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| R      | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | OR                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| £ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | FOR THE TRANSITION PERIOD FROM                                                                                           TO                  |

| MASSACHUSETTS                                                  | 04-2211809                           |
|----------------------------------------------------------------|--------------------------------------|
| (State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification No.) |

| Large accelerated filer | £                                               | Accelerated filer  R              |
|-------------------------|------------------------------------------------------|---------------------------------------------|
| Non-accelerated filer   | £ (Do not check if a smaller reporting company) | Smaller reporting company  £ |

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DYNAMICS RESEARCH CORPORATION

|                          |     |                                                                                                                                     | Page   |
|-------------------------------|----------|------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Part I. Financial Information |     |
|                          | Item 1.  | Financial Statements                                                                                                                     |   |
|                          |     | Condensed Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011                                              | 3      |
|                          |     | Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2012 and 2011                    | 4      |
|                          |     | Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and six months ended June 30, 2012 and 2011   | 5      |
|                          |     | Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended June 30, 2012 and 2011 | 6      |
|                          |     | Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the six months ended June 30, 2012 and 2011   | 7      |
|                          |     | Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2012 and 2011                              | 8      |
|                          |     | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                         | 9      |
|                          | Item 2.  | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                              | 20     |
|                          | Item 3.  | Quantitative and Qualitative Disclosures About Market Risk                                                                               | 31     |
|                          | Item 4.  | Controls and Procedures                                                                                                                  | 31     |
|                          |     |
| Part II. Other Information    |     |
|                          | Item 1.  | Legal Proceedings                                                                                                                        | 32     |
|                          | Item 1A. | Risk Factors                                                                                                                             | 32     |
|                          | Item 2.  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                              | 33     |
|                          | Item 5   | Other Information                                                                                                                        | 33     |
|                          | Item 6.  | Exhibits                                                                                                                                 | 33     |

Table of Contents

DYNAMICS RESEARCH CORPORATION

|                                                                                                                                                                      |   | June 30,2012 |    |   | December 31,2011 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------|------------------|--------|
|                                                                                                                                                                      |   | (unaudited)  |    |   |             |   |
| Assets                                                                                                                                                                    |   |         |    |   |             |   |
| Current assets                                                                                                                                                            |   |         |    |   |             |   |
| Cash and cash equivalents                                                                                                                                                 |   | $            | 8       |   |             | $      | 3,908 |   |
| Contract receivables, net                                                                                                                                                 |   |         | 64,072  |   |             |   | 66,466 |   |
| Prepaid expenses and other current assets                                                                                                                                 |   |         | 4,250   |   |             |   | 2,566 |   |
| Total current assets                                                                                                                                                      |   |         | 68,330  |   |             |   | 72,940 |   |
| Noncurrent assets                                                                                                                                                         |   |         |    |   |             |   |   |   |
| Property and equipment, net                                                                                                                                               |   |         | 13,651  |   |             |   | 15,265 |   |
| Goodwill                                                                                                                                                                  |   |         | 199,805 |   |             |   | 211,805 |   |
| Intangible assets, net                                                                                                                                                    |   |         | 16,679  |   |             |   | 18,741 |   |
| Deferred tax asset                                                                                                                                                        |   |         | 1,964   |   |             |   | 497 |   |
| Other noncurrent assets                                                                                                                                                   |   |         | 3,974   |   |             |   | 4,312 |   |
| Total noncurrent assets                                                                                                                                                   |   |         | 236,073 |   |             |   | 250,620 |   |
| Total assets                                                                                                                                                              |   | $            | 304,403 |   |             | $      | 323,560 |   |
|                                                                                                                                                                      |   |         |    |   |             |   |   |   |
| Liabilities and stockholders' equity                                                                                                                                      |   |         |    |   |             |   |   |   |
| Current liabilities                                                                                                                                                       |   |         |    |   |             |   |   |   |
| Current portion of long-term debt                                                                                                                                         |   | $            | 13,750  |   |             | $      | 12,375 |   |
| Accounts payable                                                                                                                                                          |   |         | 22,915  |   |             |   | 24,504 |   |
| Accrued compensation and employee benefits                                                                                                                                |   |         | 20,083  |   |             |   | 24,902 |   |
| Deferred tax liability                                                                                                                                                    |   |         | 3,479   |   |             |   | 3,383 |   |
| Other accrued expenses                                                                                                                                                    |   |         | 5,245   |   |             |   | 8,556 |   |
| Total current liabilities                                                                                                                                                 |   |         | 65,472  |   |             |   | 73,720 |   |
| Long-term liabilities                                                                                                                                                     |   |         |    |   |             |   |   |   |
| Long-term debt                                                                                                                                                            |   |         | 96,170  |   |             |   | 102,453 |   |
| Other long-term liabilities                                                                                                                                               |   |         | 31,845  |   |             |   | 33,066 |   |
| Total long-term liabilities                                                                                                                                               |   |         | 128,015 |   |             |   | 135,519 |   |
| Total liabilities                                                                                                                                                         |   |         | 193,487 |   |             |   | 209,239 |   |
| Commitments and contingencies                                                                                                                                             |   |         |    |   |             |   |   |   |
| Stockholders' equity                                                                                                                                                      |   |         |    |   |             |   |   |   |
| Preferred stock, $0.10 par value; 5,000,000 shares authorized; no shares issued and outstanding                                                                           |   |         | -       |   |             |   | - |   |
| Common stock, $0.10 par value; 30,000,000 shares authorized; 10,459,394 and 10,321,749 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively |   |         | 1,046   |   |             |   | 1,032 |   |
| Capital in excess of par value                                                                                                                                            |   |         | 56,712  |   |             |   | 55,528 |   |
| Accumulated other comprehensive loss, net of taxes                                                                                                                        |   |         | (27,745 | )      |             |   | (27,430 | ) |
| Retained earnings                                                                                                                                                         |   |         | 80,903  |   |             |   | 85,191 |   |
| Total stockholders' equity                                                                                                                                                |   |         | 110,916 |   |             |   | 114,321 |   |
| Total liabilities and stockholders' equity                                                                                                                                |   | $            | 304,403 |   |             | $      | 323,560 |   |

Table of Contents

DYNAMICS RESEARCH CORPORATION

|                                                      |   | Three Months Ended |       |   | Six Months Ended |   |
|-----------------------------------------------------------|--------|--------------------|------------|--------|------------------|--------|
|                                                      |   | June 30,           |       |   | June 30,         |   |
|                                                      |   | 2012               |       |   | 2011             |   |   | 2012 |   |   | 2011 |   |
| Revenue                                                   |   | $                  | 80,834     |   |             | $      | 68,472 |   |   | $ | 166,703 |   |   | $ | 137,996 |   |
| Cost of revenue                                           |   |               | 68,307     |   |             |   | 58,045 |   |   |   | 140,580 |   |   |   | 116,805 |   |
| Gross profit on revenue                                   |   |               | 12,527     |   |             |   | 10,427 |   |   |   | 26,123 |   |   |   | 21,191 |   |
|                                                      |   |               |       |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative expenses              |   |               | 6,410      |   |             |   | 6,809 |   |   |   | 13,301 |   |   |   | 12,478 |   |
| Amortization of intangible assets                         |   |               | 1,031      |   |             |   | 374 |   |   |   | 2,062 |   |   |   | 748 |   |
| Impairment of goodwill                                    |   |               | 12,000     |   |             |   | - |   |   |   | 12,000 |   |   |   | - |   |
| Operating income (loss)                                   |   |               | (6,914     | )      |             |   | 3,244 |   |   |   | (1,240 | ) |   |   | 7,965 |   |
| Interest expense, net                                     |   |               | (2,621     | )      |             |   | (768 | ) |   |   | (5,400 | ) |   |   | (1,020 | ) |
| Other income (expense), net                               |   |               | (71        | )      |             |   | 67 |   |   |   | 64 |   |   |   | 163 |   |
| Income (loss) before provision (benefit) for income taxes |   |               | (9,606     | )      |             |   | 2,543 |   |   |   | (6,576 | ) |   |   | 7,108 |   |
| Provision (benefit) for income taxes                      |   |               | (3,527     | )      |             |   | 1,106 |   |   |   | (2,288 | ) |   |   | 2,963 |   |
| Net income (loss)                                         |   | $                  | (6,079     | )      |             | $      | 1,437 |   |   | $ | (4,288 | ) |   | $ | 4,145 |   |
|                                                      |   |               |       |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per common share                          |   |               |       |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                     |   | $                  | (0.59      | )      |             | $      | 0.14 |   |   | $ | (0.42 | ) |   | $ | 0.42 |   |
| Diluted                                                   |   | $                  | (0.59      | )      |             | $      | 0.14 |   |   | $ | (0.42 | ) |   | $ | 0.41 |   |
|                                                      |   |               |       |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average shares outstanding                       |   |               |       |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                     |   |               | 10,319,901 |   |             |   | 10,050,545 |   |   |   | 10,330,851 |   |   |   | 9,971,411 |   |
| Diluted                                                   |   |               | 10,319,901 |   |             |   | 10,194,171 |   |   |   | 10,330,851 |   |   |   | 10,145,738 |   |

Table of Contents

DYNAMICS RESEARCH CORPORATION

|                                                                                                                                                                                                                            |   | Three Months Ended |   |   | Six Months Ended |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|                                                                                                                                                                                                                            |   | June 30,           |   |   | June 30,         |   |
|                                                                                                                                                                                                                            |   | 2012               |   |   | 2011             |   |   | 2012 |   |   | 2011 |   |
| Net income (loss)                                                                                                                                                                                                               |   | $                  | (6,079 | )      |             | $      | 1,437 |   |   | $ | (4,288 | ) |   | $ | 4,145 |   |
| Other comprehensive income (loss), net of tax:                                                                                                                                                                                  |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Pension liability adjustment, net of tax of $182:                                                                                                                                                                               |   |               | (278   | )      |             |   | - |   |   |   | (278 | ) |   |   | - |   |
| Unrealized gains (losses) on derivative instruments, net of tax of $5 and $150 for the three months ended June 30, 2012 and 2011, respectively, and $25 and $185 for the six months ended June 30, 2012 and 2011, respectively. |   |               | 7      |   |             |   | 228 |   |   |   | (37 | ) |   |   | 282 |   |
| Other comprehensive income (loss), net of tax                                                                                                                                                                                   |   |               | (271   | )      |             |   | 228 |   |   |   | (315 | ) |   |   | 282 |   |
| Comprehensive income (loss)                                                                                                                                                                                                     |   | $                  | (6,350 | )      |             | $      | 1,665 |   |   | $ | (4,603 | ) |   | $ | 4,427 |   |

Table of Contents

DYNAMICS RESEARCH CORPORATION

|                                                     |   | Common StockShares      |   |   | Common StockParValue      |   |   | CapitalinExcessof Par Value       |   |   | AccumulatedOtherComprehensiveLoss       |   |   | RetainedEarnings |    |   | Total  |   |
|----------------------------------------------------------|--------|-------------------------|--------|--------|---------------------------|--------|--------|----------------------------------------|--------|--------|-----------------------------------------|--------|--------|------------------|---------|--------|--------|--------|
| Balance at March 31, 2012                                |   |                    | 10,447 |   |                      | $      | 1,045  |                                   |   | $      | 55,738                                  |   |   | $                | (27,474 | )      |   | $      | 86,982 |   |   | $ | 116,291 |   |
| Comprehensive loss                                       |   |                    | -      |   |                      |   | -      |                                   |   |   | -                                       |   |   |             | (271    | )      |   |   | (6,079 | ) |   |   | (6,350 | ) |
| Issuance of common stock through stock plan transactions |   |                    | 17     |   |                      |   | 2      |                                   |   |   | 118                                     |   |   |             | -       |   |   |   | - |   |   |   | 120 |   |
| Issuance of restricted stock                             |   |                    | 2      |   |                      |   | -      |                                   |   |   | -                                       |   |   |             | -       |   |   |   | - |   |   |   | - |   |
| Forfeiture of restricted stock                           |   |                    | (6     | )      |                      |   | (1     | )                                      |   |   | 1                                       |   |   |             | -       |   |   |   | - |   |   |   | - |   |
| Release of restricted stock                              |   |                    | (1     | )      |                      |   | -      |                                   |   |   | (10                                     | )      |   |             | -       |   |   |   | - |   |   |   | (10 | ) |
| Share-based compensation                                 |   |                    | -      |   |                      |   | -      |                                   |   |   | 175                                     |   |   |             | -       |   |   |   | - |   |   |   | 175 |   |
| Common stock subject to rescission rights                |   |                    | -      |   |                      |   | -      |                                   |   |   | 724                                     |   |   |             | -       |   |   |   | - |   |   |   | 724 |   |
| Tax benefit from stock plan transactions                 |   |                    | -      |   |                      |   | -      |                                   |   |   | (34                                     | )      |   |             | -       |   |   |   | - |   |   |   | (34 | ) |
| Balance at June 30, 2012                                 |   |                    | 10,459 |   |                      | $      | 1,046  |                                   |   | $      | 56,712                                  |   |   | $                | (27,745 | )      |   | $      | 80,903 |   |   | $ | 110,916 |   |
|                                                     |   |                    |   |   |                      |   |   |                                   |   |   |                                    |   |   |             |    |   |   |   |   |   |   |   |   |   |
|                                                     |   |                    |   |   |                      |   |   |                                   |   |   |                                    |   |   |             |    |   |   |   |   |   |   |   |   |   |
|                                                     |   | Common StockShares |   |   | Common StockParValue |   |   | CapitalinExcess of Par Value |   |   | AccumulatedOtherComprehensive Loss |   |   | RetainedEarnings |    |   | Total  |   |
| Balance at March 31, 2011                                |   |                    | 10,104 |   |                      | $      | 1,010  |                                   |   | $      | 54,504                                  |   |   | $                | (21,637 | )      |   | $      | 76,442 |   |   | $ | 110,319 |   |
| Comprehensive income                                     |   |                    | -      |   |                      |   | -      |                                   |   |   | -                                       |   |   |             | 228     |   |   |   | 1,437 |   |   |   | 1,665 |   |
| Issuance of common stock through stock plan transactions |   |                    | 206    |   |                      |   | 20     |                                   |   |   | 1,307                                   |   |   |             | -       |   |   |   | - |   |   |   | 1,327 |   |
| Issuance of restricted stock                             |   |                    | 16     |   |                      |   | 2      |                                   |   |   | (2                                      | )      |   |             | -       |   |   |   | - |   |   |   | - |   |
| Forfeiture of restricted stock                           |   |                    | (9     | )      |                      |   | (1     | )                                      |   |   | 1                                       |   |   |             | -       |   |   |   | - |   |   |   | - |   |
| Repurchased shares                                       |   |                    | (2     | )      |                      |   | -      |                                   |   |   | (25                                     | )      |   |             | -       |   |   |   | - |   |   |   | (25 | ) |
| Share-based compensation                                 |   |                    | -      |   |                      |   | -      |                                   |   |   | 142                                     |   |   |             | -       |   |   |   | - |   |   |   | 142 |   |
| Tax benefit from stock plan transactions                 |   |                    | -      |   |                      |   | -      |                                   |   |   | 351                                     |   |   |             | -       |   |   |   | - |   |   |   | 351 |   |
| Balance at June 30, 2011                                 |   |                    | 10,315 |   |                      | $      | 1,031  |                                   |   | $      | 56,278                                  |   |   | $                | (21,409 | )      |   | $      | 77,879 |   |   | $ | 113,779 |   |

Table of Contents

DYNAMICS RESEARCH CORPORATION

|                                                     |   | Common StockShares      |   |   | Common StockParValue      |   |   | CapitalinExcessof Par Value       |   |   | AccumulatedOtherComprehensiveLoss       |   |   | RetainedEarnings |    |   | Total  |   |
|----------------------------------------------------------|--------|-------------------------|--------|--------|---------------------------|--------|--------|----------------------------------------|--------|--------|-----------------------------------------|--------|--------|------------------|---------|--------|--------|--------|
| Balance at December 31, 2011                             |   |                    | 10,322 |   |                      | $      | 1,032  |                                   |   | $      | 55,528                                  |   |   | $                | (27,430 | )      |   | $      | 85,191 |   |   | $ | 114,321 |   |
| Comprehensive loss                                       |   |                    | -      |   |                      |   | -      |                                   |   |   | -                                       |   |   |             | (315    | )      |   |   | (4,288 | ) |   |   | (4,603 | ) |
| Issuance of common stock through stock plan transactions |   |                    | 28     |   |                      |   | 3      |                                   |   |   | 230                                     |   |   |             | -       |   |   |   | - |   |   |   | 233 |   |
| Issuance of restricted stock                             |   |                    | 129    |   |                      |   | 13     |                                   |   |   | (13                                     | )      |   |             | -       |   |   |   | - |   |   |   | - |   |
| Forfeiture of restricted stock                           |   |                    | (5     | )      |                      |   | (1     | )                                      |   |   | 1                                       |   |   |             | -       |   |   |   | - |   |   |   | - |   |
| Release of restricted stock                              |   |                    | (15    | )      |                      |   | (1     | )                                      |   |   | (155                                    | )      |   |             | -       |   |   |   | - |   |   |   | (156 | ) |
| Share-based compensation                                 |   |                    | -      |   |                      |   | -      |                                   |   |   | 351                                     |   |   |             | -       |   |   |   | - |   |   |   | 351 |   |
| Common stock subject to rescission rights                |   |                    | -      |   |                      |   | -      |                                   |   |   | 804                                     |   |   |             | -       |   |   |   | - |   |   |   | 804 |   |
| Tax benefit from stock plan transactions                 |   |                    | -      |   |                      |   | -      |                                   |   |   | (34                                     | )      |   |             | -       |   |   |   | - |   |   |   | (34 | ) |
| Balance at June 30, 2012                                 |   |                    | 10,459 |   |                      | $      | 1,046  |                                   |   | $      | 56,712                                  |   |   | $                | (27,745 | )      |   | $      | 80,903 |   |   | $ | 110,916 |   |
|                                                     |   |                    |   |   |                      |   |   |                                   |   |   |                                    |   |   |             |    |   |   |   |   |   |   |   |   |   |
|                                                     |   |                    |   |   |                      |   |   |                                   |   |   |                                    |   |   |             |    |   |   |   |   |   |   |   |   |   |
|                                                     |   | Common StockShares |   |   | Common StockParValue |   |   | CapitalinExcess of Par Value |   |   | AccumulatedOtherComprehensive Loss |   |   | RetainedEarnings |    |   | Total  |   |
| Balance at December 31, 2010                             |   |                    | 10,040 |   |                      | $      | 1,004  |                                   |   | $      | 54,138                                  |   |   | $                | (21,691 | )      |   | $      | 73,734 |   |   | $ | 107,185 |   |
| Comprehensive income                                     |   |                    | -      |   |                      |   | -      |                                   |   |   | -                                       |   |   |             | 282     |   |   |   | 4,145 |   |   |   | 4,427 |   |
| Issuance of common stock through stock plan transactions |   |                    | 268    |   |                      |   | 26     |                                   |   |   | 1,687                                   |   |   |             | -       |   |   |   | - |   |   |   | 1,713 |   |
| Issuance of restricted stock                             |   |                    | 46     |   |                      |   | 5      |                                   |   |   | (5                                      | )      |   |             | -       |   |   |   | - |   |   |   | - |   |
| Forfeiture of restricted stock                           |   |                    | (9     | )      |                      |   | (1     | )                                      |   |   | 1                                       |   |   |             | -       |   |   |   | - |   |   |   | - |   |
| Release of restricted stock                              |   |                    | (9     | )      |                      |   | (1     | )                                      |   |   | (139                                    | )      |   |             | -       |   |   |   | - |   |   |   | (140 | ) |
| Share-based compensation                                 |   |                    | -      |   |                      |   | -      |                                   |   |   | 329                                     |   |   |             | -       |   |   |   | - |   |   |   | 329 |   |
| Repurchased shares                                       |   |                    | (21    | )      |                      |   | (2     | )                                      |   |   | (308                                    | )      |   |             | -       |   |   |   | - |   |   |   | (310 | ) |
| Tax benefit from stock plan transactions                 |   |                    | -      |   |                      |   | -      |                                   |   |   | 575                                     |   |   |             | -       |   |   |   | - |   |   |   | 575 |   |
| Balance at June 30, 2011                                 |   |                    | 10,315 |   |                      | $      | 1,031  |                                   |   | $      | 56,278                                  |   |   | $                | (21,409 | )      |   | $      | 77,879 |   |   | $ | 113,779 |   |

Table of Contents

DYNAMICS RESEARCH CORPORATION

|                                                                |   | Six Months Ended |    |
|---------------------------------------------------------------------|--------|------------------|---------|
|                                                                |   | June 30,         |    |
|                                                                |   | 2012             |    |   | 2011 |   |
| Cash flows from operating activities:                               |   |             |    |   |   |   |
| Net income (loss)                                                   |   | $                | (4,288  | ) |   | $ | 4,145 |   |
| Adjustments to reconcile net cash provided by operating activities: |   |             |    |   |   |   |   |   |
| Impairment of goodwill                                              |   |             | 12,000  |   |   |   | - |   |
| Depreciation                                                        |   |             | 2,018   |   |   |   | 1,707 |   |
| Amortization of intangible assets                                   |   |             | 2,062   |   |   |   | 748 |   |
| Share-based compensation                                            |   |             | 351     |   |   |   | 329 |   |
| Investment loss (income) from equity interest                       |   |             | 38      |   |   |   | (75 | ) |
| Tax benefit from stock plan transactions                            |   |             | 34      |   |   |   | (575 | ) |
| Loss on extinguishment of debt                                      |   |             | -       |   |   |   | 193 |   |
| Settlement of derivative instrument                                 |   |             | -       |   |   |   | 340 |   |
| Deferred income taxes                                               |   |             | (1,165  | ) |   |   | 835 |   |
| Other                                                               |   |             | 662     |   |   |   | (235 | ) |
| Change in operating assets and liabilities:                         |   |             |    |   |   |   |   |   |
| Contract receivables, net                                           |   |             | 2,394   |   |   |   | (7,423 | ) |
| Prepaid expenses and other current assets                           |   |             | (1,684  | ) |   |   | 321 |   |
| Accounts payable                                                    |   |             | (1,589  | ) |   |   | 4,235 |   |
| Accrued compensation and employee benefits                          |   |             | (4,819  | ) |   |   | (2,873 | ) |
| Other accrued expenses                                              |   |             | (309    | ) |   |   | (810 | ) |
| Other long-term liabilities                                         |   |             | (1,587  | ) |   |   | (861 | ) |
| Net cash provided by operating activities                           |   |             | 4,118   |   |   |   | 1 |   |
| Cash flows from investing activities:                               |   |             |    |   |   |   |   |   |
| Purchase of business, net of cash acquired                          |   |             | (2,388  | ) |   |   | (142,822 | ) |
| Additions to property and equipment                                 |   |             | (215    | ) |   |   | (862 | ) |
| Dividends from equity investment                                    |   |             | 86      |   |   |   | 35 |   |
| Increase in other assets                                            |   |             | -       |   |   |   | (24 | ) |
| Net cash used in investing activities                               |   |             | (2,517  | ) |   |   | (143,673 | ) |
| Cash flow from financing activities:                                |   |             |    |   |   |   |   |   |
| Borrowings under loan agreements                                    |   |             | -       |   |   |   | 144,021 |   |
| Repayments under previous term loan                                 |   |             | -       |   |   |   | (22,000 | ) |
| Repayments under new term loan                                      |   |             | (6,500  | ) |   |   | - |   |
| Borrowings under revolving credit agreement                         |   |             | 53,300  |   |   |   | - |   |
| Repayments under revolving credit agreement                         |   |             | (52,500 | ) |   |   | - |   |
| Payments of deferred financing cost                                 |   |             | -       |   |   |   | (1,900 | ) |
| Proceeds from the exercise of stock plan transactions               |   |             | 233     |   |   |   | 1,713 |   |
| Payments of repurchased shares                                      |   |             | -       |   |   |   | (310 | ) |
| Tax benefit from stock plan transactions                            |   |             | (34     | ) |   |   | 575 |   |
| Net cash provided by (used in) financing activities                 |   |             | (5,501  | ) |   |   | 122,099 |   |
| Net decrease in cash and cash equivalents                           |   |             | (3,900  | ) |   |   | (21,573 | ) |
| Cash and cash equivalents, beginning of period                      |   |             | 3,908   |   |   |   | 30,163 |   |
| Cash and cash equivalents, end of period                            |   | $                | 8       |   |   | $ | 8,590 |   |

Table of Contents

NOTE 1. BASIS OF PRESENTATION

|                       |   | Three    |   |   | Six      |   |
|----------------------------|--------|----------|--------|--------|----------|--------|
|                       |   | Months   |   |   | Months   |   |
|                       |   | Ended    |   |   | Ended    |   |
|                       |   | June 30, |   |   | June 30, |   |
|                       |   | 2011     |   |   | 2011     |   |
| Revenue                    |   | $        | 96,119 |   |     | $      | 191,563 |   |
| Operating income           |   | $        | 7,431  |   |     | $      | 14,366 |   |
| Net income                 |   | $        | 2,612  |   |     | $      | 4,992 |   |
|                       |   |     |   |   |     |   |   |   |
| Earnings per common share: |   |     |   |   |     |   |   |   |
| Basic                      |   | $        | 0.26   |   |     | $      | 0.50 |   |
| Diluted                    |   | $        | 0.26   |   |     | $      | 0.49 |   |

Table of Contents

|                                                                                                                |   | June 30,2012 |    |   | December 31, 2011 |   |
|---------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------|-------------------|--------|
| Contract receivables, net:                                                                                          |   |         |    |   |              |   |
| Billed receivables                                                                                                  |   | $            | 29,242  |   |              | $      | 25,821 |   |
| Unbilled receivables(1):                                                                                            |   |         |    |   |              |   |   |   |
| Revenues recorded in excess of milestone billings on fixed price contracts with state and local government agencies |   |         | 6,075   |   |              |   | 7,058 |   |
| Retainages and fee withholdings                                                                                     |   |         | 573     |   |              |   | 518 |   |
| Other unbilled receivables                                                                                          |   |         | 29,167  |   |              |   | 33,935 |   |
| Total unbilled receivables                                                                                          |   |         | 35,815  |   |              |   | 41,511 |   |
| Allowance for doubtful accounts                                                                                     |   |         | (985    | )      |              |   | (866 | ) |
| Contract receivables, net                                                                                           |   | $            | 64,072  |   |              | $      | 66,466 |   |
|                                                                                                                |   |         |    |   |              |   |   |   |
| Prepaid expenses and other current assets:                                                                          |   |         |    |   |              |   |   |   |
| Restricted cash                                                                                                     |   | $            | 251     |   |              | $      | 240 |   |
| Other                                                                                                               |   |         | 3,999   |   |              |   | 2,326 |   |
| Prepaid expenses and other current assets                                                                           |   | $            | 4,250   |   |              | $      | 2,566 |   |
|                                                                                                                |   |         |    |   |              |   |   |   |
| Property and equipment, net:                                                                                        |   |         |    |   |              |   |   |   |
| Software                                                                                                            |   | $            | 11,338  |   |              | $      | 11,334 |   |
| Furniture and other equipment                                                                                       |   |         | 10,084  |   |              |   | 10,185 |   |
| Leasehold improvements                                                                                              |   |         | 11,127  |   |              |   | 10,861 |   |
| Property and equipment                                                                                              |   |         | 32,549  |   |              |   | 32,380 |   |
| Less accumulated depreciation                                                                                       |   |         | (18,898 | )      |              |   | (17,115 | ) |
| Property and equipment, net                                                                                         |   | $            | 13,651  |   |              | $      | 15,265 |   |
|                                                                                                                |   |         |    |   |              |   |   |   |
| Other noncurrent assets:                                                                                            |   |         |    |   |              |   |   |   |
| Deferred compensation plan investments                                                                              |   | $            | 1,374   |   |              | $      | 1,395 |   |
| Equity investments                                                                                                  |   |         | 914     |   |              |   | 1,038 |   |
| Other                                                                                                               |   |         | 1,686   |   |              |   | 1,879 |   |
| Other noncurrent assets                                                                                             |   | $            | 3,974   |   |              | $      | 4,312 |   |
|                                                                                                                |   |         |    |   |              |   |   |   |
| Accrued compensation and employee benefits:                                                                         |   |         |    |   |              |   |   |   |
| Accrued vacation                                                                                                    |   | $            | 6,778   |   |              | $      | 6,036 |   |
| Accrued compensation and related taxes                                                                              |   |         | 6,224   |   |              |   | 11,601 |   |
| Accrued pension liability                                                                                           |   |         | 5,122   |   |              |   | 5,480 |   |
| Other                                                                                                               |   |         | 1,959   |   |              |   | 1,785 |   |
| Accrued compensation and employee benefits                                                                          |   | $            | 20,083  |   |              | $      | 24,902 |   |
|                                                                                                                |   |         |    |   |              |   |   |   |
| Other accrued expenses:                                                                                             |   |         |    |   |              |   |   |   |
| Accrued interest                                                                                                    |   | $            | 193     |   |              | $      | 1,525 |   |
| Deferred rent liability                                                                                             |   |         | 1,136   |   |              |   | 554 |   |
| Deferred gain on sale of building                                                                                   |   |         | 676     |   |              |   | 676 |   |
| Net working capital payment accrual                                                                                 |   |         | -       |   |              |   | 2,388 |   |
| Other                                                                                                               |   |         | 3,240   |   |              |   | 3,413 |   |
| Other accrued expenses                                                                                              |   | $            | 5,245   |   |              | $      | 8,556 |   |
|                                                                                                                |   |         |    |   |              |   |   |   |

Table of Contents

|                                 |   | June 30,2012 |   |   | December 31, 2011 |   |
|--------------------------------------|--------|--------------|--------|--------|-------------------|--------|
| Other long-term liabilities:         |   |         |   |   |              |   |
| Accrued pension liability            |   | $            | 21,743 |   |              | $      | 21,576 |   |
| Deferred rent liability              |   |         | 6,068  |   |              |   | 6,610 |   |
| Deferred gain on sale of building    |   |         | 1,690  |   |              |   | 2,028 |   |
| Deferred compensation plan liability |   |         | 1,374  |   |              |   | 1,395 |   |
| Other                                |   |         | 970    |   |              |   | 1,457 |   |
| Other long-term liabilities          |   | $            | 31,845 |   |              | $      | 33,066 |   |

| (1) | At June 30, 2012 and December 31, 2011, unbilled retainages and fee withholdings of $0.5 million were not anticipated to be billed within one year. Additionally, at December 31, 2011 $0.2 million of the other unbilled receivable balances were not scheduled to be invoiced within one year. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|     |   | December 31, 2011 |    |   | EstimatedGoodwill Impairment |   |   | June 30, 2012 |   |
|----------|--------|-------------------|---------|--------|------------------------------|--------|--------|---------------|--------|
| Goodwill |   | $                 | 211,805 |   |                         | $      | 12,000 |          |   | $ | 199,805 |   |

|                      |   | Weighted average amortization life (years) |   |   | Cost   |   |   | Accumulated Amortization |   |   | Net    |   |
|---------------------------|--------|--------------------------------------------|--------|--------|--------|--------|--------|--------------------------|--------|--------|--------|--------|
| Balance at June 30, 2012: |   |                                       |   |   |   |   |   |                     |   |   |   |   |
| Customer relationships    |   |                                       | 8.3    |   |   | $      | 14,600 |                     |   | $      | (2,470 | )      |   | $ | 12,130 |   |
| Contractual backlog       |   |                                       | 6.5    |   |   |   | 6,700  |                     |   |   | (2,452 | )      |   |   | 4,248 |   |
| Customer contracts        |   |                                       | 5.4    |   |   |   | 3,500  |                     |   |   | (3,401 | )      |   |   | 99 |   |
| Trade name                |   |                                       | 1.5    |   |   |   | 600    |                     |   |   | (398   | )      |   |   | 202 |   |
| Total                     |   |                                       | 7.3    |   |   | $      | 25,400 |                     |   | $      | (8,721 | )      |   | $ | 16,679 |   |

Table of Contents

|                          |   | Weighted average amortization life (years) |   |   | Cost   |   |   | Accumulated Amortization |   |   | Net    |   |
|-------------------------------|--------|--------------------------------------------|--------|--------|--------|--------|--------|--------------------------|--------|--------|--------|--------|
| Balance at December 31, 2011: |   |                                       |   |   |   |   |   |                     |   |   |   |   |
| Customer relationships        |   |                                       | 8.3    |   |   | $      | 14,600 |                     |   | $      | (1,214 | )      |   | $ | 13,386 |   |
| Contractual backlog           |   |                                       | 6.5    |   |   |   | 6,700  |                     |   |   | (1,943 | )      |   |   | 4,757 |   |
| Customer contracts            |   |                                       | 5.4    |   |   |   | 3,500  |                     |   |   | (3,307 | )      |   |   | 193 |   |
| Non-competition agreements    |   |                                       | 3.0    |   |   |   | 1,400  |                     |   |   | (1,400 | )      |   |   | - |   |
| Trade name                    |   |                                       | 1.5    |   |   |   | 600    |                     |   |   | (195   | )      |   |   | 405 |   |
| Total                         |   |                                       | 7.0    |   |   | $      | 26,800 |                     |   | $      | (8,059 | )      |   | $ | 18,741 |   |

| Year ending December 31: |   |   |   |
|--------------------------|--------|--------|--------|
| Remainder of 2012        |   | $      | 2,062  |   |
| 2013                     |   | $      | 3,722  |   |
| 2014                     |   | $      | 3,663  |   |
| 2015                     |   | $      | 2,887  |   |
| 2016                     |   | $      | 2,139  |   |
| 2017 and thereafter      |   | $      | 2,206  |   |

Table of Contents

| Year                |   | Income Tax Benefit |   |
|---------------------|--------|--------------------|--------|
| 2012                |   | $                  | 4,500  |   |
| 2013                |   | $                  | 4,700  |   |
| 2014                |   | $                  | 4,700  |   |
| 2015                |   | $                  | 5,000  |   |
| 2016                |   | $                  | 5,300  |   |
| 2017 and thereafter |   | $                  | 43,400 |   |
|                |   | $                  | 67,600 |   |

|                                                    |   | Senior |    |   |         |   |   |     |   |   |    |   |
|---------------------------------------------------------|--------|--------|---------|--------|--------------|--------|--------|----------|--------|--------|---------|--------|
|                                                    |   | Term   |    |   | Subordinated |   |   |     |   |   |    |   |
|                                                    |   | Loan   |    |   | Debt         |   |   | Revolver |   |   | Total   |   |
| Balance at December 31, 2011                            |   | $      | 76,111  |   |         | $      | 38,717 |     |   | $      | -       |   |   | $ | 114,828 |   |
| Borrowings                                              |   |   | -       |   |         |   | -      |     |   |   | 53,300  |   |   |   | 53,300 |   |
| Repayments                                              |   |   | (6,500  | )      |         |   | -      |     |   |   | (52,500 | )      |   |   | (59,000 | ) |
| Amortization of loan origination fees                   |   |   | 677     |   |         |   | 115    |     |   |   | -       |   |   |   | 792 |   |
| Balance at June 30, 2012                                |   |   | 70,288  |   |         |   | 38,832 |     |   |   | 800     |   |   |   | 109,920 |   |
| Less:  Current portion of long-term debt      |   |   | (13,750 | )      |         |   | -      |     |   |   | -       |   |   |   | (13,750 | ) |
| Long term debt, net of current portion                  |   | $      | 56,538  |   |         | $      | 38,832 |     |   | $      | 800     |   |   | $ | 96,170 |   |
|                                                    |   |   |    |   |         |   |   |     |   |   |    |   |   |   |   |   |
| Weighted average interest rate at December 31, 2011 (1) |   |   | 4.47    | %      |         |   | 13.00  | %        |   |   | -       |   |   |   | 7.32 | % |
| Weighted average interest rate at June 30, 2012 (1)     |   |   | 3.99    | %      |         |   | 13.00  | %        |   |   | 5.75    | %      |   |   | 7.15 | % |

| (1) | The weighted average interest rate includes the effect of the interest rate swap agreements.  See Note 7 for additional information. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------|

Table of Contents

|                                                             |   | Three Months Ended June 30, |   |   | Six Months Ended June 30, |   |
|------------------------------------------------------------------|--------|-----------------------------|--------|--------|---------------------------|--------|
|                                                             |   | 2012                        |   |   | 2011                      |   |   | 2012 |   |   | 2011 |   |
| Gain (loss) recognized in other comprehensive income, net of tax |   | $                           | 7      |   |                      | $      | 228 |   |   | $ | (37 | ) |   | $ | 282 |   |

|                        |   | June 30, |   |   | December 31, |   |
|-----------------------------|--------|----------|--------|--------|--------------|--------|
|                        |   | 2012     |   |   | 2011         |   |
| Other long-term liabilities |   | $        | 57     |   |         | $      | - |   |
| Other noncurrent assets     |   | $        | -      |   |         | $      | 6 |   |

|                             |                         |   | Fair Value Measurements |   |   |    |   |
|----------------------------------|------------------------------|--------|-------------------------|--------|--------|---------|--------|
|                             |                         |   | At June 30, 2012 Using  |   |   |    |   |
|                             | Balance Sheet Classification |   | Level 1                 |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Assets:                          |                         |   |                    |   |   |    |   |   |   |   |   |   |   |
| Investments held in Rabbi Trusts | Other noncurrent assets      |   | $                       | 1,374  |   |    | $      | - |   |   | $ | - |   |   | $ | 1,374 |   |
|                             |                         |   |                    |   |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                     |                         |   |                    |   |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate swap               | Other long-term liabilities  |   | $                       | -      |   |    | $      | 57 |   |   | $ | - |   |   | $ | 57 |   |

Table of Contents

|                             |                         |   | Fair Value Measurements    |   |   |    |   |
|----------------------------------|------------------------------|--------|----------------------------|--------|--------|---------|--------|
|                             |                         |   | At December 31, 2011 Using |   |   |    |   |
|                             | Balance Sheet Classification |   | Level 1                    |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Assets:                          |                         |   |                       |   |   |    |   |   |   |   |   |   |   |
| Investments held in Rabbi Trusts | Other noncurrent assets      |   | $                          | 1,395  |   |    | $      | - |   |   | $ | - |   |   | $ | 1,395 |   |
| Interest rate swap               | Other noncurrent assets      |   | $                          | -      |   |    | $      | 6 |   |   | $ | - |   |   | $ | 6 |   |

Table of Contents

|     |                   |   | Fair Value Measurements |   |   |    |   |
|----------|------------------------|--------|-------------------------|--------|--------|---------|--------|
|     |                   |   | At June 30, 2012 Using  |   |   |    |   |
|     | Balance Sheet Location |   | Level 1                 |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Assets:  |                   |   |                    |   |   |    |   |   |   |   |   |   |   |
| Goodwill | Goodwill               |   | $                       | -      |   |    | $      | - |   |   | $ | 199,805 |   |   | $ | 199,805 |   |

|                                          |   | Three Months Ended |   |   | Six Months Ended |   |
|-----------------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|                                          |   | June 30,           |   |   | June 30,         |   |
|                                          |   | 2012               |   |   | 2011             |   |   | 2012 |   |   | 2011 |   |
| Interest cost on projected benefit obligation |   | $                  | 997    |   |             | $      | 1,030 |   |   | $ | 1,995 |   |   | $ | 2,060 |   |
| Expected return on plan assets                |   |               | (1,197 | )      |             |   | (1,275 | ) |   |   | (2,394 | ) |   |   | (2,550 | ) |
| Recognized actuarial loss                     |   |               | 424    |   |             |   | 302 |   |   |   | 848 |   |   |   | 605 |   |
| Net periodic pension expense                  |   | $                  | 224    |   |             | $      | 57 |   |   | $ | 449 |   |   | $ | 115 |   |

|                                   |   | Three Months Ended |   |   | Six Months Ended |   |
|----------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|                                   |   | June 30,           |   |   | June 30,         |   |
|                                   |   | 2012               |   |   | 2011             |   |   | 2012 |   |   | 2011 |   |
| Cost of products and services          |   | $                  | 95     |   |             | $      | 99 |   |   | $ | 195 |   |   | $ | 186 |   |
| Selling, general and administrative    |   |               | 80     |   |             |   | 43 |   |   |   | 156 |   |   |   | 143 |   |
| Total share-based compensation expense |   | $                  | 175    |   |             | $      | 142 |   |   | $ | 351 |   |   | $ | 329 |   |

Table of Contents

|                        |   | Number of Shares |    |   | WeightedAverage Exercise Price |   |   | WeightedAverageRemainingContractualTerm(in years) |   |   | Aggregate Intrinsic Value |   |
|----------------------------------|--------|-----------------------|---------|--------|------------------------------------------|--------|--------|---------------------------------------------------|--------|--------|-------------------------------------|--------|
| Outstanding at December 31, 2011 |   |                  | 90,840  |   |                                     | $      | 15.04  |                                              |   |   | 4.8                                 |   |   | $ | - |   |
| Granted                          |   |                  | -       |   |                                     | $      | -      |                                              |   |   |                                |   |   |   |   |   |
| Exercised                        |   |                  | -       |   |                                     | $      | -      |                                              |   |   |                                |   |   |   |   |   |
| Cancelled                        |   |                  | (13,840 | )      |                                     | $      | 19.71  |                                              |   |   |                                |   |   |   |   |   |
| Outstanding at June 30, 2012     |   |                  | 77,000  |   |                                     | $      | 14.20  |                                              |   |   | 5.1                                 |   |   | $ | - |   |
|                             |   |                  |    |   |                                     |   |   |                                              |   |   |                                |   |   |   |   |   |
| Exercisable at December 31, 2011 |   |                  | 64,173  |   |                                     | $      | 15.73  |                                              |   |   | 3.2                                 |   |   | $ | - |   |
| Exercisable at June 30, 2012     |   |                  | 60,333  |   |                                     | $      | 14.41  |                                              |   |   | 4.3                                 |   |   | $ | - |   |

|                                                      |   | Three Months Ended |   |   | Six Months Ended |   |
|-----------------------------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|                                                      |   | June 30,           |   |   | June 30,         |   |
|                                                      |   | 2012               |   |   | 2011             |   |   | 2012 |   |   | 2011 |   |
| Amounts realized or received from stock option exercises: |   |               |   |   |             |   |   |   |   |   |   |   |
| Cash proceeds received                                    |   | $                  | -      |   |             | $      | 1,241 |   |   | $ | - |   |   | $ | 1,541 |   |
| Intrinsic value realized                                  |   | $                  | -      |   |             | $      | 1,885 |   |   | $ | - |   |   | $ | 2,415 |   |
| Income tax benefit realized                               |   | $                  | -      |   |             | $      | 687 |   |   | $ | - |   |   | $ | 846 |   |

|                 |   | Number of Shares |    |   | WeightedAverageGrant-Date Fair Value |   |
|--------------------------------|--------|-----------------------|---------|--------|-------------------------------------------|--------|
| Nonvested at December 31, 2011 |   |                  | 80,079  |   |                                      | $      | 11.89 |   |
| Granted                        |   |                  | 131,334 |   |                                      | $      | 10.32 |   |
| Vested                         |   |                  | (58,750 | )      |                                      | $      | 10.82 |   |
| Cancelled                      |   |                  | (6,634  | )      |                                      | $      | 11.89 |   |
| Nonvested at June 30, 2012     |   |                  | 146,029 |   |                                      | $      | 10.97 |   |

Table of Contents

|                                                              |   | Three Months Ended |       |   | Six Months Ended |   |
|-------------------------------------------------------------------|--------|--------------------|------------|--------|------------------|--------|
|                                                              |   | June 30,           |       |   | June 30,         |   |
|                                                              |   | 2012               |       |   | 2011             |   |   | 2012 |   |   | 2011 |   |
|  Weighted average shares outstanding - Basic                 |   |               | 10,319,901 |   |             |   | 10,050,545 |   |   |   | 10,330,851 |   |   |   | 9,971,411 |   |
|  Diluted effect of stock options and restricted stock grants |   |               | -          |   |             |   | 143,626 |   |   |   | - |   |   |   | 174,327 |   |
|  Weighted average shares outstanding - Diluted               |   |               | 10,319,901 |   |             |   | 10,194,171 |   |   |   | 10,330,851 |   |   |   | 10,145,738 |   |

Table of Contents

Table of Contents

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

|   | · | Our dependency on the Federal government and changes in federal spending priorities; |
|--------|--------|--------------------------------------------------------------------------------------|

|   | · | A shift in pricing structure for government contracts; |
|--------|--------|--------------------------------------------------------|

|   | · | Risks associated with actual and potential goodwill impairment; |
|--------|--------|-----------------------------------------------------------------|

|   | · | An increased focus on the elimination of overhead within the Department of Defense; |
|--------|--------|-------------------------------------------------------------------------------------|

|   | · | Failure to obtain new government contracts or retain existing contracts; |
|--------|--------|--------------------------------------------------------------------------|

|   | · | The effect of Federal government in-sourcing on our business; |
|--------|--------|---------------------------------------------------------------|

|   | · | The loss of skilled personnel; |
|--------|--------|--------------------------------|

|   | · | The risk of security breaches in systems we develop, install, or maintain; |
|--------|--------|----------------------------------------------------------------------------|

|   | · | Failure by Congress to timely approve budgets governing spending by Federal agencies; |
|--------|--------|---------------------------------------------------------------------------------------|

|   | · | Risks due to government contract provisions providing for rights unfavorable to us, including the ability to terminate contracts at any time for convenience; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Potential systems or service failures that could result in liability to our company; |
|--------|--------|--------------------------------------------------------------------------------------|

|   | · | Competition with competitors who may have advantages due to having greater resources or qualifying for special statuses; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | · | Failure to obtain or maintain necessary security clearances; |
|--------|--------|--------------------------------------------------------------|

|   | · | Risks associated with various, complex Federal government procurement laws and regulations; |
|--------|--------|---------------------------------------------------------------------------------------------|

|   | · | Adverse effects in the event of an unfavorable Federal audit of our contracts; |
|--------|--------|--------------------------------------------------------------------------------|

|   | · | Failure to adequately safeguard confidential information; |
|--------|--------|-----------------------------------------------------------|

|   | · | An adverse outcome related to ongoing legal proceedings; |
|--------|--------|----------------------------------------------------------|

|   | · | Incurrence of expenditures prior to final receipt of contracts; |
|--------|--------|-----------------------------------------------------------------|

|   | · | Competitive conditions in current markets and difficulties in entering new markets; and |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | · | Our ability to maintain sufficient sources of financing and the risk that our financing requirements should increase. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

Table of Contents

| · | Solutions.  We deliver five high-value, differentiated solutions to our clients:  business transformation, information technology, training and performance support, management services, and science and engineering services.  We believe our solutions align well with the needs of our government customers today who require improved efficiencies and effectiveness, and face procurement reform, transformational and technology based changes, and ongoing, changing security threats. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Markets and Customers.  We target markets which are based on long-term market force drivers that have sustained demand for our services.  We select specific customers from government agencies in our target growth markets with needs that well match the solutions we provide.  Currently our target growth markets include homeland security, healthcare, cyber security, intelligence, and financial/regulatory reform. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Prime Government and Agency-Wide Contracts.  We hold a portfolio of government and agency-wide multiple award schedule ID/IQ task order contracts.  Today, these types of contracts are the federal government’s preferred means of procurement for services. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Acquisitions.  We use acquisitions, funded through both operationally generated cash and leverage, to strengthen our position in our target growth markets. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Table of Contents

|   | · | Program delays, cuts, and terminations, |
|--------|--------|-----------------------------------------|

|   | · | fewer new program starts, |
|--------|--------|---------------------------|

|   | · | intensified price competition for new business and re-competes of current business, and |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | · | pressure to reduce dependency on service contractors and set more work aside for small and socially disadvantaged businesses. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------|

|   | · | the ability to make more meaningful period-to-period comparisons of our ongoing operating results, net of the effect of goodwill impairment; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the ability to better identify trends in our underlying business and perform related trend analysis; |
|--------|--------|------------------------------------------------------------------------------------------------------|

|   | · | a higher degree of transparency for certain expenses (particularly when a specific charge impacts multiple line items); |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|

|   | · | a better understanding of how management plans and measures our underlying business; and |
|--------|--------|------------------------------------------------------------------------------------------|

|   | · | an easier way to compare our most recent results of operations against investor and analyst financial models. |
|--------|--------|---------------------------------------------------------------------------------------------------------------|

Table of Contents

|                                              |   | Three Months Ended |       |   | Six Months Ended |   |
|---------------------------------------------------|--------|--------------------|------------|--------|------------------|--------|
|  (in thousands)                              |   | June 30, 2012      |       |   | June 30, 2012    |   |
| Operating loss                                    |   | $                  | (6,914     | )      |             | (8.6   | )% |   | $ | (1,240 | ) |   | (0.7 | )% |
| Impairment of goodwill                            |   |               | 12,000     |   |             | 14.8   | % |   |   | 12,000 |   |   | 7.2 | % |
| Non-GAAP operating income                         |   | $                  | 5,086      |   |             | 6.3    | % |   | $ | 10,760 |   |   | 6.5 | % |
|                                              |   |               |       |   |             |   |   |   |   |   |   |   |   |   |
| Loss before benefit for income taxes              |   | $                  | (9,606     | )      |             | (11.9  | )% |   | $ | (6,576 | ) |   | (3.9 | )% |
| Impairment of goodwill                            |   |               | 12,000     |   |             | 14.8   | % |   |   | 12,000 |   |   | 7.2 | % |
| Non-GAAP income before provision for income taxes |   | $                  | 2,394      |   |             | 3.0    | % |   | $ | 5,424 |   |   | 3.3 | % |
|                                              |   |               |       |   |             |   |   |   |   |   |   |   |   |   |
| Benefit for income taxes                          |   | $                  | (3,527     | )      |             | 36.7   | % |   | $ | (2,288 | ) |   | 34.8 | % |
| Tax benefit for impairment of goodwill            |   |               | 4,500      |   |             | 37.5   | % |   |   | 4,500 |   |   | 37.5 | % |
| Non-GAAP provision for income taxes               |   | $                  | 973        |   |             | 40.6   | % |   | $ | 2,212 |   |   | 40.8 | % |
|                                              |   |               |       |   |             |   |   |   |   |   |   |   |   |   |
| Net loss                                          |   | $                  | (6,079     | )      |             | (7.5   | )% |   | $ | (4,288 | ) |   | (2.6 | )% |
| Impairment of goodwill, net of tax benefit        |   |               | 7,500      |   |             | 9.3    | % |   |   | 7,500 |   |   | 4.5 | % |
| Non-GAAP net income                               |   | $                  | 1,421      |   |             | 1.8    | % |   | $ | 3,212 |   |   | 1.9 | % |
|                                              |   |               |       |   |             |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per common share                  |   |               |       |   |             |   |   |   |   |   |   |   |   |   |
| Basic                                             |   | $                  | (0.59      | )      |             |   |   |   | $ | (0.42 | ) |   |   |   |
| Per share effect of impairment of goodwill        |   |               | 0.73       |   |             |   |   |   |   | 0.73 |   |   |   |   |
| Non-GAAP Basic                                    |   | $                  | 0.14       |   |             |   |   |   | $ | 0.31 |   |   |   |   |
|                                              |   |               |       |   |             |   |   |   |   |   |   |   |   |   |
| Diluted                                           |   | $                  | (0.59      | )      |             |   |   |   | $ | (0.42 | ) |   |   |   |
| Per share effect of impairment of goodwill        |   |               | 0.72       |   |             |   |   |   |   | 0.72 |   |   |   |   |
| Non-GAAP Diluted (1)                              |   | $                  | 0.14       |   |             |   |   |   | $ | 0.31 |   |   |   |   |
|                                              |   |               |       |   |             |   |   |   |   |   |   |   |   |   |
| Weighted average shares outstanding               |   |               |       |   |             |   |   |   |   |   |   |   |   |   |
| Basic (GAAP diluted)                              |   |               | 10,319,901 |   |             |   |   |   |   | 10,330,851 |   |   |   |   |
| Diluted (Non-GAAP)                                |   |               | 10,352,869 |   |             |   |   |   |   | 10,372,116 |   |   |   |   |

| (1) | May not add due to rounding. |
|-----|------------------------------|

Table of Contents

|                                          |   | Three Months Ended June 30, |   |
|-----------------------------------------------|--------|-----------------------------|--------|
| (in millions)                                 |   | 2012                        |   |   | 2011 |   |
|  Revenue                                 |   | $                           | 80.8   |   |   |   |   | $ | 68.5 |   |   |   |
|                                          |   |                        |   |   |   |   |   |   |   |   |   |   |
|  Gross profit                            |   | $                           | 12.5   |   |   | 15.5 | % |   | $ | 10.4 |   |   | 15.2 | % |
|  Selling, general and administrative     |   |                        | 6.4    |   |   | 7.9 | % |   |   | 6.8 |   |   | 9.9 | % |
|  Amortization of intangible assets       |   |                        | 1.0    |   |   | 1.3 | % |   |   | 0.4 |   |   | 0.5 | % |
|  Impairment of goodwill                  |   |                        | 12.0   |   |   | 14.8 | % |   |   | - |   |   | 0 | % |
|  Operating income (loss)                 |   |                        | (6.9   | ) |   | (8.6 | )% |   |   | 3.2 |   |   | 4.7 | % |
|  Interest expense, net                   |   |                        | (2.6   | ) |   | (3.2 | )% |   |   | (0.8 | ) |   | (1.1 | )% |
|  Other income (expense), net             |   |                        | (0.1   | ) |   | (0.1 | )% |   |   | 0.1 |   |   | 0.1 | % |
|  Provision (benefit) for income taxes(1) |   |                        | (3.5   | ) |   | 36.7 | % |   |   | 1.1 |   |   | 43.5 | % |
|  Net income (loss)(2)                    |   | $                           | (6.1   | ) |   | (7.5 | )% |   | $ | 1.4 |   |   | 2.1 | % |

|                                          |   | Six Months Ended June 30, |   |
|-----------------------------------------------|--------|---------------------------|--------|
| (in millions)                                 |   | 2012                      |   |   | 2011 |   |
|  Revenue                                 |   | $                         | 166.7  |   |   |   |   | $ | 138.0 |   |   |   |
|                                          |   |                      |   |   |   |   |   |   |   |   |   |   |
|  Gross profit                            |   | $                         | 26.1   |   |   | 15.7 | % |   | $ | 21.2 |   |   | 15.4 | % |
|  Selling, general and administrative     |   |                      | 13.3   |   |   | 8.0 | % |   |   | 12.5 |   |   | 9.0 | % |
|  Amortization of intangible assets       |   |                      | 2.1    |   |   | 1.2 | % |   |   | 0.7 |   |   | 0.5 | % |
|  Impairment of goodwill                  |   |                      | 12.0   |   |   | 7.2 | % |   |   | - |   |   | 0 | % |
|  Operating income (loss)                 |   |                      | (1.2   | ) |   | (0.7 | )% |   |   | 8.0 |   |   | 5.8 | % |
|  Interest expense, net                   |   |                      | (5.4   | ) |   | (3.2 | )% |   |   | (1.0 | ) |   | (0.7 | )% |
|  Other income, net                       |   |                      | 0.1    |   |   | 0.0 | % |   |   | 0.2 |   |   | 0.1 | % |
|  Provision (benefit) for income taxes(1) |   |                      | (2.3   | ) |   | 34.8 | % |   |   | 3.0 |   |   | 41.7 | % |
|  Net income (loss)(2)                    |   | $                         | (4.3   | ) |   | (2.6 | )% |   | $ | 4.1 |   |   | 3.0 | % |

| (1)    | The percentage of provision for income taxes relates to a percentage of income (loss) before income taxes. |
|--------|------------------------------------------------------------------------------------------------------------|
|   |                                                                                                       |
| (2)    | Net income (loss) may not add due to rounding.                                                             |

Table of Contents

|                                       |   | Three Months Ended June 30, |   |
|--------------------------------------------|--------|-----------------------------|--------|
|                                       |   | 2012                        |   |   | 2011 |   |
| (in millions)                              |   |                        |   |   |   |   |   |   |   |   |
| National defense and intelligence agencies |   | $                           | 46.5   |   |   | 57.6 | % |   | $ | 47.5 |   |   | 69.3 | % |
| Homeland security                          |   |                        | 11.1   |   |   | 13.7 |   |   |   | 11.3 |   |   | 16.5 |   |
| Federal civilian agencies                  |   |                        | 19.2   |   |   | 23.8 |   |   |   | 5.8 |   |   | 8.4 |   |
| Total revenue from federal agencies(1)     |   |                        | 76.8   |   |   | 95.0 |   |   |   | 64.6 |   |   | 94.3 |   |
| State and local government agencies        |   |                        | 4.0    |   |   | 5.0 |   |   |   | 3.9 |   |   | 5.7 |   |
| Total revenue                              |   | $                           | 80.8   |   |   | 100.0 | % |   | $ | 68.5 |   |   | 100.0 | % |

|                                       |   | Six Months Ended June 30, |   |
|--------------------------------------------|--------|---------------------------|--------|
|                                       |   | 2012                      |   |   | 2011 |   |
| (in millions)                              |   |                      |   |   |   |   |   |   |   |   |
| National defense and intelligence agencies |   | $                         | 97.1   |   |   | 58.2 | % |   | $ | 95.3 |   |   | 69.0 | % |
| Homeland security                          |   |                      | 22.5   |   |   | 13.5 |   |   |   | 23.6 |   |   | 17.1 |   |
| Federal civilian agencies                  |   |                      | 39.2   |   |   | 23.5 |   |   |   | 11.6 |   |   | 8.4 |   |
| Total revenue from federal agencies(1)     |   |                      | 158.8  |   |   | 95.2 |   |   |   | 130.5 |   |   | 94.6 |   |
| State and local government agencies        |   |                      | 7.9    |   |   | 4.7 |   |   |   | 7.5 |   |   | 5.4 |   |
| Total revenue                              |   | $                         | 166.7  |   |   | 100.0 | % |   | $ | 138.0 |   |   | 100.0 | % |

| (1) | Totals may not add due to rounding. |
|-----|-------------------------------------|

Table of Contents

|                                                |   | Three Months Ended |   |   | Six Months Ended |   |
|-----------------------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|                                                |   | June 30,           |   |   | June 30,         |   |
|                                                |   | 2012               |   |   | 2011             |   |   | 2012 |   |   | 2011 |   |
|  Fixed price, including service type contracts |   |               | 47     | %      |             |   | 51 | % |   |   | 46 | % |   |   | 50 | % |
|  Time and materials                            |   |               | 33     |   |             |   | 30 |   |   |   | 34 |   |   |   | 30 |   |
|  Cost reimbursable                             |   |               | 20     |   |             |   | 19 |   |   |   | 20 |   |   |   | 20 |   |
|                                                |   |               | 100    | %      |             |   | 100 | % |   |   | 100 | % |   |   | 100 | % |
|                                                |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
|  Prime contract                                |   |               | 85     | %      |             |   | 76 | % |   |   | 85 | % |   |   | 75 | % |
|  Sub-contract                                  |   |               | 15     |   |             |   | 24 |   |   |   | 15 |   |   |   | 25 |   |
|                                                |   |               | 100    | %      |             |   | 100 | % |   |   | 100 | % |   |   | 100 | % |

| (in millions) |   | June 30, 2012 |   |   | December 31, 2011 |   |
|---------------|--------|---------------|--------|--------|-------------------|--------|
| Backlog:      |   |          |   |   |              |   |
| Funded        |   | $             | 150.6  |   |              | $      | 183.3 |   |
| Unfunded      |   |          | 519.3  |   |              |   | 618.6 |   |
| Total backlog |   | $             | 669.9  |   |              | $      | 801.9 |   |

Table of Contents

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4. CONTROLS AND PROCEDURES

Table of Contents

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

Table of Contents

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

| Period                          |   | Total Number of Shares Purchased(1) |   |   | Average Price Paid Per Share |   |   | Total Number of Shares Purchased as Part of Publicly Announced Programs |   |   | Approximate Dollar Value Of Shares that May Yet Be Purchased Under the Programs |   |
|---------------------------------|--------|-------------------------------------|--------|--------|------------------------------|--------|--------|-------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------|--------|
| April 1, 2012 to April 30, 2012 |   |                                | 486    |   |                         | $      | 7.53   |                                                                    |   |   | -                                                                               |   |   | $ | - |   |
| May 1, 2012 to May 31, 2012     |   |                                | 790    |   |                         | $      | 7.12   |                                                                    |   |   | -                                                                               |   |   |   | - |   |
| June 1, 2012 to June 30, 2012   |   |                                | 227    |   |                         | $      | 5.74   |                                                                    |   |   | -                                                                               |   |   |   | - |   |
| Total                           |   |                                | 1,503  |   |                         | $      | 7.05   |                                                                    |   |   | -                                                                               |   |   | $ | - |   |

| (1) | Represents shares repurchased to cover payroll withholding taxes in connection with the vesting of restricted stock awards. |
|-----|-----------------------------------------------------------------------------------------------------------------------------|

ITEM 5. OTHER INFORMATION

ITEM 6. EXHIBITS

| 3.1    | Amended and restated by-laws of Dynamics Research Corporation, dated June 13, 2012.                                                                                                                                                                                                                                                                                                                              |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.1   | Amendment No. 2 to Credit Agreement, dated as of June 29, 2012, among Dynamics Research Corporation, the Borrower, the Guarantors, each Lender party and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 3, 2012 (File no. 001-34135).                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.2   | Amendment No. 1 to Senior Subordinated Loan Agreement, dated as of June 29, 2012, among Dynamics Research Corporation, the Borrower, the Guarantors, Ares Mezzanine Partners, L.P., as a Lender and Lead Investor and the other lenders from time to time party thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 3, 2012 (File no. 001-34135). |
|   |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.3   | Amendment No. 3 to Credit Agreement, dated as of August 8, 2012, among Dynamics Research Corporation, the Borrower, the Guarantors, each Lender party and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.4   | Amendment No. 2 to Senior Subordinated Loan Agreement, dated as of August 8, 2012, among Dynamics Research Corporation, the Borrower, the Guarantors, Ares Mezzanine Partners, L.P., as a Lender and Lead Investor and the other lenders from time to time party thereto.                                                                                                                                   |

Table of Contents

| 31.1   | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                     |
| 31.2   | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|   |                                                                                                                                                                                     |
| 32.1   | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                   |
|   |                                                                                                                                                                                     |
| 32.2   | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                   |

|                            | DYNAMICS RESEARCH CORPORATION                                     |
|---------------------------------|-------------------------------------------------------------------|
|                            | (Registrant)                                                      |
|                            |                                                              |
|                            |                                                              |
| Date:  August 9, 2012 | /s/ David Keleher                                                 |
|                            | Senior Vice President, Chief Financial Officer and Treasurer      |
|                            | (Principal Financial Officer)                                     |
|                            |                                                              |
| Date:  August 9, 2012 | /s/ Shaun N. McCarthy                                             |
|                            | Vice President, Corporate Controller and Chief Accounting Officer |
|                            | (Principal Accounting Officer)                                    |
|                            |                                                              |