FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1996.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number 0-19394.

GOVERNMENT TECHNOLOGY SERVICES, INC.
(Exact name of registrant as specified in its charter)

Delaware 54-1248422
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)

4100 LAFAYETTE CENTER DRIVE
CHANTILLY, VIRGINIA 20151-1200
(Address and zip code of principal executive offices)

(703) 502-2000
(Registrant's telephone number, including area code)

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.

[X] Yes [ ] No

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:

Class Shares Outstanding at August 1, 1996
Common Stock, $0.005 par value 6,702,797

Total number of pages in this report: 19.
Index to Exhibits on Page 18.

GOVERNMENT TECHNOLOGY SERVICES, INC.

INDEX
-----

Page Reference
--------------

COVER PAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . 3

Consolidated Balance Sheets
June 30, 1996 and December 31, 1995. . . . . . . . . . . . . 4

Consolidated Statements of Income
Three Months and Six Months Ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . 5

Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995. . . . . . . . . . . 6

Notes to Consolidated Financial Statements. . . . . . . . . . . 7

ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . 8

PART II -- OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . .15

ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

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PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The accompanying unaudited, consolidated financial statements of
Government Technology Services, Inc. ("GTSI" (R) or the "Company") have
been prepared in accordance with the instructions to Form 10-Q and,
therefore, omit or condense certain footnotes and other information
normally included in financial statements prepared in accordance with
generally accepted accounting principles. This report should be read in
conjunction with the audited financial statements for the year ended
December 31, 1995, and the accompanying Notes to Financial Statements,
which appear in the Company's Annual Report on Form 10-K filed for the year
ended December 31, 1995. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results for the interim period have been made. The
interim results reflected in the consolidated financial statements are not
necessarily indicative of results expected for the full year.

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GOVERNMENT TECHNOLOGY SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

JUNE 30, DECEMBER 31,
ASSETS 1996 1995
----------- ------------
(unaudited) (audited)

Current assets:
Cash. . . . . . . . . . . . . . . . . . . . . $ 34 $ 18
Accounts receivable, net. . . . . . . . . . . 52,577 91,187
Merchandise inventories, net. . . . . . . . . 25,946 64,515
Deferred taxes and other. . . . . . . . . . . 12,277 10,381
---------- ----------
Total current assets. . . . . . . . . . . . 90,834 166,101
Property and equipment, net . . . . . . . . . . 7,686 8,065
Intangible assets, net. . . . . . . . . . . . . 10,229 10,609
Deferred taxes and other. . . . . . . . . . . . 478 565
---------- ----------
Total assets. . . . . . . . . . . . . . . . $ 109,227 $ 185,340
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable to banks. . . . . . . . . . . . $ 11,209 $ 56,496
Accounts payable. . . . . . . . . . . . . . . 28,682 52,082
Accrued liabilities . . . . . . . . . . . . . 7,962 11,926
---------- ----------
Total current liabilities . . . . . . . . . 47,853 120,504
Other liabilities . . . . . . . . . . . . . . . 2,040 2,359
---------- ----------
Total liabilities . . . . . . . . . . . . . 49,893 122,863
---------- ----------

Commitments and contingencies

Stockholders' equity:
Preferred stock -- $0.25 par value, 680,850
shares authorized; none issued and
outstanding . . . . . . . . . . . . . . . . - -
Common stock -- $0.005 par value; 10,000,000
shares authorized; 6,806,084 shares issued
and 6,701,297 outstanding at June 30, 1996
and 6,806,084 shares issued and 6,676,461
outstanding at December 31, 1995. . . . . . 34 34
Capital in excess of par value. . . . . . . . 33,428 33,611
Retained earnings . . . . . . . . . . . . . . 27,009 30,237
Treasury stock -- 104,787 shares at June 30,
1996 and 129,623 shares at December 31,
1995, at cost . . . . . . . . . . . . . . . (1,137) (1,405)
---------- ----------
Total stockholders' equity. . . . . . . . . 59,334 62,477
---------- ----------
Total liabilities and stockholders'
equity. . . . . . . . . . . . . . . . . . $ 109,227 $ 185,340
========== ==========

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

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GOVERNMENT TECHNOLOGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THREE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------

Sales . . . . . . . . . . . . . . . . . $ 100,809 $ 98,644 $183,601 $ 190,386

Cost of sales . . . . . . . . . . . . . 93,956 91,508 169,525 175,980
--------- --------- --------- ---------

Gross margin. . . . . . . . . . . . . . 6,853 7,136 14,076 14,406

Operating expenses. . . . . . . . . . . 8,406 10,188 17,720 20,102
--------- --------- --------- ---------

Loss from operations. . . . . . . . . . (1,553) (3,052) (3,644) (5,696)

Interest expense, net . . . . . . . . . 710 833 1,558 1,901
--------- --------- --------- ---------

Loss before taxes . . . . . . . . . . . (2,263) (3,885) (5,202) (7,597)

Income tax benefit. . . . . . . . . . . (853) (1,484) (1,974) (2,900)
--------- --------- --------- ---------

Net loss. . . . . . . . . . . . . . . . $ (1,410) $ (2,401) $ (3,228) $ (4,697)
========= ========= ========= =========

Net loss per share. . . . . . . . . . . $ (0.21) $ (0.36) $ (0.48) $ (0.71)
========= ========= ========= =========
Weighted average number of common
and common equivalent shares
outstanding during the period . . . . 6,677 6,591 6,678 6,594

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

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GOVERNMENT TECHNOLOGY SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

SIX MONTHS ENDED
JUNE 30,
------------------
1996 1995
-------- --------

Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . $ (3,228) $ (4,697)

Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . 1,699 1,714
Deferred taxes and other . . . . . . . . . . . . . . (13) 28
Net cash provided by changes in assets and
liabilities . . . . . . . . . . . . . . . . . . . 47,677 43,019
-------- --------
Net cash provided by operating activities . . . . 46,135 40,064
-------- --------

Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . . (933) (1,600)
-------- --------
Net cash used in investing activities . . . . . . (933) (1,600)
-------- --------

Cash flows from financing activities:
Repayments of notes payable to banks, net. . . . . . (45,287) (38,301)
Principal payments under capital lease obligations . 0 (229)
Proceeds from the exercise of stock options. . . . . 101 94
-------- --------
Net cash used in financing activities . . . . . . (45,186) (38,436)
-------- --------

Net increase in cash. . . . . . . . . . . . . . . . . . 16 28

Cash at beginning of period . . . . . . . . . . . . . . 18 30
-------- --------

Cash at end of period . . . . . . . . . . . . . . . . . $ 34 $ 58
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . $ 2,986 $ 1,661
Income taxes. . . . . . . . . . . . . . . . . . . 6 5

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

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GOVERNMENT TECHNOLOGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared
by the Company in accordance with the accounting policies described in its
Annual Report on Form 10-K and should be read in conjunction with the Notes
to Financial Statements which appear in that report. The accompanying
interim financial statements do not include all disclosures required by
generally accepted accounting principles.

Net income per share is based on the weighted average number of shares
of common stock and common equivalent shares outstanding during each
period. Common stock equivalents include dilutive stock options and
warrants using the treasury stock method.

2. NOTES PAYABLE TO BANKS

During the fourth quarter of 1995, the Company began negotiations with
a bank (the "Principal Lender") and other lenders ("Other Lenders") to form
a new lending syndicate to obtain a $110.0 million credit facility. On
December 29, 1995, the Company executed an interim credit agreement
("Interim Agreement") with the Principal Lender for $50.0 million and an
intercreditor agreement with the Company's prior bank ("Prior Lender") for
an additional $30.0 million (decreasing to $20.0 million on February 1,
1996 and expiring on February 29, 1996). This intercreditor agreement with
the Prior Lender included terms and conditions similar to those existing
under the previous credit facility with the prior lending syndicate. On
May 2, 1996, the Company executed a three-year credit facility ("Credit
Facility") with the Principal Lender for $40.0 million and with the Other
Lenders for an additional $55.0 million. Additionally, on June 27, 1996,
the Company executed a separate $10.0 million facility with the Principal
Lender for inventory financing of certain vendor products. At June 30,
1996, the Company was not in compliance with two covenants contained in the
Credit Facility. On August 12, 1996, the Company's banks agreed to waive
compliance with the June 30, 1996 application of these covenants. The
Company and its banks are presently discussing the possible amendment of
the Credit Facility to restructure the future application of certain loan
covenants. The Credit Facility can be canceled upon default of certain
conditions and in addition, each Other Lender may elect not to renew each
year by providing notice of such election 120 days before the automatic
annual renewal.

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ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Consolidated Financial Statements and
Notes thereto included elsewhere in this Quarterly Report and the Company's
financial statements and notes thereto incorporated into its Annual Report
on Form 10-K for the year ended December 31, 1995.

OVERVIEW

GTSI is the leading reseller of microcomputer and workstation
hardware, software and networking products to the Federal Government
("Government") market. The Company currently resells more than 70,000
products manufactured by over 500 vendors. GTSI also performs network
integration services, including configuring, installing and maintaining
microcomputers in local area networks. The Company sells to virtually all
departments and agencies of the Government, most state governments and
several hundred systems integrators and prime contractors that sell to the
Government market. GTSI offers its customers a convenient and
cost-effective centralized source for microcomputer and workstation
products through its competitive pricing, broad product selection and
procurement expertise. The Company provides its vendors with a low-cost
marketing and distribution channel to the millions of end users comprising
the Government market, while virtually insulating these vendors from most
of the complex government procurement rules and regulations.

Changes in sales throughout the Company's history have been
attributable to increased or decreased unit sales, to expansion of the
Company's product offerings (e.g., peripherals, microcomputers and
networking and workstation products from 1985 to 1992), to the addition of
new vendors (e.g., IBM, Sun Microsystems, Panasonic and Apple in 1988 to
1993, respectively) and to the addition or expiration of sales contract
vehicles (e.g., the addition of the U.S. Air Force Desktop IV contract, the
National Aeronautics and Space Administration Scientific & Engineering
Workstation Procurement contract and the U.S. Treasury Department
Acquisition-1 contract in 1993, 1995 and 1996, respectively; and the
expiration of the U.S. Navy Companion contract in 1995). The Company's
financial results have fluctuated seasonally, and may continue to do so in
the future, because of the Government's buying patterns which have
historically favorably impacted the last two calendar quarters and
adversely affected the first two calendar quarters.

The Company's primary strategy is to focus on its core GSA Schedule
business and to compete aggressively on bids in order to win as many sales
contract vehicles as possible under the various purchasing programs
available in the Government market. With those contract vehicles in place,
it is then possible for the Company to use its significant product base and
marketing knowledge to sell products which both meet customers'
requirements and provide an attractive financial return to the Company.

- 8 -

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage relationship of selected income
statement items to sales and the percentage change in the dollar amounts of such items.

PERCENTAGE
CHANGE
PERCENTAGE OF SALES -----------------------
-------------------------------------- THREE SIX
THREE SIX MONTHS MONTHS
MONTHS ENDED MONTHS ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
------------------ ------------------ 1996 1996
1996 1995 1996 1995 TO 1995 TO 1995
-------- -------- -------- -------- ---------- ----------

Sales . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 2.2% (3.6)%
Cost of sales . . . . . . . . . . . . . . 93.2 92.8 92.3 92.4 2.7 (3.7)
-------- -------- -------- --------
Gross margin. . . . . . . . . . . . . . . 6.8 7.2 7.7 7.6 (4.0) (2.3)
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative. . . 7.4 9.4 8.8 9.7 (19.7) (12.9)
Depreciation and amortization. . . . . . 0.9 0.9 0.9 0.9 6.2 (0.9)
-------- -------- -------- --------
8.3 10.3 9.7 10.6 (17.5) (11.9)
-------- -------- -------- --------
Loss from operations. . . . . . . . . . . (1.5) (3.1) (2.0) (3.0) (49.1) (36.0)
Interest expense, net . . . . . . . . . . 0.7 0.8 0.8 1.0 (14.8) (18.0)
-------- -------- -------- --------
Loss before taxes . . . . . . . . . . . . (2.2) (3.9) (2.8) (4.0) (41.8) (31.5)
Income tax benefit. . . . . . . . . . . . (0.8) (1.5) (1.0) (1.5) (42.5) (31.9)
-------- -------- -------- --------
Net loss. . . . . . . . . . . . . . . . . (1.4)% (2.4)% (1.8)% (2.5)% (41.3)% (31.3)%
======== ======== ======== ========

The following table sets forth sales by contract vehicle:

(DOLLARS IN THOUSANDS) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------- ---------------------------------------
CONTRACT VEHICLES: 1996 1995 1996 1995
- ----------------- ------------------- ------------------- ------------------- -------------------

IDIQ Contracts. . . . $ 14,059 13.9% $ 21,878 22.2% $ 43,947 24.0% $ 48,410 25.4%
GSA Schedules . . . . 43,508 43.2 45,834 46.4 74,238 40.4 73,064 38.4
Open Market . . . . . 38,202 37.9 25,409 25.8 58.255 31.7 58,776 30.9
Other Contracts . . . 5,040 5.0 5,523 5.6 7,161 3.9 10,136 5.3
--------- --------- --------- --------- --------- --------- --------- ---------
Total . . . . . . . $ 100,809 100.0% $ 98,644 100.0% $ 183,601 100.0% $ 190,386 100.0%
========= ========= ========= ========= ========= ========= ========= =========

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THREE MONTHS ENDED JUNE 30, 1996 COMPARED
WITH THE THREE MONTHS ENDED JUNE 30, 1995

Sales. Sales consist of revenues from product shipments and services
rendered net of allowances for customer returns and credits. In the second
quarter of 1996, sales increased $2.2 million, or 2.2%. An increase in
open market sales of approximately $12.8 million, or 50.3%, was partially
offset by decreases in sales under indefinite-delivery/indefinite-quantity
("IDIQ") contracts and GSA Schedule contracts of $7.8 million and $2.3
million, respectively.

The increase in open market sales resulted primarily from the
commercialization and sell-through of $15.8 million of product originally
purchased for sale under the Company's Desktop IV contract. Sales under
IDIQ contracts declined in the second quarter primarily due to decreased
sales under the Desktop IV contract (as systems ordering expired on
February 1, 1996) and the U.S. Navy Companion contract (which expired on
September 30, 1995) of $6.3 million and $6.2 million, respectively. The
slight decline in sales under the Company's GSA Schedule contracts was
comprised of $6.1 million of reduced GSA Schedule A sales offset by an
increase in sales under GSA Schedule B/C of $3.8 million.

Backlog at June 30, 1996 was approximately $20.3 million, down 1.9%
from approximately $20.7 million at June 30, 1995. Backlog was $24.7
million at August 7, 1996.

Gross Margin. Gross margin is sales less cost of sales (which
includes product purchase cost, freight and certain overhead expenses
related to the cost of acquiring products). Gross margin percentages vary
over time and change significantly depending on the contract vehicle and
product involved; therefore, the Company's overall gross margin percentages
are dependent on the mix and timing of products sold and the strategic use
of contract vehicles that are available to sell its products.

During the second quarter of 1996, gross margin decreased in absolute
dollars by approximately $0.3 million, or 4.0%, and decreased as a
percentage of sales from 7.2% to 6.8% when compared to the same period a
year ago. Although the volume of sales during the second quarter of 1996
was greater than 1995, the $15.8 million of open market sales associated
with near-obsolete inventory was recorded with little or no gross margin.
This was the primary reason for the decline in both gross margin dollars
and gross margin percentage during the second quarter. The change in gross
margin percentages is not necessarily indicative of gross margin
percentages to be earned in future periods.

Operating Expenses. Operating expenses in the second quarter of 1996
decreased approximately $1.8 million, or 17.5%, and decreased as a
percentage of sales from 10.3% to 8.3%. In the second quarter of 1996,
decreases in personnel costs, facility costs, telephone expenses and
contracted services were partially offset by increases in expenditures for

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professional services, equipment maintenance and business taxes/licenses.
In addition, the Company received higher vendor incentives than in the
second quarter of 1995, which contributed to decreased net marketing
expenses. The Company also received $0.8 million in connection with the
settlement of certain litigation, which amount was applied against related
legal and program expenses. Vendor incentives, cooperative advertising and
market development reimbursements are used to partially offset selling,
advertising, promotion and marketing expenses.

Interest Expense. The $123,000, or 14.8%, decrease in net interest
expense in the second quarter of 1996 was due to a combination of lower
average borrowings and lower interest rates, offset by increased bank fees
related to the Interim Agreement and the Credit Facility executed in
December 1995 and May 1996, respectively.

Income Taxes. Tax benefits of $0.9 million and $1.5 million were
recorded in the second quarters of 1996 and 1995, respectively, as a result
of the Company's net operating loss for those respective periods. These
benefits can be realized by carrying back the loss to prior years in which
the Company recorded net income.

SIX MONTHS ENDED JUNE 30, 1996 COMPARED
WITH THE SIX MONTHS ENDED JUNE 30, 1995

Sales. In the first six months of 1996, sales decreased $6.8 million,
or 3.6%. Decreases in sales under IDIQ and Other contracts of $4.5 million
and $3.0 million, respectively, were partially offset by a slight increase
in sales under GSA Schedule contracts of $1.2 million. Sales under IDIQ
contracts declined during the first half of 1996 primarily as a result of
the decreased sales under the U.S. Navy Companion contract (which expired
on September 30, 1995) of $13.6 million. Sales under the Company's Desktop
IV contract increased $1.0 million, or 3.6%, to $29.1 million in 1996. The
slight increase in sales under the Company's GSA Schedule contracts was
comprised of $8.0 million of increased GSA Schedule B/C sales offset by a
decline in sales under GSA Schedule A of $6.8 million. Although open market
sales during the first six months of 1996 were relatively consistent with
the prior year, $15.8 million of product originally purchased for sale
under the Company's Desktop IV contract was commercialized and sold via the
open market during the first half of 1996.

During the fourth quarter of 1995 and the first quarter of 1996, the
executive and legislative branches of the Government could not agree on a
budget for fiscal year 1996. Although the Company cannot precisely
quantify the specific effect of the Government's work stoppages on the
Company's operations, it is believed that sales were negatively impacted
during these periods.

Gross Margin. In the first six months of 1996, gross margin decreased
in absolute dollars by approximately $0.3 million, or 2.3%, and increased
as a percentage of sales from 7.6% to 7.7% when compared to the same period

- 11 -

a year ago. The slight decline in absolute dollars is primarily
attributable to the lower sales volume and was partially offset by the
resolution of a vendor contractual matter. This matter also affected the
overall gross margin percentage, which increased slightly from the first
half of 1995. Additionally, the gross margin percentage was negatively
impacted by the open market sale of near-obsolete inventory noted above,
which earned little or no gross margin. The change in gross margin
percentages is not necessarily indicative of gross margin percentages to be
earned in future periods.

Operating Expenses. Total operating expenses in the first six months
of 1996 decreased $2.4 million, or 11.9%, and decreased as a percentage of
sales from 10.6% to 9.7%. This decrease is primarily attributable to
decreases in personnel and facility costs and higher vendor incentives,
which were partially offset by increases in expenditures for professional
services and consultants. The Company also received $0.8 million in
connection with the settlement of certain litigation, which amount was
applied against related legal and program expenses.

Interest Expense. Net interest expense decreased approximately $0.3
million, or 18.1%, in the first six months of 1996 due to a combination of
lower average borrowings outstanding and lower interest rates, offset by
increased bank fees related to the Interim Agreement and the Credit
Facility executed in December 1995 and May 1996, respectively.

Income Taxes. Tax benefits of $2.0 million and $2.9 million were
recorded during the first six months of 1996 and 1995, respectively, as a
result of the Company's net operating loss for those respective periods.
These benefits can be realized by carrying back the loss to prior years in
which the Company recorded net income.

SEASONAL FLUCTUATIONS AND OTHER FACTORS

The Company has historically experienced and expects to continue to
experience significant seasonal fluctuations in its operations as a result
of Government buying and funding patterns, which also impact the buying
patterns of GTSI's prime contractor customers. These buying and funding
patterns have a significant positive effect on GTSI's bookings in the third
quarter ending September 30 each year (the Government's fiscal year end)
and consequently on sales and net income in the third and fourth quarters
of each year. Quarterly financial results are also affected by the timing
of the award of and shipments of products under government contracts, price
competition in the microcomputer and workstation industries, the addition
of personnel or other expenses in anticipation of sales growth, product
line changes and expansions, and the timing and costs of changes in
customer and product mix. In addition, customer order deferrals in
anticipation of new product releases by leading microcomputer and
workstation hardware and software manufacturers, delays in vendor shipments
of new or existing products, a shift in sales mix to more complex
requirements contracts with more complex service costs, and vendor delays

- 12 -

in the processing of incentives and credits due GTSI, have occurred (all of
which are also likely to occur in the future) and have adversely affected
the Company's operating performance in particular periods. The seasonality
and the unpredictability of the factors affecting such seasonality make
GTSI's quarterly and yearly financial results difficult to predict and
subject to significant fluctuation. The Company's stock price could be
adversely affected if any such financial results fail to meet the financial
community's expectations.

Additionally, legislation is periodically introduced in Congress that
may change the Government's procurement practices. GTSI cannot predict
whether any legislative or regulatory proposals will be adopted or, if
adopted, the impact upon its operating results. Changes in the structure,
composition and/or buying patterns of the Government, either alone or in
combination with competitive conditions or other factors, could adversely
affect future results.

LIQUIDITY AND CAPITAL RESOURCES

During the first six months of 1996, the Company generated $46.1
million of cash flow from operations, as compared to $40.1 million for the
same period in 1995. Most of the increase from year to year relates to a
significant reduction in net operating assets (accounts receivable plus
merchandise inventories less accounts payable) resulting from the Company's
increased focus on collection of accounts receivable and inventory
management. After reduction of approximately $0.9 million of capital
expenditures from the net cash provided by operating activities, overall
short-term notes payable to banks decreased $45.3 million from December 31,
1995. As a result of the Company's seasonal sales patterns, working
capital levels are traditionally lower in the first half of the year and
short-term debt levels are reduced.

Capital expenditures are expected to be approximately $5.1 million in
1996, including expenditures of approximately $1.6 million for equipment
and leasehold improvements related to the Company's new distribution center
(under construction), and approximately $1.5 million for a financial
information system which is expected to be completely installed by the
first quarter of 1997.

- 13 -

Facility") with the Principal Lender for $40.0 million and with the Other
Lenders for an additional $55.0 million. Additionally, on June 27, 1996,
the Company executed a separate $10.0 million facility with the Principal
Lender for inventory financing of vendor products. The Credit Facility can
be canceled upon default of certain conditions and in addition, each Other
Lender may elect not to renew each year by providing notice of such
election 120 days before the automatic annual renewal. At June 30, 1996,
$31.2 million was available to the Company for borrowing under the terms of
its Credit Facility. In addition, interest was payable at a rate of 7.42%
at June 30, 1996.

Interest under the Credit Facility is payable monthly and is accrued
at an effective rate equal to the London Interbank Offered Rate (LIBOR)
plus 2.24%. Borrowing is limited to 85% of eligible accounts receivable.
The Credit Facility is substantially collateralized by all of the operating
assets of the Company. Current obligations are first funded and then all
cash receipts are automatically applied to reduce outstanding borrowings.
The Credit Facility also contains certain covenants, including restrictions
on the payment of dividends and repurchase of stock, and provisions
specifying compliance with certain financial ratios. At June 30, 1996, the
Company was not in compliance with two covenants contained in the Credit
Facility. On August 12, 1996, the Company's banks agreed to waive
compliance with the June 30, 1996 application of these covenants. The
Company and its banks are presently discussing the possible amendment of
the Credit Facility to restructure the future application of certain loan
covenants.

The Company anticipates that it will continue to rely primarily on
operating cash flow, bank loans and vendor credit to finance its reasonably
anticipated cash needs. Such funds should be sufficient to satisfy the
Company's near term anticipated cash requirements for operations.
Nonetheless, the Company may seek additional sources of capital to finance
its operating requirements. The Company currently has no reason to believe
that such capital sources will not be available to it on acceptable terms,
if needed.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS --

On May 31, 1995, the Company received a civil investigative demand
("CID") from the United States Department of Justice ("DOJ") seeking
information relating to the Company's GSA Schedule sales for the years 1988
to the present. The CID sought information regarding the Company's
disclosure to the Government and use of vendor rebates and marketing funds
in connection with such GSA Schedule sales. On January 24, 1996, the
Company received a letter from the DOJ withdrawing the CID. The Company is
continuing to cooperate with a GSA audit of the Company's GSA Schedule
sales by providing information to the GSA's auditors. No reserve has been
provided in the accompanying financial statements concerning this matter
because management is currently unable to estimate a range of exposure, if
any.

On November 27, 1995, the Department of the Air Force issued a final
decision to the Company under its Desktop IV Contract directing the Company
to provide, without additional consideration, "upgrades" to certain
computer software. As required by the contract, the Company has proceeded
to perform in accordance with the final decision. However, the Company
timely filed a complaint on July 31, 1996 with the Armed Services Board of
Contract Appeals contesting the final decision concerning software
upgrades. The Company will vigorously contest the Air Force's final
decision and intends to seek full compensation for the costs it incurs in
connection therewith. The current reserve, established in 1995, is
believed by management to be adequate to cover the costs of compliance with
the Air Force's final decision.

The Company is occasionally a defendant in litigation incidental to
its business. The Company believes that none of such litigation currently
pending against it, individually or in the aggregate, will have a material
adverse effect on the Company's financial condition or results of
operations.

ITEM 2. CHANGES IN SECURITIES -- Inapplicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES -- Inapplicable.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --

(a) The Company's Annual Meeting of Stockholders was held on May 7,
1996.

(b) At said Annual Meeting, the Company's stockholders: (1) elected
seven directors; and (2) approved the 1996 Stock Option Plan.

VOTES
VOTES WITHHELD OR
FOR AGAINST ABSTENTIONS
---------- ------------- -------------
DIRECTORS:
Tania Amochaev 5,385,931 14,925 0
Gerald W. Ebker 5,385,931 14,925 0
Thomas L. Hewitt 5,385,931 14,925 0
Lee Johnson 5,385,334 15,522 0
James J. Leto 5,835,931 14,925 0
Lawrence J. Schoenberg 5,383,820 17,036 0
M. Dendy Young 5,383,213 17,643 0

1996 STOCK OPTION PLAN 2,975,634 578,554 82,465

ITEM 5. OTHER INFORMATION -- Inapplicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K --

(a) Exhibits:

11.1 Computation of Earnings Per Share

(b) Reports on Form 8-K:

On June 21, 1996, the Registrant filed a report on Form 8-K
reporting a change in the Registrant's Certifying Accountant from
Coopers & Lybrand LLP to Arthur Andersen LLP.

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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: August 14, 1996

GOVERNMENT TECHNOLOGY SERVICES, INC.

By: /s/ M. DENDY YOUNG
--------------------------------------
M. Dendy Young
President and Chief Executive Officer

By: /s/ PETER E. JANKE
--------------------------------------
Peter E. Janke
Executive Vice President and
Chief Financial Officer

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INDEX TO EXHIBITS

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- --------------------------------------- -------------

11.1 Computation of Earnings Per Share 19

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