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, 1999

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

                         Commission file number: 1-8443

                                TELOS CORPORATION

             (Exact name of registrant as specified in its charter)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  REPORTS),  AND  (2) HAS  BEEN  SUBJECT  TO SUCH  FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO

As of November 9, 1999, the  registrant had 21,241,980  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): 18


<PAGE>

<TABLE>
<CAPTION>




                                        TELOS CORPORATION AND SUBSIDIARIES

                                                      INDEX

                                           PART I. FINANCIAL INFORMATION
<S>                                                                                                        <C>
Item 1.        Financial Statements:

     Condensed Consolidated Statements of Operations for the

         Three and Nine Months Ended September 30, 1999 and 1998 (unaudited)...................................4

     Condensed Consolidated Balance Sheets as of September 30, 1999 (unaudited)

         and December 31, 1998 ................................................................................5

     Condensed Consolidated Statements of Cash Flows for the

         Nine Months Ended September 30, 1999 and 1998  (unaudited) ...........................................6

     Notes to Condensed Consolidated Financial Statements (unaudited).......................................7-10

Item 2.        Management's Discussion and Analysis of Financial

               Condition and Results of Operations.........................................................11-16

Item 3.        Quantitative and Qualitative Disclosures about Market Risk.....................................16

                                 PART II.   OTHER INFORMATION

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

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

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

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

</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                                               PART I - FINANCIAL INFORMATION

                                              TELOS CORPORATION AND SUBSIDIARIES

                                       CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                         (UNAUDITED)

                                                   (AMOUNTS IN THOUSANDS)

                                                           Three Months Ended                 Nine Months Ended
                                                                September 30,                    September 30,
                                                            1999           1998               1999          1998
                                                            ----           ----               ----          ----
<S>                                                       <C>            <C>                 <C>           <C>
Sales

    Systems and Support Services                          $ 26,677       $ 22,347            $ 74,567      $ 75,671
    Products                                                15,432         16,802              62,313        51,148
    Enterworks, Inc.                                         3,403          1,309               7,092         4,142
                                                             -----          -----               -----         -----
                                                            45,512         40,458             143,972       130,961
Costs and expenses
    Cost of sales                                           38,598         37,399             122,479       117,514
    Selling, general and
     administrative expenses                                 9,571          6,446              27,081        19,119
    Goodwill amortization                                      133            132                 397           457
                                                               ---            ---                 ---           ---

Operating loss                                              (2,790)        (3,519)             (5,985)       (6,129)

Other income (expenses)

    Gain on sale of assets                                   4,731             --               4,731         5,683
    Other income                                                 7             14                  63            40
    Interest expense                                        (1,748)        (1,662)             (5,284)       (4,978)
                                                            ------         ------              ------        ------

Income (loss) before taxes                                     200         (5,167)             (6,475)       (5,384)

Income tax (provision) benefit                                (572)          (117)                976          (928)
                                                              ----           ----                 ---          ----

Net loss                                                  $   (372)      $ (5,284)           $ (5,499)     $ (6,312)
                                                           ========       ========            ========      ========



</TABLE>




















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


<PAGE>
<TABLE>
<CAPTION>


                                       TELOS CORPORATION AND SUBSIDIARIES

                                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                              (AMOUNTS IN THOUSANDS)

                                                      ASSETS

                                                               September 30, 1999            December 31, 1998
                                                               ------------------            -----------------
                                                                 (unaudited)
<S>                                                              <C>                                <C>
Current assets

    Cash and cash equivalents (includes
       restricted cash of $160 at
       September 30, 1999 and December 31, 1998)                 $    503                           $    408
    Accounts receivable, net                                       31,550                             56,783
    Inventories, net                                                5,194                              8,662
    Deferred income taxes                                           4,632                              4,164
    Other current assets                                              995                                707
                                                                   ------                             ------

       Total current assets                                        42,874                             70,724

Property and equipment, net of
    accumulated depreciation of
    24,296 and $24,159, respectively                               13,551                             14,321
Goodwill, net                                                       4,377                              6,896
Other assets                                                        3,004                              3,310
                                                                    -----                              -----

                                                                 $ 63,805                           $ 95,251
                                                                 ========                           ========


                                          LIABILITIES AND STOCKHOLDERS' INVESTMENT

Current liabilities

     Accounts payable                                             $12,471                           $25,206
     Other current liabilities                                     10,294                             4,845
     Senior credit facility                                        16,791                                --
     Accrued compensation and benefits                              8,053                             7,400
                                                                    -----                             -----

       Total current liabilities                                   47,609                            37,451

Senior credit facility                                                 --                            36,159
Senior subordinated notes                                          18,796                            18,492
Capital lease obligations                                          11,457                            11,710
                                                                   ------                            ------

       Total liabilities                                           77,862                           103,812
                                                                   ------                           -------

Redeemable preferred stock
     Senior redeemable preferred stock                              5,948                             5,631
     Redeemable preferred stock                                    34,707                            31,729
                                                                   ------                            ------


       Total preferred stock                                       40,655                            37,360
                                                                   ------                            ------

Stockholders' investment

     Common stock                                                      78                                78
     Capital in excess of par                                          --                             2,116
     Retained deficit                                             (54,790)                          (48,115)
                                                                  -------                           -------


       Total stockholders' investment (deficit)                   (54,712)                          (45,921)
                                                                  -------                           -------

                                                                 $ 63,805                          $ 95,251
                                                                 ========                          ========

</TABLE>
                  The accompanying notes are an integral part of these condensed
                                consolidated financial statements.


<PAGE>
<TABLE>
<CAPTION>

                                         TELOS CORPORATION AND SUBSIDIARIES

                                    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                     (UNAUDITED)

                                                (AMOUNTS IN THOUSANDS)

                                                                                             Nine Months
                                                                                          Ended September 30,
                                                                                        1999              1998
                                                                                        ----              ----
<S>                                                                                    <C>             <C>
Operating activities:
Net loss                                                                               $(5,499)        $ (6,312)
Adjustments to reconcile net loss to cash
  provided by operating activities:
  Gain on sale of fixed assets                                                             (88)              --
  Gain on sale of assets                                                                (4,731)          (5,683)
  Depreciation and amortization                                                          3,082            3,169
  Goodwill  amortization                                                                   397              457
  Other noncash items                                                                    2,096              574
  Changes in assets and liabilities                                                     16,119           20,931
                                                                                        ------           ------

         Cash provided by operating activities                                          11,376           13,136

Investing activities:

Proceeds from sale of fixed assets                                                         171               --
Proceeds from sale of assets                                                            10,000           14,675
Investment in capitalized software and other assets                                       (762)          (1,806)
Purchase of property and equipment                                                      (1,047)            (970)
                                                                                        ------             ----

         Cash provided by investing activities                                           8,362           11,899

Financing activities:

Repayment of borrowings under senior credit facility                                   (19,368)         (18,828)
Payments under capital leases                                                             (275)            (323)
Retirement of Class B redeemable preferred stock                                            --           (6,000)
                                                                                        ------           ------
         Cash used in financing activities                                             (19,643)         (25,151)

Increase (decrease) in cash and cash equivalents                                            95             (116)
         Cash and cash equivalents at beginning of period                                  408              587
                                                                                        ------           ------
         Cash and cash equivalents at end of period                                   $    503         $    471
                                                                                        ======           ======



</TABLE>








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


<PAGE>


                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)



NOTE 1.  GENERAL

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

         The accompanying  condensed consolidated financial statements have been
prepared on a going concern basis,  which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business.  However,  the
Company  incurred a net loss of $9.2 million  during 1998 and a net loss of $5.5
million for the first nine months of 1999.  In addition,  the Company was not in
compliance with several  covenants of its Senior Credit Facility at December 31,
1998 and September 30, 1999. The lender has provided  waivers for the violations
at December 31, 1998, as well as waivers  through  September 30, 1999.  Although
the Company  completed an asset sale in the third  quarter of 1999,  the Company
anticipates an additional need for financing in order to support its investments
in its Enterworks  subsidiary and its operations  going forward.  These factors,
including the uncertainty  surrounding whether and when the additional financing
will be secured,  and whether the Company will meet its budget  expectations and
bank covenants for the rest of 1999,  indicate that the Company may be unable to
continue  as a going  concern.  The  financial  statements  do not  include  any
adjustments  relating  to the  recoverability  of assets and  classification  of
liabilities  that might be necessary should the Company be unable to continue as
a going concern.  The Company's  continuation as a going concern is dependent on
its ability to obtain the additional financing required,  meet its 1999 budgeted
cash flow objectives, and comply with the terms of its Senior Credit Facility.

     The  Company  completed a sale of assets  (described  in Note 2) during the
third quarter of 1999. After giving  consideration to the reduction in borrowing
base from the sale of those assets,  the net proceeds were not sufficient enough
to  completely  alleviate  the immediate  cash need.  Therefore,  the Company is
considering such options as the sale of a division or asset that is not critical
to its strategic  goals,  additional  debt  financing,  debt  restructuring,  or
additional  equity  financing  at either  the  parent or the  subsidiary  level.
Alternatives  are currently being pursued under each of these sources;  however,
the required additional financing has not yet been secured. The Company believes
the required  funding  will be arranged in a timely  manner that does not have a
significant adverse impact on its operations. However, there can be no assurance
that the Company will be able to secure  financing  sufficient for its needs and
at terms favorable to the Company. Additionally,  there can be no assurance that
the Company will be  successful  in meeting its budget  expectations,  or comply
with its bank  covenants  by the end of 1999.  Failure by the  Company to obtain
sufficient financing,  meet its budget expectations,  or meet its bank covenants
may have a material adverse effect on the Company's financial position,  results
of operations and cash flows.

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

NOTE 2.       SALE OF ASSETS

     At the end of the third quarter,  the Company sold substantially all of the
assets of its computer maintenance and service business, Telos Field Engineering
Inc.  ("TFE"),  to TFE Technology  Holdings LLC, an affiliate of Carr & Company,
for $10  million.  The  sale of  TFE,  with  approximately  250  employees,  was
completed  on  September  29,  1999.  As a result of this sale,  the Company has
recorded  a gain of $4.7  million in its  condensed  consolidated  statement  of
operations  for the nine months ended  September  30, 1999.  The Company and TFE
Technology  Holdings,  LLC ("TFE  Holdings")  entered into a one year  Corporate
Services  Agreement  on the date of the sale.  Under the terms of the  agreement
Telos will continue to provide certain  administrative  support functions to TFE
Technology  Holdings,  including but not limited to finance and  accounting  and
human resources, in return for a monthly payment.

         On February 28, 1998, Telos sold substantially all of the net assets of
one of its  divisions,  Telos  Information  Systems  ("TIS"),  to NYMA,  Inc., a
subsidiary of Federal Data Corporation of Bethesda,  Maryland for  approximately
$14.7  million in cash.  The Company has  recorded a gain of $5.7 million in its
condensed  consolidated  statement  of  operations  for the  nine  months  ended
September 30, 1998.
<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

NOTE 3.   DEBT OBLIGATIONS

SENIOR CREDIT FACILITY

     In September 1999 the Company's  Senior Credit  Facility  ("Facility")  was
amended to reduce the total amount available under the Facility from $45 million
to $35  million.  The  Facility's  maturity  date of July 1,  2000 has  remained
unchanged.  At September  30, 1999,  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 Enterworks, Inc. The amount
of available borrowings fluctuates based on the underlying asset borrowing base.
At September 30, 1999, the Company was not in compliance with several  financial
covenants contained within the Facility, including covenants relating to certain
leverage,  net worth,  and  tangible  capital  goals.  The bank has waived  this
noncompliance.

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, which total $6.5 million at September 30, 1999 and December 31, 1998, are
collateralized by fixed assets of the Company.  Series C Notes, which total $7.9
million at September  30, 1999 and December 31, 1998,  are  unsecured.  Both the
Series B and  Series C Notes  have a  maturity  date of October 1, 2000 and have
interest rates ranging from 14% to 17%. Interest is paid quarterly on January 1,
April 1, July 1, and  October 1 of each  year.  The Notes can be  prepaid at the
Company's option. Additionally, these Notes have a cumulative payment premium of
13.5% per annum  payable only upon certain  circumstances.  These  circumstances
include  an  initial  public  offering  of  the  Company's  common  stock  or  a
significant  refinancing,  to the extent  that net  proceeds  from either of the
above  events are  received and are  sufficient  to pay the premium.  Due to the
contingent  nature of the premium payment,  the associated  premium expense will
only be recorded  after the occurrence of a triggering  event.  At September 30,
1999 the  prepayment  premium that would be due upon a triggering  event is $9.9
million.

     In November 1998, the Company issued additional Senior  Subordinated  Notes
to certain  shareholders  which are  classified  as Series D. The Series D Notes
total $1.8 million and are unsecured. The Series D Notes have a maturity date of
October 1, 2000 and bear interest at 14% per annum.  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.  These Notes contain the same payment  premium
provisions  as the Series B and Series C notes (see  above).  At  September  30,
1999,  the  prepayment  premium  that  would be due upon a  triggering  event is
approximately  $200,000.  In  connection  with  the  debt,  the  Company  issued
1,500,000 warrants to purchase shares of the Company's Class A Common Stock. The
warrants have an exercise price of $.01 and an exercise period of 22 months. The
Company has assigned a value to the warrants of $420,000 which has been included
in capital in excess of par. The amount outstanding of the subordinated debt was
approximately $1.5 million at September 30, 1999.

ENTERWORKS SUBORDINATED NOTES

     During 1996, the Company completed a private  financing whereby  $3,277,960
of 8% subordinated  debt of Enterworks was issued.  Investors  included  certain
members of the Board of Directors and management and certain shareholders of the
Company.  The  subordinated  debt has a five  year  maturity.  Interest  is paid
quarterly,  beginning January 1, 1998, on the first of January,  April, July and
October each year. In connection  with the debt,  the Company  issued  2,048,725
warrants to purchase  shares of Enterworks  common  stock.  The warrants have an
exercise  price of one dollar and an exercise  period of ten years.  The Company
has  assigned a value to the  warrants  of $921,926  which has been  included in
capital in excess of par. The amount  outstanding of this  subordinated debt was
approximately  $2,868,000  and $2,723,000 at September 30, 1999 and December 31,
1998, respectively.
<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)
NOTE 4.       PREFERRED STOCK

SENIOR REDEEMABLE PREFERRED STOCK

     The components of the senior redeemable  preferred stock are Series A-1 and
Series  A-2,  each with $.01 par  value and 1,250 and 1,750  shares  authorized,
issued and outstanding, respectively. The Series A-1 and Series A-2 each 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 September 30 and
December 31 of each year.  The  liquidation  preference of the senior  preferred
stock is the face amount of the Series A-1 and A-2 ($1,000 per share),  plus all
accrued  and unpaid  dividends.  The  Company is  required  to redeem all of the
outstanding  shares of the stock on  December  31,  2001,  subject  to the legal
availability  of funds.  Mandatory  redemptions  are  required  from excess cash
flows,  as defined  in the stock  agreements.  The Series A-1 and A-2  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,
1999 and December 31, 1998 cumulative  undeclared,  unpaid dividends relating to
Series A-1 and A-2 redeemable  preferred stock totaled $2,948,000 and $2,631,000
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, 1999 was
$1,066,000. The Company declared stock dividends totaling 736,863 shares in 1990
and 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.
Following  November 21, 1995,  dividends are only payable in 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 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.  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 $16,766,000.

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

NOTE 5.  ENTERWORKS STOCK OPTION PLAN CHANGES

         Effective  August 1999,  Enterworks  increased  the options  authorized
under its employee stock option plan from 5,000,000 to 13,000,000 shares.

         During  the  same  period,   Telos  contributed   1,000,000  shares  of
Enterwork's common stock owned by Telos to the Enterworks  treasury for issuance
as stock options by Enterworks.
<PAGE>
                       TELOS CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

NOTE 6.  REPORTABLE BUSINESS SEGMENTS

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

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

         Summarized  financial  information  concerning the Company's reportable
segments for the three months ended  September 30, 1999 and 1998 is shown in the
following table. The "other" column includes corporate related items.
<TABLE>
<CAPTION>


                                        Systems and
                                        Support Services       Products          Enterworks        Other (1)         Total
                                        ----------------       --------          ----------        ---------         -----

         SEPTEMBER 30, 1999
<S>                                       <C>                  <C>              <C>               <C>              <C>
External Revenues                         $26,677              $15,432          $ 3,403              --            $45,512
Intersegment Revenues                          67                   --              221              --                288
Gross Profit                                4,757                  539            1,618              --              6,914
Segment profit(loss)(3)                     2,079                 (643)          (4,093)             --             (2,657)
Total assets                               12,682                2,343            8,671          $40,109            63,805
Capital Expenditures                           84                   (3)             185              115               381
Depreciation &
 Amortization(2)                          $   177              $    53          $   528          $   311           $ 1,069

         SEPTEMBER 30, 1998

External Revenues                         $22,347              $16,802          $ 1,309               --           $40,458
Intersegment Revenues                         340                  584                1               --               925
Gross Profit                                2,406                  808             (155)              --             3,059
Segment profit(loss)(3)                       518                 (985)          (2,920)              --            (3,387)
Total assets                               22,547                9,359            8,325          $41,238            81,469
Capital Expenditures                           55                  (44)              87               82               180
Depreciation &
 Amortization(2)                          $   376              $   120          $   772          $   365           $ 1,633
<FN>

(1)  Corporate  assets are principally  property and  equipment,  cash and other
     assets.

(2)  Depreciation  and  amortization  includes  amounts relating to property and
     equipment, goodwill, deferred software costs and spare parts inventory.

(3)  Segment profit (loss)  represents operating  income (loss) before  goodwill
     amortization.

         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
7 separate facilities located in 7 states.
</FN>
</TABLE>


<PAGE>



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

GENERAL

         Sales  for the  first  nine  months of 1999  were  $144.0  million,  an
increase  of $13.0  million or 9.9% as compared  to the same 1998  period.  This
increase was primarily  attributable to an $11.1 million  increase in sales from
the Company's  Products Group which  experienced  increased sales from its Joint
Recruitive Information Support Services Blanket Purchase Agreement. The increase
in sales was also  attributable  to sales from the Company's  Enterworks  Group,
which  increased  its sales by $2.9 million or 71.2% over the  comparable  prior
year period.  These increases were partially offset by decreases in sales in the
Systems and Support Services Group of approximately $1.1 million.  This decrease
is due to the sale of the  Company's  Information  Systems  division  ("TIS") in
February  1998,  as  well  as  decreased  sales  under  the  Artillery  Training
Simulation devices product line.

         Operating  losses  through  the  first  nine  months  of 1999 were $6.0
million as compared to an operating  loss of $6.1  million  during the same 1998
period. The slight improvement in operating  profitability is primarily a result
of  increased  third  quarter  revenues  and   profitability  by  the  Company's
Enterworks subsidiary.

     Total backlog from existing contracts was approximately  $277.8 million and
$923.3 million as of September 30, 1999 and December 31, 1998, respectively. The
decrease  in total  backlog  is due to the  expiration  of the  Company's  SMCII
contract in April of 1999, which was previously  disclosed in the Company's Form
10-K for the year ended  December 31, 1998. As of September 30, 1999, the funded
backlog of the Company  totaled $50.7  million,  a decrease of $5.7 million from
December  31,  1998.  Funded  backlog  represents  aggregate  contract  revenues
remaining  to be earned by the Company at a given time,  but only to the extent,
in the case of government contracts, funded by a procuring government agency and
allotted to the contracts.

RESULTS OF OPERATIONS

         The condensed consolidated statements of operations include the results
of  operations  of Telos  Corporation  and its wholly owned  subsidiaries  Telos
Corporation  (California),  Telos  International  Corporation  ("TIC"),  and its
majority owned subsidiary Enterworks,  Inc. ("Enterworks") ("the Company").  The
major elements of the Company's  operating expenses as a percentage of sales for
the  three and nine  month  periods  ended  September  30,  1999 and 1998 are as
follows:

<TABLE>
<CAPTION>
                                                            Three Months Ended              Nine months Ended
                                                                September 30,                 September 30,
                                                            1999            1998          1999            1998
                                                            ----            ----          ----            ----
<S>                                                         <C>            <C>             <C>           <C>
Sales                                                       100.0%         100.0%          100.0%        100.0%
Cost of sales                                                84.8           92.4            85.1          89.7
SG&A expenses                                                21.0           15.9            18.8          14.6
Goodwill amortization                                         0.3            0.4             0.3           0.4
                                                              ---            ---             ---           ---


Operating loss                                               (6.1)          (8.7)           (4.2)         (4.7)
Other income                                                   --             --              --            --
Gain on sale of assets                                       10.4             --             3.3           4.3
Interest expense                                             (3.8)          (4.1)           (3.7)         (3.8)
Income tax (provision) benefit                               (1.3)          (0.3)            0.7          (0.7)
                                                             ----           ----             ---          ----

Net loss                                                     (0.8)%        (13.1)%          (3.9)%        (4.9)%
                                                             ----          -----            ----          ----

</TABLE>

<PAGE>
<TABLE>
<CAPTION>



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,
                                                   1999           1998                   1999            1998
                                                   ----           ----                   ----            ----

                                                                  (amounts in thousands)
<S>                                                <C>            <C>                   <C>            <C>
Sales:

   Systems and Support Services                    $26,677        $22,347               $ 74,567       $ 75,671
   Products                                         15,432         16,802                 62,313         51,148
   Enterworks, Inc.                                  3,403          1,309                  7,092          4,142
                                                     -----          -----                  -----          -----

   Total                                           $45,512        $40,458               $143,972       $130,961
                                                   =======        =======               ========       ========

Gross Profit:

   Systems and Support Services                    $ 4,757        $ 2,406               $ 13,867       $ 10,056
   Products                                            539            808                  5,606          2,919
   Enterworks, Inc.                                  1,618           (155)                 2,020            472
                                                     -----           ----                  -----         ------

   Total                                           $ 6,914        $ 3,059               $ 21,493       $ 13,447
                                                   =======        =======               ========       ========

Gross Margin:

   Systems and Support Services                     17.8%           10.8%                  18.6%          13.3%
   Products                                          3.5%            4.8%                   9.0%           5.7%
   Enterworks, Inc.                                 47.5%          (11.8)%                 28.5%          11.4%
   Total                                            15.2%            7.6%                  14.9%          10.3%
</TABLE>

         For the three month period ended September 30, 1999, sales increased by
$5.1 million,  or 12.5% to $45.5  million from $40.4 million for the  comparable
1998 period. Of the $5.1 million increase,  $4.3 million was attributable to the
Systems and Support Services Group. The Group experienced increased sales due to
revenue  generated  from a  subcontract  to the  Consolidated  Space  Operations
Contract,  as well as an  increase  in  sales  from  the  Company's  information
security and advanced  message  handling system  solutions  business areas.  The
overall increase in the revenue was also enhanced by an increase of $2.1 million
in  Enterworks  revenue  for the third  quarter  of 1999  compared  to the third
quarter of 1998.  The increase is primarily due to sales of the Group's  Virtual
DB product.  Offsetting  these increases was a decrease in Product Group revenue
of $1.4 million from third quarter 1999  compared to third  quarter  1998.  This
decrease is  primarily  due to a decline in revenue  under the Small  Multi-user
Computer II Contract which expired in April 1999.

     Sales increased $13.0 million or 9.9% to $144.0 million for the nine months
ended  September 30, 1999,  from $131.0 million for the comparable  1998 period.
The  increase  for the nine month period  includes a $11.2  million  increase in
Products'  sales and a $2.9  million  increase in  Enterworks  sales,  partially
offset by a decrease of $1.1  million in Systems and Support  Services  revenue.
This  increase in the nine month  revenue is  primarily  due to the  increase in
revenue from the Joint Recruitive  Information Support Services Blanket Purchase
Agreement.  These  increases were slightly  offset by decreased  sales under the
Artillery Training Simulation Devices product line of $3.5 million, and the sale
of the Company's  Information Systems division ("TIS") in February 1998. The TIS
division generated sales of $4.0 million prior to being sold.

<PAGE>


         Cost of sales was 84.8% of sales for the quarter and 85.1% of sales for
the nine months ended September 30, 1999, as compared to 92.4% and 89.7% for the
same periods in 1998.  The  decreases in cost of sales as a percentage  of sales
are  primarily  attributable  to  favorable  changes in contract  mix within the
Systems and Support  Services  Group,  higher margin sales within the Enterworks
Group, as well as a high margin transaction with one of the Company's partners.

         Gross profit  increased  $3.8 million in the three month period to $6.9
million in 1999, from $3.0 million in the comparable 1998 period.  Gross margins
were 15.2% and 14.9%, respectively, for the three and nine month periods of 1999
as compared to 7.6% and 10.3%, respectively, for the comparable periods of 1998.
The increases in gross margin were  attributable to the sales increases and cost
of sales decreases explained above.

         Selling,  general,  and  administrative  expense ("SG&A")  increased by
approximately  $3.1 million or 48.5%,  to $9.6  million in the third  quarter of
1999 from $6.4  million  in the  comparable  period of 1998.  For the nine month
period of 1999,  SG&A increased $8.0 million to $27.1 million from $19.1 million
in 1998. These increases are due primarily to the Company's increased investment
in research and development  and sales and marketing for  Enterworks.  Excluding
the additional expense incurred for Enterworks  research and development of $3.7
million  and  Enterworks  sales and  marketing  costs of $3.8  million,  selling
general and administrative  expense increased $500,000 for the nine months ended
September 30, 1999 compared to the same period in 1998.

         SG&A as a  percentage  of  revenues  increased  to 21.0%  for the third
quarter of 1999 from 15.9% in the comparable  1998 period.  SG&A as a percentage
of revenues  for the nine month  period ended  September  30, 1999  increased to
18.8% from 14.6% compared to the same period in 1998.

         Goodwill  amortization  expense  remained the same for the  comparative
three month  periods of 1999 and 1998,  and decreased by $60,000 to $397,000 for
the nine months ended  September  30, 1999  compared to the same period in 1998.
This reduction is due to a decrease in the goodwill balance  associated with the
sale of TIS in early 1998.

         The operating loss of the Company decreased by $729,000 to $2.8 million
in the three  month  period  ended  September  30,  1999 from  $3.5  million  of
operating loss in the comparable 1998 period.  Operating loss decreased $144,000
to a $6.0 million  operating  loss for the nine months ended  September 30, 1999
from a $6.1 million operating loss for the nine month period ended September 30,
1998. The increases in operating profit for the three and nine month periods are
mostly  attributable  to the increases in gross profit,  net of the increases in
SG&A discussed above.

         At the end of the third quarter,  the Company sold substantially all of
the  assets of its  computer  maintenance  and  service  business,  Telos  Field
Engineering Inc.  ("TFE"),  to TFE Technology  Holdings,  an affiliate of Carr &
Company, for $10 million. The sale of TFE, with approximately 250 employees, was
completed  on  September  29,  1999.  As a result of this sale,  The Company has
recorded  a gain of $4.7  million in its  condensed  consolidated  statement  of
operations for the nine months ended September 30, 1999.

         Telos sold substantially all of the net assets of one of its divisions,
TIS, in the first quarter of 1998. The transaction generated approximately $14.7
million in cash  proceeds  and a gain of $5.7  million was  recorded in the nine
months ended September 30, 1998.

     Interest  expense  remained  at $1.7  million in the third  quarter of 1999
compared to the same 1998 period, and increased  approximately  $306,000 to $5.3
million for the nine months ended  September  30, 1999 from $5.0 million for the
comparable  1998  period.The  increase  for  the  nine  month  period  is due to
increased debt levels in 1999.

         The income tax provision was $572,000 and a benefit of $976,000 for the
three and nine months ended  September  30, 1999,  respectively.  The  provision
incurred  was a result  of the  gain  generated  from  the sale of TFE.  The tax
benefit was  principally due to the net operating loss  carryforwards  generated
during  the first  quarter.  The  Company's  net  deferred  tax  asset  includes
substantial  amounts of net  operating  loss  carryforwards.  Failure to achieve
forecasted  taxable  income  may  affect  the  ultimate  realization  of the net
deferred tax assets.  Management's  tax strategy  contemplates the generation of
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
$117,000 and $928,000  for the three and nine months ended  September  30, 1998,
respectively. These tax provisions were primarily attributable to provisions for
state income taxes and increases in allowances relating to the recoverability of
deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

         For the nine months  ended  September  30, 1999,  the Company  provided
$11.4  million of cash in its  operating  activities.  This cash was provided by
reductions  of accounts  receivable  of $20.8  million,  offset by  decreases in
accounts  payable of $11.1  million and $5.5  million in net losses  incurred in
operations.  Cash provided by investing activities was $8.4 million,  mostly due
to the cash generated from the sale of the Company's TFE division. Cash was used
by financing  activities during the nine months to pay down approximately  $19.4
million of the Senior Credit Facility balance.

         At September 30, 1999, the Company had  outstanding  debt and long term
obligations  of $47.0  million,  consisting  of $16.8  million under the secured
senior credit facility, $18.8 million in subordinated debt, and $11.5 million in
capital lease obligations.

         At September 30, 1999, the Company had an outstanding  balance of $16.8
million on its $35 million Senior Credit Facility (the "Facility"). The Facility
matures on July 1, 2000 and is  collateralized  by a majority  of the  Company's
assets   (including   inventory,   accounts   receivable  and  Telos'  stock  in
Enterworks).  The amount of borrowings  fluctuates based on the underlying asset
borrowing  base  as well  as the  Company's  working  capital  requirements.  At
September  30, 1999,  the Company,  under its borrowing  base formula,  had $8.8
million of unused availability. Because the Facility matures on July 1, 2000, at
September 30, 1999 the Facility has a term of less than one year,  and therefore
is classified as a current  liability on the  Company's  condensed  consolidated
balance sheet. The Facility has various  covenants that may, among other things,
restrict  the  ability  of the  Company to merge with  another  entity,  sell or
transfer  certain  assets,  pay  dividends and make other  distributions  beyond
certain  limitations.  The  Facility  also  requires the Company to meet certain
leverage,  net worth,  interest  coverage and operating  goals. At September 30,
1999, the Company was not in compliance with several covenants  contained in the
Facility; however, the bank has waived this non-compliance.

         The accompanying  condensed consolidated financial statements have been
prepared on a going concern basis,  which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business.  However,  the
Company  incurred a net loss of $9.2 million  during 1998 and a net loss of $5.5
million for the first nine months of 1999.  In addition,  the Company was not in
compliance with several  covenants of its Senior Credit Facility at December 31,
1998 and September 30, 1999. The lender has provided  waivers for the violations
at December 31, 1998, as well as waivers  through  September 30, 1999.  Although
the Company  completed an asset sale in the third  quarter of 1999,  the Company
anticipates an additional need for financing in order to support its investments
in its Enterworks  subsidiary and its operations  going forward.  These factors,
including the uncertainty  surrounding whether and when the additional financing
will be secured,  and whether the Company will meet its budget  expectations and
bank covenants for the rest of 1999,  indicate that the Company may be unable to
continue  as a going  concern.  The  financial  statements  do not  include  any
adjustments  relating  to the  recoverability  of assets and  classification  of
liabilities  that might be necessary should the Company be unable to continue as
a going concern.  The Company's  continuation as a going concern is dependent on
its ability to obtain the additional financing required,  meet its 1999 budgeted
cash flow objectives, and comply with the terms of its Senior Credit Facility.

     The  Company  completed a sale of assets  (described  in Note 2) during the
third quarter of 1999. After giving  consideration to the reduction in borrowing
base from the sale of those assets,  the net proceeds were not sufficient enough
to  completely  alleviate  the immediate  cash need.  Therefore,  the Company is
considering such options as the sale of a division or asset that is not critical
to its strategic  goals;  additional  debt  financing,  debt  restructuring,  or
additional  equity  financing  at either  the  parent or the  subsidiary  level.
Alternatives  are currently being pursued under each of these sources;  however,
the required additional financing has not yet been secured. The Company believes
the required  funding  will be arranged in a timely  manner that does not have a
significant adverse impact on its operations. However, there can be no assurance
that the Company will be able to secure  financing  sufficient for its needs and
at terms favorable to the Company. Additionally,  there can be no assurance that
the Company will be  successful  in meeting its budget  expectations,  or comply
with its bank  covenants  by the end of 1999.  Failure by the  Company to obtain
sufficient financing,  meet its budget expectations,  or meet its bank covenants
may have a material adverse effect on the Company's financial position,  results
of operations and cash flows.

YEAR 2000

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

     The  Company,   like  most  owners  of  computer  software,   has  modified
significant  portions of its  internal  use  software  so that it will  function
properly in the year 2000. Accordingly,  the Company has incurred and expects to
continue to incur  internal staff costs as well as consulting and other expenses
related to software  and  infrastructure  enhancements  necessary to prepare the
systems for the year 2000.  Total  expenditures for such costs were not material
to the Company's  consolidated financial statements in 1998 or 1999. The Company
has completed its internal use software  compliance  efforts as of September 30,
1999.  Maintenance,  modification  costs and software purchased with the express
purpose of fixing the year 2000 problem are expensed as incurred.

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

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

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

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

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

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."


<PAGE>


CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

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

         A number of uncertainties  exist that could affect the Company's future
operating results, including,  without limitation,  general economic conditions,
the timing and approval of the federal government's fiscal year budget, business
growth through obtaining new business and, once obtained,  the Company's ability
to successfully  perform at a profit,  the Company's ability to convert contract
backlog to  revenue,  the  Company's  ability  to secure  adequate  capital  and
financing  to support  continued  business  growth,  and the risk of the Federal
government  terminating  contracts  with the Company.  While the Company has not
experienced  contract  terminations  with the  Federal  government,  the Federal
government can terminate at its  convenience.  Should this occur,  the Company's
operating results could be adversely impacted.

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

         The accompanying  condensed consolidated financial statements have been
prepared on a going concern basis,  which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business.  However,  the
Company  incurred a net loss of $9.2 million  during 1998 and a net loss of $5.5
million for the first nine months of 1999.  In addition,  the Company was not in
compliance with several  covenants of its Senior Credit Facility at December 31,
1998 and September 30, 1999. The lender has provided  waivers for the violations
at December 31, 1998, as well as waivers  through  September 30, 1999.  Although
the Company  completed an asset sale in the third  quarter of 1999,  the Company
anticipates an additional need for financing in order to support its investments
in its Enterworks  subsidiary and its operations  going forward.  These factors,
including the uncertainty  surrounding whether and when the additional financing
will be secured,  and whether the Company will meet its budget  expectations and
bank covenants for the rest of 1999,  indicate that the Company may be unable to
continue  as a going  concern.  The  financial  statements  do not  include  any
adjustments  relating  to the  recoverability  of assets and  classification  of
liabilities  that might be necessary should the Company be unable to continue as
a going concern.  The Company's  continuation as a going concern is dependent on
its ability to obtain the additional financing required,  meet its 1999 budgeted
cash flow objectives, and comply with the terms of its Senior Credit Facility.

     The  Company  completed a sale of assets  (described  in Note 2) during the
third quarter of 1999. After giving  consideration to the reduction in borrowing
base from the sale of those assets,  the net proceeds were not sufficient enough
to  completely  alleviate  the immediate  cash need.  Therefore,  the Company is
considering such options as the sale of a division or asset that is not critical
to its strategic  goals,  additional  debt  financing,  debt  restructuring,  or
additional  equity  financing  at either  the  parent or the  subsidiary  level.
Alternatives  are currently being pursued under each of these sources;  however,
the required additional financing has not yet been secured. The Company believes
the required  funding  will be arranged in a timely  manner that does not have a
significant adverse impact on its operations. However, there can be no assurance
that the Company will be able to secure  financing  sufficient for its needs and
at terms favorable to the Company. Additionally,  there can be no assurance that
the Company will be  successful  in meeting its budget  expectations,  or comply
with its bank  covenants  by the end of 1999.  Failure by the  Company to obtain
sufficient financing,  meet its budget expectations,  or meet its bank covenants
may have a material adverse effect on the Company's financial position,  results
of operations and cash flows.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The  Company'sexposure 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 1.00%,  subject to
certain  adjustments,  over the bank's base rate. The weighted  average interest
rate for the first nine months of 1999 was 9.56%.  This facility expires on July
1, 2000 and has outstanding balance of $16.8 million at September 30, 1999.

     The Company's other long-term debt at September 30, 1999 consists of Senior
Subordinated  Notes B, C, and D which bear  interest at fixed rates ranging from
14% to  17%.  The  Senior  Subordinated  Notes  mature  as to  principal  in the
aggregate  amount of $16,173,000 on October 1, 2000.  Additionally,  the Company
has  subordinated  debt issued by their majority owned  subsidiary,  Enterworks,
which bears  interest at a fixed rate of 8%. The  Enterworks  Notes mature as to
principal in the aggregate amount of $3,277,960 in July 2001. The Company has no
cash flow exposure due to rate changes for its Senior Subordinated or Enterworks
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 $2,948,000 for the
Series A-1 and A-2 Preferred Stock at September 30, 1999.

12% CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK

         Through  November 21, 1995, the Company had the option to pay dividends
in additional  shares of Preferred Stock in lieu of cash (provided there were no
blocks on payment as further  discussed  below).  Dividends  are  payable by the
Company, provided the Company has legally available funds under Maryland law and
is able to pay dividends under its charter and other corporate  documents,  when
and if declared by the Board of Directors,  commencing June 1, 1990, and on each
six month anniversary  thereof.  Dividends in additional shares of the Preferred
Stock  were paid at the rate of 0.06 of a share for each $.60 of such  dividends
not paid in cash.  Cumulative  undeclared  dividends  as of  September  30, 1999
accrued for financial reporting purposes totaled $20,716,000.  Dividends for the
years 1992 through  1994 and for the dividend  payable June 1, 1995 were accrued
under the  assumption  that the dividend  will be paid in  additional  shares of
preferred  stock and are valued at  $3,950,000.  Had the Company  accrued  these
dividends on a cash basis, the total amount accrued would have been $15,101,000.
For the cash  dividends  payable since  December 1, 1995 the Company has accrued
$16,766,000.

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

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

        (a)   Exhibits:

              27          Financial Data Schedule

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

ITEMS 2, 4, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.

<PAGE>



                                   SIGNATURES

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

DATE:                                                          Telos Corporation
                                                             /S/  LORENZO TELLEZ
                                                             -------------------
NOVEMBER 15, 1999                                                 Lorenzo Tellez
                                                  (Principal Financial Officer &
                                                   Principal Accounting Officer)