<PAGE>
             
  






                                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, 1997

[ ]          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 13, 1997 the  Registrant  had 23,076,753  shares of Class A
Common Stock, no par value, and 4,037,628 shares of Class B Common Stock, no par
value; and 3,595,586 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):  15


<PAGE>
<TABLE>
<CAPTION>





                                                TELOS CORPORATION AND SUBSIDIARIES

                                                              INDEX


                                                  PART I. FINANCIAL INFORMATION



<S>           <C>                                                                                                        <C> 

              Condensed Consolidated Statements of Income for the
                Three Months and Nine Months Ended September  30, 1997
                and 1996....................................................................................................3

              Condensed Consolidated Balance Sheets as of September 30,
                1997 and December 31, 1996..................................................................................4

              Condensed Consolidated Statements of Cash Flows for the
                Nine Months Ended September 30, 1997 and 1996...............................................................5

              Notes to Condensed Consolidated Financial Statements........................................................6-8

Item 2.       Management's Discussion and Analysis of
              Financial Condition and Results of Operations..............................................................9-13


                                                PART II. OTHER INFORMATION

Item 3.       Defaults upon Senior Securities..............................................................................14

Item 6.       Exhibits and Reports on Form 8-K.............................................................................14

SIGNATURES.................................................................................................................15

</TABLE>


<PAGE>
<TABLE>
<CAPTION>



                                                 PART I - FINANCIAL INFORMATION
                                               TELOS CORPORATION AND SUBSIDIARIES
                                           CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                                           (Unaudited)
                                                     (amounts in thousands)



                                                       Three Months Ended                     Nine Months Ended
                                                           September 30,                        September 30,
                                                    --------------------------          --------------------------
                                                      1997              1996               1997              1996
                                                      ----              ----               ----              ----
<S>                                                   <C>              <C>                <C>              <C>    
Sales
    Systems and Support Services                      $33,425          $27,150            $92,725          $79,605
    Systems Integration                                34,576           21,789             87,710           53,363
                                                       ------           ------             ------           ------

                                                       68,001           48,939            180,435          132,968

Costs and expenses
    Cost of sales                                      59,406           42,657            154,565          116,912
    Selling, general and
      administrative expenses                           6,422            7,466             19,816           20,287
    Goodwill amortization                                 210              275                644              825
                                                       ------            ------            ------           ------

Operating income (loss)                                 1,963           (1,459)             5,410           (5,056)

Other income (expenses)
    Other income (expenses)                                22                3                 45             (346)
    Interest expense                                   (1,908)          (1,393)            (5,551)          (3,929)
                                                        -----            -----              -----            ----- 

Income (loss) before taxes                                 77           (2,849)               (96)          (9,331)

Income tax benefit                                         --              421                 --              421
                                                        -----            -----              -----            -----        

Income (loss) from continuing
    operations                                             77           (2,428)               (96)          (8,910)

Discontinued operations:

    Income from discontinued
      operations                                           --              494                 --              624
                                                        -----            -----               ----            -----
Net income (loss)                                      $   77          $(1,934)             $ (96)         $(8,286)
                                                        =====            =====               ====            ===== 
</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
                                                        (Unaudited)
                                                   (amounts in thousands)
                                                          ASSETS


                                                                 September 30, 1997            December 31, 1996
                                                                 ------------------            -----------------
<S>                                                                    <C>                          <C>    
Current assets     
     Cash and cash equivalents                                         $   424                      $ 2,781
       (includes restricted cash of
       $231 at December 31, 1996)
     Accounts receivable, net                                           56,818                       51,549
     Inventories, net                                                   14,497                       17,066
     Other current assets                                                3,521                        2,567
                                                                        ------                       ------
         
         Total current assets                                           75,260                       73,963

Property and equipment, net of
     accumulated depreciation of
     $22,324 and $20,390 respectively                                   16,504                       16,486

Goodwill                                                                12,901                       13,545
Other assets                                                             7,082                        6,070
                                                                       -------                      -------
                                                                      $111,747                     $110,064
                                                                       =======                      =======


                                            LIABILITIES AND STOCKHOLDERS' INVESTMENT


Current liabilities
     Accounts payable                                                 $ 21,958                      $35,730
     Other current liabilities                                           7,494                       11,708
     Accrued compensation and benefits                                  10,389                       10,163
                                                                        ------                       ------
         Total current liabilities                                      39,841                       57,601

Senior credit facility                                                  36,030                       15,418
Subordinated notes                                                      16,893                       17,439
Capital lease obligation                                                12,163                       12,537
Other long-term liabilities                                                 --                          154
                                                                       -------                      -------
         Total liabilities                                             104,927                      103,149

Redeemable preferred stocks
     Senior redeemable preferred stock                                   5,100                        4,828
     Class B redeemable preferred stock                                 11,767                       11,087
     Redeemable preferred stock                                         27,431                       24,230
                                                                        ------                       ------
         Total preferred stock                                          44,298                       40,145
                                                                        ------                       ------
Stockholders' investment
     Common stock                                                           78                           78
     Capital in excess of par                                               --                        4,048
     Retained earnings (deficit)                                       (37,556)                     (37,356)
                                                                        ------                       ------ 
         Total stockholders' investment                                (37,478)                     (33,230)
                                                                       -------                      ------- 
                                                                      $111,747                     $110,064
                                                                       =======                      =======
</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,
                                                                                     -------------------
                                                                                  1997                 1996
                                                                                  ----                 ----
<S>                                                                              <C>                  <C>    
Operating activities:
     Net (loss) income                                                           $  (96)              $(8,286)
Adjustments to reconcile net income to cash
 provided by operating activities:
         Depreciation and amortization                                            2,988                 2,226
         Goodwill amortization                                                      644                 1,170
         Other noncash items                                                      1,604                 1,833
         Changes in assets and liabilities
             that used cash                                                     (23,287)               (2,314)
                                                                                 ------                 ----- 
         Cash (used in) operating activities                                    (18,147)               (5,371)
                                                                                 ------                 ----- 

Investing activities:
     Investment in products                                                      (1,989)               (1,079)
     Purchase of property and equipment                                          (1,877)               (2,196)
                                                                                  -----                 ----- 
         Cash (used in) investing activities                                     (3,866)               (3,275)
                                                                                  -----                 ----- 

Financing activities:
     Proceeds from senior credit facility                                        20,612                 4,817
     Proceeds from issuance of enterWorks
         subordinated notes                                                          --                 3,078
     Proceeds from capital lease transaction                                         --                 1,300
     Payments under capital leases                                                 (281)                   --
     Repayment of senior subordinated notes                                        (675)                   --
                                                                                 ------                 -----         
         Cash provided by financing activities                                   19,656                 9,195
                                                                                 ------                 -----

     (Decrease) increase in cash and cash equivalents                            (2,357)                  549
     Cash and cash equivalents at beginning of period                             2,781                   735
                                                                                  -----                 -----

     Cash and cash equivalents at end of
         period                                                                  $  424                $1,284
                                                                                  =====                 =====

</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  of Telos
Corporation  ("Telos")  and its wholly  owned  subsidiaries,  Telos  Corporation
(California),  Telos Field Engineering,  Inc., Telos International  Corporation,
and  its   majority   owned   subsidiary,   enterWorks.com, inc. ("enterWorks")
(collectively,   the  "Company")  have  been  prepared  without  audit.  Certain
information and note disclosures  normally included in the financial  statements
presented in accordance with generally accepted accounting  principles have been
condensed or omitted.  The Company believes the disclosures made are adequate to
make the information  presented consistent with past practices.  However,  these
condensed  consolidated  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,
1996.

     In the opinion of the  Company,  the  accompanying  condensed  consolidated
financial  statements  reflect  all  adjustments  and  reclassifications  (which
include  only normal  recurring  adjustments)  necessary  to present  fairly the
financial  position of the Company as of  September  30, 1997 and  December  31,
1996,  and the results of its  operations and its cash flows for the nine months
ended  September  30,  1997  and  1996.  Interim  results  are  not  necessarily
indicative  of fiscal year  performance  because of the impact of  seasonal  and
short-term variations.

     In December 1996, the Company sold  substantially  all of the assets of its
consulting  division,  Telos  Consulting  Services  (TCS),  to COMSYS  Technical
Services, Inc., a subsidiary of COREStaff, Inc. for approximately $31.6 million.
The sale of TCS was treated as a discontinued  operation in accordance  with APB
Opinion  Number 30.  Accordingly,  the results of operations for TCS included in
the three and nine month  periods ended  September 30, 1996 have been  reported
separately as "income from discontinued operations".

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



Note 2.  Accounts Receivable

     The components of accounts receivable are as follows (in thousands):
<TABLE>
<CAPTION>


                                                            September 30, 1997           December 31, 1996
                                                            ------------------           -----------------

     <S>                                                          <C>                          <C>    
     Billed accounts receivable                                   $44,810                      $40,225
     Unbilled accounts receivable                                  13,369                       12,249
                                                                   ------                       ------
                                                                   58,179                       52,474
     Allowance for doubtful accounts                               (1,361)                        (925)
                                                                   ------                       ------  
                                                                  $56,818                      $51,549
                                                                   ======                       ======
</TABLE>

<PAGE>

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


Note 3.  Debt Obligations

Senior Credit Facility
----------------------

     At September 30, 1997, the Company had a $45 million senior credit facility
("Facility") with a bank maturing on July 1, 2000. The Company was not compliant
with certain  covenants  contained in the Facility at September 30, 1997 and the
bank has waived such covenant noncompliance.

Note 4.  Preferred Stock

Senior Redeemable Preferred Stock
---------------------------------

     The components of the senior redeemable  preferred stock are Series A-1 and
Series  A-2  redeemable  preferred  stock each with $.01 par value and 1,250 and
1,750 shares authorized, issued and outstanding, respectively. From July 1, 1995
through June 30, 1997,  the Series A-1 and A-2 each carry a cumulative  dividend
rate equal to 11.125%  per annum of its  liquidation  value,  and  increases  to
14.125% per annum thereafter. The dividends are payable semi-annually on June 30
and December 31 of each year. The liquidation  preference of the preferred stock
is the face amount, $1,000 per share, plus all accrued and unpaid dividends. The
Series A-1 and A-2  Preferred  Stock is senior to all other  present  and future
equity of the Company.  The Company is required to redeem all of the outstanding
shares of the  Series A-1 and A-2 on  December  31,  2001,  subject to the legal
availability  of funds.  At September 30, 1997 and December 31, 1996  cumulative
undeclared, unpaid dividends relating to Series A-1 and A-2 Preferred Stock were
accrued  for  financial  reporting  purposes  in the  amount of  $2,100,000  and
$1,828,000, respectively.


Class B Redeemable Preferred Stock
----------------------------------

     The Class B  Redeemable  Preferred  Stock has a $.01 par value,  with 7,500
shares  authorized,  issued and  outstanding.  The Class B Redeemable  Preferred
Stock has a cumulative  dividend  payable  semi-annually at June 30 and December
31. From July 1, 1995  through June 30, 1997,  the dividend is  calculated  at a
rate equal to 11.125%  per annum of its  liquidation  value,  and  increases  to
14.125% per annum  thereafter.  The Class B  Redeemable  Preferred  Stock may be
redeemed at its liquidation value together with all accrued and unpaid dividends
at any time at the option of the  Company.  The  liquidation  preference  of the
preferred  stock is the face  amount,  $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. At September 30, 1997 and December 31, 1996 cumulative undeclared, unpaid
dividends  relating to the Class B Redeemable  Preferred  Stock were accrued for
financial  reporting  purposes  in  the  amount  of  $4,267,000  and  $3,587,000
respectively.



<PAGE>

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


12% Cumulative Exchangeable Redeemable Preferred Stock
------------------------------------------------------


     A maximum of 6,000,000  shares of 12%  Cumulative  Exchangeable  Redeemable
Preferred  Stock,  par value $.01 per share,  have been authorized for issuance.
The  Company  has  issued  3,595,586  shares  of  12%  Cumulative   Exchangeable
Redeemable  Preferred Stock (the "Preferred Stock"). The 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  (provided  there were no
blocks on payment as further  discussed  below).  Dividends  are  payable by the
Company, provided the Company has legally available funds under Maryland law and
is able to pay dividends under its charter and other corporate  documents,  when
and if declared by the Board of Directors,  commencing June 1, 1990, and on each
six month anniversary  thereof.  Dividends in additional shares of the Preferred
Stock  were paid at the rate of 0.06 of a share for each $.60 of such  dividends
not paid in cash.  No dividends  have been  declared or paid during fiscal years
1992 through  1996.  Cumulative  undeclared  dividends as of September  30, 1997
accrued for financial reporting purposes totaled $12,578,000.  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.
The dividends  payable on December 1, 1995, June 1, 1996,  December 1, 1996, and
June 1, 1997 totaling $8,628,000 were accrued on a cash basis.

     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.




<PAGE>



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

General

     In the first nine months of 1997,  the Company  had  increased  revenue and
profitability as compared to 1996. The increased revenue resulted from increased
order volume in the Systems Integration Group, as well as revenue generated from
contracts  awarded  in 1997 to the  Systems  and  Support  Services  Group.  The
increase in  profitability  was also  attributable  to the cost  reductions  and
branch  consolidation  measures  implemented  by the Company in the last half of
1996. The  profitability  was further  enhanced by an improvement in the product
mix on the Company's long term contracts and improved profit margins realized on
new contracts.

     Total backlog from existing  contracts was $1.2 billion as of September 30,
1997 and is approximately the same as the total backlog as of December 31, 1996.
As of  September  30, 1997,  the funded  backlog of the Company  totaled  $126.2
million,  an increase of $11.2  million from December 31, 1996.  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 allocated to the contracts.

Results of Operations

     The  condensed  consolidated  statements  of income  include the results of
operations  of  Telos  Corporation  and  its  wholly  owned  subsidiaries  Telos
Corporation  (California),  Telos Field  Engineering  Inc., Telos  International
Corporation,   and  its   majority   owned   subsidiary   enterWorks.com,   inc.
("enterWorks")  (collectively,   "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, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>


                                                  Three Months Ended                        Nine Months Ended
                                                     September 30,                            September 30,
                                                     -------------                            -------------
                                                 1997               1996                  1997             1996
                                                 ----               ----                  ----             ----

<S>                                             <C>                 <C>                  <C>             <C>   
Sales                                           100.0%              100.0%               100.0%          100.0%
Cost of sales                                    87.4                87.2                 85.7            87.9
SG&A expenses                                     9.4                15.2                 11.0            15.3
Goodwill amortization                             0.3                 0.6                  0.3             0.6
                                                 ----                ----                 ----            ----

Operating income (loss)                           2.9                (3.0)                 3.0            (3.8)
Other income (expense)                             --                  --                   --            (0.2)
Interest expense                                 (2.8)               (2.8)                (3.1)           (3.0)
Income tax benefit                                 --                 0.8                   --             0.3
                                                 ----                ----                 ----            ---- 
Income (loss) from continuing
  operations                                      0.1                (5.0)                (0.1)           (6.7)
Discontinued operations:
    Income from discontinued
      operations                                   --                 1.0                   --             0.5
                                                  ---                ----                  ---             --- 
Net income (loss)                                 0.1%               (4.0)%               (0.1)%          (6.2)%
                                                  ===                 ===                  ===             ===  

</TABLE>



<PAGE>


Financial Data by Market Segment

     The Company operates in two market  segments;  systems and support services
(the "Systems and Support  Services  Group"),  which  consists of enterWorks and
hardware and software support services; and the Systems Integration Group.

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

<TABLE>
<CAPTION>
                                                       Three Months Ended                 Nine Months Ended
                                                          September 30,                     September 30,
                                                          -------------                     -------------
                                                      1997            1996              1997             1996
                                                      ----            ----              ----             ----
                                                                  (amounts in thousands)
<S>                                                  <C>             <C>               <C>              <C>    
Sales:
     Systems and Support Services                    $33,425         $27,150           $ 92,725         $79,605
     Systems Integration                              34,576          21,789             87,710          53,363
                                                      ------          ------             ------          ------
         Total                                       $68,001         $48,939           $180,435        $132,968
                                                      ======          ======            =======         =======

Gross Profit:
     Systems and Support Services                      5,622          $3,920            $15,275         $10,930
     Systems Integration                               2,973           2,362             10,595           5,126
                                                       -----           -----             ------           -----
         Total                                        $8,595          $6,282            $25,870         $16,056
                                                       =====           =====             ======          ======

Gross Margin:
     Systems and Support Services                       16.8%           14.4%              16.5%           13.7%
     Systems Integration                                 8.6%           10.8%              12.1%            9.6%
                                                        ----            ----               ----            ---- 
         Total                                          12.6%           12.8%              14.3%           12.1%
                                                        ====            ====               ====            ==== 
</TABLE>


     For the three month period ended September 30, 1997,  revenue  increased by
$19.1 million,  or 38.9%, to $68.0 million from $48.9 million for the comparable
1996 period.  The increase for the three month period  includes a $12.8  million
increase in Systems Integration  revenue, and a $6.3 million increase in Systems
and Support Services revenue.

     The increase in Systems  Integration  revenue of $12.8 million results from
orders under its Joint Recruiting  Information  Support System ("JRISS") Blanket
Purchase Agreement as well as its U.S. Courts System Data Communication  Network
contract which were both awarded in 1997, as well as increased  revenue in other
business lines of the segment.

     The Systems and Support  Services Group revenue increase of $6.3 million is
due to an increase  in software  support  revenue of $6.5  million,  offset by a
decrease  in hardware  support  revenue of  $200,000.  The  enterWorks  division
revenue  remained  constant at $1.0 million from the third quarter 1997 compared
to  the  third  quarter  1996.  The  increase  in  software  support  is  mostly
attributable to the revenue  recognized on its  Immigration  and  Naturalization
Service Blanket Purchase Agreement for Field Operation Support contract, as well
as slight increases in sales on certain labor contracts. The decline in hardware
support revenue is due to the loss of one of the division's contracts in June of
1997.  The  decrease  is  also  attributable  to the  continued  migration  from
mainframe to network based computing which generally  provides lower maintenance
revenue. Additionally, the hardware support area continues to experience a shift
from fixed price  contracts to time and material  contracts  which  produce less
predictable revenue streams.

     Based on the Company's  backlog  position and  increased  order flow in the
third quarter 1997,  the fourth  quarter  should  experience  continued  revenue
growth.  However,  there can be no assurance that such revenue  improvement will
occur.

     Revenue  increased  $47.5  million or 35.7% to $180.4  million for the nine
months ended  September  30, 1997 from $132.9  million for the  comparable  1996
period.  The increase for the nine month period includes a $34.3 million Systems
Integration  revenue  increase,  and a $13.2  million  increase  in Systems  and
Support Services revenue.  The reasons for these revenue increases are discussed
above.
<PAGE>
       
     Cost of sales increased by $16.7 million, or 39.3%, to $59.4 million in the
three  month  period  ended  September  30,  1997,  from  $42.7  million  in the
comparable  1996 period.  For the nine months ended  September 30, 1997, cost of
sales increased  $37.6 million,  or 32.2%, to $154.5 million from $116.9 million
for the same period in 1996.  These increases are the result of the increases in
sales for both periods, as well as increases in certain operational reserves.

     Gross  profit  increased  $2.3  million in the three  month  period to $8.6
million,  from $6.3 million in the comparable 1996 period. The increase includes
a $1.7  million  increase  in Systems and Support  Services  gross  profit and a
$600,000  increase  in  Systems  Integration  gross  profit.  For the nine month
period,  gross  profit  increased  by $9.8  million to $25.9  million from $16.1
million.  This increase  includes a $4.3 million increase in Systems and Support
Services gross profit and a $5.5 million increase in Systems  Integration  gross
profit.  The  reasons for the gross  profit  increases  for the  periods  ending
September  30, 1997  compared to  September  30, 1996  related to the changes in
revenues and cost of sales for the respective periods. In addition,  the Systems
Integration Group experienced shifts in product mix on its large contracts which
improved  profit  margins.  The Systems and Support  Services Group improved its
gross  margin by  maximizing  its  efforts on  profitable  contracts.  The Group
further enhanced its gross profit through cost reduction measures implemented in
the fourth quarter of 1996. Gross margins were 12.6% and 14.3% for the three and
nine month  periods of 1997 as  compared  to 12.8% and 12.1% for the  comparable
periods of 1996.

     Selling,  general,  and  administrative  expense ("SG&A") decreased for the
three month period by approximately  $1.0 million,  to $6.4 million in 1997 from
$7.4  million in 1996.  For the nine month  period,  SG&A  decreased  from $20.3
million  to  $19.8  million,   approximately   $500,000.   These  decreases  are
attributable to a decline in bid and proposal and sales and marketing expense in
both the Systems  Integration Group and most of the Systems and Support Services
Group. Additionally, the decreases are a result of the cost reduction and branch
consolidation measures implemented by the Company in the fourth quarter of 1996.
The  Company  continues  to  aggressively   manage   non-contract   related  and
discretionary  spending.  This  overall  decrease  in  SG&A  was  offset  by the
Company's  increased spending in the product development and sales and marketing
efforts of its enterWorks  subsidiary.  For the nine months ended  September 30,
1997,   enterWorks   sales,   marketing  and  product   development   (prior  to
capitalization)  expenses  totaled $1.6 million,  $1.1 million and $2.1 million,
respectively.  SG&A as a percentage of revenues  decreased to 9.4% for the third
quarter of 1997 from 15.2% in the comparable  1996 period.  SG&A as a percentage
of revenues  for the nine month  period ended  September  30, 1997  decreased to
11.0% from 15.3% compared to the same period in 1996.

     Goodwill  amortization  expense was $210,000 and $644,000 for the three and
nine month  periods  ended  September 30, 1997 compared to $275,000 and $825,000
for the three and nine month periods ended September 30, 1996.  These reductions
are due to adjustments to the goodwill  balance from realization of acquired tax
benefits  resulting from the 1992 acquisition of Telos Corporation  (California)
and a writedown in the goodwill balance from the sale of TCS in 1996.



<PAGE>


     Operating  income  increased  by $3.4  million to $1.9 million in the three
month  period  from a loss of $1.5  million in the  comparable  1996  period and
increased $10.4 million to $5.4 million from a loss of $5.0 million for the nine
month period.  These  increases  resulted from the  aforementioned  increases in
gross profit and decreases in SG&A.

     Other  non-operating  income was  approximately  $22,000 in the three month
period of 1997 compared to approximately $3,000 of other non-operating income in
the comparable 1996 period. For the 1997 nine month period, non-operating income
was $45,000 as compared to expense of $346,000 for the  comparable  1996 period.
The  increase  in  income  is due  to  the  $355,000  of  additional  litigation
settlement  provision that the Company recorded as non-operating  expense in the
second quarter of 1996.

     Interest expense  increased  approximately  $515,000 to $1.9 million in the
third quarter of 1997 from $1.4 million in the comparable 1996 period.  Interest
expense  for the nine month  period  ended  September  30, 1997  increased  $1.6
million to $5.5 million from $3.9  million in the 1996 period.  These  increases
are  primarily due to increases in the average debt levels in 1997 as well as an
increase in interest recorded for capital lease payments for leases entered into
throughout 1996.

     The  Company did not have an income tax  provision  for the three month and
nine month periods ended September 30, 1997, due to its cumulative net losses in
the nine month 1997 period.  The Company had an income tax benefit for the three
month and nine month periods ended September 30, 1996 of $421,000.  This benefit
was a result of the  Company  filing  amended  Federal  income tax  returns  for
deductions previously disallowed by the Internal Revenue Service.

Liquidity and Capital Resources


     For the nine months  ended  September  30,  1997,  the  Company  used $18.1
million  of  cash  in  its  operating  activities  primarily  as a  result  of a
significant  reduction in trade accounts payable and other current  liabilities.
The use of cash was also a result of a significant  investment by the Company in
its  enterWorks  division.  The Company funded its net loss and use of operating
cash as well as its investing  activities  such as capital  expenditures of $1.9
million  and  capitalized  software  costs in its  enterWorks  division  of $2.0
million through increased borrowings under its term facility.

     As a result of the Company's  sale of its TCS division for $31.6 million in
December 1996, the Company's  short-term  liquidity  constraints  have improved.
However,  the Company  continues to aggressively  manage its cash and reduce its
discretionary  spending.  The  Company  also  continues  to  evaluate  its  cost
reduction programs and its investment in enterWorks.

     At September 30, 1997, the Company had  outstanding  debt of $65.1 million,
consisting  of $36.0 million under the secured  senior  credit  facility,  $16.9
million in  subordinated  debt and $12.2  million  in  long-term  capital  lease
obligations.  In 1997,  the  Company's  bank entered into an agreement  with the
Company to refinance  its $45 million term facility and extend the maturity date
to July 1, 2000. The terms and conditions of the new facility are similar to the
previous  senior credit  facility  except for amendments  made to certain of the
financial  and non  financial  covenants.  The  Company was not  compliant  with
certain  covenants  contained in the Facility at September 30, 1997 and the bank
has waived such covenant noncompliance.



<PAGE>


     The  Company  is  actively   reviewing  its  financing   requirements   for
enterWorks,  and  continues  to fund  on-going  product  development,  sales and
marketing, and business activities of the subsidiary.  The Company will continue
to  evaluate   various   financing   alternatives  to  maintain  the  enterWorks
operations.

     The Company continually evaluates its financing requirements to support its
business base and anticipated  growth. The Company  anticipates that its current
Facility  will be adequate for 1997.  However,  should  faster than  anticipated
growth occur, the Company believes that an expanded senior credit facility would
be required through a multi-bank syndication arrangement.



<PAGE>



                           PART II - OTHER INFORMATION


Item 3.  Defaults Upon Senior Securities
         -------------------------------


Senior and Class B Redeemable Preferred Stocks


     The Company has not declared  dividends on its Senior Redeemable  Preferred
Stock,  Series A-1 and A-2,  and its Class B  Redeemable  Preferred  Stock since
their  issuance.   Total  undeclared  unpaid  dividends  accrued  for  financial
reporting purposes are $2,100,000 for the Series A-1 and A-2 Preferred Stock and
$4,267,000 for the Class B Preferred Stock at September 30, 1997.


12% Cumulative Exchangeable Redeemable Preferred Stock


     Through  November 21, 1995,  the Company had the option to pay dividends in
additional  shares of Preferred  Stock in lieu of cash  (provided  there were no
blocks on payment as further  discussed  below).  Dividends  are  payable by the
Company, provided the Company has legally available funds under Maryland law and
is able to pay dividends under its charter and other corporate  documents,  when
and if declared by the Board of Directors,  commencing June 1, 1990, and on each
six month anniversary  thereof.  Dividends in additional shares of the Preferred
Stock  were paid at the rate of 0.06 of a share for each $.60 of such  dividends
not paid in cash.  No dividends  have been  declared or paid during fiscal years
1992 through  1996.  Cumulative  undeclared  dividends as of September  30, 1997
accrued for financial reporting purposes totaled $12,578,000.  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.
The dividends  payable on December 1, 1995, June 1, 1996,  December 1, 1996, and
June 1, 1997 totaling $8,628,000 were accrued on a cash basis.

     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:  Registrant  filed a Current  Report on Form
              8-K,  dated  September  15,  1997,  in  respect  of the  Change in
              Registrant's Certifying Accountants.




<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, 1997                                /s/ Lorenzo Tellez
                                                 ------------------
                                                 Lorenzo Tellez
                                                 (Principal Financial Officer &
                                                 Principal Accounting Officer)