Goodman Letter dated November 11, 2005
November 11, 2005
Mr. Joel Flax
Mr. Mitchell J. Bean
Goodman & Company, LLP
One Commercial Place
Norfolk, VA 23510-2119
VIA FEDEX
Re: Telos Corporation
Gentlemen:
As you may be aware, Costa Brava Partnership III, L.P. ("CBIII") is a significant holder of Telos' 12% Cumulative Exchangeable Redeemable Preferred Stock (the "Security").
CBIII has conducted a thorough review of Telos' Form 10-K for the fiscal year ended 2004 and its Form 10-Q for the quarters ended March 2005 and June 2005. Your firm acts as Telos' Independent Registered Public Accounting Firm and rendered an unqualified audit opinion in the 2004 10-K.
CBIII would appreciate your assistance in understanding your firm's unqualified audit opinion on Telos' accounting of the undistributed dividends in the form of additional Securities that accrued during the period of fiscal year 1992 through June 1995 and the subsequent undistributed mandatory cumulative dividends that accrued on these undistributed Securities.
As you know, the number of accrued undistributed dividends in the form of additional Securities is in excess of 1.5 million additional Securities.
It appears to the managers of CBIII that the financial reporting of the carry value of the Security fails to account for the accretion of these additional undistributed Securities to their current mandatory redemption value of $10 per Security. Secondly, it appears that the financial reporting does not include an accrual for the corresponding unpaid mandatory cumulative dividends on these undistributed Securities.
As a result of the aforementioned financial reporting, the managers of CBIII believe that the reported value of the Security on the balance sheet materially understates the mandatory financial obligation of the Security by more than $30 million.
While the managers of CBIII are knowledgeable in financial accounting matters, CBIII is unclear on the justification for the apparent material understatement of the carry value of the mandatory financial obligation of the Security and your firm's unqualified audit opinion thereof.
We would appreciate your assistance in providing clarity on this matter. Thank you.
Sincerely,
/s/ ANDREW SIEGEL
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Andrew Siegel
Roark, Rearden & Hamot LLC,
the general partner of Costa Brava Partnership III, L.P.
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