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: September 30, 2001

             [ ] Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934


                         Commission file number: 1-8443


                                TELOS CORPORATION
             (Exact name of registrant as specified in its charter)


         Maryland                                         52-0880974
  (State of Incorporation)                  (I.R.S. Employer Identification No.)


 19886 Ashburn Road, Ashburn, Virginia                    20147-2358
(Address of principal executive offices)                  (Zip Code)


                         Registrant's Telephone Number,
                      including area code: (703) 724-3800


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO

As of November 10, 2001, the registrant had 21,171,202 shares of Class A Common
Stock, no par value, and 4,037,628 shares of Class B Common Stock, no par value;
and 3,185,586 shares of 12% Cumulative Exchangeable Redeemable Preferred Stock
par value $.01 per share, outstanding.

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

Number of pages in this report (excluding exhibits): 19



<PAGE>




                       TELOS CORPORATION AND SUBSIDIARIES

                                      INDEX




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



Item 1.        Financial Statements:

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

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

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

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

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

Item 3.   Quantitative and Qualitative Disclosures about Market Risk..........17



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


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

Item 3.        Defaults Upon Senior Securities................................18

Item 4.        Submission of Matters to a Vote of Security Holders............18

Item 5.        Other Information..............................................18

Item 6.        Exhibits and Reports on Form 8-K...............................18

SIGNATURES....................................................................19




<PAGE>


                         PART I - FINANCIAL INFORMATION

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


                                   Three Months Ended       Nine Months Ended
                                    September 30,             September 30,
                                   ----------------         ----------------
                                    2001      2000        2001          2000
                                   ------   -------     -------       -------
Sales
    Systems and Support Services  $ 14,882  $ 13,384     $ 45,582      $ 34,278
    Products                        18,582    18,709       65,017        50,446
    Xacta                            3,477     2,781        9,620         6,155
                                    ------    ------       ------        ------
                                    36,941    34,874      120,219        90,879

Costs and expenses
    Cost of sales                   30,357    30,694       99,321        78,631
    Selling, general and
     administrative expenses         4,832     4,189       17,383        12,636
    Goodwill amortization               62        71          187           250
                                        --        --          ---           ---
    Operating income (loss)          1,690       (80)       3,328          (638)
                                     -----       ---        -----          ----

Other income (expenses)
    Equity in earnings of Telos OK      --       321           --         2,328
    Other income                        46         4           68            42
    Interest expense                  (897)   (1,151)      (3,191)       (3,514)
                                     ------   -------      -------       -------
Income (loss) before taxes             839    (  906)         205        (1,782)
Income tax provision                  (261)   (1,355)        (112)       (1,172)
                                     ------   -------      -------       -------

Net income (loss)                   $  578  $ (2,261)      $   93      $ (2,954)
                                    ======    =======      ======        =======





















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


<PAGE>

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

<TABLE>
                                                  September 30, 2001     December 31, 2000
                                                  ------------------     -----------------
<CAPTION>
<S>                                                     <C>                 <C>
Current assets
    Cash and cash equivalents (includes restricted
     cash of $54 at September 30, 2001 and
         December 31, 2000)                             $   218             $   286
    Accounts receivable, net                             26,837              45,682
    Inventories, net                                      5,201               7,045
    Deferred income taxes                                 2,840               3,256
    Other current assets                                  1,907                 404
                                                         ------               -----
       Total current assets                              37,003              56,673

Property and equipment, net of
    accumulated depreciation of
    $10,631 and $9,331, respectively                     11,596              12,319
Goodwill, net                                             2,561               2,749
Investment in Enterworks                                     --                  --
Investment in Telos OK                                       --                  --
Deferred income taxes, long term                          4,719               4,603
Other assets                                                141                 746
                                                         ------              ------
                                                       $ 56,020            $ 77,090
                                                       ========            ========



                    LIABILITIES AND STOCKHOLDERS' INVESTMENT

Current liabilities
     Accounts payable                                  $ 14,792            $ 19,049
     Other current liabilities                            3,113               2,438
     Unearned revenue                                     7,360               8,609
     Senior subordinated notes                            8,179               1,151
     Senior credit facility                              11,018                  --
     Accrued compensation and benefits                    5,360               7,178
                                                         ------              ------
       Total current liabilities                         49,822              38,425

Senior credit facility                                       --              25,460
Senior subordinated notes                                    --               7,386
Capital lease obligations                                10,817              11,030
                                                         ------              ------
       Total liabilities                                 60,639              82,301
                                                         ------              ------

Redeemable preferred stock
     Senior redeemable preferred stock                    6,796               6,480
     Redeemable preferred stock                          45,527              42,352
                                                         ------              ------
       Total preferred stock                             52,323              48,832
                                                         ------              ------

Stockholders' investment
     Common stock                                            78                  78
     Capital in excess of par                                --               2,718
     Retained deficit                                   (57,020)            (56,839)
                                                        --------            --------
       Total stockholders' investment (deficit)         (56,942)            (54,043)
                                                       --------            --------
                                                       $ 56,020            $ 77,090
                                                         ======              ======
</TABLE>




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


<PAGE>


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

                                                                  Nine Months
                                                             Ended September 30,
                                                             -------------------
                                                              2001         2000
                                                              ----         ----
Operating activities:
     Net income (loss)                                     $   93       $(2,954)
       Adjustments to reconcile net loss to cash
       provided by (used in) operating activities:
     Depreciation and amortization                          1,388         1,260
     Goodwill amortization                                    188           250
     Other noncash items                                      476            93
     Changes in assets and liabilities                     13,351        (3,743)
                                                           ------        ------
         Cash provided by (used in) operating activities   15,496        (5,094)
                                                           ------         -----

Investing activities:
     Proceeds from investment in TelosOK, LLC                  --         6,000
     Purchases of property and equipment                     (535)       (1,447)
                                                           ------        ------
         Cash (used in) provided by investing activities     (535)        4,553
                                                           ------        ------

Financing activities:
     (Repayment of) proceeds from borrowings under senior
      credit facility                                     (14,442)          880
     Repayment of Series C subordinated note                 (358)           --
     Payments under capital leases                           (229)         (255)
                                                           ------         -----
         Cash (used in) provided by financing activities  (15,029)          625
                                                           ------         -----
         (Decrease) increase in cash and cash equivalents     (68)           84
         Cash and cash equivalents at beginning of period     286           315
                                                              ---           ---
         Cash and cash equivalents at end of period        $  218        $  399
                                                            =====         =====












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


<PAGE>


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


Note 1.  General

     The accompanying  condensed consolidated financial statements are unaudited
and include the  accounts of Telos  Corporation  ("Telos")  and its wholly owned
subsidiaries   (collectively,    the   "Company").    Significant   intercompany
transactions   have  been  eliminated.   In  the  opinion  of  management,   the
accompanying  financial statements reflect all adjustments and reclassifications
(which  include  only normal  recurring  adjustments)  necessary  for their fair
presentation  in  conformity  with  generally  accepted  accounting  principles.
Interim  results  are not  necessarily  indicative  of fiscal  year  performance
because of the impact of seasonal and  short-term  variations.  These  financial
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements  and notes thereto  included in the  Company's  annual report on Form
10-K for the fiscal year ended December 31, 2000.

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

     On September 29, 2000, FASB Statement No. 140 ("SFAS 140")  "Accounting for
Transfers and Servicing of Financial Assets and  Extinguishment of Liabilities",
was issued.  The new standard  replaces FASB Statement No. 125,  "Accounting for
Transfers and Servicing of Financial Assets and  Extinguishment  of Liabilities"
and becomes  effective for transfers entered into after March 31, 2001. SFAS 140
provides  accounting  and  reporting  standards  for  transfers and servicing of
financial assets and extinguishments of liabilities.  The implementation of SFAS
140 did not have a  material  impact  on the  Company's  consolidated  financial
statements.

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

     SFAS No. 142  addresses  financial  accounting  and  reporting for acquired
goodwill and other  intangible  assets.  Implementation  of this  Statement will
require  the Company to cease  amortization  of goodwill  and  goodwill  will be
tested for impairment at least  annually at the reporting  unit level.  Goodwill
will be  tested  for  impairment  on an  interim  basis  if an event  occurs  or
circumstances change that would more-likely-than-not  reduce the fair value of a
reporting unit below its carrying value.  Intangible  assets that are subject to
amortization  will be  reviewed  for  impairment  in  accordance  with  SFAS 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". The provisions of SFAS 142 are required to be applied  starting
with fiscal  years  beginning  after  December  15, 2001 and will  therefore  be
applied  for the year  ending  December  31,  2002.  The  Company  is  currently
evaluating the impact and  materiality  thereof,  if any, of SFAS No. 142 on its
financial statements and related disclosures.

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

     In October  2001,  FASB  Statement No. 144 (SFAS 144)  "Accounting  for the
Impairment  or Disposal of  Long-lived  Assets" was issued.  SFAS 144  addresses
financial  accounting and reporting for the impairment or disposal of long-lived
assets and this statement supercedes FASB Statement No. 121, "Accounting for the
Impairment of Long-lived  Assets and for  Long-lived  Assets to be Disposed Of".
The Company is currently  evaluating the impact and materiality thereof, if any,
of SFAS 144 on its financial statements and related disclosures.

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

<PAGE>

Note 2.  Contribution of Assets

     On July 27, 2000, the Company  entered into a  subscription  agreement with
certain investors ("Investors"), which provided for the formation of an Oklahoma
Limited  Liability  Company  named  Telos  OK,  LLC  ("TelosOK").   The  Company
contributed  all  of the  assets  of  its  Digital  Systems  Test  and  Training
Simulators  ("DSTATS")  business  as well as its  Government  Contract  with the
Department of the Army at Ft. Sill  (hereafter  referred to as the Company's Ft.
Sill  operation) to TelosOK.  The net assets  contributed by the Company totaled
$373,000.  The  Investors  contributed  $3.0 million in cash to TelosOK,  and at
closing  TelosOK  borrowed  $4.0 million  cash from a bank.  The Company and the
Investors have each jointly and severally  guaranteed  the loan of TelosOK.  The
Company has guaranteed $2 million and the Investors  have  guaranteed $1 million
pari passu. This loan has an outstanding  balance of approximately  $3.0 million
at September  30,  2001.  In addition,  TelosOK  entered into a $500,000  senior
credit facility with the same bank, which was subsequently increased to $750,000
on September 30, 2001, with an expiration date of December 31, 2001.  Borrowings
under the facility,  if any, will be collateralized by certain assets of TelosOK
(primarily  accounts  receivable).  The Company and the Investors have agreed to
guarantee  this credit  facility  in the amount of $250,000  each of the current
$750,000 when and if drawn.

     In  compliance  with the  subscription  agreement,  on the closing date the
following  consideration was given to the Company for its contribution of assets
to TelosOK:

          The Company received $6 million in cash, retained $2.5 million in
          trade receivables of the Ft. Sill and DSTATS businesses, and received
          a $500,000 receivable from TelosOK for a total consideration of $9
          million for the contribution of the net assets.

     The Company and the Investors each own a 50% voting membership  interest in
TelosOK,  and have  signed  an  operating  agreement  which  provides  for three
subclasses  of  membership  units,  Classes A, B and C. The  ownership  of these
classes is as follows and can change upon Class B redemption:

     Class A - owns 20% of TelosOK.  The Company and the Investors  each own 50%
     of the 200,000 units of this class.  This class possesses all voting rights
     of TelosOK and the sole right to elect the directors of TelosOK.  The units
     in this class do not have redemption rights.

     Class B - owns 40% of TelosOK.  The  Investors own all 2.9 million units of
     this class.  This class has no voting rights,  but can,  subject to certain
     restrictions,  request  the  redemption  of all or a portion of the Class B
     units  outstanding  one year after the  closing  date.  Class B holders can
     redeem no more than 500,000 units per quarter at a price of $1.00 per unit,
     and such  redemption  can only be made from the excess cash flow of TelosOK
     as defined in the operating agreement.

     Class C- owns 40% of  TelosOK.  The Company  owns all 2.9 million  units of
     this class.  This class has no voting rights,  and has the same  redemption
     rights as Class B, except that no right of redemption  will exist until all
     Class B units  have been  redeemed.  In  addition,  when any of the Class B
     units are redeemed,  the Company will receive a warrant to purchase Class C
     units equal to the amount of the Class B units redeemed at a price of $0.01
     per unit.

     As indicated in the  operating  agreement,  one of the  Investors,  Bill W.
Burgess, will serve as Chairman of the Board and may designate a Secretary,  and
David Aldrich,  President and CEO of the Company, and Thomas Ferrara,  Treasurer
and CFO of the Company,  will serve in those same  capacities  for TelosOK.  The
Company has entered into a corporate services agreement with TelosOK whereby the
Company  will  provide  certain  administrative  support  functions  to TelosOK,
including  but not limited to finance and  accounting  and human  resources,  in
consideration for a monthly cash payment.

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

                                       (in thousands)
                                     September 30, 2000

                                3-mos. ended    9-mos. ended
                                ------------    ------------

         Sales                    $ 1,774         $13,339
         Cost of Sales             (1,453)        (11,011)
                                   -------        --------
         Gross profit             $   321         $ 2,328
                                      ===           =====

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


<PAGE>

Note 3.  Debt Obligations

Senior Credit Facility

     The Company has a $25 million Senior Credit Facility ("Facility") with Bank
of America that matures on March 1, 2002.  This  Facility was $35 million and on
August 31, 2001,  was reduced by an agreement  with the bank to $25 million.  At
September 30, 2001,  the Facility was  classified as a current  liability as the
Facility  has a term of less than one year.  Borrowings  under the  Facility are
collateralized  by  a  majority  of  the  Company's  assets  including  accounts
receivable,  inventory, and Telos' stock in its subsidiaries and affiliates. The
amount   of   available   borrowings   fluctuates   based   on  the   underlying
asset-borrowing base, as defined in the Facility agreement. On October 20, 2001,
the Company was notified that Bank of America had assigned 100% participation of
this Facility to Endeavour, LLC.

Senior Subordinated Notes

     In 1995 the Company issued Senior  Subordinated  Notes ("Notes") to certain
shareholders.  The Notes are classified as either Series B or Series C. Series B
Notes are  collateralized  by fixed  assets of the  Company.  Series C Notes are
unsecured.  In April 2001, the Company  retired one of its Series C subordinated
notes with a principal  amount of  $358,000.  Of the  remaining  $8.2 million in
combined  principal  of the Series B and Series C Notes at  September  30, 2001,
approximately $800,000 of the Notes became currently due and payable as of April
1,  2001,  and the  remaining  $7.4  million  becomes  payable on April 1, 2002.
Interest is paid  quarterly on January 1, April 1, July 1, and October 1 of each
year.  The Notes can be prepaid at the  Company's  option.  Additionally,  these
Notes have a  cumulative  payment  premium of 13.5% per annum  payable only upon
certain circumstances. These circumstances include an initial public offering of
the Company's common stock or a significant refinancing,  to the extent that net
proceeds from either of the above events are received and are  sufficient to pay
the premium. Due to the contingent nature of the premium payment, the associated
premium  expense  will only be recorded  after the  occurrence  of a  triggering
event.  At September 30, 2001, the  prepayment  premium that would be due upon a
triggering event is approximately $9.7 million.

     The balance of the Series B Notes was $5.5  million at  September  30, 2001
and December 31, 2000.  The balances of the Series C Notes were $2.6 million and
$3.0  million,  respectively,  at September  30, 2001 and December 31, 2000.  At
September  30, 2001,  the Series B and Series C notes are  classified as current
liabilities as they have a term of less than one year.

Note 4.       Preferred Stock

Senior Redeemable Preferred Stock

     The components of the senior redeemable  preferred stock are Series A-1 and
Series  A-2,  each with $.01 par  value and 1,250 and 1,750  shares  authorized,
issued  and  outstanding,  respectively.  The  Series A-1 and Series A-2 carry a
cumulative  per annum  dividend  rate of 14.125% of their  liquidation  value of
$1,000  per  share.  The  dividends  are  payable  semi-annually  on June 30 and
December 31 of each year.  The  liquidation  preference of the senior  preferred
stock is the face amount of the Series A-1 and A-2 ($1,000 per share),  plus all
accrued and unpaid  dividends.  The  Company is required to redeem  821.4 of the
outstanding  shares of the stock on  December  31,  2001,  subject  to the legal
availability of funds. The remaining  2,178.6 shares and their accrued dividends
are required to be redeemed on April 1, 2002  subject to the legal  availability
of funds.  Mandatory redemptions are required from excess cash flows, as defined
in the stock agreements. The Series A-1 and A-2 Preferred Stock is senior to all
other present and future equity of the Company.  The Series A-1 is senior to the
Series A-2.  The Company has not  declared  dividends  on its senior  redeemable
preferred stock since its issuance.  At September 30, 2001 and December 31, 2000
cumulative  undeclared,   unpaid  dividends  relating  to  Series  A-1  and  A-2
redeemable preferred stock totaled $3,796,000 and $3,480,000 respectively.

12% Cumulative Exchangeable Redeemable Preferred Stock

     A maximum of 6,000,000  shares of 12%  Cumulative  Exchangeable  Redeemable
Preferred Stock (the "Public  Preferred  Stock"),  par value $.01 per share, has
been authorized for issuance.  The Company  initially issued 2,858,723 shares of
the Public  Preferred  Stock  pursuant to the  acquisition of the Company during
fiscal year 1990. The Public  Preferred  Stock was recorded at fair value on the
date of original  issue,  November 21, 1989, and the Company is making  periodic
accretions  under the interest method of the excess of the redemption value over
the recorded  value.  Accretion for the nine months ended September 30, 2001 was
$1.3 million.  The Company  declared stock dividends  totaling 736,863 shares in
1990 and 1991. No other  dividends,  in stock or cash,  have been declared since
1991.

     In  November  1998,  the  Company  retired  410,000  shares  of the  Public
Preferred Stock held by certain shareholders.  The Company repurchased the stock
at $4.00 per share. The carrying value of these shares was determined to be $3.8
million,  and the $2.2 million excess of the carrying  amount of these shares of
Public Preferred Stock over the redemption price of $1.6 million was recorded as
an increase in capital in excess of par; there was no impact on income from this
transaction.

     The Public  Preferred  Stock has a 20 year maturity,  however,  the Company
must redeem, out of funds legally  available,  20% of the Public Preferred Stock
on the 16th 17th, 18th and 19th  anniversaries of November 12, 1989, leaving 20%
to be redeemed at  maturity.  On any dividend  payment  date after  November 21,
1991, the Company may exchange the Public  Preferred Stock, in whole or in part,
for  12%  Junior   Subordinated   Debentures  that  are  redeemable  upon  terms
substantially  similar to the Public  Preferred  Stock and  subordinated  to all
indebtedness for borrowed money and like obligations of the Company.

     The Public  Preferred  Stock accrues a  semi-annual  dividend at the annual
rate of 12% ($1.20) per share,  based on the  liquidation  preference of $10 per
share and is fully  cumulative.  Through  November 21, 1995, the Company had the
option to pay dividends in additional shares of Preferred Stock in lieu of cash.
Dividends in additional  shares of the Preferred  Stock were paid at the rate of
6% of a share for each $.60 of such  dividends  not paid in cash.  Dividends are
payable by the Company,  provided the Company has legally  available funds under
Maryland law, when and if declared by the Board of Directors, commencing June 1,
1990, and on each six month anniversary thereof. For the years 1992 through 1994
and for the dividend  payable June 1, 1995,  the Company has accrued  undeclared
dividends in additional  shares of preferred stock.  These accrued dividends are
valued at $3,950,000.  Had the Company  accrued these dividends on a cash basis,
the total amount  accrued would have been  $15,101,000.  For the cash  dividends
payable since December 1, 1995, the Company has accrued $24,412,000.

     Based upon the Company's interpretation of charter provisions pertaining to
restrictions  upon payment of dividends,  similar dividend payment  restrictions
contained in its Senior Credit  Facility,  and limitations  pursuant to Maryland
law,  the Company has not  declared or paid  dividends  on its public  preferred
stock since 1991.

Note 5.  Reportable Business Segments

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

     At September 30, 2001, the Company has three reportable segments:

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

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

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

     The Company  evaluates the  performance of its operating  segments based on
revenue,  gross profit and income before  goodwill  amortization,  income taxes,
non-recurring  items and interest income or expense.  Certain  businesses within
the Xacta segment in 2000 were  transferred  to the Products  segment  beginning
January  2001.  The 2000 segment  disclosure  has been amended to conform to the
2001 change.


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

                       Systems and
                       Support Services   Products    Xacta    Other (1)  Total

September 30, 2001
External Revenues            $14,882      $18,582   $ 3,477    $    --  $36,941
Intersegment Revenues            118        4,875        --         --    4,993
Gross Profit                   1,295        3,908     1,381         --    6,584
Segment profit(loss)(3)         (259)       2,276      (265)        --    1,752
Total assets                   9,028       18,881     5,199     22,912   56,020
Capital Expenditures              24            3        31         28       86
Depreciation &
 Amortization(2)              $   75      $    91   $    64    $   277  $   507

                       Systems and
                       Support Services   Products    Xacta     Other (1) Total

September 30, 2000
External Revenues            $13,384      $18,709   $ 2,781    $    --  $34,874
Intersegment Revenues             --           --        --         --       --
Gross Profit                   1,175        1,965     1,040         --    4,180
Segment profit(loss)(3)        (359)           19       331         --       (9)
Total assets                  9,110        22,171     3,094     22,745    57,120
Capital Expenditures             76          (32)        78        364       486
Depreciation &
 Amortization(2)             $   88       $   86    $    18    $   310  $    502


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

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

Note 6.  Investment in Enterworks

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

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

     During the third quarter of 2001, the Company  received two separate Demand
10% Convertible  Promissory Notes from Enterworks totaling $200,000,  as well as
warrants to purchase  500,000 of underlying  shares of Enterworks  common stock.
The Company will receive the remaining  $300,000 in Demand Notes and warrants to
purchase the remaining  750,000 shares from  Enterworks in the fourth quarter of
2001.  The  warrants to purchase the shares of  Enterworks  common stock have an
exercise price of $0.01 per share and an exercise period of five years.

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

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

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


<PAGE>

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

General

     Sales for the first nine months of 2001 were $120.2 million, an increase of
$29.3  million or 32.3% as compared to the same 2000 period.  This  increase was
primarily  attributable to a $14.6 million  increase in sales from the Company's
Products Group, which experienced increased sales from its traditional contracts
with the  federal  government  such as the  Infrastructure  Solutions 1 ("IS-1")
contract,  the  Realtime  Automated  Personnel  Identification  System  contract
("RAPIDS"),  and the Data Communication Network Contract servicing the US Courts
("DCN  US  Courts").  The  increase  in  sales  was  also  attributable  to  the
pass-through  sales from its prime  relationship on the Ft. Sill contract.  This
contract was contributed to TelosOK in July 2000,  however,  the Company remains
as the prime  contractor  until the  contract  is  successfully  novated  by the
government.  The Xacta Group also experienced an increase in revenue, mostly due
to increased sales of its information security products and
solutions.

     Operating  income through the first nine months of 2001 was $3.3 million as
compared to an operating  loss of  approximately  $600,000  during the same 2000
period.  Operating profitability improved principally because of increased sales
volume coupled with improved  profits  realized under the Company's  traditional
businesses.

     Total backlog from existing contracts was approximately  $124.3 million and
$124.4 million as of September 30, 2001 and December 31, 2000, respectively.  As
of September 30, 2001, the funded backlog of the Company  totaled $36.8 million,
a decrease of $6.2 million from  December 31, 2000.  Funded  backlog  represents
aggregate  contract  revenues  remaining  to be earned by the Company at a given
time, but only to the extent, in the case of government  contracts,  funded by a
procuring government agency and allotted to the contracts.

Results of Operations

     The condensed consolidated  statements of operations include the results of
operations of Telos  Corporation  and its wholly owned  subsidiaries.  The major
elements of the  Company's  operating  expenses as a percentage of sales for the
three and nine month periods ended September 30, 2001 and 2000 are as follows:


                                    Three Months Ended       Nine Months Ended
                                       September 30,           September 30,
                                    ------------------        -----------------

                                        2001      2000        2001     2000
                                        ----      ----        ----     ----

Sales                                  100.0%    100.0%      100.0%   100.0%
Cost of sales                           82.2      88.0        82.6     86.5
SG&A expenses                           13.0      12.0        14.4     13.9
Goodwill amortization                    0.2       0.2         0.2      0.3
                                        ----     -----        ----     ----

Operating income (loss)                  4.6      (0.2)        2.8     (0.7)
Other income                             0.1        --         0.1       --
Equity in net earnings of TelosOK         --       0.9          --      2.6
Interest expense                        (2.4)     (3.3)       (2.7)    (3.9)
Income tax provision                    (0.7)     (3.9)       (0.1)    (1.3)
                                       -----     -----      ------    -----
Net income (loss)                        1.6%     (6.5)%       0.1%    (3.3)%
                                         ===      =====        ===      ===



<PAGE>


Financial Data by Market Segment

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

                                   Three Months Ended          Nine Months Ended
                                      September 30,               September 30,
                                      -------------               -------------
                                     2001        2000           2001        2000
                                     ----        ----           ----        ----
                                                (amounts in thousands)
Sales:
   Systems and Support Services    $ 14,882    $13,384       $ 45,582   $ 34,278
   Products                          18,582     18,709         65,017     50,446
   Xacta                              3,477      2,781          9,620      6,155
                                      -----      -----          -----      -----

   Total                           $ 36,941    $34,874       $120,219   $ 90,879
                                   ========    =======       ========   ========


Gross Profit:
   Systems and Support Services    $  1,295    $ 1,175       $  4,212   $  3,893
   Products                           3,908      1,965         13,308      6,589
   Xacta                              1,381      1,040          3,378      1,766
                                      -----      -----          -----      -----

   Total                           $  6,584    $ 4,180       $ 20,898   $ 12,248
                                   ========    =======       ========   ========


Gross Margin:
   Systems and Support Services        8.7%       8.8%           9.2%      11.4%
   Products                           21.0%      10.5%          20.5%      13.1%
   Xacta                              39.7%      37.4%          35.1%      28.7%
   Total                              17.8%      12.0%          17.4%      13.5%

     For the three month period ended  September  30, 2001,  sales  increased by
$2.0 million,  or 5.9% to $36.9  million from $34.9  million for the  comparable
2000 period.  The increase in sales was  attributable to the Systems and Support
Services Group,  which  experienced an increase of $1.5 million in sales for the
three month period ended September 30, 2001 compared to the same period in 2000.
The Xacta Group also experienced an increase in revenue,  mostly attributable to
sales from its information security products and solutions.

     Sales  increased  $29.3  million  or 32.3% to $120.2  million  for the nine
months ended  September  30, 2001,  from $90.9 million for the  comparable  2000
period. The increase for the nine-month period includes a $14.5 million increase
in Products' sales, an increase of $11.3 million in Systems and Support Services
sales,  and an increase of $3.5 million in Xacta  revenue.  This increase in the
nine-month  revenue  is  primarily  due to the  increases  in  revenue  from the
Products Group traditional businesses as well as the pass-through sales contract
as mentioned  above.  These increases were enhanced by increased sales under the
Information Security product line of $3.5 million.

     Cost of sales was 82.2% of sales for the quarter and 82.6% of sales for the
nine months ended  September  30,  2001,  as compared to 88.0% and 86.5% for the
same periods in 2000.  The  reductions in cost of sales as a percentage of sales
are  primarily  attributable  to increased  profits  realized on Products  Group
traditional contracts, such as IS-1, ATWCS and Courts, and from increased orders
under the Company's information security product line.

     Gross profit increased approximately $2.4 million in the three-month period
to $6.6 million in 2001, from $4.2 million in the comparable 2000 period.  Gross
profit increased $8.7 million in the nine-month  period to $20.9 million in 2001
from $12.2 million in 2000.  Gross  margins were 17.8% and 17.4%,  respectively,
for the three and nine  month  periods of 2001 as  compared  to 12.0% and 13.5%,
respectively, for the comparable periods of 2000.

     Selling,   general,  and  administrative   expense  ("SG&A")  increased  by
approximately  $600,000 or 15.3%,  to $4.8 million in the third  quarter of 2001
from  $4.2  million  in the  comparable  period  of  2000,  which  is  primarily
attributable to the Company's increased  investment in Xacta. For the nine month
period of 2001, SG&A increased  approximately $4.7 million to $17.4 million from
$12.7  million in 2000,  which is  primarily  due to an  approximately  $600,000
write-off of an  investment  made in an  international  joint venture as well as
increased investment in the product development,  sales and marketing effort for
Xacta.

     SG&A as a percentage  of revenues  increased to 13.1% for the third quarter
of 2001 from  12.0% in the  comparable  2000  period.  SG&A as a  percentage  of
revenues for the nine-month  period ended  September 30, 2001 increased to 14.4%
from 13.9% compared to the same period in 2000.

     Goodwill   amortization   expense  decreased  $9,000  for  the  comparative
three-month  periods of 2001 and 2000,  and decreased by $63,000 to $187,000 for
the nine months ended  September  30, 2001  compared to the same period in 2000.
The reductions are exclusively due to the goodwill transfer  associated with the
TelosOK transaction.

     The  operating  income  of  the  Company   increased  by  $1.8  million  to
approximately  $1.7 in the  three-month  period ended September 30, 2001 from an
operating  loss of $80,000  in the  comparable  2000  period.  Operating  income
increased $4.0 million to  approximately  $3.3 million for the nine months ended
September  30,  2001 from a $600,000  operating  loss for the nine month  period
ended  September 30, 2000.  The increases in operating  profit for the three and
nine month  periods are mostly  attributable  to the  increases  in gross profit
discussed above.

     In order to present the statement of operations in accordance  with APB 18,
the  revenues  and  costs of sales for the Ft.  Sill  operation  contributed  to
TelosOK were  presented in one line item "Equity in Net Earnings of TelosOK" for
the three and nine months ended  September 30, 2000 (See Note 2). For 2000,  the
three month and nine month Equity in Net Earnings of TelosOK were  approximately
$300,000 and $2.3 million, respectively. The Company, under APB 18, is unable to
recognize its pro rata share of the income generated by TelosOk for 2001, as the
Company's capital account for TelosOK is negative.

     Interest expense decreased  approximately $300,000 to $900,000 in the third
quarter of 2001 from  approximately  $1.2 million in the comparable 2000 period,
and decreased  approximately  $300,000 to $3.2 million for the nine months ended
September  30, 2001 from $3.5  million for the  comparable  2000  period.  These
decreases  are primarily  due to decreased  debt levels and  declining  interest
rates in the third quarter of 2001 compared to 2000.

     The Company  recorded an income tax provision for the three and nine months
ended  September  30,  2001 of $261,000  and  $112,000,  respectively.  This tax
provision was  principally due to the net income  generated by the Company.  The
Company's  net deferred tax assets  totaled $7.6 million at September  30, 2001.
Failure to achieve forecasted taxable income may affect the ultimate realization
of the net deferred tax assets.  Management  believes the Company will  generate
taxable  income in excess of operating  losses  sufficient in amounts to realize
the net deferred  tax assets.  The Company  recorded an income tax  provision of
$1.4 million and $1.2 million for the three and nine months ended  September 30,
2000,  respectively.  The  provision  incurred  was a result of the taxable gain
generated from proceeds  received from the  contribution of assets to TelosOK in
July 2000 (see Note 2).

Liquidity and Capital Resources

     For the nine months ended  September 30, 2001, the Company  generated $15.5
million  of cash in its  operating  activities.  This  cash  was  provided  by a
reduction in the Company's accounts receivable balance of $18.8 million,  offset
by decreases in accounts payable of $4.3 million. Investing activities accounted
for approximately $500,000. The Company used cash to reduce borrowings under the
Company's  credit  facility of $14.4 million,  and to repay $358,000 of Series C
Notes.

     At  September  30, 2001,  the Company had  outstanding  debt and  long-term
obligations  of $30.2  million,  consisting  of $11.0  million under the secured
senior credit facility,  $8.2 million in subordinated debt, and $11.0 million in
capital lease obligations. The Company believes it will generate enough funds in
the ordinary course of business, or from a debt or equity financing,  during the
next twelve months to fund its operations and service its debt and capital lease
obligations.

     At September  30,  2001,  the Company had an  outstanding  balance of $11.0
million on its $25 million Senior Credit Facility (the "Facility"). The Facility
matures on March 1, 2002 and is  collateralized  by a majority of the  Company's
assets  (including  inventory,  accounts  receivable  and  Telos'  stock  in its
subsidiaries and affiliates).  The amount of borrowings  fluctuates based on the
underlying  asset  borrowing  base  as  well as the  Company's  working  capital
requirements.  The Facility has various  covenants that may, among other things,
restrict  the  ability  of the  Company to merge with  another  entity,  sell or
transfer  certain  assets,  pay  dividends and make other  distributions  beyond
certain  limitations.  The  Facility  also  requires the Company to meet certain
leverage,  net worth,  interest  coverage and operating  goals. The Facility has
been  classified as a current  liability at September 30, 2001, as it has a term
of less than one year.  On October 20, 2001,  the Company was notified that Bank
of America had assigned 100% participation of this Facility to Endeavour, LLC.

New Accounting Pronouncements

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

     On September 29, 2000, FASB Statement No. 140 ("SFAS 140")  "Accounting for
Transfers and Servicing of Financial Assets and  Extinguishment of Liabilities",
was issued.  The new standard  replaces FASB Statement No. 125,  "Accounting for
Transfers and Servicing of Financial Assets and  Extinguishment  of Liabilities"
and becomes  effective for transfers entered into after March 31, 2001. SFAS 140
provides  accounting  and  reporting  standards  for  transfers and servicing of
financial assets and extinguishments of liabilities.  The implementation of SFAS
140 did not have a  material  impact  on the  Company's  consolidated  financial
statements.

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

     SFAS No. 142  addresses  financial  accounting  and  reporting for acquired
goodwill and other  intangible  assets.  Implementation  of this  Statement will
require  the Company to cease  amortization  of goodwill  and  goodwill  will be
tested for impairment at least  annually at the reporting  unit level.  Goodwill
will be  tested  for  impairment  on an  interim  basis  if an event  occurs  or
circumstances change that would more-likely-than-not  reduce the fair value of a
reporting unit below its carrying value.  Intangible  assets that are subject to
amortization  will be  reviewed  for  impairment  in  accordance  with  SFAS 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". The provisions of SFAS 142 are required to be applied  starting
with fiscal  years  beginning  after  December  15, 2001 and will  therefore  be
applied  for the year  ending  December  31,  2002.  The  Company  is  currently
evaluating  the impact of SFAS No. 142 on its financial  statements  and related
disclosures.

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

     In October  2001,  FASB  Statement No. 144 (SFAS 144)  "Accounting  for the
Impairment  or Disposal of  Long-lived  Assets" was issued.  SFAS 144  addresses
financial  accounting and reporting for the impairment or disposal of long-lived
assets and this statement supercedes FASB Statement No. 121, "Accounting for the
Impairment of Long-lived  Assets and for  Long-lived  Assets to be Disposed Of".
The Company is currently  evaluating the impact and materiality thereof, if any,
of SFAS 144 on its financial statements and related disclosures.

Forward-Looking Statements

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

Certain Factors That May Affect Future Results

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

     A number of  uncertainties  exist that could  affect the  Company's  future
operating results,  including,  without limitation,  general economic conditions
which in the present  period of economic  downturn  may include,  and  adversely
affect,  the cost and continued  availability  of the Company to secure adequate
capital and  financing to support its business;  the impact of adverse  economic
conditions on the Company's customers and suppliers;  the ability to sell assets
or to obtain alternative sources of commercially  reasonable refinancing for the
Company's debt; or the ability to successfully restructure its debt obligations.
Additional  uncertainties  include  the  Company's  ability to convert  contract
backlog to revenue,  the success of the Company's  investment in Enterworks  and
the Company's access to ongoing development,  product support and viable channel
partner relationships with Enterworks.

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

     While in the past the Company  has not  experienced  contract  terminations
with the  federal  government,  the  federal  government  can  terminate  at its
convenience.  Should  this  occur,  the  Company's  operating  results  could be
adversely impacted.  The Company's U.S. Army contract at Ft. Monmouth was up for
re-bid,  and on October 26, 2001,  the Company was awarded one of two contracts.
Since this is a dual award,  the  Company  will now compete for tasks under this
contract versus a sole source contract.  The  unsuccessful  award of competitive
tasks  could have an adverse  effect on this  contract.  It should also be noted
that with the change of administration and its key government personnel, related
policy  changes  and  detailed  program-by-program  review at each agency of the
federal  government,  especially the  Department of Defense,  the Company's high
percentage of revenue derived from business with the federal government could be
adversely impacted.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's long-term debt obligations.

     The  Company is exposed to  interest  rate  volatility  with  regard to its
variable rate debt obligations  under its Senior Credit Facility.  This facility
bears  interest at 1.5%,  subject to certain  adjustments,  over the bank's base
rate. The weighted  average  interest rate for the first nine months of 2001 was
9.86%. This facility expires on March 1, 2002 and has an outstanding  balance of
$11.0 million at September 30,2001.

     The Company's other long-term debt at September 30, 2001 consists of Senior
Subordinated  Notes B and C, which bear interest at fixed rates ranging from 14%
to 17%. Of the $8.2 million Senior  Subordinated  Notes balance at September 30,
2001  approximately  $800,000  became  currently  due and payable as of April 1,
2001,  and the remaining $7.4 million in principal  becomes  payable on April 1,
2002.  The Company has no cash flow  exposure due to rate changes for its Senior
Subordinated Notes.
<PAGE>

         PART II - OTHER INFORMATION


Item 1.   Legal Proceedings

     The Company is party to various  lawsuits arising in the ordinary course of
business.  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 Redeemable Preferred Stock

     The Company has not declared  dividends on its Senior Redeemable  Preferred
Stock,  Series  A-1 and A-2,  since  their  issuance.  Total  undeclared  unpaid
dividends  accrued for  financial  reporting  purposes  are $3.8 million for the
Series A-1 and A-2 Preferred Stock at September 30, 2001.

12% Cumulative Exchangeable Redeemable Preferred Stock

     Through  November 21, 1995,  the Company had the option to pay dividends in
additional  shares of Preferred  Stock in lieu of cash  (provided  there were no
blocks on payment as further  discussed  below).  Dividends  are  payable by the
Company, provided the Company has legally available funds under Maryland law and
is able to pay dividends under its charter and other corporate  documents,  when
and if declared by the Board of Directors,  commencing June 1, 1990, and on each
six month anniversary  thereof.  Dividends in additional shares of the Preferred
Stock were paid at the rate of 6% of a share for each $.60 of such dividends not
paid in cash.  Cumulative  undeclared dividends as of September 30, 2001 accrued
for financial reporting purposes totaled $28.4 million.  Dividends for the years
1992 through 1994 and for the dividend  payable June 1, 1995 were accrued  under
the assumption that the dividend will be paid in additional  shares of preferred
stock and are valued at $3,950,000. Had the Company accrued these dividends on a
cash basis, the total amount accrued would have been  $15,101,000.  For the cash
dividends payable since December 1, 1995 the Company has accrued $24,412,000.

     Based upon the Company's interpretation of charter provisions pertaining to
restrictions  upon payment of dividends,  similar dividend payment  restrictions
contained in its Senior Credit  Facility,  and limitations  pursuant to Maryland
law,  the Company has not  declared or paid  dividends  on its public  preferred
stock since 1991.

Item 4.       Submission of Matters to a Vote of Security Holders

     The Company's annual meeting of common and preferred  shareholders was held
on November 6, 2001.  The only matter set forth in the meeting was the  election
of directors.  The  shareholders  of the common stock  necessary to constitute a
quorum were present either in person or  represented  by proxy or attorney.  Dr.
Fred Charles Ikle,  John B. Wood,  Norman P. Byers,  Dr.  Stephen D. Bryen,  and
David S.  Aldrich were  elected to a term of  approximately  one year, a term to
expire at the next annual  meeting of  shareholders  upon the  election of their
successors.

     With regard to the holders of the 12%  Cumulative  Exchangeable  Redeemable
Preferred  Stock,  shareholders  of such stock  necessary to constitute a quorum
were not present and,  therefore,  the nominations of Malcolm M.B.  Sterrett and
Geoffrey B. Baker were not considered.  Subsequent to the shareholders  meeting,
Malcolm M.B.  Sterrett,  an incumbent  director,  appointed Geoffrey B. Baker to
fill  the  term of John C.  Boland,  who  resigned  on  October  2,  2001.  Such
appointment  was  consistent  with Article  Fifth  (C)7(b)(vi)  of the Company's
Articles of Amendment and Restatement.

Item 5.       Other Information

     Mr. John C. Boland resigned from the Company's Board of Directors effective
October 2, 2001.  His position was filled by Geoffrey B. Baker who was appointed
to the Board of Directors after the Company's  annual meeting of shareholders on
November 6, 2001.

Item 6. Exhibits and Reports on Form 8-K

(a)      Exhibits: None
(b)      Reports on Form 8-K:       None.

Item 2 is not applicable and has been omitted.



<PAGE>



                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
     registrant  has duly  caused  this report to be signed on its behalf by the
     undersigned thereunto duly authorized.



DATE:                                                     Telos Corporation



November 14, 2001                                         /s/  Thomas J. Ferrara
                                                          ----------------------
                                                               Thomas J. Ferrara
                                                  (Principal Financial Officer &
                                                   Principal Accounting Officer)