U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

|X|              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                    For the Quarter ended September 30, 2004

                                       OR

|_|            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

             For the transition period from__________ to __________

                         Commission file number 1-11568

                                  DYNTEK, INC.
             (Exact Name of Registrant as Specified in its Charter)

            Delaware                                              95-4228470
(State or other jurisdiction of                                (I.R.S Employer
 incorporation or organization)                              Identification No.)

                          18881 Von Karman Avenue, #250
                                Irvine, CA 92612
               (Address of principal executive offices) (Zip code)

        Registrant's telephone number, including area code (949) 955-0078

      Indicate  by check  whether  the  Registrant  (1) has  filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  preceding  12 months,  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filings requirements for the past 90 days. Yes |X| No |_|

      Indicate  by check  whether the  Registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

      The number of shares outstanding of the issuer's Common Stock,  $.0001 par
value, as of November 12, 2004 was 59,690,298. .

<PAGE>

                          DYNTEK, INC. AND SUBSIDIARIES

                                      INDEX

                                                                           Page
PART I - FINANCIAL INFORMATION                                            Number
                                                                          ------

Item 1.  Condensed Consolidated Financial Statements

     Condensed Consolidated Balance Sheets - as of September 30, 2004
       (unaudited) and June 30, 2004                                       3

     Condensed Consolidated Statements of Operations and Comprehensive
       Income (Loss) (unaudited) - For the Three Months Ended
       September 30, 2004 and September 30, 2003                           4

     Condensed Consolidated Statements of Cash Flows (unaudited)
       - For the Three Months Ended September 30, 2004 and
       September 30, 2003                                                  5-6

     Notes to Condensed Consolidated Financial Statements (unaudited)      7-16

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations                                        15-20
Item 3. Quantitative and Qualitative Disclosures About Market Risk         21
Item 4. Controls and Procedures                                            21-22

PART II - OTHER INFORMATION
Item 1. Legal Proceedings                                                  22
Item 6. Exhibits and Reports on Form 8-K                                   23

SIGNATURE                                                                  24


                                                                             -2-
<PAGE>

PART 1 - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                          DYNTEK, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                September 30,     June 30,
                                    ASSETS                                                          2004            2004
                                                                                                -------------     --------
                                                                                                 (unaudited)
<S>                                                                                                  <C>              <C>
CURRENT ASSETS:
  Cash                                                                                               1,073            2,810
  Cash - Restricted                                                                                    321              479
  Accounts receivable, net of allowance for doubtful
  accounts of $240                                                                                  12,552           12,045
  Inventories                                                                                        1,877            1,399
  Prepaid expenses and other assets                                                                    208               54
  Other receivables                                                                                      5               88
                                                                                                  --------        ---------
               TOTAL CURRENT ASSETS                                                                 16,036           16,875

RESTRICTED CASH - over one year                                                                        137               91

INVESTMENTS - Marketable Securities                                                                     67               78

INVESTMENTS - Preferred Stock                                                                        1,104            1,104

PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$3,069 and $3,035                                                                                      656              519

GOODWILL                                                                                            22,264           19,869

CAPITALIZED SOFTWARE COSTS, net of accumulated amortization
of $693 and $809                                                                                       122              163

ACQUIRED CUSTOMER LIST, net of accumulated amortization
of $7,809 and $7,136                                                                                 6,762            5,542

PURCHASED SOFTWARE, net of accumulated amortization
of $690 and $671                                                                                        --               19

DEFERRED FINANCING COSTS, net of accumulated amortization
of $153 and $77                                                                                        579              655

NOTES RECEIVABLE, long term, including receivable from
officer of $100                                                                                        548              548

DEPOSITS AND OTHER ASSETS                                                                              151              186
                                                                                                  --------        ---------
                                                                                                  $ 48,426        $  45,649
                                                                                                  ========        =========
  LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                                                $  6,122        $   5,897
  Line of credit                                                                                     2,457            2,454
  Acquisition costs                                                                                  4,286               --
  Accrued expenses                                                                                   2,001            1,468
  Deferred revenue                                                                                     410              559
  Notes payable - accrued interest                                                                     145               79
  Notes payable current portion                                                                      2,160            1,812
  Current liabilities of discontinued operations                                                     2,036            4,181
                                                                                                  --------        ---------
    TOTAL CURRENT LIABILITIES                                                                       19,617           16,450

DEFERRED REVENUE - long term                                                                           137               91
LONG TERM NOTE PAYABLE                                                                               3,043            3,505
                                                                                                  --------        ---------
    TOTAL LIABILITIES                                                                               22,797           20,046
                                                                                                  --------        ---------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Preferred stock, $.0001 par value, 10,000,000 shares authorized; 683,317
  shares issued and outstanding as of September 30, 2004 and June 30, 2004,
  respectively                                                                                           1                1
  Common stock, $.0001 par value, 70,000,000 shares authorized; 58,430,597
  shares issued and outstanding as of September 30, 2004 and June 30, 2004
  respectively                                                                                           5                5
  Additional paid-in capital                                                                       100,815          100,822
  Accumulated other comprehensive loss                                                                (184)            (170)
  Accumulated deficit                                                                              (75,008)         (75,055)
                                                                                                  --------        ---------
    TOTAL STOCKHOLDERS' EQUITY                                                                      25,629           25,603
                                                                                                  --------        ---------
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                    $ 48,426        $  45,649
                                                                                                  ========        =========
</TABLE>

            See notes to condensed consolidated financial statements.


                                                                             -3-
<PAGE>

                          DYNTEK, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                                   (Unaudited)
                      (in thousands, except per share data)

                                                       Three Months Ended
                                                          September 30,
                                                     2004              2003
                                                 ------------      ------------
REVENUES:
  Product Revenues                               $      8,413      $      5,593
  Service Revenues                                      6,370             7,332
                                                 ------------      ------------
    Total revenues                                     14,783            12,925
                                                 ------------      ------------

COST OF REVENUES:
  Cost of products                                      6,961             4,961
  Cost of services                                      5,141             5,680
                                                 ------------      ------------
    Total cost of revenues                             12,102            10,641
                                                 ------------      ------------
GROSS PROFIT                                            2,681             2,284
                                                 ------------      ------------

OPERATING EXPENSES:
  Selling expenses                                      1,825             1,822
  General and administrative expenses                   1,370               848
  Depreciation and amortization                           760               679
                                                 ------------      ------------
    Total operating expenses                            3,955             3,349
                                                 ------------      ------------

LOSS FROM OPERATIONS                                   (1,274)           (1,065)
                                                 ------------      ------------

OTHER INCOME (EXPENSE):
  Loss on sale of marketable
  securities                                               --              (107)
  Interest expense                                       (273)             (355)
  Interest income                                           9                 5
  Other expense                                           (50)               --
                                                 ------------      ------------
      Total other income (expense)                       (314)             (457)

  NET LOSS FROM CONTINUING OPERATIONS            $     (1,588)     $     (1,522)

DISCONTINUED OPERATIONS
  Gain on disposal of discontinued
  operations                                               --                --
  Income (Loss) on discontinued
  operations                                            1,635              (175)
                                                 ------------      ------------
  INCOME (LOSS) FROM DISCONTINUED
  OPERATIONS                                            1,635              (175)
                                                 ------------      ------------
NET INCOME (LOSS)                                $         47      $     (1,697)
                                                 ============      ============

NET LOSS PER SHARE: Basic and Diluted:
  Continuing Operations                                  (.03)             (.04)
  Discontinued Operations                                 .03                --
                                                 ------------      ------------
                                                 $         --      $       (.04)
                                                 ============      ============

WEIGHTED AVERAGE NUMBER OF SHARES
  USED IN COMPUTATION
  Basic and Diluted                                58,430,597        40,522,222

NET INCOME (LOSS)                                $         47      $     (1,697)

COMPREHENSIVE INCOME (LOSS), NET OF TAX
  Change in unrealized gain (loss) on
  available-for-sale- securities                          (14)               74
                                                 ------------      ------------

COMPREHENSIVE INCOME (LOSS)                      $         33      $     (1,623)
                                                 ============      ============

            See notes to condensed consolidated financial statements


                                                                             -4-
<PAGE>

                          DYNTEK, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                                ---------------------
                                                                                                 Three Months Ended
                                                                                                    September 30,
                                                                                                ---------------------
                                                                                                 2004           2003
                                                                                                -------       -------
<S>                                                                                             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss - Continuing operations                                                           $(1,588)       (1,522)
                                                                                                -------       -------
     Adjustments to reconcile net loss, excluding discontinued operations, to
     net cash

     used in operating activities:
         Depreciation and amortization                                                              720           625
         Amortization of debt discount                                                               41            --
         Amortization of deferred financing costs                                                    76            --
         Amortization of capitalized software costs                                                  41            54
         Loss (gain) on marketable securities                                                        --           107

     Changes in operating assets and liabilities:
         Accounts receivable                                                                        714         2,126
         Inventory                                                                                 (223)         (141)
         Prepaid expenses                                                                           (70)           33
         Deposits and other assets                                                                   35            32
         Accounts payable                                                                        (1,044)       (2,962)
         Deferred revenue                                                                          (103)          (98)
         Accrued expenses                                                                          (221)         (950)
         Note Payable-accrued interest                                                               27            --
         Restricted cash                                                                            112           195
                                                                                                -------       -------
              Total adjustments                                                                     105          (979)
                                                                                                -------       -------

         NET CASH USED IN CONTINUING OPERATIONS                                                  (1,483)       (2,501)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS                     (510)         (744)
                                                                                                -------       -------

NET CASH USED IN OPERATING ACTIVITIES                                                            (1,993)       (3,245)
                                                                                                -------       -------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Other notes receivable                                                                          --            71
     Cash received from Redrock acquisition                                                         405            --
     Capital expenditures                                                                           (36)          (81)
                                                                                                -------       -------
         NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                        369           (10)
                                                                                                -------       -------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds (repayments) from debt financing                                                     (116)           --
     Net proceeds (repayments) under line of credit                                                   3         1,420
     Issuance of Common Stock, net of expenses                                                       --         1,835
                                                                                                -------       -------
         NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                       (113)        3,255
                                                                                                -------       -------
NET  INCREASE (DECREASE) IN CASH                                                                 (1,737)           --
CASH AT BEGINNING OF YEAR                                                                         2,810            --
                                                                                                -------       -------
CASH AT END OF YEAR                                                                             $ 1,073       $    --
                                                                                                =======       =======
</TABLE>

            See notes to condensed consolidated financial statements


                                                                             -5-
<PAGE>

                          DYNTEK, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                               Three Months Ended
                                                                                                                  September 30,
                                                                                                            ------------------------
                                                                                                             2004              2003
                                                                                                            ------            ------
<S>                                                                                                         <C>               <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for interest                                                                                      $  208            $  355

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
     Forgiveness by shareholders of note and accrued interest                                                   --             5,625
</TABLE>

            See notes to condensed consolidated financial statements


                                                                             -6-
<PAGE>

                           DYNTEK, INC. & SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004
                                   (UNAUDITED)

1.    Basis of Presentation and Management's Liquidity Plans

      The accompanying  unaudited condensed consolidated financial statements of
DynTek,  Inc.  and its  subsidiaries  ("DynTek",  "Company",  or "we") have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United State of America,  for interim  financial  statements and pursuant to the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and disclosures required for annual financial
statements.  These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related footnotes for
the year ended June 30, 2004 included in the Form 10-K for the year then ended.

      The accompanying  condensed  consolidated financial statements reflect all
adjustments,  which,  in the opinion of management  consist of normal  recurring
items,  that are necessary for a fair presentation in conformity with accounting
principles generally accepted in the United States of America. These adjustments
include   certain   reclassifications   to  reflect  the   disposal  of  certain
non-emergency  transportation  services  which were a component of the Company's
business  outsourcing  segment.   Preparing  condensed   consolidated  financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets,  liabilities,  revenues and expenses. The results of
operations for any interim period are not necessarily  indicative of the results
attainable for a full fiscal year.

      As of September 30, 2004, the Company had a working capital  deficiency of
approximately $3,581,000,  which includes $4,286,000 of acquisition indebtedness
incurred in a business  combination  that was  consummated on September 30, 2004
(Note 12). In October 2004, the Company entered into a Convertible Note Purchase
Agreement for an aggregate principal amount of $4,438,775.  The proceeds of this
offering were used to acquire other businesses, expand the Company's product and
service offerings and for general working capital purposes.

      The Company  believes  that its cash on hand,  cash it expects to generate
from  operations  and  proceeds  it  expects  to  receive  in  future  financing
transactions  will sustain the business through  September 30, 2005. The Company
believes that its cost cutting  initiatives and additional revenue it expects to
generate  from  acquired  businesses  will  enable it to  steadily  improve  its
financial condition in 2005 However,  there can be no assurance that the Company
will  have  sufficient  funds  to  implement  its  business  plan  or  that  the
implementation  of such plan will generate  sufficient cash flow. In such event,
the Company could be forced to significantly alter its plan, which could include
making further cost reductions in overhead and/or divesting certain contracts or
other assets that may not be critical to its future success.

2.    Accounting Policies

      The Company's  significant  accounting  policies are included in Note 1 to
the Company's consolidated financial statements that were filed in its Form 10-K
for the year ended June 30, 2004.

3.    Marketable Securities

      Marketable   securities   have  been  classified  as  available  for  sale
securities at September 30, 2004.  Accordingly,  the  unrealized  loss resulting
from  valuing  such  securities  at market  value is reflected as a component of
stockholders'  equity.  At  September  30,  2004,  the  unrealized  loss on such
securities amounted to $184,000.


                                                                             -7-
<PAGE>

4.    Investment Preferred Stock

      At June 30, 2003, the Company held a $1,104,000  note  receivable due from
Private Label Cosmetics,  Inc., ("PLC") payable in 48 monthly  installments with
interest  at 7. 5% per annum.  The note was  secured by 342 shares of PLC common
stock.  On September 23, 2003, the Company agreed to convert the note into 1,000
shares of PLC preferred  stock which it currently  holds as an investment.  Such
preferred shares are convertible,  at the Company's  option,  into 306 shares of
PLC Common Stock. The preferred  shares also include a liquidation  provision in
the event  that PLC is sold.  Dividends  are  payable  at  $10,000  per  quarter
beginning March 31, 2005.

5.    Notes Receivable

      On September 30, 2003, the Company received additional security collateral
for its accounts receivable due from LaborSoft Corporation ("LaborSoft"),  a 25%
equity  investee of the Company  (Note 15), by obtaining a  Promissory  Note and
Security  Agreement in the amount of $636,000 that  LaborSoft  owes the Company,
for previously delivered services.  The Promissory Note, which bears interest at
the prime rate, (4.5% as of September 30, 2004),  matures on September 21, 2006.
LaborSoft  granted the Company a security  interest in its assets which includes
receivables, equipment, software, and other intellectual property, inventory and
intangible  assets.  The  Company  established  a $200,000  reserve  against the
carrying value Promissory Note in fiscal year 2003. The Company also has $82,000
of trade receivables due from LaborSoft for current services, which are included
in accounts receivable in the September 30, 2004 balance sheet.

      On January 2, 2001,  the Company  advanced  $170,000 to Steven  Ross,  its
Chief  Executive  Officer,  which was  evidenced  by a  promissory  note bearing
interest at 8% per annum. On December 10, 2001, the Company extended the term of
the note to the end of Mr. Ross' period of employment. On December 10, 2001, the
Company  forgave  $70,000 of such note as a bonus to Mr. Ross.  At September 30,
2004, $100,000 remained outstanding under the note receivable.

6.    Goodwill and Other Intangibles

      The  Company  evaluates  the  recoverability  of its  goodwill  and  other
intangible  assets in  accordance  with the  Statement of  Financial  Accounting
Standards Board ("SFAS") No. 142, "Goodwill and Other Intangible  Assets," on an
annual basis and at interim  periods when events occur or  circumstances  change
that would more likely than not reduce the fair value of a reporting  unit below
its carrying amount.  During the quarter ended September 30, 2004, there were no
events or circumstances that reduced the carrying value.

7.    Credit Facility

      On June 30,  2003,  the Company  entered  into a twelve (12) month  credit
facility  agreement  with annual  automatic  renewals  with an agency of Textron
Financial  Corporation   ("Textron").   Textron  provides  a  full  notification
factoring  facility for up to $7,000,000 of working  capital  collateralized  by
accounts receivable,  inventory,  general intangibles and other assets. Eligible
accounts  receivable  expected to be collected within 90 days are purchased with
recourse,  with a holdback amount of 15%. Interest is charged on the outstanding
balance at the prime rate plus 2% (6.5% at September 30, 2004). Additionally,  a
0.25%  discount fee is charged at the time of purchase.  Effective  July 1, 2004
the Textron  agreement was amended and extended for an additional period of (24)
twenty four months.  As of September 30, 2004,  $2,457,000 was outstanding under
this credit facility.


                                                                             -8-
<PAGE>

8.    Commitments, Contingencies, and Other Agreements

COMMONWEALTH OF VIRGINIA

      Effective  December 15, 2002, the Company entered into a mutual Settlement
Agreement (the "Settlement Agreement") to cancel a contract (the "Transportation
Contract") in which it provided non-emergency  transportation brokerage services
through third party providers (the "Transportation Vendors") to the Commonwealth
of  Virginia  ("Virginia").  Under the terms of the  Settlement  Agreement,  the
Company agreed to make certain payments due to the Transportation  Vendors under
an agreed-upon schedule through June 2003.

      DynCorp,  Inc  ("Dyncorp")  posted  a  $2,400,000  bond  (the  "Bond")  to
guarantee its financial  performance  under the contract in favor of Virginia at
the time of its origination. In 2003, certain of the Transportation Vendors made
claims that caused the bond to be called.  On July 22, 2003, the bonding company
filed an  inter-pleader  action (the  "Inter-Pleader  Matter") to distribute the
$2,400,000 (the "Bonded Amount").

      During the quarter  ended  September 30, 2004,  the Company  substantially
completed the process of verifying claims by the Transportation  Vendors,  which
had been consolidated  under the Inter-Pleader  Matter The Company expects total
claims under the settlement to amount to $4,200,000. Approximately $1,600,000 of
such claims were reviewed,  negotiated and settled in accordance with procedures
established by the Virginia state court during the current  quarter  relating to
liabilities that originated  prior to September 30, 2004. The Company  therefore
recorded this extinguishment as part of discontinued  operations.  In accordance
with SFAS 140  "Accounting  for Transfers and Servicing of Financial  Assets and
Extinguishments of Liabilities".

      Transportation Vendors that have valid claims under the settlement will be
paid on or about December 15, 2004. The Company is responsible to pay any claims
in excess of the Bond coverage. The Company believes that the excess amount will
may be as much as  $1,800,000  for  which  such  amount  has  been  included  in
liabilities of discontinued operations in the Company's balance sheet.

OTHER AGREEMENTS

      On September 29, 2004, the Company entered into a Stock Purchase Agreement
with  Redrock  Communications  Solutions,  Inc. as  described  in note 12 of the
condensed consolidated financial statements.

9.    Stock Based Compensation


                                                                             -9-
<PAGE>

      During the year ended June 30,  2003,  the Company  adopted  Statement  of
Financial  Accounting  Standard  ("SFAS") No. 148,  "Accounting  for Stock-based
Compensation-Transition  and Disclosure."  This statement  amended SFAS No. 123,
"Accounting for Stock-based  Compensation." As permitted under SFAS No. 123, the
Company  applies the intrinsic  value method of  accounting  for its stock based
compensation in accordance with  Accounting  Principles  Board Opinion (APB) No.
25,  "Accounting for Stock Issued to Employees." As required under SFAS No. 148,
the following  table presents  pro-forma net income (loss) and basic and diluted
income  (loss) per share as if the fair  value-based  method had been applied to
all awards.

                                                  Three Months Ended
                                                     September 30,
                                                 -------------------
          Periods Ended September 30,              2004      2003
          ---------------------------            -------   ---------
          Net Income (Loss)                      $    47   $  (1,697)
          Stock-based employee compensation
          cost, net of tax effect, under fair
          value accounting                           (22)        (83)
                                                 -------   ---------
          Pro-forma net income (loss) under
          Fair Value Method                      $    25   $  (1,780)
                                                 =======   =========
          Income / (Loss) per share:
          Basic                                  $    --   $    (.04)
                                                 =======   =========
          Diluted                                $    --   $    (.04)
                                                           =========
          Pro-forma income (loss) share: Basic   $    --   $    (.04)
                                                 =======   =========
          Pro-forma income (loss) share:
          Diluted                                $    --   $    (.04)
                                                 =======   =========

      The fair value of each  option  grant was  estimated  at the date of grant
using  the  Black-Scholes  option  valuation  model.  The  Black-Scholes  option
valuation  model was developed  for use in  estimating  the fair value of traded
options which have no vesting  restrictions and are fully transferable.  Because
the Company's stock options have  characteristics  significantly  different from
those of traded options, and because changes in the subjective input assumptions
can materially  affect the fair value  estimate,  in management's  opinion,  the
existing models do not necessarily provide a reliable single measure of the fair
value estimate of its stock options. In calculating the fair values of the stock
options, the following assumptions were used:

                                                      Fiscal year   Fiscal year
                                                      2005 grants   2004 grants
                                                      -----------   -----------
Dividend yield                                                 --            --
Weighted average expected life:                         2.2 years     3.6 years
Weighted average risk-free interest rate                    1.79%          2.5%
Expected volatility                                           77%          136%

10. Stockholders' Equity

      On August 14, 2001, the Company's  preferred stock became convertible into
the  Company's  Class A common  stock,  at a rate of 2.5 common  shares for each
preferred  share  tendered.  As of September 30, 2004,  1,506,483 of such shares
have been converted into 3,766,208  shares of Common stock,  with a remainder of
683,317 shares not yet converted.


                                                                            -10-
<PAGE>

      On October 5, 2004,  an additional  66,300  shares of the preferred  stock
were converted into 165,760 shares of common stock.

11.   Earnings per Share

      Basic earnings per share is computed on the basis of the weighted  average
number of common shares  outstanding.  Diluted earnings per share is computed on
the basis of the weighted  average number of common shares  outstanding plus the
effect of outstanding  stock options using the "treasury  stock method".  Common
stock equivalents  consisting of options,  warrants,  and convertible  preferred
stock  totaling  26,551,721  were  included  in  the  diluted  weighted  average
calculation  for the three months ended September 30, 2004. For the three months
ended  September 30, 2003,  common stock  equivalents  totaling  12,938,719 were
excluded from the weighted average share calculation as their inclusion would be
anti-dilutive..

Total outstanding stock, options,  convertible preferred stock, convertible debt
and warrants are as follows:

             -----------------------------------------------------
                                             As of September 30,
                                              2004         2003
             Common stock                  58,430,897   42,661,739
             Options and warrants          19,030,626    9,293,661
             Convertible debt               5,812,802           --
             Convertible preferred stock    1,708,293    3,645,058
                                           -----------------------
                                           84,982,618   55,600,458
                                           =======================

12.   Business Acquisitions

      On September 29, 2004, the Company entered into a Stock Purchase Agreement
(the  "Agreement")  Effective  August 1, 2004 to acquire all of the  outstanding
Common Stock of Redrock Communications Solutions, Inc., ("Redrock") for purchase
consideration consisting of (i) an initial aggregate cash payment of $2,500,000;
(ii) a deferred  aggregate  cash  payment of $500,000  payable 60 days after the
closing  date;  (iii)  an  earn-out  cash  payment  up to a  maximum  amount  of
$1,500,000,  based upon Redrock's  EBITDA for the period of July 1, 2004 through
June 30,  2005 and (iv)  $500,000  of the  Company's  common  stock,  subject to
adjustment  based on the  final  determination  of  Redrock's  working  capital,
divided by $.63, the average closing price of the Company's common stock for the
10 trading preceding the closing date.

A summary of the business assets acquired (in thousands) is as follows:

              Consideration paid:
              Stock to be issued                            $  500
              Cash                                           3,000
              Liabilities assumed                            2,020
                                                            ------
              Total consideration                           $5,520
                                                            ------
              Assets acquired:
              Cash                                             405
              Accounts receivable, net                       1,221
              Inventory                                        255
              Prepaid expenses, deposits and other assets        8
              Property and equipment                           136
              Customer list                                  1,200
              Goodwill                                       2,295
                                                            ------
              Fair value of assets acquired                 $5,520
                                                            ------


                                                                            -11-
<PAGE>

The following unaudited pro-forma information reflects the results of operations
of the  Company as though the  acquisition  had been  consummated  as of July 1,
2003.

--------------------------------------------------------------------------------
(000's)                                         Three Months        Three Months
                                                ended 9/30/04      ended 9/30/03
--------------------------------------------------------------------------------
Revenue                                            $15,534             $15,492
--------------------------------------------------------------------------------
Net Income (Loss)                                     (186)             (1,404)
--------------------------------------------------------------------------------
Net Income (Loss) per share                           (.00)               (.03)
--------------------------------------------------------------------------------

13.   Discontinued Operations

      During  2003,  the Company  disposed of its  non-emergency  transportation
business.  As  of  September  30,  2004,  the  total  remaining  liabilities  of
discontinued  operations  amounted to $2,036,000.  A significant portion of such
payables are owed to the  Transportation  Vendors involved in the  Inter-Pleader
Matter described in Note 8.

14.   Business Segments

      DynTek's  operations are organized along its product lines and include two
segments;  -  Information  Technology  Services and Business  Process  Outsource
Services.  The  Information  Technology  Services  segment  provides  a range of
specialized IT infrastructure  services:  system  architectural  design,  legacy
systems integration,  network  engineering,  applications  development,  network
security services, help desk support and operational support, primarily to state
and local government entities.  In conjunction with these service offerings,  it
also sells  hardware and software to its customers.  Operations are  distributed
primarily  among  seven  states  (including  the  principal  executive  office),
California,  Florida,  Massachusetts,  Michigan,  Nevada, Virginia and New York,
with employees situated in locations that are convenient to client sites.

      The Business Process  Outsourcing  segment  contracts  outsourced  program
operations  for state  government  agencies  in  several  areas,  including  the
privatization  of child  support  enforcement  services.  Our  business  process
outsourcing  customers  have included  various  governmental  departments in the
states of North Carolina,  Kansas and Nebraska.  The Company maintains  employee
locations in these states as well.  Typically these contracts are for multi-year
periods of  performance,  with  options to renew for  additional  periods.  Such
contracts are generally  awarded through  competitive  procurements.  Payment is
based on either fixed-price, fixed-unit- price based on contractual allocations,
revenue sharing, or a combination of the above.

      Our reportable  segments are business units that offer different  services
and contract types and are managed separately due to the expertise and different
managed  key  factors  in each  area.  Since the  separate  Business  Processing
Outsourcing  segment was acquired as a unit,  management  has retained  separate
reporting and review criteria for that unit. The following table provides actual
selected financial data for our business segments (in thousands):


                                                                            -12-
<PAGE>



                                              Business    Information
                                               Process    Technology
                                             Outsourcing   Services     Total
                                             -----------   --------     -----
Three months ended September 30, 2004
-------------------------------------
Sales to external customers                   $  2,676     $ 12,107    $ 14,783
Depreciation and amortization expense              117          643         760
Operating income (loss)                             80       (1,354)     (1,274)
Net interest expense (income)                       --          264         264
Total assets                                    14,614       33,812      48,426
Capital expenditures                                --           36          36

Three months ended September 30, 2003
-------------------------------------
Sales to external customers                   $  1,873     $ 11,052    $ 12,925
Depreciation and amortization expense              111          568         679
Operating income (loss)                             57       (1,579)     (1,522)
Net interest expense (income)                       --         (350)       (350)
Total assets                                    25,892       24,288      50,180
Capital expenditures                                --           81          81

15.   Related-Party Transactions

      In March 2001,  the Company  purchased 25% of the equity in  LaborSoft,  a
company that provides labor  relations  management  software to labor unions and
commercial  customers,  to  supplement  its other market  segment  services.  In
connection with such investment,  the Company  appointed one of its directors to
become  chairman of  Laborsoft's  board of directors.  The Company also provides
infrastructure  services  to  LaborSoft,   under  a  cost  plus  fee-for-service
agreement.

The Company  accounts for its investment in Laborsoft under the equity method of
accounting. Accordingly, the Company's records its pro-rata share of Laborsoft's
income (loss) as an increase (decrease) in the carrying value of its investment.
The Company's  pro-rata share of  Laborsoft's  losses since March 2001 amount to
approximately  $456,000.  Such losses have  eliminated the carrying value of the
LaborSoft investment.

16.   Subsequent Events

      On October  15,  2004 the Company  entered  into a 9% Senior  Subordinated
Convertible  Note  Purchase   Agreement  (the  "Note  Agreement")  with  certain
investors  (the  "Purchasers")  in which it issued an aggregate of $4,438,775 in
principal amount of the Company's  Senior  Subordinated  Convertible  Notes (the
"Senior Notes"),  bearing 9% interest per annum with a maturity of three years..
The Senior Notes are convertible  into shares of the Company's common stock at a
conversion price of $.65 per share, subject to certain adjustments.

      As part of the  issuance  of the Notes,  the  Company  also  issued to the
Purchasers  warrants  to  purchase  3,414,442  shares of the common  stock at an
exercise  price of $.7475  per  share  (the  "Warrants").  The  Warrants  may be
exercised  immediately  and will expire on September 30, 2009. In addition,  the
Company issued to the Purchasers  who have not  previously  participated  in any
financing of the Company warrants to purchase up to 554,540 shares of the Common
stock  at an  initial  exercise  price  of  $1.25  per  share  (the  "Additional
Warrants"). The Additional Warrants may be exercised immediately and will expire
on June 10, 2005.

      Pursuant to the Note Agreement,  the Company issued to Duncan Capital LLC,
the placement agent in connection with the transaction,  warrants to purchase up
to 692,308 shares of the Company's  Common Stock at an initial exercise price of
$0.7475 per share (the  "Placement  Warrants")  and paid a cash fee of $360,000.
The Placement Warrants may be exercised immediately and will expire on September
30, 2009.


                                                                            -13-
<PAGE>

      In connection with the issuance of the Notes and the warrants, the Company
entered into a Registration Rights Agreement with the Purchasers  obligating the
Company to register for resale the shares of the Common Stock  issuable upon the
conversion of the Notes and the exercise of the  associated  warrants  discussed
above on a  registration  statement on Form S-3 to be filed with the  Securities
and Exchange Commission within thirty (30) days after the closing date.

      On October 14, 2004,  the Company  entered  into an Agreement  and Plan of
Merger (the  "Merger  Agreement"),  by and among the  Company,  ITI  Acquisition
Corp.,  a  California  corporation  and wholly owned  Subsidiary  of the Company
("Merger  Sub"),  Integration  Technologies,   Inc.,  a  California  corporation
("ITI"), the shareholders of ITI (the "Shareholders") and Casper Zublin, Jr., in
his capacity as the shareholder representative (the "Representative").

      On October 18, 2004,  the Merger Sub was merged into ITI with ITI becoming
a wholly-owned subsidiary of the Company (the "Merger").  The consideration paid
or payable to the  Shareholders  in connection  with the Merger is comprised of:
(i) an initial cash payment of $2,500,000; (ii) an earn-out cash payment up to a
maximum  amount of $1.5 million,  based upon ITI's EBITDA for the period between
July 1, 2004 through June 30, 2005 to be paid on or before July 30, 2005;  (iii)
a earn-out cash payment up to a maximum amount of $1.5 million, based upon ITI's
revenue for the period  between July 1, 2004 through June 30, 2005 to be paid on
or before July 30, 2005; and (iv) an aggregate number of whole shares of Company
common  stock of based on the average  closing  sale price per share (the "Share
Price") of such  common  stock as reported  on the Nasdaq  SmallCap  Market (the
"Nasdaq") for the 30 trading days prior to June 28, 2005, determined as follows:
(a)  2,140,000  shares if the Share  Price is  greater  than $1.00 but less than
$1.50; (b) that number of shares equal to $2,140,000  divided by the Share Price
if the Share  Price is less than  $1.00,  provided  that the  maximum  number of
shares  issuable  pursuant  to this  clause (b) shall be no more than  4,280,000
shares;  or (c) that number of shares equal to  $3,210,000  divided by the Share
Price if the Share Price is greater than $1.50 (the "Stock  Consideration").  At
the  option  of the  Representative,  up to fifty  percent  (50%)  of the  Stock
Consideration  may be paid in cash instead of Company Common Stock.  In no event
will the  Company be required to issue  shares of Company  Common  Stock if such
issuance would require stockholder  approval under applicable Nasdaq Marketplace
Rules. In the event the number of shares issuable as Stock  Consideration  is so
limited, the Company will pay the difference to the Shareholders in cash.

      Effective  October  15,  2004,  the  Company  entered  into an  Employment
Agreement,  ("Zublin  Agreement")  with  Casper  Zublin,  Jr.  to  serve  as the
Company's Chief Operating Officer.  Under the Zublin Agreement,  Mr. Zublin will
receive a base salary at the annualized rate of $300,000,  and he is entitled to
receive an annual bonus  pursuant to a bonus plan  established  by the Company's
Compensation  Committee.  The  bonus  shall be based  upon  the  achievement  of
criteria as set forth in the Company's  bonus plan. Mr. Zublin  received a grant
of options to purchase 350,000 shares of the Company's common stock,  subject to
certain vesting  provisions.  The Zublin Agreement also provides Mr. Zublin with
severance  benefits in the event of his  termination  for certain  reasons.  The
Zublin Agreement provides  additional  benefits for Mr. Zublin in the event of a
change in control of the  Company and Mr.  Zublin's  employment  is  terminated,
subject to certain  conditions.  In connection with his  employment,  Mr. Zublin
also entered into an Indemnification  Agreement with the Company,  as well as an
Incentive Stock Option Agreement.

      On November 12, 2004,  the Company  entered into an  Employment  Agreement
(the "Webber  Agreement")  with Robert I. Webber to serve as the Company's Chief
Financial Officer and as a director of the Company.  Under the Webber Agreement,
which is effective as of August 1, 2004, Mr. Webber receives a base salary at an
annualized rate of $300,000,  and he is entitled to receive an annual  incentive
bonus  pursuant  to a  bonus  plan  established  by the  Company's  Compensation
Committee.  The bonus  shall be based upon the  achievement  of  criteria as set
forth in the Company's  bonus plan.  Mr.  Webber  received a grant of options to


                                                                            -14-
<PAGE>

purchase  660,000  shares of the Company's  common stock,  and a grant of 50,000
shares of restricted stock,  subject to certain Company  performance and vesting
provisions.  The Webber Agreement also includes  severance and change in control
benefits, in the event of Mr. Webber's termination for certain reasons.

      On November 12, 2004,  the Company  entered into an  Employment  Agreement
(the "Ross  Agreement") with Steven J. Ross to serve as the Company's  President
and Chief  Executive  Officer and as a director of the  Company.  Under the Ross
Agreement,  which is  effective  as of July 1, 2004,  Mr.  Ross  receives a base
salary at an  annualized  rate of  $440,000,  and he is  entitled  to receive an
annual  incentive  bonus  pursuant to a bonus plan  established by the Company's
Compensation  Committee.  The  bonus  shall be based  upon  the  achievement  of
criteria as set forth in the Company's  bonus plan. Mr. Ross received a grant of
options to purchase  1,320,000 shares of the Company's common stock, and a grant
of 200,000 shares of restricted  stock,  subject to certain Company  performance
and vesting provisions. The Ross Agreement also includes severance and change in
control benefits, in the event of Mr. Ross' termination for certain reasons.


                                                                            -15-
<PAGE>

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

The following discussion and analysis of our results of operations and financial
position should be read in conjunction with our audited  consolidated  financial
statements  and related notes included in our Annual Report on Form 10-K for the
year ended June 30, 2004 and the unaudited consolidated financial statements and
related notes included in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q and in future filings
with the Securities and Exchange Commission include "forward-looking statements"
within the  meaning of such term in Section 27A of the  Securities  Act of 1933,
Section 21E of the Securities  Exchange Act of 1934, and the Private  Securities
Litigation  Reform Act of 1995.  The  Company  wishes to caution  readers not to
place  undue  reliance  on any such  forward-looking  statements,  each of which
speaks only as of the date made.  Forward-looking  statements  involve known and
unknown  risks,  uncertainties  and  other  factors  which  could  cause  actual
financial or operating results, performance or achievements expressed or implied
by such forward-looking  statements not to occur or be realized. Such statements
are subject to certain risks and  uncertainties  that could cause actual results
to differ materially from historical results and those presently  anticipated or
projected.  See a discussion  of such risks and factors in the "Factors That May
Affect Future Results"  section of our Annual Report on Form 10-K for the fiscal
year ended June 30, 2004 as filed with the Securities  and Exchange  Commission.
Forward-looking  statements  made in this Form 10-Q  generally  are based on our
best estimates of future results, performances or achievements,  predicated upon
current  conditions  and the most recent  results of the companies  involved and
their respective industries. Forward-looking statements may be identified by the
use of  forward-looking  terminology such as "may," "will,"  "could,"  "should,"
"project," "expect," "believe," "estimate,"  "anticipate," "intend," "continue,"
"potential,"  "endeavor,"  "opportunity"  or similar terms,  variations of those
terms or the  negative  of those  terms or other  variations  of those  terms or
comparable  words or  expressions.  Potential risks and  uncertainties  include,
among other things, such factors as:

o     Our ability to reach  target  markets for  services  and  products and our
      ability to retain current and attract future customers;

o     Our  ability  to  successfully   integrate  acquired  companies  into  our
      operations, and our ability to acquire additional companies, if any;

o     Our ability to turn contract backlog into revenue and net income, the size
      and timing of additional orders and their  fulfillment,  as well as market
      acceptance,  revenues and profitability of our current and future products
      and services;

o     Our ability to finance and sustain  operations,  including  the ability to
      fund, maintain,  replace and/or extend the Textron credit facility,  which
      is discussed in Note 7, and/or the Laurus Funds Note,  when either becomes
      due,  respectively,  or  to  replace  such  instruments  with  alternative
      financing;

o     Our  ability  to  raise  equity  capital  or debt in the  future,  despite
      historical losses from operations;

o     Our ability to successfully  defend or settle the remaining  claims in the
      Virginia litigation;

o     The  continuing  desire of state and local  governments  to  outsource  to
      private contractors, and our ability to service such contracts;

o     General economic conditions in the United States and elsewhere, as well as
      the economic conditions  affecting the industries in which we operate, our
      customers and suppliers;


                                                                            -16-
<PAGE>

o     The  competitive  environment in the regions in which we compete,  and the
      cost-effectiveness of our products and services;

o     Political and  regulatory  matters that affect the  industries in which we
      operate;

o     Our continued listing on the Nasdaq SmallCap Market; and

o     Other risks  detailed  in our filings  with the  Securities  and  Exchange
      Commission.

The Company has no obligation  to publicly  release the results of any revisions
to any forward-looking statements to reflect anticipated or unanticipated events
or circumstances occurring after the date of such statements.

Business Overview

We provide information technology ("IT") security,  converged network,  internet
protocol ("IP")  telephony,  access  infrastructure,  and technology  management
solutions.  We serve as a source of  products  and  services  to state and local
government and mid-market commercial enterprises.  We provide total solutions to
our clients by delivering systems design, installation,  consulting, maintenance
and integration of network computing products and applications.

Through  recent  acquisitions  of Redrock  Communications  Solutions,  Inc.  and
Integration  Technologies,  Inc.,  we have  increased  our  presence in Southern
California,  and  have  bolstered  our  multi-disciplinary   practice  areas  in
security,  access  infrastructure,  wide area  networks  ("WAN")  and local area
networks  ("LAN"),  IP telephony or  voice-over  IP  ("VOIP"),  and  application
infrastructure.  We are focusing on growing our higher margin service offerings,
while maintaining expense controls and improving our balance sheet. We intend to
continue to seek acquisitions and organic growth that will build threshold share
and  critical  density in our target  markets  of  leading IT  spending  states.
Moreover,  we intend to  capitalize on business  practices of acquired  entities
that we believe will enhance  competitive  advantage and ensure delivery of high
quality IT services to our customers and build stronger  relationships  with our
vendors.

We presently realize revenue from client engagements that entail the delivery of
end-to-end solutions,  and the sales of products to our customers.  Services are
primarily  provided to the client at hourly rates that are  established for each
of our  employees  or  third-party  contractors  based upon their  skill  level,
experience and the type of work performed.  We also provide  project  management
and  consulting  work  which are  billed  either by an agreed  upon fixed fee or
hourly  rates,  or a combination  of both.  We generally  endeavor to expand our
sales of higher margin solution and project management services. The majority of
our services are provided under purchase orders or bid contracts with government
entities.

Costs of services and related  products consist  primarily of salaries,  cost of
outsourced  labor and products to complete the  projects.  Selling,  general and
administrative  expenses consist primarily of salaries and benefits of personnel
responsible  for  administrative,   finance,   operative,  sales  and  marketing
activities  and  all  other  corporate  overhead  expenses.  Corporate  overhead
expenses  include rent,  telephone  and internet  charges,  insurance  premiums,
accounting and legal fees, depreciation and amortization expenses.

Results of Operations

Continuing Operations

The following  table sets forth for the periods  presented  information  derived
from our unaudited condensed consolidated statement of operations:

Revenues


                                                                            -17-
<PAGE>

                       Three months ended September 30th,

                                                         Percentage
                              2004         2003            change        Amount
                            ---------------------------------------------------
Product(1)                  $ 6,396       $ 5,593            14%        $   803

Service(1)                    5,587         7,332           (23%)        (1,745)
                            -------       -------           ---         -------

Total (1)                    11,983        12,925            (7%)          (942)

Product(2)                    2,017           n/a           100%          2,017

Service(2)                      783           n/a           100%            783
                            -------       -------           ---         -------

Total(2)                      2,800           n/a           100%          2,800

Totals                      $14,783       $12,925            14%        $ 1,858
                            =======       =======           ===         =======

      (1)   Revenues from Redrock are excluded for comparative purposes.

      (2)   Represents revenues generated from Redrock following the acquisition
            on August 1, 2004.

Revenue for the three months ended September 30, 2004 amounted to  approximately
$14,800,000  as  compared  with  revenue of  approximately  $12,900,000  for the
comparable  2003 period.  The increase in revenue is attributable to an increase
in product revenue of approximately  $2,900,000  offset by a decrease in service
revenue of approximately  $1,000,000.  The increase in product revenue primarily
was due to an  increase  in  customer  demand,  and an  increase  mix in product
revenue from the business of Redrock  Communications,  the  acquisition of which
closed during the quarter.  The decrease in service revenue was primarily caused
by reduced revenue from New York outsourced service contracts.

Our customers  are  primarily  state and local  government  entities,  primarily
located in New York, Michigan,  Massachusetts, and Florida, as well as mid-sized
corporations in diversified industries located in Southern California.

Twenty-five of our customers  accounted for 51% of our total revenues and 36% of
our total accounts receivable.

The loss of major customers could be expected to have a material  adverse effect
on our  financial  condition  during  the  short  term and  until we are able to
generate replacement  business,  and there can be no assurance of obtaining such
business.

Gross Profit

Gross  profit from  product  sales  increased  to 17% in the three  months ended
September 30, 2004 from 11% in the comparable 2003 period,  primarily due to the
sale of  higher  margin  products  in our  solutions,  pass  thru  sales  in the
education  business and higher product margins from the acquisitions.  The gross
profit from service revenue decreased to 19% in the three months ended September
30, 2004 from 22% in the  comparable  2003 period.  The decrease in gross profit
margin from services was primarily related to the lower margin renewals from the
Business Process Outsource service contracts.

We continue to face  competitive  market  pressures  which will impact the gross
profit on our product revenue and service related  revenue,  including price and
gross profit margin  pressures.  We intend to meet the  challenges of aggressive
price reductions and discount  pricing by certain product  suppliers by focusing
our offerings around relatively higher margin practice areas, including security
solutions  and access  infrastructure.  We believe  that  market  pressures  may
present us with an opportunity  to expand our business in certain  regions where
we can provide a more complete  offering of IT services in a fragmented  market.
There can be no assurance,


                                                                            -18-
<PAGE>

however,  that we will be able to  compete  effectively  and  profitably  in all
areas,  given the  intense  competition  currently  existing  in the IT  Service
industry.

Selling, General and Administrative

                        Three months ended September 30th

                                                                Percentage of
                                       Dollars                     Revenues

                                  2004         2003           2004          2003
                                 -----------------------------------------------
Selling(3)                       $1,568       $1,822           13%           14%

General &
Administrative(3)                 1,307          848           11%            7%

Depreciation &
Amortization(3)                     693          679            6%            5%

Other(3)                            303          457            3%            4%
                                 ------       ------          ---           ---

Total                            $3,871       $3,806           33%           30%

Selling(4)                          257          n/a            9%          n/a

General &
Administrative(4)                    61          n/a            2%          n/a

Depreciation &
Amortization(4)                      67          n/a            2%          n/a

Other(4)                             11          n/a           --           n/a
                                 ------       ------          ---           ---

Total                            $  396          n/a           13%          n/a

Totals                           $4,267       $3,806           29%           30%
                                 ======       ======          ===           ===

      (3)   Expenses from Redrock are excluded for comparative purposes

      (4)   Represents  expenses  generated by Redrock following its acquisition
            on August 1, 2004

Selling,   general  and  administrative   expenses  increased  to  approximately
$3,200,000  in the three  months  ended  September  30, 2004 from  approximately
$2,700,000  in the  comparable  2003 period.  Expressed  as a percentage  of net
revenues,  selling,  general and administrative expenses were 21% as compared to
20% in the  comparable  2003  period.  The  increase  was  primarily  related to
additional selling costs on a higher revenue base and transaction costs incurred
during the quarter ended September 30, 2004.

Net Income

Net income was $47,000 in the three months ended  September 30, 2004 as compared
to a net loss of $1,697,000 in the comparable  2003 period.  The income increase
was due to a gain on disposal of  discontinued  operations of $1,635,000 and the
factors described above.

Discontinued Operations

Net gain from discontinued  operations was $1,635,000 for the three months ended
September 30, 2004 compared to a net loss of $175,000 for the three months ended
September 30, 2003. The gain was attributable to settled claims  associated with
the Virginia non-emergency


                                                                            -19-
<PAGE>

transportation  services  contract  as  described  in  Note 8 of  the  condensed
consolidated financial statements.

Liquidity and Capital Resources

We measure our  liquidity in a number of ways,  as  summarized  in the following
table:

                                                     (Dollars in thousands)
                                                   As of              As of
                                             September 30, 2004   June 30, 2004
                                             ------------------   -------------

Cash and cash equivalents                         $  1,394           $  3,289
Working capital                                   $ (3,581)          $    425
Working capital without giving
  effect to acquisition liability                 $    705           $   N.A.

Current ratio                                       0.82:1             1.03:1
Current ratio without giving effect
  to acquisition liability                          1.04:1             1.03:1
Notes payable (current portion)                   $  2,160           $  1,812

Cash and cash equivalents  generally  consist of cash and money market funds. We
consider all highly liquid investments purchased with maturities of three months
or less to be cash  equivalents.  Such  investments  are  stated at cost,  which
approximates  fair value,  and are considered  cash  equivalents for purposes of
reporting cash flows.

During the three months ended September 30, 2004, we used cash of  approximately
$1,483,000 in operating activities and $510,000 in discontinued operations.

As described in Note 12 to the Condensed Consolidated  Financial Statements,  in
October 2004, we paid to the former  shareholders of Redrock  Communications  as
part of the purchase  price for our  acquisition  of Redrock  Communications  an
initial  cash payment of  $2,500,000.  In  addition,  we are  obligated to pay a
deferred cash payment of $500,000  sixty (60) days after the closing date of the
transaction  as well as an  earn-out  cash  payment  up to a  maximum  amount of
$1,500,000,  based upon Redrock  Communications'  EBITDA for the period  between
July 1, 2004 through June 30, 2005.

As described in Note 17 to the Condensed Consolidated  Financial Statements,  as
part of the purchase price in our acquisition of Integration Technologies, Inc.,
we paid an initial cash payment of $2,500,000.  In addition, we are obligated to
pay an earn-out cash payment up to a maximum  amount of  $1,500,000,  based upon
ITI's  EBITDA for the period  between  July 1, 2004 through June 30, 2005 and an
additional  earn-out  payment up to a maximum amount of  $1,500,000,  based upon
ITI's revenue for the period between July 1, 2004 through June 30, 2005.

We had a working  capital  deficiency  of  $3,581,000 as of September 30, 2004 a
decrease of  $4,006,000  from June 30, 2004. As a result of the  foregoing,  our
cash decreased by $1,737,000.

On July 31,  2004,  our  credit  facility  agreement  with an agency of  Textron
Financial Corporation ("Textron") was amended and extended for 24 months through
June 30, 2006. The amended


                                                                            -20-
<PAGE>

Textron facility provides us with a full notification  factoring facility for up
to $7,000,000 of working capital.  Eligible accounts  receivable  expected to be
collected within 90 days are purchased with recourse,  less a holdback amount of
15%. Interest is charged on the outstanding  balance at the Prime rate plus 2.0%
(6. 5% at September 30, 2004). Additionally,  a 0.15% discount fee is charged at
the time of purchase.  As of September 30, 2004, the  outstanding  balance under
such credit facility amounted to $2,457,000.

We may  expand the scope of our  product  and  services  offerings  by  pursuing
acquisition  candidates with complementary  technologies,  services or products.
Should we  commence  such  acquisitions,  we believe  that we would  finance the
transactions  with a  combination  of our working  capital  and the  issuance of
additional securities. We would attempt to secure additional funding,  including
equity financing where appropriate, for acquisitions. There can be no assurance,
however,  that we will be  successful  in  identifying  appropriate  acquisition
candidates or that, if appropriate  candidates are  identified,  that we will be
successful in obtaining the necessary financing to complete the acquisitions

In the event of any  additional  financing,  any equity  financing  would likely
result in dilution  to our  existing  stockholders  and any debt  financing  may
include restrictive covenants.  Should we require additional working capital, we
would consider  divesting  certain of our contracts or other assets that may not
be critical to the business.

Contractual Obligations

                                               Payments due by period

                                                (in thousands)
                                             Less                          More
                                            than 1                        than 5
                                    Total    year   1-3 years  3-5 years   years
  Contractual Obligations
  Long-Term Debt Obligations         5,350   2,307    3,043         --       --
  Operating Lease Obligations        1,707     898      529        280       --
                                    ------  ------   ------       ----      ----
  Total                             $7,366  $2,673   $4,413       $280       --
                                    ======  ======   ======       ====      ====

Critical Accounting Policies and Estimates

The  Company's  financial  statements  and  accompanying  notes are  prepared in
accordance with accounting  principles  generally accepted in the United States.
Preparing  financial  statements  requires  management  to  make  estimates  and
assumptions  that affect the reported amounts of assets,  liabilities,  revenue,
and expenses.  These  estimates  and  assumptions  are affected by  management's
application of accounting policies.  Critical accounting policies for us include
revenue  recognition,   impairment  of  investment  securities,   impairment  of
goodwill,   accounting  for   contingencies   and  accounting  for  discontinued
operations.

Basis of  Presentation.  During the fiscal year ended June 30, 2003, the Company
adopted a plan to sell our transportation  brokerage operations.  The operations
are accounted for as a discontinued operation, and, accordingly,  amounts in the
consolidated  financial  statements and related notes for all periods  presented
reflect discontinued operation accounting.

Revenue  Recognition.  The Company's  policy follows the guidance from SEC Staff
Accounting Bulletin ("SAB") 101 "Revenue  Recognition in Financial  Statements".
SAB 101 provides  guidance on the recognition,  presentation,  and disclosure of
revenue in financial statements. The Company recognizes revenues when persuasive
evidence of an arrangement  exists, the product has been shipped or the services
have been provided to the client, the sales price is fixed or determinable,  and
collectibility is reasonably assured.


                                                                            -21-
<PAGE>

Generally,  information  technology  revenues  are  recognized  as services  are
provided to the client.  Revenues  from annual  maintenance  contracts  services
provided by the Company are deferred and recognized ratably over the maintenance
period.  Revenues from hardware sales are recognized upon delivery to the client
and when uncertainties regarding customer acceptance have expired.  Revenues for
business process  outsourcing  services are recognized as services are rendered,
normally  invoiced on a monthly  basis.  Revenues on  unit-price  contracts  are
recognized at the  contractual  selling prices of work completed and accepted by
the client.  Revenues  on time and  material  contracts  are  recognized  at the
contractual rates as the labor hours and direct expenses are incurred.

Collectibility of Receivables.  A considerable amount of judgment is required to
assess  the  ultimate  realization  of  receivables,   including  assessing  the
probability  of  collection  and the current  credit  worthiness of our clients.
Probability of collection is based upon the assessment of the client's financial
condition  through  the review of its  current  financial  statements  or credit
reports.

SFAS 142, Goodwill and Other Intangible Assets, requires that goodwill be tested
for impairment at the reporting unit level (operating segment or one level below
an  operating  segment)  on an annual  basis  (June 30th for DynTek) and between
annual tests in certain  circumstances.  Application of the goodwill  impairment
test  requires  judgment,  including  the  identification  of  reporting  units,
assigning  assets and  liabilities  to reporting  units,  assigning  goodwill to
reporting  units,  and  determining  the  fair  value  of each  reporting  unit.
Significant  judgments  required to estimate the fair value of  reporting  units
include estimating future cash flows, determining appropriate discount rates and
other  assumptions.  Changes in these estimates and assumptions could materially
affect the  determination  of fair value  and/or  goodwill  impairment  for each
reporting unit.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk associated  with adverse  changes in financial and commodity  market
prices and rates could impact our financial position,  operating results or cash
flows.  We are exposed to market  risk due to changes in interest  rates such as
the prime  rate and  LIBOR.  This  exposure  is  directly  related to our normal
operating and funding activities. Historically, and as of September 30, 2004, we
have not used derivative instruments or engaged in hedging activities.

The Textron credit facility  exposes the Company to the risk of earnings or cash
flow loss due to changes in market interest  rates.  The Textron credit facility
requires  interest  to be paid at 2.0% over the prime  rate.  The  Laurus  Funds
convertible  secured  term note  ($5,650,000  on November 5, 2004),  exposes the
Company to similar  risks,  and it  requires  interest to be paid at 1% over the
prime rate. The table below provides  information on the Textron credit facility
and the Laurus Funds note as of September 30, 2004.

--------------------------------------------------------------------------------
                                                                Weighted Average
                                             Principal Balance    Interest Rate
                                             -----------------  ----------------
Factoring credit facility                       $ 2,457,000           6.5%
--------------------------------------------------------------------------------
Secured Convertible Note                        $ 5,767,000           5.5%
--------------------------------------------------------------------------------

ITEM 4. CONTROLS AND PROCEDURES

      An evaluation as of the end of the period covered by this quarterly report
was performed under the supervision and with the  participation of the Company's
management,  including its Chief Executive Officer and Chief Financial  Officer,
for the  effectiveness  of the design and operation of the Company's  disclosure
controls and procedures as of September 30, 2004. Based on that evaluation,  the
Company's Chief Executive  Officer and Chief Financial  Officer,  have concluded
that the Company's  disclosure  controls and  procedures are effective to ensure


                                                                            -22-
<PAGE>

that the information required to be disclosed in the Company filings or which it
submits under the Securities Exchange Act is recorded, processed, summarized and
reported  within the time  periods  specified  in the  Securities  and  Exchange
Commission's  rules and  forms.  There  have been no  changes  in the  Company's
internal  controls over  financial  reporting or in other factors  identified in
this  evaluation  that occurred during the three months ended September 30, 2004
that have materially  affected,  or are reasonably  materially likely to affect,
the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

COMMONWEALTH OF VIRGINIA

      Effective  December 15, 2002, the Company entered into a mutual Settlement
Agreement to cancel a contract to provide non-emergency transportation brokerage
services in certain regions of the  Commonwealth  of Virginia.  The terms of the
Settlement  Agreement  provided that the Company  issue certain  payments due to
transportation  provider  vendors  according to an agreed-upon  schedule,  which
extended through June 2003. In connection with initially  entering the contract,
a  bond  was  posted  by  DynCorp,   Inc.  for  the  Company's  payment  to  the
transportation  providers.  A number  of such  providers  caused  the bond to be
called, initiating a process of disbursing approximately $2,400,000 (the "Bonded
Amount") of payments to  providers  with  verified  claims due.  The Company has
arranged  for a limited  release of  indemnification  by  DynCorp,  Inc.  of the
Company's  obligation  to pay to the bonding  company and to reimburse the third
party for its obligation to fund,  respectively,  in an amount not to exceed the
Bonded Amount to the extent that the Company  otherwise would have an obligation
to fund or reimburse such parties with respect to the bond. The bonding  company
filed an  inter-pleader  action to distribute  the penal sum of the bond on July
22, 2003. As a result of the Company being  released from its  obligations  with
respect to  indemnification  under and reimbursement with respect to the bond in
an amount up to the Bonded Amount, its liability to such providers has in effect
been reduced by the Bonded Amount. When the individual claims are determined for
each provider, in accordance with court procedures,  the inter-plead funds shall
be disbursed.  Should valid claims remain  outstanding after the disbursement of
the  interplead  funds,  certain  providers  may continue to pursue their claims
after the inter-pleader proceedings are concluded. While the inter-pleader is in
process, the Company has offered to make payments to providers with valid claims
of  approximately  $100,000  per month,  commencing  in  September  2003,  until
whatever  shortfall  amount as the Company  determines to exist in excess of the
Bonded Amount is paid.

      A number of the  vendors  that  provided  transportation  services  in the
Commonwealth  of Virginia  initiated  separate  legal demands for payment either
prior to or after the filing of the inter-pleader  action.  Some of the demands,
either in whole or in part,  have been  disputed by the Company as being without
merit or have been settled.  As of August 2004, all state and federal litigation
initiated  by such  vendors  have  been  stayed  by order of the  United  States
District  Court for the Eastern  District of Virginia  and such claims have been
substantially  consolidated  with  above-referenced  inter-pleader  action.  The
Company  believes that all claims  against the Company will be fully resolved as
..part of the  final  distribution  of the  Bonded  Amount  in the  inter-pleader
action.  Provisions in the  financial  statements  for the estimated  settlement
amounts for these and other  potential  similar claims are considered  adequate;
however, the Company is unable to predict the outcome of these claims.


                                                                            -23-
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits.

            10.1 9% Senior  Subordinated  Convertible Note Purchase Agreement by
            and Among  DynTek,  Inc. and the  purchasers  named  therein,  dated
            October 15, 2004.

            10.2  Form of  Warrant  issued by  DynTek,  Inc.  to each  purchaser
            pursuant to the 9% Senior  Subordinated  Convertible  Note  Purchase
            Agreement dated October 15, 2004.

            10.3 Form of Warrant  issued by DynTek,  Inc. to each  purchaser who
            had  not  previously  participated  in  any of  DynTek's  financings
            pursuant to the 9% Senior  Subordinated  Convertible  Note  Purchase
            Agreement dated October 15, 2004.

            10.4 Form of Warrant issued by DynTek,  Inc. to the placement  agent
            pursuant to the 9% Senior  Subordinated  Convertible  Note  Purchase
            Agreement dated October 15, 2004.

            10.5 Form of Note issued by DynTek,  Inc. to each purchaser pursuant
            to the 9% Senior  Subordinated  Convertible Note Purchase  Agreement
            dated October 15, 2004.

            10.6 Registration Rights Agreement by and among DynTek, Inc. and the
            purchasers named therein, dated October 15, 2004.

            10.7 Employment Agreement with Casper Zublin, Jr., dated October 15,
            2004.

            10.8  Employment  Agreement with Robert  Webber,  dated November 12,
            2004

            10.9 Employment Agreement with Steven Ross, dated November 12, 2004

            31.1  Certification  of Chief Executive  Officer Pursuant to Section
            302 of the Sarbanes-Oxley Act of 2002.

            31.2  Certification  of Chief Financial  Officer Pursuant to Section
            302 of the Sarbanes-Oxley Act of 2002.

            32.1  Certification  of Chief Executive  Officer Pursuant to Section
            906 of the Sarbanes-Oxley Act of 2002.

            32.2  Certification  of Chief Financial  Officer Pursuant to Section
            302 of the Sarbanes- Oxley Act of 2002.

      (b)   Reports on Form 8-K

The following  reports on Form 8-K were filed by the Company  during the quarter
ended September 30, 2004:

            (1)   On  July 1,  2004,  we  filed a  Current  Report  on Form  8-K
                  regarding  the  July 1,  2004  press  release  announcing  the
                  resignation  of James  Linesch and the hiring of the Company's
                  new Chief Financial Officer Robert Webber.


                                                                            -24-
<PAGE>

            (2)   On September 29, 2004,  we filed a Current  Report on Form 8-K
                  for the  September  28,  2004  press  release  announcing  the
                  results of operations  for the fiscal year and fourth  quarter
                  ended June 30, 2004.


                                                                            -25-
<PAGE>

                                    SIGNATURE

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

                                         DYNTEK, INC.

                                         By: /s/ Robert I. Webber
                                         --------------------------------
                                         Robert I. Webber
                                         Chief Financial Officer,
                                         Chief Accounting Officer,
                                         Executive Vice President and
                                         Secretary

                                         Date: November 15, 2004