
    Goodwill amortization                                                132                  193
                                                                      ------               ------
Operating loss                                                        (3,831)              (3,122)
Other income (expenses)
    Gain on sale of assets                                                --                5,683
    Other income                                                          34                   20
    Interest expense                                                  (1,803)              (1,779)
                                                                      -------               -----

(Loss) income before taxes                                            (5,600)                 802
Income tax benefit (provision)                                         1,478                 (125)
                                                                      ------                -----
Net (loss) income                                                    $(4,122)              $  677
                                                                     ========               =====
 
</TABLE>















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

<PAGE>

<TABLE>
<CAPTION>

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

                                                        ASSETS

                                                           March 31, 1999                December 31, 1998
                                                           --------------                -----------------
                                                             (Unaudited)
<S>                                                           <C>                             <C>
Current assets
     Cash and cash equivalents
       (includes restricted cash of
        $160 at March 31, 1999 and
        December 31, 1998)                                    $    387                        $   408
     Accounts receivable, net                                   31,469                         56,783
     Inventories, net                                            8,649                          8,662
     Deferred income taxes                                       5,845                          4,164
     Other current assets                                          591                            707                 
                                                                ------                         ------              
         Total current assets                                   46,941                         70,724

Property and equipment, net of
     accumulated depreciation of
     $24,535 and $24,159, respectively                          14,031                         14,321

Goodwill                                                         6,763                          6,896
Capitalized software and other assets                            3,305                          3,310
                                                                ------                         ------
                                                               $71,040                        $95,251
                                                               =======                        =======



                                              LIABILITIES AND STOCKHOLDERS' INVESTMENT

Current liabilities
     Accounts payable                                          $19,435                        $25,206
     Other current liabilities                                   3,853                          4,845
     Accrued compensation and benefits                           8,042                          7,400
                                                                ------                         ------
         Total current liabilities                              31,330                         37,451

Senior credit facility                                          22,176                         36,159
Senior subordinated notes                                       18,587                         18,492
Capital lease obligations                                       11,643                         11,710
                                                                ------                        -------
         Total liabilities                                      83,736                        103,812
                                                                ------                        -------

Redeemable preferred stock
     Senior redeemable preferred stock                           5,735                          5,631
     Redeemable preferred stock                                 32,085                         31,729
                                                                ------                         ------
         Total preferred stock                                  37,820                         37,360

Stockholders' investment
     Common stock                                                   78                             78
     Capital in excess of par                                    1,643                          2,116
     Retained deficit                                          (52,237)                       (48,115)
                                                                ------                         ------
         Total stockholders' investment                        (50,516)                       (45,921)
                                                                ------                         ------
                                                               $71,040                        $95,251
                                                                ======                         ======

</TABLE>







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

<PAGE>

<TABLE>
<CAPTION>

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

                                            (amounts in thousands)

                                                                                                 Three Months
                                                                                                Ended March 31,
    
                                                                                              1999             1998
                                                                                              ---------------------
<S>                                                                                        <C>              <C>
Operating activities:
     Net (loss) income                                                                     $ (4,122)        $   677
     Adjustments to reconcile net (loss) income to
       cash provided by operating activities:
         Gain on sale of fixed assets                                                           (88)             --
         Gain on sale of assets                                                                  --          (5,683)
         Depreciation and amortization                                                        1,027             897
         Goodwill amortization                                                                  132             193
         Other non-cash items                                                                   666             128
         Changes in assets and liabilities, net                                              17,422          17,135
                                                                                             ------          ------
         Cash provided by operating activities                                               15,037          13,347
                                                                                             ------          ------

Investing activities:
     Proceeds from sale of fixed assets                                                         171              --
     Proceeds from sale of assets                                                                --          14,675
     Purchase of property and equipment                                                        (382)           (544)
Investment in capitalized software and other assets                                            (762)           (527)
                                                                                               ----          ------
        Cash (used in) provided by investing
        activities                                                                             (973)         13,604
                                                                                               ----          ------

Financing activities:
     (Repayments of) senior credit facility, net                                            (13,983)        (27,031)
     Payments under capital leases                                                             (102)            (95)
                                                                                             ------          ------
         Cash (used in) financing activities                                                (14,085)        (27,126)
                                                                                             ------          ------

Decrease in cash and cash equivalents                                                           (21)           (175)
Cash and cash equivalents at beginning of period                                                408             587
                                                                                             ------          ------
Cash and cash equivalents at end of period                                                  $   387         $   412
                                                                                             ======          ======
</TABLE>


















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


<PAGE>


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

                                                        
Note 1.       General

         The  accompanying   condensed  consolidated  financial  statements  are
unaudited and include the accounts of Telos Corporation ("Telos") and its wholly
owned  subsidiaries,  Telos Corporation  (California),  Telos Field Engineering,
Inc.,  Telos  International  Corporation  and  its  majority  owned  subsidiary,
Enterworks,  Inc.  (collectively,   the  "Company").   Significant  intercompany
transactions  have  been  eliminated.   In  the  opinion  of  the  Company,  the
accompanying  financial statements reflect all adjustments and reclassifications
(which  include  only normal  recurring  adjustments)  necessary  for their fair
presentation  in  conformity  with  generally  accepted  accounting  principles.
Interim  results  are not  necessarily  indicative  of fiscal  year  performance
because of the impact of seasonal and  short-term  variations.  These  financial
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements  and notes thereto  included in the  Company's  annual report on Form
10-K for the fiscal year ended December 31, 1998.

         The accompanying  consolidated  financial statements have been prepared
on a going concern  basis,  which  contemplates  the  realization  of assets and
satisfaction  of  liabilities  in the normal  course of business.  However,  the
Company  incurred a net loss of $9.2 million  during 1998 and a net loss of $4.1
million  for the first  quarter of 1999.  In  addition,  the  Company was not in
compliance with several  covenants of its Senior Credit Facility at December 31,
1998 and March 31, 1999.  The lender has provided  waivers for the violations at
December 31, 1998, as well as waivers through March 31, 1999.  Future  financial
covenants   have  been  amended  to  conform  to  the   Company's   1999  budget
expectations.   Based  on  its  budget,  the  Company  anticipates  a  need  for
approximately  $10 million of  additional  financing  for 1999.  These  factors,
including the uncertainty  surrounding whether and when the additional financing
will be secured,  and whether the Company will meet its budget  expectations and
bank covenants in 1999, indicate that the Company may be unable to continue as a
going concern for a reasonable  period of time. The financial  statements do not
include  any  adjustments   relating  to  the   recoverability   of  assets  and
classification  of  liabilities  that might be  necessary  should the Company be
unable to continue as a going  concern.  The Company's  continuation  as a going
concern is dependent on its ability to obtain the additional financing required,
meet its 1999  budgeted cash flow  objectives,  and comply with the terms of its
Senior Credit Facility.

         The Company has continued to pursue additional  financing.  The Company
believes that the necessary financing will be secured through one or more of the
following  sources:  the sale of a division or asset that is not critical to its
strategic  goals;  additional  financing from its lender;  or additional  equity
financing. Alternatives are currently being pursued under each of these sources;
however,  the required financing has not yet been secured.  The Company believes
the required  funding  will be arranged in a timely  manner that does not have a
significant adverse impact on its operations. However, there can be no assurance
that the Company will be able to secure  financing  sufficient for its needs and
at terms favorable to the Company. Additionally,  there can be no assurance that
the Company will be  successful  in meeting its budget  expectations,  or comply
with its bank  covenants  in 1999.  Failure by the Company to obtain  sufficient
financing,  meet its budget expectations,  or meet its bank covenants may have a
material  adverse  effect  on  the  Company's  financial  position,  results  of
operations or cash flows.

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


<PAGE>



Note 2.  Sale of Assets

         On February 28, 1998, Telos sold substantially all of the net assets of
one of its  divisions,  Telos  Information  Systems  ("TIS"),  to NYMA,  Inc., a
subsidiary of Federal Data Corporation of Bethesda,  Maryland for  approximately
$14.7  million  in cash.  The  Company  recorded  a gain of $5.7  million in its
condensed  consolidated statement of operations for the three months ended March
31, 1998.

Note 3.  Senior Credit Facility

         The Company has a $45 million Senior Credit  Facility ("the  Facility")
with a bank which  matures on July 1, 2000.  Borrowings  under the  Facility are
collateralized  by  a  majority  of  the  Company's  assets  including  accounts
receivable,  inventory, and Telos' stock in Enterworks.  The amount of available
borrowings fluctuates based on the underlying asset borrowing base. At March 31,
1999, the Company was not in compliance with several covenants  contained within
the  Facility,  including  covenants  relating to certain  leverage,  net worth,
tangible  capital  and fixed  charge  coverage  goals.  The bank has waived this
non-compliance.

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% per annum 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 preferred stock
is the face amount of the Series A-1 and A-2 Stock ($1,000 per share),  plus all
accrued  and unpaid  dividends.  The  Company is  required  to redeem all of the
outstanding  shares of the stock on  December  31,  2001,  subject  to the legal
availability  of funds.  Mandatory  redemptions  are  required  from excess cash
flows,  as defined in the stock  agreements.  The Series A-1 and A-2  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, 1999 and December 31, 1998 undeclared,  unpaid dividends  relating to Series
A-1 and A-2  redeemable  preferred  stock  totaled  $2,735,000  and  $2,631,000,
respectively,  and have been  accrued and are included in the Series A-1 and A-2
redeemable preferred stock balances.


<PAGE>


12% Cumulative Exchangeable Redeemable Preferred Stock

         A maximum of 6,000,000 shares of 12% Cumulative Exchangeable Redeemable
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, 1999 was  $355,000.  The Company  declared  stock
dividends totaling 736,863 shares in 1990 and 1991.

         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 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 are paid at the rate of
0.06 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 $14,855,000.

         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.

     The Company has three reportable  segments:  Systems and Support  Services,
Products, and Enterworks. The Company evaluates the performance of its operating
segments based on revenue, gross profit and income before goodwill amortization,
income taxes, non-recurring items and interest income or expense.

         Summarized  financial  information  concerning the Company's reportable
segments  for the three  months  ended  March 31,  1999 and 1998 is shown in the
following table. The "other" column includes corporate related items.


<PAGE>

<TABLE>
<CAPTION>

    
                                              Systems and
                                            Support Services    Products     Enterworks     Other (1)       Total
                                          -------------------------------------------------------------------------
<S>                                            <C>               <C>          <C>           <C>          <C>
       March 31, 1999
External Revenues                              $ 21,932          $ 16,699     $   1,917     $     --     $  40,548
Intersegment Revenues                          $    151          $     --     $     188     $     --     $     339
Gross Profit                                   $  3,637          $    818     $     246     $     --     $   4,701
Segment profit (loss)(3)                       $   (649)         $    723     $ ( 3,773)    $     --     $  (3,699)
Total assets                                   $ 43,281          $  3,647     $   5,595     $ 18,517     $  71,040
Capital Expenditures                           $     34          $      6     $     302     $     40     $     382
Depreciation & Amortization(2)                 $    235          $     65     $     529     $    330     $   1,159


       March 31, 1998
External Revenues                              $ 26,300          $ 16,193     $   1,301     $    --      $  43,794
Intersegment Revenues                          $     92          $    671     $      --     $    --      $     763
Gross Profit                                   $  2,861          $    164     $     389     $    --      $   3,414
Segment profit (loss)(3)                       $    157          $ (1,412)    $  (1,674)    $    --      $  (2,929)
Total assets                                   $ 51,488          $  2,508     $   6,576     $19,480      $  80,052
Capital Expenditures                           $     61          $     82     $     184     $   217      $     544
Depreciation & Amortization(2)                 $    251          $    126     $     356     $   357      $   1,090
<FN>

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

         The  Company  does not have  material  international  revenues,  profit
(loss),  assets  or  capital   expenditures.   The  Company's  business  is  not
concentrated in a specific geographical area within the United States, as it has
56 separate facilities located in 19 states.




<PAGE>




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

General

         Sales for the first three months of 1999 were $40.5 million, a decrease
of $3.2 million or 7.4% as compared to the same 1998 period.  This  decrease was
primarily  attributable  to a $4.4 million  decline in sales from the  Company's
Systems  and  Support  Services  Group,  which was  impacted  by the sale of the
Company's  information  systems  division ("TIS") in February 1998. This decline
was  partially  offset by increases in sales in both the Product and  Enterworks
Groups of approximately $500,000 and $600,000, respectively.

         Operating  losses  through  the  first  three  months of 1999 were $3.8
million as compared to an operating  loss of $3.1  million  during the same 1998
period.  Operating  profitability  declined  principally  as  a  result  of  the
decreases  in revenue  noted in the  preceding  paragraph,  and due to increased
investments  by the Company in sales and marketing and research and  development
in its Enterworks subsidiary.

         Total backlog from existing contracts was approximately  $700.7 million
and $923.3 million as of March 31, 1999 and December 31, 1998, respectively. The
decrease  in total  backlog  is due to the  expiration  of the  Company's  SMCII
contract in April of 1999, which was previously  disclosed in the Company's Form
10-K for the year ended  December  31, 1998.  As of March 31,  1999,  the funded
backlog of the Company totaled $93.0 million,  an increase of $36.5 million from
December  31,  1998.  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  Telos
Corporation   (California),   Telos  Field  Engineering,   Inc.  ("TFE"),  Telos
International  Corporation,  and its majority owned subsidiary Enterworks,  Inc.
("Enterworks")  (collectively,   "the  Company").  The  major  elements  of  the
Company's  operating  expenses  as a  percentage  of sales for the  three  month
periods ended March 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>

                                                               Three Months Ended
                                                                     March 31,    
   
                                                             1999              1998
                                                             ----------------------
<S>                                                         <C>               <C> 
Sales                                                       100.0%            100.0%
Cost of sales                                               (88.4)            (92.2)
SG&A expenses                                               (20.7)            (14.4)
Goodwill amortization                                        (0.3)             (0.4)
                                                            ------            -----
Operating loss                                               (9.4)             (7.0)
Gain on sale of Assets                                         --              13.0
Other income                                                   --                --         
Interest expense                                             (4.4)             (4.1)
                                                            ------             ----
(Loss) income before taxes                                  (13.8)              1.9
Income tax benefit (provision)                                3.6              (0.3)
                                                           ------              -----
Net (loss) income                                           (10.2)%             1.6%
                                                             ====               ===

</TABLE>

<PAGE>


Financial Data by Market Segment

     Sales,  gross  profit,  and gross  margin by market  segment  for the first
quarter of 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
                                                                               Three Months Ended
                                                                                   March 31,         
   
                                                                           1999                   1998
                                                                           ---------------------------
                                                                             (amounts in thousands)
<S>                                                                      <C>                    <C> 
Sales:
     Systems and Support Services                                        $21,932                $26,300
     Products                                                             16,699                 16,193
     Enterworks, Inc.                                                      1,917                  1,301
                                                                          ------                 ------
         Total                                                           $40,548                $43,794
                                                                          ======                 ======

Gross Profit:
     Systems and Support Services                                         $3,637                $ 2,861
     Products                                                                818                    164
     Enterworks, Inc.                                                        246                    389
                                                                           -----                 ------
         Total                                                            $4,701                $ 3,414
                                                                           =====                 ======
Gross Margin:
     Systems and Support Services                                          16.6%                  10.9%
     Products                                                               4.9%                   1.0%
     Enterworks, Inc.                                                      12.8%                  29.9%
         Total                                                             11.6%                   7.8%
</TABLE>


         For the three month  period ended March 31,  1999,  sales  decreased by
$3.2 million,  or 7.4%,  to $40.5 million from $43.8 million for the  comparable
1998 period.  This decrease for the three month period is due to the Systems and
Support  Services  Group,  which  reported  decreased  sales  of  $4.4  million.
Offsetting  this decrease was increased  sales during the period by the Products
Group and Enterworks of approximately $500,000 and $600,000,  respectively.  The
Systems and Support  Services Group sales decrease was primarily due to the sale
of the Company's  information  systems  division ("TIS") in the first quarter of
1998.  Sales  generated by TIS in the first  quarter of 1998 were $4.0  million,
with no corresponding revenue in 1999. Within the Product Group, sales primarily
increased due to sales under the Joint Recruitive  Information  Support Services
Blanket  Purchase  Agreement.  Enterworks sales for the three months ended March
31, 1999 of $1.9 million increased  approximately 47% over the comparable period
in 1998.  The increase is  primarily  due to sales of the  Company's  Enterworks
Process Manager product.

         Cost of sales was 88.4% of sales the three month period ended March 31,
1999, as compared to 92.2% in the comparable  1998 period.  The decrease in cost
of sales dollars resulted from the decrease in sales for the period,  as well as
favorable  changes in contract mix within the Systems and Support Services Group
that produced higher margins.

         Gross profit  increased by $1.3 million in the first quarter of 1999 to
$4.7 million from $3.4 million in the comparable  1998 period as a result of the
matters discussed above. Total Company gross margins were 11.6% and 7.8% for the
three month periods ended March 31, 1999 and 1998, respectively.

         Selling, general and administrative costs increased for the three month
period by approximately  $2.1 to $8.4 million in 1999 from $6.3 million in 1998.
This increase is primarily due to the Company's increased investment in research
and  development and sales and marketing in its Enterworks  Group.  Expenditures
for Enterworks  research and  development  and sales and marketing  increased by
$600,000  and $1.2  million,  respectively, as compared to the same 1998 period.
SG&A as a  percentage  of sales was 20.7% and 14.4% for the three month  periods
ended March 31, 1999 and 1998, respectively.

         Goodwill  amortization  expense was $132,000 for the three months ended
March 31,  1999  compared  to $193,000  for the period  ended  March  1998.  The
decrease  in  goodwill  amortization  was a  result  of the  goodwill  write-off
associated with the sale of TIS.

         Operating  loss  increased  by $700,000  during the three  months ended
March 31, 1999 to $3.8 million in operating  loss.  The Company had an operating
loss of $3.1 million in the comparable period of 1998. The increase in operating
loss  resulted   primarily  from  the   aforementioned   selling,   general  and
administrative cost increases.

         Telos sold substantially all of the net assets of one of its divisions,
TIS, in the first quarter of 1998. The transaction generated approximately $14.7
million in proceeds and a gain of $5.7 million.

         Interest  expense  increased by  approximately  $24,000 to $1.8 million
during the three month  period  ended March 31,  1999,  from $1.8 million in the
comparable period of 1998.

         The Company  recorded a tax benefit of $1.5 million for the three month
period  ended  March  31,  1999,  principally  due to  the  net  operating  loss
carryforwards  generated  during the first quarter.  The Company  recorded a tax
provision  of $125,000 in the three month  period  ended March 31, 1998 that was
principally attributed to state income taxes.

Liquidity and Capital Resources

         For the three months ended March 31, 1999,  the Company  provided $15.0
million  of  cash  in its  operating  activities.  This  cash  was  provided  by
reductions  of accounts  receivable  of $25.3  million,  offset by  decreases in
accounts payable of $5.8 million and losses incurred in operations. Cash used in
investing activities was $973,000.  Cash was used by financing activities during
the  quarter  to pay down  approximately  $14.0  million  of the  Senior  Credit
Facility balance.

         At March 31,  1999,  the  Company  had  outstanding  debt and long term
obligations  of $52.4  million,  consisting  of $22.2  million under the secured
senior credit facility, $18.6 million in subordinated debt, and $11.6 million in
capital lease obligations.

         At March 31,  1999,  the  Company had an  outstanding  balance of $22.2
million on its $45 million Senior Credit Facility (the "Facility"). The Facility
matures on July 1, 2000 and is  collateralized  by a majority  of the  Company's
assets   (including   inventory,   accounts   receivable  and  Telos'  stock  in
Enterworks).  The amount of borrowings  fluctuates based on the underlying asset
borrowing base as well as the Company's working capital  requirements.  At March
31, 1999,  the Company,  under its borrowing  base formula,  had $4.0 million of
unused  availability.  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. At March 31, 1999,
the  Company was not in  compliance  with  several  covenants  contained  in the
Facility; however, the bank has waived this non-compliance.


<PAGE>


         The accompanying  consolidated  financial statements have been prepared
on a going concern  basis,  which  contemplates  the  realization  of assets and
satisfaction  of  liabilities  in the normal  course of business.  However,  the
Company  incurred a net loss of $9.2 million  during 1998 and a net loss of $4.1
million  for the first  quarter of 1999.  In  addition,  the  Company was not in
compliance with several  covenants of its Senior Credit Facility at December 31,
1998 and March 31, 1999.  The lender has provided  waivers for the violations at
December 31, 1998, as well as waivers through March 31, 1999.  Future  financial
covenants   have  been  amended  to  conform  to  the   Company's   1999  budget
expectations.   Based  on  its  budget,  the  Company  anticipates  a  need  for
approximately  $10 million of  additional  financing  for 1999.  These  factors,
including the uncertainty  surrounding whether and when the additional financing
will be secured,  and whether the Company will meet its budget  expectations and
bank covenants in 1999, indicate that the Company may be unable to continue as a
going concern for a reasonable  period of time. The financial  statements do not
include  any  adjustments   relating  to  the   recoverability   of  assets  and
classification  of  liabilities  that might be  necessary  should the Company be
unable to continue as a going  concern.  The Company's  continuation  as a going
concern is dependent on its ability to obtain the additional financing required,
meet its 1999  budgeted cash flow  objectives,  and comply with the terms of its
Senior Credit Facility.

         The Company has continued to pursue additional  financing.  The Company
believes that the necessary financing will be secured through one or more of the
following  sources:  the sale of a division or asset that is not critical to its
strategic  goals;  additional  financing from its lender;  or additional  equity
financing. Alternatives are currently being pursued under each of these sources;
however,  the required financing has not yet been secured.  The Company believes
the required  funding  will be arranged in a timely  manner that does not have a
significant adverse impact on its operations. However, there can be no assurance
that the Company will be able to secure  financing  sufficient for its needs and
at terms favorable to the Company. Additionally,  there can be no assurance that
the Company will be  successful  in meeting its budget  expectations,  or comply
with its bank  covenants  in 1999.  Failure by the Company to obtain  sufficient
financing,  meet its budget expectations,  or meet its bank covenants may have a
material  adverse  effect  on  the  Company's  financial  position,  results  of
operations  or  cash  flows.  See  also  Note  1 to the  Consolidated  Financial
Statements.

Year 2000 

         Year 2000 issues refer generally to the problems that some software may
have in determining the correct century for the year. For example, software with
date-sensitive  functions  that is not Year  2000  compliant  may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results.

         The  Company,  like most  owners of  computer  software,  is  modifying
significant  portions of its  internal  use  software  so that it will  function
properly in the year 2000. Accordingly,  the Company has incurred and expects to
continue to incur  internal staff costs as well as consulting and other expenses
related to software  and  infrastructure  enhancements  necessary to prepare the
systems for the year 2000.  Total  expenditures for such costs were not material
to the Company's  consolidated  financial statement in 1998 or 1999. The Company
expects to complete its internal use software  compliance  efforts  during 1999.
Maintenance,  modification costs and software purchased with the express purpose
of fixing the year 2000 problem are expensed as incurred.


<PAGE>


         The Company has queried its key  suppliers  and vendors to assess their
Year 2000 readiness and has been informed that software  licensed to the Company
for resale will be  compliant  by the Year 2000.  Therefore,  the Company is not
aware of any problems that would have a material adverse impact on its financial
position, results of operations or cash flows. However, the Company has no means
of ensuring compliance by its suppliers or vendors. If its suppliers and vendors
are not Year 2000  compliant,  there could be a material  adverse  effect on the
Company.

         As is the case with other similarly  situated  computer  companies,  if
Telos' current or future  customers  fail to achieve Year 2000  compliance or if
they divert  technology  expenditures to address Year 2000 compliance  problems,
Telos'  business,   results  of  operations  or  financial  condition  could  be
materially  adversely  affected.  For  example,  agencies  of the United  States
Government are principal  customers of the Company.  If such agencies experience
significant  Year  2000  system  failures,  under  terms of  typical  government
contracts,  the Company's  performance  and/or  receipt of payments due would be
delayed or contracts  could be terminated  for  convenience,  which could have a
material  adverse effect on the Company.  If similar failures are experienced by
other  customers or potential  customers of the Company,  this could also have a
material adverse impact on the Company.

         Based on its internal  review and the compliance  information  received
from its  suppliers,  the Company  does not  believe  that there is a need for a
contingency  plan for  year  2000  system  non-compliance.  Such a plan  will be
developed  if the Company  becomes  aware of any year 2000  non-compliance  that
would impact its critical  operations.  The cost of developing and  implementing
such a plan, if required, may in itself be material.

         Although  the Company  does not believe that it will incur any material
unanticipated  costs  or  experience   material   disruptions  in  its  business
associated  with  preparing  its  systems  for the Year  2000,  there  can be no
assurances   that  the  Company  will  not  experience   serious   unanticipated
consequences  and/or material costs caused by undetermined  errors or defects in
the technology used in its internal systems, embedded software and the Company's
own software  products.  Worst case scenarios  could include:  (i) corruption of
data   contained  in  the   Company's   internal   information   systems,   (ii)
interruptions,  delays or terminations in the Company's business with government
agencies or other  customers  associated  with their own year 2000  problems and
(iii) the failure of infrastructure services provided by government agencies and
other third parties (e.g., electricity, phone service, water transport, internet
services,  etc.) Any of these unexpected  outcomes could have a material adverse
effect on the Company.

         Management  believes that  software  created and sold by the Company is
compliant or will be compliant by the year 2000. However, because the Company is
in the  business  of  selling  computer  systems,  the  Company's  risk of being
subjected to lawsuits  relating to year 2000 issues is likely to be greater than
that of other industries.  Computer systems may involve  different  hardware and
software components from different manufacturers; therefore, it may be difficult
to determine  which  component in a computer system may cause a year 2000 issue.
As a  result,  the  Company  may be  subjected  to year  2000  related  lawsuits
independent  of whether its products and services are year 2000  compliant.  The
outcomes of such lawsuits and the impact on the Company  cannot be determined at
this time.


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

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

                  The accompanying  consolidated  financial statements have been
prepared on a going concern basis,  which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business.  However,  the
Company  incurred a net loss of $9.2 million  during 1998 and a net loss of $4.1
million  for the first  quarter of 1999.  In  addition,  the  Company was not in
compliance with several  covenants of its Senior Credit Facility at December 31,
1998 and March 31, 1999.  The lender has provided  waivers for the violations at
December 31, 1998, as well as waivers through March 31, 1999.  Future  financial
covenants   have  been  amended  to  conform  to  the   Company's   1999  budget
expectations.   Based  on  its  budget,  the  Company  anticipates  a  need  for
approximately  $10 million of  additional  financing  for 1999.  These  factors,
including the uncertainty  surrounding whether and when the additional financing
will be secured,  and whether the Company will meet its budget  expectations and
bank covenants in 1999, indicate that the Company may be unable to continue as a
going concern for a reasonable  period of time. The financial  statements do not
include  any  adjustments   relating  to  the   recoverability   of  assets  and
classification  of  liabilities  that might be  necessary  should the Company be
unable to continue as a going  concern.  The Company's  continuation  as a going
concern is dependent on its ability to obtain the additional financing required,
meet its 1999  budgeted cash flow  objectives,  and comply with the terms of its
Senior Credit Facility.


<PAGE>


         The Company has continued to pursue additional  financing.  The Company
believes that the necessary financing will be secured through one or more of the
following  sources:  the sale of a division or asset that is not critical to its
strategic  goals;  additional  financing from its lender;  or additional  equity
financing. Alternatives are currently being pursued under each of these sources;
however,  the required financing has not yet been secured.  The Company believes
the required  funding  will be arranged in a timely  manner that does not have a
significant adverse impact on its operations. However, there can be no assurance
that the Company will be able to secure  financing  sufficient for its needs and
at terms favorable to the Company. Additionally,  there can be no assurance that
the Company will be  successful  in meeting its budget  expectations,  or comply
with its bank  covenants  in 1999.  Failure by the Company to obtain  sufficient
financing,  meet its budget expectations,  or meet its bank covenants may have a
material  adverse  effect  on  the  Company's  financial  position,  results  of
operations or cash flows.


<PAGE>




                                            PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         The Company is party to various lawsuits arising in the ordinary course
of  business.  In the opinion of  management,  while the  results of  litigation
cannot be predicted with  certainty,  the final outcome of such matters will not
have a material adverse effect on the Company's  consolidated financial position
or results of operations.

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  $2,735,000 for the
Series A-1, A-2 Preferred stock at March 31, 1999.

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 0.06 of a share for each $.60 of such  dividends
not paid in cash.  No dividends  have been  declared or paid during fiscal years
1992 through 1998.  Cumulative undeclared dividends as of March 31, 1999 accrued
for financial  reporting purposes totaled  $18,805,000.  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 $14,855,000.

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

Item 6.  Exhibits and Reports on Form 8-K

         (a)   Exhibits:

                  27       Financial Data Schedule


         (b)   Reports on Form 8-K:              None


         Items 2, 4, 5 and 7 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, 1999                                        TELOS CORPORATION


                                                             /s/  Lorenzo Tellez
                                                                  Lorenzo Tellez
                                                  (Principal Financial Officer &
                                                   Principal Accounting Officer)