----

----

| R      | QUARTERLY                    REPORT PURSUANT TO                    SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE                    ACT OF                    1934                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | FOR                    THE QUARTERLY PERIOD ENDED                    SEPTEMBER 30, 2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | 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.) |

----

----

----

DYNAMICS      RESEARCH      CORPORATION

|                                                                                                                                                                                                                            | Page   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Part                    I. Financial Information                                                                                                                                                                                |   |
| Item                    1. Financial Statements                                                                                                                                                                                 |   |
| Condensed                    Consolidated Balance Sheets as of September 30, 2007                    and December 31, 2006 (unaudited)                                                                                          | 3      |
| Condensed                    Consolidated Statements of Operations for the three                    and nine months ended September 30, 2007 and 2006                    (unaudited)                                            | 4      |
| Condensed                    Consolidated Statements of Changes in                    Stockholders’ Equity and Comprehensive Income for the three months ended                    September 30, 2007 and 2006 (unaudited) | 5      |
| Condensed                    Consolidated Statements of Changes in                    Stockholders’ Equity and Comprehensive Income for the nine months ended                    September 30, 2007 and 2006 (unaudited)  | 6      |
| Condensed                    Consolidated Statements of Cash Flows for the nine                    months ended September 30, 2007 and 2006 (unaudited)                                                                         | 7      |
| Notes                    to Condensed Consolidated Financial Statements                    (unaudited)                                                                                                                          | 8      |
| Item                    2. Management’s Discussion and Analysis of Financial                    Condition and Results of Operations                                                                                       | 17     |
| Item                    3. Quantitative and Qualitative Disclosures About                    Market Risk                                                                                                                        | 24     |
| Item                    4. Controls and Procedures                                                                                                                                                                              | 24     |
|                                                                                                                                                                                                                            |   |
| Part                    II. Other Information                                                                                                                                                                                   |   |
| Item                    1. Legal Proceedings                                                                                                                                                                                    | 25     |
| Item                    1A. Risk Factors                                                                                                                                                                                        | 25     |
| Item                    2. Unregistered Sales of Equity Securities and                    Use of Proceeds                                                                                                                       | 25     |
| Item                    6. Exhibits                                                                                                                                                                                             | 25     |

----

Table          of          Contents

DYNAMICS      RESEARCH      CORPORATION

|                                                                                                                                                                                                                                                                        |   | September                    30, |    |   | December                    31,                    |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|--------|----------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                        |   | 2007                             |    |   | 2006                                               |   |
|                                                                                                                                                                                                                                                                        |   |                             |    |   | (restated)                                         |   |
|                                                                                                                                                                                                                                                                        |   |                             |    |   | (See                    Note                    1) |   |
| Assets                                                                                                                                                                                                                                                                      |   |                             |    |   |                                               |   |
| Current                    assets                                                                                                                                                                                                                                           |   |                             |    |   |                                               |   |
| Cash                    and cash equivalents                                                                                                                                                                                                                                |   | $                                | 1,323   |   |                                               | $      | 7,887 |   |
| Accounts                    receivable, net of allowances of $804 at September 30, 2007 and                    $793 at                    December 31, 2006                                                                                                                 |   |                             | 34,676  |   |                                               |   | 27,072 |   |
| Unbilled                    expenditures and fees on contracts in process                                                                                                                                                                                                   |   |                             | 31,496  |   |                                               |   | 36,174 |   |
| Prepaid                    expenses and other current assets                                                                                                                                                                                                                |   |                             | 3,543   |   |                                               |   | 2,933 |   |
| Total                    current assets                                                                                                                                                                                                                                     |   |                             | 71,038  |   |                                               |   | 74,066 |   |
| Noncurrent                    assets                                                                                                                                                                                                                                        |   |                             |    |   |                                               |   |   |   |
| Property                    and equipment, net                                                                                                                                                                                                                              |   |                             | 10,400  |   |                                               |   | 11,509 |   |
| Goodwill                                                                                                                                                                                                                                                                    |   |                             | 63,055  |   |                                               |   | 63,055 |   |
| Intangible                    assets, net                                                                                                                                                                                                                                   |   |                             | 3,720   |   |                                               |   | 5,671 |   |
| Deferred                    tax asset                                                                                                                                                                                                                                       |   |                             | 1,680   |   |                                               |   | 1,507 |   |
| Other                    noncurrent assets                                                                                                                                                                                                                                  |   |                             | 3,963   |   |                                               |   | 4,044 |   |
| Total                    noncurrent assets                                                                                                                                                                                                                                  |   |                             | 82,818  |   |                                               |   | 85,786 |   |
| Total                    assets                                                                                                                                                                                                                                             |   | $                                | 153,856 |   |                                               | $      | 159,852 |   |
| Liabilities                    and stockholders' equity                                                                                                                                                                                                                     |   |                             |    |   |                                               |   |   |   |
| Current                    liabilities                                                                                                                                                                                                                                      |   |                             |    |   |                                               |   |   |   |
| Accounts                    payable                                                                                                                                                                                                                                         |   | $                                | 13,060  |   |                                               | $      | 18,195 |   |
| Accrued                    compensation and employee benefits                                                                                                                                                                                                               |   |                             | 14,727  |   |                                               |   | 14,473 |   |
| Deferred                    taxes                                                                                                                                                                                                                                           |   |                             | 6,748   |   |                                               |   | 9,864 |   |
| Other                    accrued expenses                                                                                                                                                                                                                                   |   |                             | 4,959   |   |                                               |   | 5,201 |   |
| Total                    current liabilities                                                                                                                                                                                                                                |   |                             | 39,494  |   |                                               |   | 47,733 |   |
| Long-term                    liabilities                                                                                                                                                                                                                                    |   |                             |    |   |                                               |   |   |   |
| Long-term                    debt                                                                                                                                                                                                                                           |   |                             | 11,748  |   |                                               |   | 15,000 |   |
| Other                    long-term liabilities                                                                                                                                                                                                                              |   |                             | 11,634  |   |                                               |   | 12,805 |   |
| Total                    long-term liabilities                                                                                                                                                                                                                              |   |                             | 23,382  |   |                                               |   | 27,805 |   |
| Total                    liabilities                                                                                                                                                                                                                                        |   |                             | 62,876  |   |                                               |   | 75,538 |   |
| 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; 9,487,758                    and                    9,314,962 shares issued and outstanding at September 30, 2007                    and December                    31, 2006, respectively |   |                             | 949     |   |                                               |   | 931 |   |
| Capital                    in excess of par value                                                                                                                                                                                                                           |   |                             | 49,736  |   |                                               |   | 47,644 |   |
| Accumulated                    other comprehensive loss                                                                                                                                                                                                                     |   |                             | (9,206  | )      |                                               |   | (9,206 | ) |
| Retained                    earnings                                                                                                                                                                                                                                        |   |                             | 49,501  |   |                                               |   | 44,945 |   |
| Total                    stockholders' equity                                                                                                                                                                                                                               |   |                             | 90,980  |   |                                               |   | 84,314 |   |
| Total                    liabilities and stockholders' equity                                                                                                                                                                                                               |   | $                                | 153,856 |   |                                               | $      | 159,852 |   |

----

Table          of          Contents

DYNAMICS      RESEARCH      CORPORATION

|                                                                          |   | Three                    Months                    Ended |      |   | Nine                    Months                    Ended |   |
|-------------------------------------------------------------------------------|--------|----------------------------------------------------------|-----------|--------|---------------------------------------------------------|--------|
|                                                                          |   | September                    30,                         |      |   | September                    30,                        |   |
|                                                                          |   | 2007                                                     |      |   | 2006                                                    |   |   | 2007 |   |   | 2006 |   |
| Contract                    revenue                                           |   | $                                                        | 57,180    |   |                                                    | $      | 61,547 |   |   | $ | 170,122 |   |   | $ | 194,026 |   |
| Product                    sales                                              |   |                                                     | 1,148     |   |                                                    |   | 1,614 |   |   |   | 2,996 |   |   |   | 4,626 |   |
| Total                    revenue                                              |   |                                                     | 58,328    |   |                                                    |   | 63,161 |   |   |   | 173,118 |   |   |   | 198,652 |   |
|                                                                          |   |                                                     |      |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Cost                    of contract revenue                                   |   |                                                     | 47,808    |   |                                                    |   | 53,756 |   |   |   | 142,201 |   |   |   | 169,054 |   |
| Cost                    of product sales                                      |   |                                                     | 1,212     |   |                                                    |   | 1,217 |   |   |   | 3,560 |   |   |   | 3,771 |   |
| Selling,                    general and administrative expenses               |   |                                                     | 5,262     |   |                                                    |   | 5,559 |   |   |   | 16,623 |   |   |   | 18,228 |   |
| Amortization                    of intangible assets                          |   |                                                     | 650       |   |                                                    |   | 702 |   |   |   | 1,951 |   |   |   | 2,107 |   |
| Total                    operating costs and expenses                         |   |                                                     | 54,932    |   |                                                    |   | 61,234 |   |   |   | 164,335 |   |   |   | 193,160 |   |
|                                                                          |   |                                                     |      |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Operating                    income                                           |   |                                                     | 3,396     |   |                                                    |   | 1,927 |   |   |   | 8,783 |   |   |   | 5,492 |   |
| Interest                    expense, net                                      |   |                                                     | (373      | )      |                                                    |   | (558 | ) |   |   | (1,302 | ) |   |   | (1,693 | ) |
| Other                    income                                               |   |                                                     | 323       |   |                                                    |   | 78 |   |   |   | 397 |   |   |   | 429 |   |
| Income                    before provision for income taxes                   |   |                                                     | 3,346     |   |                                                    |   | 1,447 |   |   |   | 7,878 |   |   |   | 4,228 |   |
| Provision                    for income taxes                                 |   |                                                     | 1,427     |   |                                                    |   | 526 |   |   |   | 3,322 |   |   |   | 1,741 |   |
| Income                    before cumulative effect of accounting change       |   |                                                     | 1,919     |   |                                                    |   | 921 |   |   |   | 4,556 |   |   |   | 2,487 |   |
| Cumulative                    benefit of accounting change, net of tax of $62 |   |                                                     | -         |   |                                                    |   | - |   |   |   | - |   |   |   | 84 |   |
| Net                    income                                                 |   | $                                                        | 1,919     |   |                                                    | $      | 921 |   |   | $ | 4,556 |   |   | $ | 2,571 |   |
|                                                                          |   |                                                     |      |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Earnings                    per common share                                  |   |                                                     |      |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                         |   |                                                     |      |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Income                    before cumulative effect of accounting change       |   | $                                                        | 0.21      |   |                                                    | $      | 0.10 |   |   | $ | 0.49 |   |   | $ | 0.27 |   |
| Cumulative                    effect of accounting change                     |   |                                                     | -         |   |                                                    |   | - |   |   |   | - |   |   |   | 0.01 |   |
| Net                    income                                                 |   | $                                                        | 0.21      |   |                                                    | $      | 0.10 |   |   | $ | 0.49 |   |   | $ | 0.28 |   |
|                                                                          |   |                                                     |      |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                                       |   |                                                     |      |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Income                    before cumulative effect of accounting change       |   | $                                                        | 0.20      |   |                                                    | $      | 0.10 |   |   | $ | 0.47 |   |   | $ | 0.26 |   |
| Cumulative                    effect of accounting change                     |   |                                                     | -         |   |                                                    |   | - |   |   |   | - |   |   |   | 0.01 |   |
| Net                    income                                                 |   | $                                                        | 0.20      |   |                                                    | $      | 0.10 |   |   | $ | 0.47 |   |   | $ | 0.27 |   |
|                                                                          |   |                                                     |      |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                    average shares outstanding                        |   |                                                     |      |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                         |   |                                                     | 9,354,332 |   |                                                    |   | 9,133,552 |   |   |   | 9,326,367 |   |   |   | 9,079,601 |   |
| Diluted                                                                       |   |                                                     | 9,702,910 |   |                                                    |   | 9,395,360 |   |   |   | 9,644,760 |   |   |   | 9,424,170 |   |

----

Table          of          Contents

DYNAMICS      RESEARCH      CORPORATION

|                                                                                                                                                            |   |                            |   |   |                         |   |   |                          |   |                          | Accumulated |   |   |        |    |   |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|--------|------------------------------|--------|--------|-------------------------------|--------|-------------------------------|-------------|--------|--------|-------------|---------|--------|--------|--------|
|                                                                                                                                                            |   |                            |   |   |                         |   |   | Capital                    in |   |                          | Other       |   |   |        |    |   |   |   |
|                                                                                                                                                            |   | Common                    Stock |   |   | Excess                    of |   |   | Comprehensive                 |   |                          | Retained    |   |   |        |    |
|                                                                                                                                                            |   | Shares                          |   |   | Par                    Value |   |   | Par                    Value  |   |                          | Loss        |   |   | Earnings    |    |   | Total  |   |
| Balance                    June 30, 2007 (unaudited)                                                                                                            |   |                            | 9,464  |   |                         | $      | 946    |                          |   | $                             | 49,066      |   |   | $           | (9,206  | )      |   | $      | 47,582 |   |   | $ | 88,388 |   |
| Comprehensive                    income:                                                                                                                        |   |                            |   |   |                         |   |   |                          |   |                          |        |   |   |        |    |   |   |   |   |   |   |   |   |   |
| Net                    income                                                                                                                                   |   |                            | -      |   |                         |   | -      |                          |   |                          | -           |   |   |        | -       |   |   |   | 1,919 |   |   |   | 1,919 |   |
| Comprehensive                    income                                                                                                                         |   |                            | -      |   |                         |   | -      |                          |   |                          | -           |   |   |        | -       |   |   |   | - |   |   |   | 1,919 |   |
| Issuance                    of common stock through stock options exercised and employee                    stock                    purchase plan transactions |   |                            | 22     |   |                         |   | 2      |                          |   |                          | 228         |   |   |        | -       |   |   |   | - |   |   |   | 230 |   |
| Issuance                    of restricted stock                                                                                                                 |   |                            | 6      |   |                         |   | 1      |                          |   |                          | (1          | )      |   |        | -       |   |   |   | - |   |   |   | - |   |
| Forfeiture                    of restricted stock                                                                                                               |   |                            | (4     | )      |                         |   | -      |                          |   |                          | -           |   |   |        | -       |   |   |   | - |   |   |   | - |   |
| Release                    of restricted stock                                                                                                                  |   |                            | -      |   |                         |   | -      |                          |   |                          | -           |   |   |        | -       |   |   |   | - |   |   |   | - |   |
| Share-based                    compensation expense                                                                                                             |   |                            | -      |   |                         |   | -      |                          |   |                          | 434         |   |   |        | -       |   |   |   | - |   |   |   | 434 |   |
| Tax                    benefit from stock options exercised and employee stock purchase                    plan                    transactions                 |   |                            | -      |   |                         |   | -      |                          |   |                          | 9           |   |   |        | -       |   |   |   | - |   |   |   | 9 |   |
| Balance                    September 30, 2007 (unaudited)                                                                                                       |   |                            | 9,488  |   |                         | $      | 949    |                          |   | $                             | 49,736      |   |   | $           | (9,206  | )      |   | $      | 49,501 |   |   | $ | 90,980 |   |
|                                                                                                                                                            |   |                            |   |   |                         |   |   |                          |   |                          |        |   |   |        |    |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                            |   |                            |   |   |                         |   |   |                          |   |                          |        |   |   |        |    |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                            |   |                            |   |   |                         |   |   |                          |   |                          |        |   |   | Accumulated |    |   |   |   |   |   |   |   |   |
|                                                                                                                                                            |   |                            |   |   |                         |   |   |                          |   | Capital                    in |        |   | Other  |        |    |   |   |   |   |   |   |   |
|                                                                                                                                                            |   | Common                    Stock |   |   | Excess                    of |   |   | Comprehensive                 |   |                          | Retained    |   |   |        |    |   |
|                                                                                                                                                            |   | Shares                          |   |   | Par                    Value |   |   | Par                    Value  |   |                          | Loss        |   |   | Earnings    |    |   | Total  |   |
| Balance                    June 30, 2006 (unaudited)                                                                                                            |   |                            | 9,252  |   |                         | $      | 925    |                          |   | $                             | 45,855      |   |   | $           | (10,768 | )      |   | $      | 41,974 |   |   | $ | 77,986 |   |
| Impact                    of restatement - Note 1                                                                                                               |   |                            | -      |   |                         |   | -      |                          |   |                          | -           |   |   |        | -       |   |   |   | 549 |   |   |   | 549 |   |
| Balance                    June 30, 2006 (unaudited)                                                                                                            |   |                            | 9,252  |   |                         |   | 925    |                          |   |                          | 45,855      |   |   |        | (10,768 | )      |   |   | 42,523 |   |   |   | 78,535 |   |
| Comprehensive                    income:                                                                                                                        |   |                            |   |   |                         |   |   |                          |   |                          |        |   |   |        |    |   |   |   |   |   |   |   |   |   |
| Net                    income                                                                                                                                   |   |                            | -      |   |                         |   | -      |                          |   |                          | -           |   |   |        | -       |   |   |   | 921 |   |   |   | 921 |   |
| Comprehensive                    income                                                                                                                         |   |                            | -      |   |                         |   | -      |                          |   |                          | -           |   |   |        | -       |   |   |   | - |   |   |   | 921 |   |
| Issuance                    of common stock through stock options exercised and employee                    stock                    purchase plan transactions |   |                            | 40     |   |                         |   | 4      |                          |   |                          | 431         |   |   |        | -       |   |   |   | - |   |   |   | 435 |   |
| Issuance                    of restricted stock                                                                                                                 |   |                            | -      |   |                         |   | -      |                          |   |                          | -           |   |   |        | -       |   |   |   | - |   |   |   | - |   |
| Forfeiture                    of restricted stock                                                                                                               |   |                            | (5     | )      |                         |   | -      |                          |   |                          | -           |   |   |        | -       |   |   |   | - |   |   |   | - |   |
| Release                    of restricted stock                                                                                                                  |   |                            | (1     | )      |                         |   | -      |                          |   |                          | (6          | )      |   |        | -       |   |   |   | - |   |   |   | (6 | ) |
| Share-based                    compensation expense                                                                                                             |   |                            | -      |   |                         |   | -      |                          |   |                          | 600         |   |   |        | -       |   |   |   | - |   |   |   | 600 |   |
| Tax                    benefit from stock options exercised and employee stock purchase                    plan                    transactions                 |   |                            | -      |   |                         |   | -      |                          |   |                          | 2           |   |   |        | -       |   |   |   | - |   |   |   | 2 |   |
| Balance                    September 30, 2006 (unaudited)                                                                                                       |   |                            | 9,286  |   |                         | $      | 929    |                          |   | $                             | 46,882      |   |   | $           | (10,768 | )      |   | $      | 43,444 |   |   | $ | 80,487 |   |

----

Table          of          Contents

DYNAMICS      RESEARCH      CORPORATION

|                                                                                                                                                            |   |                            |   |   |                         |   |   |                          |   |                          |          |   |   | Accumulated |   |   |     |        |    |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|--------|------------------------------|--------|--------|-------------------------------|--------|-------------------------------|---------------|--------|--------|-------------|--------|--------|----------|-------------|---------|--------|--------|
|                                                                                                                                                            |   |                            |   |   |                         |   |   | Capital                    in |   |                          |          |   |   | Other       |   |   |     |        |    |   |   |
|                                                                                                                                                            |   | Common                    Stock |   |   | Excess                    of |   |   | Unearned                      |   |                          | Comprehensive |   |   | Retained    |   |   |     |        |
|                                                                                                                                                            |   | Shares                          |   |   | Par                    Value |   |   | Par                    Value  |   |                          | Compensation  |   |   | Loss        |   |   | Earnings |        |    | Total  |   |
| Balance                    December 31, 2006 (audited)                                                                                                          |   |                            | 9,315  |   |                         | $      | 931    |                          |   | $                             | 47,644        |   |   | $           | -      |   |     | $           | (9,206  | )      |   | $ | 44,396 |   |   | $ | 83,765 |   |
| Impact                    of restatement - Note 1                                                                                                               |   |                            | -      |   |                         |   | -      |                          |   |                          | -             |   |   |        | -      |   |     |        | -       |   |   |   | 549 |   |   |   | 549 |   |
| Balance                    December 31, 2006 (unaudited)                                                                                                        |   |                            | 9,315  |   |                         |   | 931    |                          |   |                          | 47,644        |   |   |        | -      |   |     |        | (9,206  | )      |   |   | 44,945 |   |   |   | 84,314 |   |
| Comprehensive                    income:                                                                                                                        |   |                            |   |   |                         |   |   |                          |   |                          |          |   |   |        |   |   |     |        |    |   |   |   |   |   |   |   |   |   |
| Net                    income                                                                                                                                   |   |                            | -      |   |                         |   | -      |                          |   |                          | -             |   |   |        | -      |   |     |        | -       |   |   |   | 4,556 |   |   |   | 4,556 |   |
| Comprehensive                    income                                                                                                                         |   |                            | -      |   |                         |   | -      |                          |   |                          | -             |   |   |        | -      |   |     |        | -       |   |   |   | - |   |   |   | 4,556 |   |
| Issuance                    of common stock through stock options exercised and employee                    stock                    purchase plan transactions |   |                            | 116    |   |                         |   | 12     |                          |   |                          | 982           |   |   |        | -      |   |     |        | -       |   |   |   | - |   |   |   | 994 |   |
| Issuance                    of restricted stock                                                                                                                 |   |                            | 90     |   |                         |   | 9      |                          |   |                          | (9            | )      |   |        | -      |   |     |        | -       |   |   |   | - |   |   |   | - |   |
| Forfeiture                    of restricted stock                                                                                                               |   |                            | (14    | )      |                         |   | (1     | )                             |   |                          | 1             |   |   |        | -      |   |     |        | -       |   |   |   | - |   |   |   | - |   |
| Release                    of restricted stock                                                                                                                  |   |                            | (19    | )      |                         |   | (2     | )                             |   |                          | (191          | )      |   |        | -      |   |     |        | -       |   |   |   | - |   |   |   | (193 | ) |
| Share-based                    compensation expense                                                                                                             |   |                            | -      |   |                         |   | -      |                          |   |                          | 1,237         |   |   |        | -      |   |     |        | -       |   |   |   | - |   |   |   | 1,237 |   |
| Tax                    benefit from stock options exercised and employee stock purchase                    plan                    transactions                 |   |                            | -      |   |                         |   | -      |                          |   |                          | 72            |   |   |        | -      |   |     |        | -       |   |   |   | - |   |   |   | 72 |   |
| Balance                    September 30, 2007 (unaudited)                                                                                                       |   |                            | 9,488  |   |                         | $      | 949    |                          |   | $                             | 49,736        |   |   | $           | -      |   |     | $           | (9,206  | )      |   | $ | 49,501 |   |   | $ | 90,980 |   |
|                                                                                                                                                            |   |                            |   |   |                         |   |   |                          |   |                          |          |   |   |        |   |   |     |        |    |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                            |   |                            |   |   |                         |   |   |                          |   |                          |          |   |   |        |   |   |     |        |    |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                            |   |                            |   |   |                         |   |   |                          |   |                          |          |   |   |        |   |   |     | Accumulated |    |   |   |   |   |   |   |   |   |
|                                                                                                                                                            |   |                            |   |   |                         |   |   |                          |   | Capital                    in |          |   |   |        |   |   | Other    |        |    |   |   |   |   |   |   |   |
|                                                                                                                                                            |   | Common                    Stock |   |   | Excess                    of |   |   | Unearned                      |   |                          | Comprehensive |   |   | Retained    |   |   |     |        |    |
|                                                                                                                                                            |   | Shares                          |   |   | Par                    Value |   |   | Par                    Value  |   |                          | Compensation  |   |   | Loss        |   |   | Earnings |        |    | Total  |   |
| Balance                    December 31, 2005 (audited)                                                                                                          |   |                            | 9,097  |   |                         | $      | 910    |                          |   | $                             | 45,571        |   |   | $           | (1,850 | )      |     | $           | (10,768 | )      |   | $ | 40,324 |   |   | $ | 74,187 |   |
| Impact                    of restatement - Note 1                                                                                                               |   |                            | -      |   |                         |   | -      |                          |   |                          | -             |   |   |        | -      |   |     |        | -       |   |   |   | 549 |   |   |   | 549 |   |
| Balance                    December 31, 2005 (unaudited)                                                                                                        |   |                            | 9,097  |   |                         |   | 910    |                          |   |                          | 45,571        |   |   |        | (1,850 | )      |     |        | (10,768 | )      |   |   | 40,873 |   |   |   | 74,736 |   |
| Comprehensive                    income:                                                                                                                        |   |                            |   |   |                         |   |   |                          |   |                          |          |   |   |        |   |   |     |        |    |   |   |   |   |   |   |   |   |   |
| Net                    income                                                                                                                                   |   |                            | -      |   |                         |   | -      |                          |   |                          | -             |   |   |        | -      |   |     |        | -       |   |   |   | 2,571 |   |   |   | 2,571 |   |
| Comprehensive                    income                                                                                                                         |   |                            | -      |   |                         |   | -      |                          |   |                          | -             |   |   |        | -      |   |     |        | -       |   |   |   | - |   |   |   | 2,571 |   |
| Issuance                    of common stock through stock options exercised and employee                    stock                    purchase plan transactions |   |                            | 154    |   |                         |   | 15     |                          |   |                          | 1,559         |   |   |        | -      |   |     |        | -       |   |   |   | - |   |   |   | 1,574 |   |
| Issuance                    of restricted stock                                                                                                                 |   |                            | 70     |   |                         |   | 7      |                          |   |                          | (7            | )      |   |        | -      |   |     |        | -       |   |   |   | - |   |   |   | - |   |
| Forfeiture                    of restricted stock                                                                                                               |   |                            | (21    | )      |                         |   | (2     | )                             |   |                          | 2             |   |   |        | -      |   |     |        | -       |   |   |   | - |   |   |   | - |   |
| Release                    of restricted stock                                                                                                                  |   |                            | (14    | )      |                         |   | (1     | )                             |   |                          | (183          | )      |   |        | -      |   |     |        | -       |   |   |   | - |   |   |   | (184 | ) |
| Share-based                    compensation expense                                                                                                             |   |                            | -      |   |                         |   | -      |                          |   |                          | 1,632         |   |   |        | -      |   |     |        | -       |   |   |   | - |   |   |   | 1,632 |   |
| Tax                    benefit from stock options exercised and employee stock purchase                    plan                    transactions                 |   |                            | -      |   |                         |   | -      |                          |   |                          | 158           |   |   |        | -      |   |     |        | -       |   |   |   | - |   |   |   | 158 |   |
| Reversal                    of unearned compensation upon adoption of SFAS No. 123(R)                                                                           |   |                            | -      |   |                         |   | -      |                          |   |                          | (1,850        | )      |   |        | 1,850  |   |     |        | -       |   |   |   | - |   |   |   | - |   |
| Balance                    September 30, 2006 (unaudited)                                                                                                       |   |                            | 9,286  |   |                         | $      | 929    |                          |   | $                             | 46,882        |   |   | $           | -      |   |     | $           | (10,768 | )      |   | $ | 43,444 |   |   | $ | 80,487 |   |

----

Table          of          Contents

DYNAMICS      RESEARCH      CORPORATION

|                                                                                                                                               |   | Nine                    Months                    Ended |     |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|----------|
|                                                                                                                                               |   | September                    30,                        |     |
|                                                                                                                                               |   | 2007                                                    |     |   | 2006 |   |
| Cash                    flows from operating activities:                                                                                           |   |                                                    |     |   |   |   |
| Net                    income                                                                                                                      |   | $                                                       | 4,556    |   |   | $ | 2,571 |   |
| Adjustments                    to reconcile net cash provided by (used in) operating                    activities:                                |   |                                                    |     |   |   |   |   |   |
| Depreciation                                                                                                                                       |   |                                                    | 2,294    |   |   |   | 2,425 |   |
| Amortization                    of intangible assets                                                                                               |   |                                                    | 1,951    |   |   |   | 2,107 |   |
| Share-based                    compensation, including cumulative effect of accounting                    change                                   |   |                                                    | 1,237    |   |   |   | 1,632 |   |
| Non-cash                    interest expense                                                                                                       |   |                                                    | 110      |   |   |   | 166 |   |
| Amortization                    of deferred gain on sale of building                                                                               |   |                                                    | (507     | ) |   |   | (507 | ) |
| Investment                    income from equity interest                                                                                          |   |                                                    | (380     | ) |   |   | (169 | ) |
| Tax                    benefit from stock options exercised and employee stock purchase                    plan                    transactions    |   |                                                    | (72      | ) |   |   | (158 | ) |
| Deferred                    income taxes                                                                                                           |   |                                                    | (3,289   | ) |   |   | (6,866 | ) |
| Gain                    on sale of investments and long-lived assets, net                                                                          |   |                                                    | -        |   |   |   | (193 | ) |
| Change                    in operating assets and liabilities:                                                                                     |   |                                                    |     |   |   |   |   |   |
| Accounts                    receivable, net                                                                                                        |   |                                                    | (7,604   | ) |   |   | (2,478 | ) |
| Unbilled                    expenditures and fees on contracts in process                                                                          |   |                                                    | 4,995    |   |   |   | 19,888 |   |
| Prepaid                    expenses and other current assets                                                                                       |   |                                                    | (610     | ) |   |   | (825 | ) |
| Accounts                    payable                                                                                                                |   |                                                    | (5,135   | ) |   |   | (5,400 | ) |
| Accrued                    compensation and employee benefits                                                                                      |   |                                                    | 254      |   |   |   | (3,667 | ) |
| Other                    accrued expenses                                                                                                          |   |                                                    | (363     | ) |   |   | (2,677 | ) |
| Other                    long-term liabilities                                                                                                     |   |                                                    | (664     | ) |   |   | (2,477 | ) |
| Net                    cash provided by (used in) operating activities                                                                             |   |                                                    | (3,227   | ) |   |   | 3,372 |   |
| Cash                    flows from investing activities:                                                                                           |   |                                                    |     |   |   |   |   |   |
| Additions                    to property, plant and equipment                                                                                      |   |                                                    | (1,185   | ) |   |   | (2,063 | ) |
| Proceeds                    from sale of investments and long-lived assets                                                                         |   |                                                    | 4        |   |   |   | 214 |   |
| Dividends                    from equity investment                                                                                                |   |                                                    | 174      |   |   |   | 155 |   |
| Increase                    in other assets                                                                                                        |   |                                                    | (144     | ) |   |   | (44 | ) |
| Net                    cash used in investing activities                                                                                           |   |                                                    | (1,151   | ) |   |   | (1,738 | ) |
| Cash                    flow from financing activities:                                                                                            |   |                                                    |     |   |   |   |   |   |
| Borrowings                    under revolving credit agreement                                                                                     |   |                                                    | 158,825  |   |   |   | 129,142 |   |
| Repayments                    under revolving credit agreement                                                                                     |   |                                                    | (162,077 | ) |   |   | (107,450 | ) |
| Principal                    payments under loan agreements                                                                                        |   |                                                    | -        |   |   |   | (25,412 | ) |
| Proceeds                    from the exercise of stock options and employee stock purchase                    plan                    transactions |   |                                                    | 994      |   |   |   | 1,574 |   |
| Tax                    benefit from stock options exercised and employee stock purchase                    plan                    transactions    |   |                                                    | 72       |   |   |   | 158 |   |
| Payments                    of deferred financing costs                                                                                            |   |                                                    | -        |   |   |   | (82 | ) |
| Net                    cash used in financing activities                                                                                           |   |                                                    | (2,186   | ) |   |   | (2,070 | ) |
| Net                    decrease in cash and cash equivalents                                                                                       |   |                                                    | (6,564   | ) |   |   | (436 | ) |
| Cash                    and cash equivalents, beginning of period                                                                                  |   |                                                    | 7,887    |   |   |   | 1,020 |   |
| Cash                    and cash equivalents, end of period                                                                                        |   | $                                                       | 1,323    |   |   | $ | 584 |   |

----

Table          of          Contents

NOTE      1. BASIS OF      PRESENTATION AND RESTATEMENT

|                                                      |   | As                    of December 31,                    2006 |   |
|-----------------------------------------------------------|--------|---------------------------------------------------------------|--------|
|                                                      |   | Previously                    Reported                        |   |   | As Restated |   |
| Changes                    to Consolidated Balance Sheet: |   |                                                          |   |   |   |   |
| Deferred                    income taxes                  |   | $                                                             | 11,698 |   |   | $ | 9,864 |   |
| Other                    accrued expenses                 |   | $                                                             | 3,916  |   |   | $ | 5,201 |   |
| Total                    current liabilities              |   | $                                                             | 48,282 |   |   | $ | 47,733 |   |
| Total                    liabilities                      |   | $                                                             | 76,087 |   |   | $ | 75,538 |   |
| Retained                    earnings                      |   | $                                                             | 44,396 |   |   | $ | 44,945 |   |
| Total                    stockholders' equity             |   | $                                                             | 83,765 |   |   | $ | 84,314 |   |

----

Table          of          Contents

|                                                                                 |   | Three Months Ended     |      |   | Nine Months Ended      |   |
|--------------------------------------------------------------------------------------|--------|----------------------------------|-----------|--------|----------------------------------|--------|
|                                                                                 |   | September                    30, |      |   | September                    30, |   |
|                                                                                 |   | 2007                             |      |   | 2006                             |   |   | 2007 |   |   | 2006 |   |
|  Weighted                    average shares outstanding - Basic                 |   |                             | 9,354,332 |   |                             |   | 9,133,552 |   |   |   | 9,326,367 |   |   |   | 9,079,601 |   |
|  Diluted                    effect of stock options and restricted stock grants |   |                             | 348,578   |   |                             |   | 261,808 |   |   |   | 318,393 |   |   |   | 344,569 |   |
|  Weighted                    average shares outstanding - Diluted               |   |                             | 9,702,910 |   |                             |   | 9,395,360 |   |   |   | 9,644,760 |   |   |   | 9,424,170 |   |

----

Table          of          Contents

|                                                      |   | Three Months Ended     |   |   | Nine Months Ended      |   |
|-----------------------------------------------------------|--------|----------------------------------|--------|--------|----------------------------------|--------|
|                                                      |   | September                    30, |   |   | September                    30, |   |
|                                                      |   | 2007                             |   |   | 2006                             |   |   | 2007 |   |   | 2006 |   |
| Cost                    of products and services          |   | $                                | 166    |   |                             | $      | 297 |   |   | $ | 446 |   |   | $ | 897 |   |
| Selling,                    general and administrative    |   |                             | 268    |   |                             |   | 303 |   |   |   | 791 |   |   |   | 881 |   |
| Cumulative                    effect of accounting change |   |                             | -      |   |                             |   | - |   |   |   | - |   |   |   | (146 | ) |
| Total                    share-based compensation expense |   | $                                | 434    |   |                             | $      | 600 |   |   | $ | 1,237 |   |   | $ | 1,632 |   |

|                                               |   | Stock                  Options   |      |   | Restricted                  Stock              |   |
|----------------------------------------------------|--------|----------------------------------|-----------|--------|------------------------------------------------|--------|
|                                               |   | Number                  ofShares |      |   | WeightedAverageExercise                  Price |   |   | Number                  ofShares |   |   | WeightedAverageFair                  Value |   |
| Outstanding                  at June 30, 2007      |   |                             | 1,031,082 |   |                                           | $      | 8.37 |   |   |   | 223,297 |   |   | $ | 11.61 |   |
| Granted                                            |   |                             | -         |   |                                           | $      | - |   |   |   | 5,900 |   |   | $ | 12.12 |   |
| Exercised/Vested                                   |   |                             | (9,470    | )      |                                           | $      | 8.80 |   |   |   | (3,333 | ) |   | $ | 15.89 |   |
| Cancelled                                          |   |                             | (1,967    | )      |                                           | $      | 15.08 |   |   |   | (3,934 | ) |   | $ | 13.51 |   |
| Outstanding                  at September 30, 2007 |   |                             | 1,019,645 |   |                                           | $      | 8.35 |   |   |   | 221,930 |   |   | $ | 11.53 |   |
|                                               |   |                             |      |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding                  at December 31, 2006  |   |                             | 1,140,679 |   |                                           | $      | 8.37 |   |   |   | 212,264 |   |   | $ | 12.86 |   |
| Granted                                            |   |                             | -         |   |                                           | $      | - |   |   |   | 90,000 |   |   | $ | 11.46 |   |
| Exercised/Vested                                   |   |                             | (68,350   | )      |                                           | $      | 7.37 |   |   |   | (66,010 | ) |   | $ | 15.43 |   |
| Cancelled                                          |   |                             | (52,684   | )      |                                           | $      | 10.11 |   |   |   | (14,324 | ) |   | $ | 12.91 |   |
| Outstanding                  at September 30, 2007 |   |                             | 1,019,645 |   |                                           | $      | 8.35 |   |   |   | 221,930 |   |   | $ | 11.53 |   |
|                                               |   |                             |      |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding                  at June 30, 2006      |   |                             | 1,159,775 |   |                                           | $      | 8.47 |   |   |   | 232,971 |   |   | $ | 13.14 |   |
| Granted                                            |   |                             | -         |   |                                           | $      | - |   |   |   | - |   |   | $ | - |   |
| Exercised/Vested                                   |   |                             | (6,729    | )      |                                           | $      | 8.45 |   |   |   | (4,526 | ) |   | $ | 15.88 |   |
| Cancelled                                          |   |                             | (3,851    | )      |                                           | $      | 18.09 |   |   |   | (4,997 | ) |   | $ | 15.18 |   |
| Outstanding                  at September 30, 2006 |   |                             | 1,149,195 |   |                                           | $      | 8.44 |   |   |   | 223,448 |   |   | $ | 13.04 |   |
|                                               |   |                             |      |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding                  at December 31, 2005  |   |                             | 1,239,393 |   |                                           | $      | 8.49 |   |   |   | 221,816 |   |   | $ | 13.60 |   |
| Granted                                            |   |                             | -         |   |                                           | $      | - |   |   |   | 69,900 |   |   | $ | 14.30 |   |
| Exercised/Vested                                   |   |                             | (50,297   | )      |                                           | $      | 6.97 |   |   |   | (46,933 | ) |   | $ | 16.89 |   |
| Cancelled                                          |   |                             | (39,901   | )      |                                           | $      | 12.46 |   |   |   | (21,335 | ) |   | $ | 14.07 |   |
| Outstanding                  at September 30, 2006 |   |                             | 1,149,195 |   |                                           | $      | 8.44 |   |   |   | 223,448 |   |   | $ | 13.04 |   |

----

Table          of          Contents

|                                                                      |   | September                    30, |    |   | December 31, |   |
|---------------------------------------------------------------------------|--------|----------------------------------|---------|--------|-------------------|--------|
|                                                                      |   | 2007                             |    |   | 2006              |   |
| Property                    and equipment, net:                           |   |                             |    |   |              |   |
| Production                    equipment                                   |   | $                                | 11,972  |   |              | $      | 11,942 |   |
| Software                                                                  |   |                             | 11,741  |   |              |   | 11,283 |   |
| Furniture                    and other equipment                          |   |                             | 9,074   |   |              |   | 8,792 |   |
| Leasehold                    improvements                                 |   |                             | 2,495   |   |              |   | 2,137 |   |
| Property                    and equipment                                 |   |                             | 35,282  |   |              |   | 34,154 |   |
| Less                    accumulated depreciation                          |   |                             | (24,882 | )      |              |   | (22,645 | ) |
| Property                    and equipment, net                            |   | $                                | 10,400  |   |              | $      | 11,509 |   |
|                                                                      |   |                             |    |   |              |   |   |   |
| Other                    noncurrent assets:                               |   |                             |    |   |              |   |   |   |
| Deferred                    compensation plan investments                 |   | $                                | 1,760   |   |              | $      | 1,627 |   |
| Equity                    investments                                     |   |                             | 989     |   |              |   | 787 |   |
| Unbilled                    expenditures and fees on contracts in process |   |                             | 721     |   |              |   | 1,038 |   |
| Other                                                                     |   |                             | 493     |   |              |   | 592 |   |
| Other                    noncurrent assets                                |   | $                                | 3,963   |   |              | $      | 4,044 |   |
|                                                                      |   |                             |    |   |              |   |   |   |
| Accrued                    compensation and employee benefits:            |   |                             |    |   |              |   |   |   |
| Accrued                    payroll and payroll  taxes           |   | $                                | 6,432   |   |              | $      | 5,956 |   |
| Accrued                    vacation                                       |   |                             | 4,812   |   |              |   | 4,343 |   |
| Accrued                    pension liability                              |   |                             | -       |   |              |   | 2,000 |   |
| Other                                                                     |   |                             | 3,483   |   |              |   | 2,174 |   |
| Accrued                    compensation and employee benefits             |   | $                                | 14,727  |   |              | $      | 14,473 |   |
|                                                                      |   |                             |    |   |              |   |   |   |
| Other                    accrued expenses:                                |   |                             |    |   |              |   |   |   |
| Accrued                    income taxes                                   |   | $                                | 1,337   |   |              | $      | 946 |   |
| Amount                    outstanding under letter of credit              |   |                             | 976     |   |              |   | 1,016 |   |
| Deferred                    gain on sale of building                      |   |                             | 676     |   |              |   | 676 |   |
| Other                                                                     |   |                             | 1,970   |   |              |   | 2,563 |   |
| Other                    accrued expenses                                 |   | $                                | 4,959   |   |              | $      | 5,201 |   |
|                                                                      |   |                             |    |   |              |   |   |   |
| Other                    long-term liabilities:                           |   |                             |    |   |              |   |   |   |
| Deferred                    gain on sale of building                      |   | $                                | 4,902   |   |              | $      | 5,407 |   |
| Accrued                    pension liability                              |   |                             | 3,370   |   |              |   | 1,933 |   |
| Deferred                    compensation plan liability                   |   |                             | 1,760   |   |              |   | 1,627 |   |
| Long-term                    contract obligations                         |   |                             | -       |   |              |   | 2,700 |   |
| Other                                                                     |   |                             | 1,602   |   |              |   | 1,138 |   |
| Other                    long-term liabilities                            |   | $                                | 11,634  |   |              | $      | 12,805 |   |

----

Table          of          Contents

| Remainder                    of 2007 |   | $ | 651   |   |
|--------------------------------------|--------|---|-------|--------|
| 2008                                 |   | $ | 2,038 |   |
| 2009                                 |   | $ | 1,031 |   |

|                                                             |   | Three                    Months                    Ended |   |   | Nine Months Ended      |   |
|------------------------------------------------------------------|--------|----------------------------------------------------------|--------|--------|----------------------------------|--------|
|                                                             |   | September                    30,                         |   |   | September                    30, |   |
|                                                             |   | 2007                                                     |   |   | 2006                             |   |   | 2007 |   |   | 2006 |   |
| Interest                    cost on projected benefit obligation |   | $                                                        | 1,006  |   |                             | $      | 1,002 |   |   | $ | 3,018 |   |   | $ | 3,006 |   |
| Expected                    return on plan assets                |   |                                                     | (1,464 | )      |                             |   | (1,262 | ) |   |   | (4,391 | ) |   |   | (3,786 | ) |
| Recognized                    actuarial loss                     |   |                                                     | 270    |   |                             |   | 440 |   |   |   | 810 |   |   |   | 1,320 |   |
| Net                    periodic pension cost                     |   | $                                                        | (188   | )      |                             | $      | 180 |   |   | $ | (563 | ) |   | $ | 540 |   |

----

Table          of          Contents

|                                                |   | Three                    Months                    Ended |   |   | Nine                    Months                    Ended |   |
|-----------------------------------------------------|--------|----------------------------------------------------------|--------|--------|---------------------------------------------------------|--------|
|                                                |   | September                    30,                         |   |   | September                    30,                        |   |
|                                                |   | 2007                                                     |   |   | 2006                                                    |   |   | 2007 |   |   | 2006 |   |
| Revenues                    from external customers |   |                                                     |   |   |                                                    |   |   |   |   |   |   |   |
| Systems                    and Services             |   | $                                                        | 57,180 |   |                                                    | $      | 61,547 |   |   | $ | 170,122 |   |   | $ | 194,026 |   |
| Metrigraphics                                       |   |                                                     | 1,148  |   |                                                    |   | 1,614 |   |   |   | 2,996 |   |   |   | 4,626 |   |
|                                                |   | $                                                        | 58,328 |   |                                                    | $      | 63,161 |   |   | $ | 173,118 |   |   | $ | 198,652 |   |
| Gross                    profit (loss)              |   |                                                     |   |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Systems                    and Services             |   | $                                                        | 9,372  |   |                                                    | $      | 7,791 |   |   | $ | 27,921 |   |   | $ | 24,972 |   |
| Metrigraphics                                       |   |                                                     | (64    | )      |                                                    |   | 397 |   |   |   | (564 | ) |   |   | 855 |   |
|                                                |   | $                                                        | 9,308  |   |                                                    | $      | 8,188 |   |   | $ | 27,357 |   |   | $ | 25,827 |   |
| Operating                    income (loss)          |   |                                                     |   |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Systems                    and Services             |   | $                                                        | 3,722  |   |                                                    | $      | 1,806 |   |   | $ | 10,060 |   |   | $ | 5,465 |   |
| Metrigraphics                                       |   |                                                     | (326   | )      |                                                    |   | 121 |   |   |   | (1,277 | ) |   |   | 27 |   |
|                                                |   | $                                                        | 3,396  |   |                                                    | $      | 1,927 |   |   | $ | 8,783 |   |   | $ | 5,492 |   |

|                                  |   | Three                    Months Ended September                    30, |   | Nine                    Months Ended September                    30, |
|---------------------------------------|--------|------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|
|                                  |   | 2007                                                                   |   | 2006                                                                  |   | 2007 |   | 2006 |
|                                  |   | Revenue                                                                |   |                                                                  | % |   |   | Revenue |   |   | % |   |   | Revenue |   |   | % |   |   | Revenue |   |   | % |   |
| U.S.                    Air Force ASC |   | $                                                                      | 5,840  |                                                                  |   |   | 10 | % |   | $ | 12,754 |   |   |   | 20 | % |   | $ | 19,546 |   |   |   | 11 | % |   | $ | 39,467 |   |   |   | 20 | % |

----

Table          of          Contents

|                                  |   | September                    30, |   |   | December 31, |   |
|---------------------------------------|--------|----------------------------------|--------|--------|-------------------|--------|
|                                  |   | 2007                             |   |   | 2006              |   |
| U.S.                    Air Force ASC |   | $                                | 4,050  |   |              | $      | 2,159 |   |

|                                                                      |   | September                    30, |   |   | December 31, |   |
|---------------------------------------------------------------------------|--------|----------------------------------|--------|--------|-------------------|--------|
|                                                                      |   | 2007                             |   |   | 2006              |   |
| Accounts                    receivable                                    |   | $                                | 3,452  |   |              | $      | 870 |   |
| Unbilled                    expenditures and fees on contracts in process |   | $                                | 1,849  |   |              | $      | 967 |   |
| Prepaid                    expenses and other current assets              |   | $                                | 1,369  |   |              | $      | 110 |   |

----

Table          of          Contents

----

Table          of          Contents

----

Table          of          Contents

----

Table          of          Contents

|   | • | Revenue                    recognition                  |
|--------|---------|---------------------------------------------------------|
|   |    |                                                    |
|   | • | Goodwill                    and other intangible assets |
|   |    |                                                    |
|   | • | Income                    taxes and deferred taxes      |
|   |    |                                                    |
|   | • | Pension                    obligations                  |

|                                                            |   | Three                    Months Ended September                    30, |   |
|-----------------------------------------------------------------|--------|------------------------------------------------------------------------|--------|
|                                                            |   | 2007                                                                   |   |   | 2006 |   |
|                                                            |   | $(1)                                                                   |   |   | %(1) |   |   | $(1) |   |   | %(1) |   |
| Contract                    revenue                             |   | $                                                                      | 57.2   |   |   |   | 98.0 | % |   | $ | 61.5 |   |   |   | 97.4 | % |
| Product                    sales                                |   |                                                                   | 1.1    |   |   |   | 2.0 |   |   |   | 1.6 |   |   |   | 2.6 |   |
| Total                    revenue                                |   | $                                                                      | 58.3   |   |   |   | 100.0 | % |   | $ | 63.2 |   |   |   | 100.0 | % |
|                                                            |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross                    profit on contract revenue (2)         |   | $                                                                      | 9.4    |   |   |   | 16.4 | % |   | $ | 7.8 |   |   |   | 12.7 | % |
| Gross                    profit (loss) on product sales (2)     |   |                                                                   | (0.1   | ) |   |   | (5.6 | )% |   |   | 0.4 |   |   |   | 24.6 | % |
| Total                    gross profit (2)                       |   |                                                                   | 9.3    |   |   |   | 16.0 | % |   |   | 8.2 |   |   |   | 13.0 | % |
|                                                            |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                    general and administrative expenses |   |                                                                   | 5.3    |   |   |   | 9.0 | % |   |   | 5.6 |   |   |   | 8.8 | % |
| Amortization                    of intangible assets            |   |                                                                   | 0.7    |   |   |   | 1.1 | % |   |   | 0.7 |   |   |   | 1.1 | % |
| Operating                    income                             |   |                                                                   | 3.4    |   |   |   | 5.8 | % |   |   | 1.9 |   |   |   | 3.1 | % |
| Interest                    expense, net                        |   |                                                                   | (0.4   | ) |   |   | (0.6 | )% |   |   | (0.6 | ) |   |   | (0.9 | )% |
| Other                    income, net                            |   |                                                                   | 0.3    |   |   |   | 0.6 | % |   |   | 0.1 |   |   |   | 0.1 | % |
| Provision                    for income taxes (3)               |   |                                                                   | 1.4    |   |   |   | 42.6 | % |   |   | 0.5 |   |   |   | 36.4 | % |
| Net                    income                                   |   | $                                                                      | 1.9    |   |   |   | 3.3 | % |   | $ | 0.9 |   |   |   | 1.5 | % |

----

Table          of          Contents

|                                                            |   | Nine                    Months Ended September                    30, |   |
|-----------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|
|                                                            |   | 2007                                                                  |   |   | 2006 |   |
|                                                            |   | $(1)                                                                  |   |   | %(1) |   |   | $(1) |   |   | %(1) |   |
| Contract                    revenue                             |   | $                                                                     | 170.1  |   |   |   | 98.3 | % |   | $ | 194.0 |   |   |   | 97.7 | % |
| Product                    sales                                |   |                                                                  | 3.0    |   |   |   | 1.7 |   |   |   | 4.6 |   |   |   | 2.3 |   |
| Total                    revenue                                |   | $                                                                     | 173.1  |   |   |   | 100.0 | % |   | $ | 198.7 |   |   |   | 100.0 | % |
|                                                            |   |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross                    profit on contract revenue (2)         |   | $                                                                     | 27.9   |   |   |   | 16.4 | % |   | $ | 25.0 |   |   |   | 12.9 | % |
| Gross                    profit (loss) on product sales (2)     |   |                                                                  | (0.6   | ) |   |   | (18.8 | )% |   |   | 0.9 |   |   |   | 18.5 | % |
| Total                    gross profit (2)                       |   |                                                                  | 27.4   |   |   |   | 15.8 | % |   |   | 25.8 |   |   |   | 13.0 | % |
|                                                            |   |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                    general and administrative expenses |   |                                                                  | 16.6   |   |   |   | 9.6 | % |   |   | 18.2 |   |   |   | 9.2 | % |
| Amortization                    of intangible assets            |   |                                                                  | 2.0    |   |   |   | 1.1 | % |   |   | 2.1 |   |   |   | 1.1 | % |
| Operating                    income                             |   |                                                                  | 8.8    |   |   |   | 5.1 | % |   |   | 5.5 |   |   |   | 2.8 | % |
| Interest                    expense, net                        |   |                                                                  | (1.3   | ) |   |   | (0.8 | )% |   |   | (1.7 | ) |   |   | (0.9 | )% |
| Other                    income, net                            |   |                                                                  | 0.4    |   |   |   | 0.2 | % |   |   | 0.4 |   |   |   | 0.2 | % |
| Provision                    for income taxes (3)               |   |                                                                  | 3.3    |   |   |   | 42.2 | % |   |   | 1.7 |   |   |   | 41.2 | % |
| Cumulative                    benefit of accounting change      |   |                                                                  | -      |   |   |   | 0.0 | % |   |   | 0.1 |   |   |   | 0.0 | % |
| Net                    income                                   |   | $                                                                     | 4.6    |   |   |   | 2.6 | % |   | $ | 2.6 |   |   |   | 1.3 | % |

|   |                                                                                                                                                                |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Totals                    may not add due to rounding.                                                                                                              |
| (2)    | These                    amounts represent a percentage of contract revenues, product                    sales and                    total revenues, respectively. |
| (3)    | These                    amounts represent a percentage of income before provision for                    income                    taxes.                          |

|                                                          |   | Three                    Months Ended September                    30, |   |
|---------------------------------------------------------------|--------|------------------------------------------------------------------------|--------|
|                                                          |   | 2007                                                                   |   |   | 2006 |   |
|                                                          |   | $(1)                                                                   |   |   | %(1) |   |   | $(1) |   |   | %(1) |   |
| National                    defense and intelligence agencies |   | $                                                                      | 45.5   |   |   |   | 79.6 | % |   | $ | 50.6 |   |   |   | 82.2 | % |
| Federal                    civilian agencies                  |   |                                                                   | 7.9    |   |   |   | 13.9 |   |   |   | 6.6 |   |   |   | 10.8 |   |
| State                    and local government agencies        |   |                                                                   | 3.5    |   |   |   | 6.2 |   |   |   | 4.0 |   |   |   | 6.4 |   |
| Other                                                         |   |                                                                   | 0.2    |   |   |   | 0.4 |   |   |   | 0.4 |   |   |   | 0.6 |   |
| Total                    contract revenue                     |   | $                                                                      | 57.2   |   |   |   | 100.0 | % |   | $ | 61.5 |   |   |   | 100.0 | % |
|                                                          |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                          |   | Nine                    Months Ended September                    30,  |   |
|                                                          |   | 2007                                                                   |   |   | 2006 |   |
|                                                          |   | $(1)                                                                   |   |   | %(1) |   |   | $(1) |   |   | %(1) |   |
| National                    defense and intelligence agencies |   | $                                                                      | 135.4  |   |   |   | 79.6 | % |   | $ | 159.0 |   |   |   | 81.9 | % |
| Federal                    civilian agencies                  |   |                                                                   | 23.4   |   |   |   | 13.8 |   |   |   | 23.0 |   |   |   | 11.8 |   |
| State                    and local government agencies        |   |                                                                   | 10.8   |   |   |   | 6.4 |   |   |   | 11.2 |   |   |   | 5.8 |   |
| Other                                                         |   |                                                                   | 0.5    |   |   |   | 0.3 |   |   |   | 0.8 |   |   |   | 0.4 |   |
| Total                    contract revenue                     |   | $                                                                      | 170.1  |   |   |   | 100.0 | % |   | $ | 194.0 |   |   |   | 100.0 | % |

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

----

Table          of          Contents

|                                                             |   | Three                    Months                    Ended |   |   | Nine                    Months                    Ended |   |
|------------------------------------------------------------------|--------|----------------------------------------------------------|--------|--------|---------------------------------------------------------|--------|
|                                                             |   | September                    30,                         |   |   | September                    30,                        |   |
|                                                             |   | 2007                                                     |   |   | 2006                                                    |   |   | 2007 |   |   | 2006 |   |
| Time                    and materials                            |   |                                                     | 59     | %      |                                                    |   | 64 | % |   |   | 57 | % |   |   | 62 | % |
| Cost                    reimbursable                             |   |                                                     | 21     |   |                                                    |   | 17 |   |   |   | 22 |   |   |   | 19 |   |
| Fixed                    price, including service type contracts |   |                                                     | 20     |   |                                                    |   | 19 |   |   |   | 21 |   |   |   | 19 |   |
|                                                             |   |                                                     | 100    | %      |                                                    |   | 100 | % |   |   | 100 | % |   |   | 100 | % |
|                                                             |   |                                                     |   |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Prime                    contract                                |   |                                                     | 54     | %      |                                                    |   | 67 | % |   |   | 55 | % |   |   | 68 | % |
| Sub-contract                                                     |   |                                                     | 46     |   |                                                    |   | 33 |   |   |   | 45 |   |   |   | 32 |   |
|                                                             |   |                                                     | 100    | %      |                                                    |   | 100 | % |   |   | 100 | % |   |   | 100 | % |

----

Table          of          Contents

----

Table          of          Contents

----

Table          of          Contents

----

Table          of          Contents

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

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

Item      6.      EXHIBITS

| 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.                                                      |

----

Table          of          Contents

|                                                 | DYNAMICS                    RESEARCH CORPORATION                                                     |
|------------------------------------------------------|------------------------------------------------------------------------------------------------------|
|                                                 | (Registrant)                                                                                         |
|                                                 |                                                                                                 |
|                                                 |                                                                                                 |
| Date:  November                    7, 2007 | /s/                    David Keleher                                                                 |
|                                                 | Senior                    Vice President, Chief Financial Officer and Treasurer                      |
|                                                 | (Principal                    Financial Officer and Principal Accounting                    Officer) |

----