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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998

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 1-7348

DYNAMICS RESEARCH CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

Massachusetts 04-2211809
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

60 FRONTAGE ROAD
ANDOVER, MASSACHUSETTS 01810-5498
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (978) 475-9090

Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
NONE NOT APPLICABLE

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.10 Par Value
(Title of Class)



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

(Continued)
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

As of March 19, 1999, the aggregate market value of Common
Stock held by nonaffiliates of the Registrant was $22,710,053
and the number of shares of Common Stock, $.10 par value, of
the Registrant outstanding was 7,356,090.

Documents Incorporated By Reference
Portions of the 1998 Annual Report to Shareholders are
incorporated by reference in Parts I and II. Portions of the
Registrant's Proxy Statement for the 1999 Annual Meeting of
Shareholders are incorporated by reference in Part III.

The Exhibit Index is on pages 25 and 26.



DYNAMICS RESEARCH CORPORATION
Form 10-K
For the Fiscal Year Ended December 31, 1998

Part I Page

Item 1. Business 4

2. Properties 11

3. Legal Proceedings 11

4. Submission of Matters to a Vote of
Security Holders 11

4A. Executive Officers of the Registrant 11

Part II
5. Market for Registrant's Common Equity and
Related Stockholder Matters 12

6. Selected Financial Data 12

7. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 12

8. Financial Statements and Supplementary Data 13

9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 13

Part III
10. Directors and Executive Officers
of the Registrant 14

11. Executive Compensation 14

12. Security Ownership of Certain
Beneficial Owners and Management 14

13. Certain Relationships and
Related Transactions 14

Part IV
14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 15


PART I

Item 1. Business

Dynamics Research Corporation (referred to as DRC or the
Company) was organized in 1955 under the laws of the
Commonwealth of Massachusetts. The Company develops and
operates computer and communication-intensive information
systems, provides engineering, management support and
information technology services, and produces precision
manufactured components for industrial measurement and control.
The Company's Systems and Services segment represents 85% of
revenue from continuing operations for the year ended December
31, 1998. Precision manufactured products represent 15% of
1998 revenue from continuing operations and include encoders
and electroformed parts. The Company was also engaged in the
development and sale of telecommunications fraud control
systems and object-oriented software development technology.

Systems and Services Segment

DRC provides systems analysis, integration, and software design
and development services. The Segment's information technology
offerings also include installation, systems operation, and
maintenance. Systems built by DRC are used for aircraft
maintenance and parts tracking; supply chain management;
training requirements; and for managing state government health
and human services commitments.

The Company's major Department of Defense (referred to as DoD)
information systems programs are often referred to as
logistics information systems. These DRC-developed product
management information systems manage data related to inventory
requirements and control, maintenance and repair, warranty
analysis, supply, and distribution of numerous products and parts.

For nearly 30 years, the Company has assisted the U.S. Navy
Fleet Ballistic Missile program office in the design,
development, and operation of inertial systems. The Company
has extensive experience with the Polaris, Poseidon, and
Trident missile guidance systems and submarine inertial
navigation systems. The Company develops and maintains
performance, reliability, and logistics databases for the
inertial guidance instruments housed in those systems. These
databases track detailed information on thousands of component
parts comprising the systems. In connection with these
databases, the Company has successfully integrated customer
workflow and database activity information with Internet
technology. This information is used by the customer for a
wide range of operating management tasks and decision making.

The Company provides independent analysis and monitoring of
submarine-based, inertial guidance systems and electronic
modules for the U.S. Navy Fleet Ballistic Missile Program
Office. DRC's Inertial Instrument Test Laboratory is equipped
for full-scale performance testing of navigational quality
inertial instruments. The Company designs, constructs,
installs, trains, and supports test equipment used in the U.S.
Navy Trident program.

DRC is also involved in the design of a closed-loop system used
in the field of parameter control in semiconductor manufacture.
This process is being developed along with other companies
under the auspices of the U.S. Navy in the San Diego,
California, Space and Naval Warfare Systems Center. DRC
performs computer-aided, semiconductor circuit analysis for its
Navy customer as well as commercial companies.

The DRC-developed Weapon Systems Management Information System
(WSMIS) assesses the "health" and capability of the U.S. Air
Force weapon systems to meet wartime objectives. DRC has
served as the overall functional integrator of WSMIS and the
developer of most WSMIS modules. The Company currently provides
WSMIS operational and software development support. As a
decision-support tool for assessing the impacts of logistics
status on potential wartime capabilities, WSMIS computes
inventory requirements, purchasing needs, and logistics
capability assessments for complex, high-priced aircraft spare
parts necessary to meet aircraft availability requirements.

A major component of the Company's DoD business consists of a
wide variety of engineering, technical assistance and
management support services performed under various indefinite
order, indefinite quantity contracts. Work performed under
these contracts is generally done on a time and materials basis
utilizing a wide range of the Company's technical and
management skills to plan, analyze, design, test, support,
train, maintain, and dispose of a variety of complex systems.
Systems include radar, missile, aircraft, information,
software, and munitions.

The Company provides support at all stages of a system's life
cycle. In response to emerging requirements, the Company helps
its Federal Government customers define, develop, and initiate
new programs. The Company also helps customers obtain program
approval, conduct strategic planning, and evaluate proposals
from private contractors. After prime contract awards, the
Company helps monitor contractor activities, evaluate progress,
and measure performance against program requirements. Products
and services include computer-based training, systems
integration, and business process improvement/reengineering.
Under a variety of contracts, DRC supports the U.S. Air Force
at bases such as Hanscom Air Force Base, Scott Air Force Base,
Langley Air Force Base, Maxwell Air Force Base, Gunter Annex,
and Peterson Air Force Base.

In 1995, the U.S. Air Force awarded DRC a five-year contract
for Technology Task-Order Engineering Services (TTOES).
Originally valued at up to $23.7 million, in 1997 the contract
ceiling was increased to $31.2 million. DRC has provided
engineering, logistics, and software support on programs such
as the B-1B, the B-2, the B-52, the KC-135, and the E-3A
aircraft repair, maintenance, and upgrade programs. From its
origin at the Oklahoma City Air Logistics Center (ALC), DRC has
expanded its TTOES task orders to include work at other ALC's
located at Warner Robins, GA; Ogden, UT; and San Antonio, TX.
Additional tasking has centered on providing support to Air
Force reengineering and business process improvement
initiatives at these ALC's.

Since 1993, DRC has provided the US Army Aviation and Missile
Command with specialized studies and analyses in
aviation/missile system development, acquisition and
sustainment. Since 1996, the Company has been a prime
contractor on a five-year, $33 million contract under a U.S.
Army program known as Programmatic and Technical Support. DRC
supports a broad range of helicopter and missile systems in
varying life cycle stages. Additionally, DRC supports other
U.S. Army activities with acquisition logistics, systems
engineering and other related program management services from
its office in Huntsville, Alabama.

Combining its expertise in weapon system acquisition processes
with its expertise in systems analysis, design, training and
simulation and human factors, DRC performs human-systems
integration and force analysis. Since 1987, DRC has provided
force analysis support to the Army Research Laboratory. These
activities are focused on developing tools that support
analyzing soldier and system effectiveness, identifying and
assessing force improvement options (doctrine, training, leader
development, organization and material), and ensuring soldier
considerations are addressed in force improvements. Also,
under contract from the U.S. Army Research Laboratory, DRC
provides analysis, system development and support in several
functional areas which include assessment of manpower,
personnel and training issues; analysis of soldier systems
performance; and integration of methods and databases for use
by system designers.

DRC is the developer of the Training System Requirements
Analysis (TSRA) Tools, which are a set of computer programs
designed to help instructional designers perform the initial
phases of the Instructional Systems Development (ISD) process.
The TSRA Tools have been developed with the Naval Air Warfare
Center Training Systems Division (NAWCTSD) and are widely used
throughout the DoD by government and contractor organizations.
The market for DRC's TSRA Tools has expanded beyond the military
to include the Federal Aviation Administration and National Mine
Health and Safety Academy.

As a subcontractor to Lockheed Martin, DRC is supporting the
U.S. Army's Warfighter Simulation 2000, a simulation system
supporting the training of commanders and staff under a wide
variety of battlefield scenarios. DRC services include
providing military subject matter experts, software and human
factors engineering, database development for equipment and
knowledge acquisition, as well as manpower staffing reduction
analysis.

DRC is also a subcontractor to Lockheed Martin for the Close
Combat Tactical Trainer (CCTT) program. CCTT simulates Army
tank and mechanized infantry units from vehicle crews to the
battalion level. CCTT uses distributed, interactive simulation
technology to provide a "virtual" training environment. DRC
conducts all manpower and personnel integration activities
associated with the CCTT. DRC is playing a similar role as a
subcontractor to Lockheed Martin on the United Kingdom Combined
Arms Tactical Trainer, the UK's version of the CCTT.

DRC is a subcontractor to Raytheon on the U.S. Air Force
National Air and Space Model (NASM). The Company is developing
conceptual models and collecting data on mission space objects
and processes.

The Company is in its third year of a U.S. Army, four-year
contract, valued at approximately $13.0 million, to implement,
apply, and manage DRC-developed teamwork training principles to
improve performance in high-pressure environments. The project
focus is on improving teamwork in emergency-room settings at
more than 15 civilian and military hospitals.

In March 1998, DRC was awarded a contract under the Air Force
Aeronautical Systems Center Advisory and Assistance Services
(A&AS) Omnibus program. The purpose of this contract is to provide support
for engineering, manufacturing, configuration/data management,
acquisition management and test and evaluation required in
the acquisition, development, production and sustainment of
various equipment and weapons systems. The contract provides DRC
the opportunity to compete against other companies for tasks under
the A&AS Omnibus program over three years.

In recent years, the Company has expanded beyond the DoD
marketplace and won various state and Federal agency contracts.
The Company implemented a distributed computer-based Statewide
Automated Child Welfare Information System (SACWIS) for the
State of New Hampshire. This system manages child welfare
cases handled by the State's Department of Health and Human
Services. Under ongoing contracts DRC provides additional
functional and technical enhancements to the SACWIS system as
well as other information technology services.

In February 1997, DRC was awarded a contract to design,
deliver, install and maintain a statewide information
technology (IT) infrastructure that supports the Ohio Child
Support Enforcement Tracking System (SETS). The IT
infrastructure the Company is developing automates the work of
more than 4,250 Child Support Enforcement workers throughout
Ohio's 88 counties. In November 1997, the State of Ohio
awarded the Company a contract for additional computer network
infrastructure and related services. DRC continues to provide
computer hardware and software, site preparation and
installation, and technical support services for the SACWIS and
Ohio Works First System that support Ohio's welfare reform
initiatives.

In December 1997, DRC received a three-year contract from
the State of Colorado Department of Human Services to serve as
a prime contractor for its Children, Youth and Families
project. The contract is a result of a competitive procurement
for the design, development and implementation of a child
welfare and youth corrections system consisting of software,
training and a state-wide computer network infrastructure. The
contract includes options for four additional years of system
maintenance and support.

The Company continues to provide the U.S. Department of
Treasury with information technology services for the Internal
Revenue Service and other Treasury departments. Year 2000
software and system certification projects represent the
majority of activity under this contract.

Critical to the development of information systems is the
Company's software development process and related tools. The
Company's approach to mission-critical software stresses
principles of continuous software quality evaluation and
increased visibility throughout the software development life
cycle. To this end, DRC has achieved Level-2 certification
under the standards of the Software Engineering Institute and
is actively pursuing Level-3 certification.

Precision Manufactured Products

The commercial operations of DRC's Precision Products Group
consists of two divisions: Encoder Division and Metrigraphics Division.

DRC's Encoder Division designs, manufactures, and markets a
line of digital encoders that convert analog motion and
position information into digital signals used in a wide
variety of industrial products and systems which include:
machine tools, robotics, engine fuel-control systems, packaging
equipment and pick-and-place machines. DRC's digital encoding
devices are essential elements of today's electronically-
controlled systems and equipment.

The Encoder Division manufactures an encoder used in engine
fuel pumps for diesel powered sport utility vehicles, pickup
trucks and commercial vans. The encoder is a critical
component of a computer control system that gauges the amount
of fuel injected into the cylinders, optimizing usage and
minimizing the amount of unburned fuel and resultant exhaust
fumes.

The Metrigraphics Division uses photolithographic processes to
manufacture optical discs, scales and reticles that are used
for precision measurement. Metrigraphics also uses various
metal deposition processes, including electroplating and
electroforming, to produce a variety of precision components.
Products include printheads and oriface plates used in
electronic printers and circuitry used in certain medical
instruments. Metrigraphics' superior ability to design and
manufacture components and maintain critical tolerances is an
important driver for a wide range of high-technology
applications.

Metrigraphics' largest market is currently for nozzles used in
inkjet printer cartridges. In addition to its electroform parts
for printers and medical instruments, Metrigraphics
manufactures precision glass parts for computer peripherals,
factory automation equipment, electronic instrumentation and
semiconductor equipment.

Telecommunications Fraud Control Systems

Since 1996, the Company has been licensed to enhance, market
and maintain a telecommunications fraud control system
developed by Pacific Bell Telephone Company. DRC has made
significant investments in this and related systems and
software technologies to broaden the types of telephone fraud
detected and to position the product for sale to competitive
local exchange carriers and others. The Company's customers
include the regional Bell operating telephone companies. A
number of recent changes in the telecommunications marketplace
have delayed near-term sales goals and increased the estimated
capital required to take advantage of this expanding market.
In December 1998, the Company adopted a plan to exit
this business during 1999.

Software Development Technology

Over a number of years, DRC has invested in the research and
development of VisualMagic, an object-oriented development
environment. This development environment was useful in the design of
Internet applications. During 1998, the Company acquired an interest
in Empresa, Inc. (formerly Electronic Press Services Group, Inc.)
in exchange for an exclusive license to VisualMagic in certain fields,
cash and the assets of the business. Empresa also hired DRC's staff.
DRC does not expect to continue its development of Visual Magic.

Empresa provides e-commerce solutions for small to medium size
merchants, banks, and other customers seeking a competitive
advantage by being on-line. Empresa's solutions include
turnkey on-line storefronts and transaction processing
capabilities highly customized to integrate with a customer's
existing internal systems and with financial institutions.

Sales & Marketing

Contracts with defense, state and other government agency
customers are obtained by marketing and technical personnel employed by the
Company. The Company's other products are sold by sales personnel
employed by the Company and outside sales representatives.

Government Contracts

During 1998, the Company's revenues from contracts with the
DoD, either as prime contractor or subcontractor, accounted for
approximately 59% of the Company's total revenues.


During 1998, the Company's U.S. Government business
consisted of approximately 101 separate contracts on 16
different programs. The Company's contracts with the
Government are generally subject to termination at the
convenience of the Government; however, the Company would be
reimbursed for its allowable costs to the time of termination
and would be paid a proportionate amount of the stipulated
profit attributable to the work actually performed. Although
Government contracts may extend for several years, they are
generally funded on an annual basis and are subject to
reduction or cancellation in the event of changes in Government
requirements or budgetary concerns. If the U.S. Government
curtails expenditures for research, development and consulting
activities, such curtailment might have an adverse impact on
the Company's sales and earnings.

The Company's revenues from contracts with four different states
accounted for approximately 22% of 1998 revenues. Revenues under
various contracts with the State of Ohio accounted for approximately
13.6% of 1998 revenues. The Company's state contracts are generally
either fixed-price or time and material. In certain instances,
funding for these contracts is subject to annual state legislative
approval.

The Company's government contracts fall into one of three
categories: (1) fixed-price, (2) time and materials, and (3)
cost plus fixed-fee. Under a fixed-price contract, the
government pays an agreed upon price for the Company's services
or products, and the Company bears the risk that increased or
unexpected costs may reduce its profits or cause it to incur a
loss. Conversely, to the extent the Company incurs actual
costs below anticipated costs on these contracts, the Company
could realize greater profits. Under a time and materials
contract, the government pays the Company a fixed hourly rate
intended to cover salary costs and related indirect expenses
plus a profit margin. Under a cost plus fixed-fee contract, the
government reimburses the Company for its allowable direct
expenses and allowable and allocable indirect costs and pays a
negotiated fee. In 1998, approximately 58% of the Company's state
and federal government contract revenue was under fixed-price or time and
material contracts, while approximately 42% of revenue was
under costs plus fixed-fee contracts.

Backlog

At December 31, 1998, the Company's backlog of unfilled
orders was approximately $105.4 million compared with $110.0
million at December 31, 1997. The Company expects that
substantially all of its backlog at December 31, 1998 will be
filled during the year ending December 31, 1999. The Company
has a number of multi-year contracts with agencies of the U.S. and
state governments on which actual funding generally occurs on an
annual basis. The Company's business does not have seasonal
characteristics but a portion of its funded backlog is based on
annual purchase contracts, and the amount of funded backlog as
of any date can be affected by the timing of order receipts and
deliveries thereunder.

Competition

The Company competes with both domestic and foreign firms,
including larger diversified companies and smaller specialized
firms. The U.S. Government's own in-house capabilities are
also, in effect, competitors because various agencies perform
certain types of services which might otherwise be performed by
the Company. The principal competitive factors for systems and
services are price, performance, technical competence and
reliability. In the commercial businesses, the Company competes
with other manufacturers of encoders, electroform vendors and
suppliers of precision measurement scales. The principal
competitive factors affecting the precision components
manufacturing businesses are price, product quality and custom
engineering to meet customers' system requirements.

Research and Development

The Company expended approximately $2.7 million (inclusive
of overhead and other indirect costs) on new product and
service development during the year ended December 31, 1998, as
compared to expenditures of $1.2 million during 1997 and $2.2
million during 1996.

Raw Materials

Raw materials and components are purchased from a large
number of independent sources and are generally available in sufficient
quantities to meet current requirements.

Environmental Matters

Compliance with federal, state and local provisions
relating to the protection of the environment has not had and
is not expected to have a material effect upon the capital
expenditures, earnings or competitive position of the Company.

Employees

At December 31, 1998, the Company had 1,557 employees.


Proprietary Information

Patents, trademarks and copyrights are not materially
important to the business of the Company. The U.S. Government
has certain proprietary rights in processes and data developed
by the Company in its performance of government contracts.

Item 2. Properties

The Company leases offices and other facilities, totaling
approximately 333,000 square feet, which are utilized for its
federal and state government services, manufacturing and
warehousing operations as well as its marketing and engineering
offices. The Company has manufacturing and office space in
Wilmington, Massachusetts under three leases totaling 113,000
square feet, expiring in 2000, with options to the year 2005.
The remaining leased facilities consist of offices in 29
locations across the United States. The Company owns a 135,000
square foot facility in Andover, Massachusetts that is utilized
for its defense service operations and corporate administrative
offices.

The Company's total rental cost for 1998 was $3.6 million.

The Company believes its properties are adequate for its
present needs.

Item 3. Legal Proceedings

The Company is not a party to any material litigation.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
report.

Item 4A. Executive Officers of the Registrant

The following is a list of the names and ages of the
executive officers of the Company indicating all positions and
offices held by each person and each person's principal
occupations or employment during the past five years. The
executive officers were elected by the Board of Directors and
will hold office until the next annual election of officers and
their successors are elected and qualified, or until their
earlier resignation or removal by the Board of Directors.
There are no family relationships between any executive
officers and directors.





Age Position

John S. Anderegg, Jr. 75 Chairman and Director

Albert Rand 72 President, Chief Executive
Officer and Director

John L. Wilkinson 59 Vice President, Human
Resources and Clerk

Douglas R. Potter 48 Vice President of Finance,
Chief Financial Officer

Chester Ju 49 Vice President, Encoder Division
and Metrigraphics Division

Each of the persons named above has served in the position
indicated for more than five years.




PART II


Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters

The common stock of the Company is traded on the NASDAQ
National Market under the symbol (DRCO).

The high and low prices for the quarters in 1997 and 1998
are listed below.



1998 1997

High Low High Low
First quarter $11.04 $ 8.75 $ 7.58 $ 6.35
Second quarter 12.25 9.90 7.71 6.44
Third quarter 12.13 6.50 9.38 6.77
Fourth quarter 7.00 4.63 11.88 8.75

The number of holders of record of the Company's common
stock are described in the Company's Annual Report to
Shareholders for 1998 under the caption "Number of
Shareholders," and such information is incorporated herein by
reference.

In September 1984, the Board of Directors indicated its
intention not to declare cash dividends to preserve cash for
the future growth and development of the Company. The Company
did not declare any cash dividends between 1984 and 1998 and
does not anticipate doing so for the foreseeable future.

Item 6. Selected Financial Data

The section entitled, "Five Year Summary of Selected
Financial Data" in the Company's Annual Report to Shareholders
for 1998 is incorporated herein by reference.

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations

The section entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the
Company's Annual Report to Shareholders for 1998 is
incorporated herein by reference.

The Company has made and may make statements from time to time
which constitute or contain forward looking information as that
term is defined within the meaning of the Federal securities laws.
These statements may be identified by such forward-looking words or
other forward-looking terminology. Forward-looking statements are not
guarantees of future performance and actual results may differ materially
from those in the forward-looking statements as the results of risks and
uncertainties including those identified in Exhibit 99. The Company
assumes no obligation to update any forward-looking information.

Item 8. Financial Statements and Supplementary Data

The following financial statements are filed as part of this Annual Report:

Report of Independent Public Accountants

Consolidated Balance Sheets at December 31, 1998, December 31, 1997 and
December 28, 1996

Consolidated Statements of Operations for the three years ended
December 31, 1998

Consolidated Statements of Shareholders' Investment for the three years
ended December 31, 1998

Consolidated Statements of Cash Flows for the three years ended
December 31, 1998

Notes to Consolidated Financial Statements

(The consolidated financial statements and related notes
listed above are incorporated by reference to the Company's
Annual Report to Shareholders for the year 1998.)

Report of Independent Public Accountants on Schedules to Consolidated
Financial Statements

Schedule VIII - Valuation and Qualifying Accounts for the three years
ended December 31, 1998

The foregoing report of independent public accountants and schedule
is included as part of Item 14 of this Annual Report on Form 10-K
and are set forth on page F-1 and F-2 filed herewith.

All other financial statements and schedules have been
omitted because the information required to be submitted has
been included in the financial statements and related notes or
they are either not applicable or not required under the rules
of Regulation S-X.

Quarterly financial data presented on page 16, and
Management's Discussion and Analysis of Financial Condition
and Results of Operations presented on pages 17-22, of the
Company's Annual Report to Shareholders for the year 1998, are
also incorporated herein by reference. With the exception of
the portions listed in the above index, the Annual Report
referred to above is not to be deemed filed as part of the
financial statements.

Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure

Not applicable.



PART III


Item 10. Directors and Executive Officers of the Registrant

Information with respect to Directors of the Registrant in
the section entitled "Election of Directors" in the Company's
definitive proxy Statement for the 1998 Annual Meeting of
Stockholders, which will be filed with the Securities and
Exchange Commission within 120 days after the close of the
fiscal year ended December 31, 1998, is incorporated herein by
reference.

Information relating to the Executive Officers of the
Company is included in Item 4A of Part I of this Form 10K.


Item 11. Executive Compensation

Information called for by this item is incorporated by
reference from the section entitled "Compensation and Related
Matters" in the Company's definitive Proxy Statement for the
1999 Annual Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission within 120 days after
the close of the fiscal year ended December 31, 1998.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information called for by this item is incorporated by
reference from the sections entitled "Common Stock Ownership of
Certain Beneficial Owners and Management" in the Company's
definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders, which will be filed with the Securities and
Exchange Commission within 120 days after the close of the
fiscal year ended December 31, 1998.

Item 13. Certain Relationships and Related Transactions

Not applicable.


PART IV


Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K

(a) (1) and (2) Financial Statements and Schedules - See Item 8.

(a) (3) Exhibits. The exhibits that are filed with this
Form 10-K, or that are incorporated herein by
reference, are set forth in the Exhibit Index, which
appears in Part IV of this report on pages 24 and 25.

(b) Reports on Form 8-K.

No reports on Form 8-K were filed by the Company during the
last quarter of fiscal 1998.


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
TO CONSOLIDATED FINANCIAL STATEMENTS


To Dynamics Research Corporation:

We have audited in accordance with generally accepted
auditing standards, the consolidated financial statements
included in Dynamics Research Corporation's annual report to
shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 18, 1999. Our
audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in the
accompanying index is the responsibility of the company's
management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to
be set forth therein in relation to the basic financial
statements taken as a whole.


ARTHUR ANDERSEN LLP


Boston, Massachusetts,
February 18, 1999



Exhibit 99

IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS


The following factors, among others, could cause the Company's
actual results and performance to differ materially from those
contained in forward-looking statements made in this report and
presented elsewhere by or on behalf of the Company from time to
time.

Uncertainties as to Department of Defense and Other Federal Agency Budgets

In 1998, approximately 59% of the Company's revenue
was with the DoD and its Services. In the past, the Company's
defense business has been adversely affected by significant changes
in defense spending during periods of declining U.S. defense budgets.
Among the effects of this general decline has been increased
competition within a consolidating defense industry. It is not possible
for the Company to predict whether defense budgets will increase or
decline in the future. Further, changing missions and
priorities in the defense budget may have adverse effects on
the Company's business. Funding limitations could result in a
reduction, delay, or cancellation of existing or emerging
programs. The Company anticipates there will continue to be
significant competition when the Company's defense contracts
are rebid as well as significant competitive pressure to lower
prices, which may reduce profitability in this area of the
Company's business. Any reduction in the level or
profitability of the Company's defense business, if not offset
by new commercial business or other business, will adversely affect
the Company's business, financial condition and results of operations.

Government Contracting Risks

The Company has historically derived a substantial portion
of its revenue from contract and subcontracts with the U.S.
Government. In recent years, the Company has entered into significant
information technology services contracts with various state
governments. A significant portion of the Company's federal and state
government contracts are of a time and materials nature, with fixed
hourly rates that are intended to cover salaries, benefits, other
indirect costs of operating the business and profit. The
pricing of such contracts is based upon estimates of future
costs and assumptions as to the aggregate volume of business
that the Company will perform in a certain business division or
other relevant unit. For long term contracts, the Company must
estimate the costs necessary to complete the defined statement
of work and recognize revenues or losses in accordance with
such estimates. Actual costs may vary materially from the
estimates made from time to time, necessitating adjustments to
reported revenue and net income. Underestimates of the costs
associated with a project could adversely affect the Company's
overall profitability and could have a material adverse effect
on the Company's business, financial condition and results of
operations.

A significant portion of the Company's federal and state
government contracts are renewable on an annual basis, or are subject
to the exercise of contractual options. Multi-year contracts often
require funding actions or other appovals by U.S. Government, state
legislature or others on an annual or more frequent basis. As a result,
the Company's business could experience material adverse consequences
should such funding actions or other approvals not be taken.

Governmental awards of contracts are subject to
regulations and procedures that permit formal protests by
losing bidders. Such protests may result in significant delays
in the commencement of expected contractual effort, or the
reversal of a previous award decision, which could have a
material adverse effect on the Company's business, financial
condition and results of operations.

Because of the complexity and scheduling of contracting
with government agencies, from time to time costs are incurred in
advance of contractual funding. In some circumstances, such costs may
not be recovered in whole or in part under subsequent contractual
actions. Failure to collect such amounts may have material
adverse consequences on the Company's business, financial condition
and results of operations.

Costs incurred in connection with government contracts are
generally subject to audits. Such audits may result in
material disallowances, which could have an adverse effect on
the Company's business, financial condition and results of
operations.

A substantial portion of the Company's U.S. Government
business is as a subcontractor. In such circumstances,
the Company generally bears the risk that the prime
contractor will meet its performance obligations to the U.S.
Government under the prime contract and that the prime
contractor will have the financial capability to pay the
Company amounts due under the subcontract. The inability of a
prime contractor to perform or make required payments could
have a material adverse effect on the Company's business,
financial condition and results of operations.

The U.S. Government has the right to terminate contracts for
convenience. In such a termination, the Company would
generally recover costs incurred up to termination, costs
required to be incurred in connection with the termination, and
a portion of the fee earned commensurate with the work
performed to termination. However, significant adverse effects
on the Company's indirect cost pools may not be recoverable in
connection with a termination for convenience. Contracts with
state and other governmental entities are subject to the same
or similar risks.

Dependence on Key Personnel

The Company is dependent on its key technical personnel.
In addition, certain technical contributors may have specific
knowledge and experience related to various government customer
operations that would be difficult to replace in a timely
fashion. The loss of the services of key personnel could have
a material adverse effect on the Company's ability to perform
required services under certain contracts, or to retain such
business after the expiration of the current contract, or to
win new business where certain personnel have been identified
as key personnel in the proposal, any of which could have a
material adverse effect on the Company's business, financial
condition and results of operations.

Competition

The government contracting business is subject to intense
competition, both technical and pricing, from numerous
companies, many of which have significantly greater financial,
technical and marketing resources than the Company.

Competition in the market for the Company's commercial
products is also intense. There is a significant lead time for
developing such business, and it involves significant capital
investment including development of prototypes and investment
in manufacturing equipment. The Company's precision products
business has a number of competitors, many of which have
significantly greater financial, technical and marketing
resources than the Company.

Risks Associates with New Markets and New Products

In its efforts to enter new markets, including Government
agencies other than the DoD and commercial markets, the Company
faces significant competition from other companies that have
prior experience with such potential customers as well as significantly
greater financial, technical and marketing resources than the Company.
As a result, the Company's efforts to enter such new markets
may not achieve the level of success sought by the Company.

The Company has licensed its object-oriented software
technology to a third party and made an investment in that
company. There is no assurance that the investee company's
products and services will meet with market acceptance or that
they will be able to compete in the development and
distribution of such products with competitors that have
significantly greater resources and experience. Failure to
operate profitably or to raise new capital, if required, may
adversely affect the Company's investment.

Concentration of Customers

Within the DoD, individual services and program offices account
for a significant portion of the Company's Government business.
One state customer accounts for a significant portion of the
Company's revenue. Two customers account for a significant
portion of the revenue of the Company's commercial manufacturing
divisions. No assurance can be provided that any of these customers
will continue as such or will continue at current levels. A decrease
in orders from any of these customers would have an adverse effect
on the Company's profitability, and the loss of any large customer
could have a material adverse effect on the Company's business,
financial condition and results of operations.

Risk of Product Claims

The Company's precision manufactured products are
generally designed to operate as important components of
complex systems or products and defects in DRC products could
cause the customer's product or systems to fail or perform
below expectations. Like other manufacturing companies, the
Company may be subject to claims for alleged performance issues
related to its products. There can be no assurance any such
claims, if made, will not have a material adverse effect on the
Company's business, financial conditions or results of
operations.

Risk of Economic Events Effecting the Company's Business Segments

Certain of the Company's precision products are components
of commercial products. Factors that affect the production and
demand for such products, including economic events both
domestically and in other regions of the world, competition,
technological change and production disruption, could adversely
affect demand for the Company's products. Certain of the
Company's products are incorporated into capital equipment,
such as machine tools and other automated production equipment,
used in the manufacture of other products. As a result, this
portion of the Company's business may be subject to
fluctuations in the manufacturing sector of the overall
economy. An economic recession, either in the U.S. or
elsewhere in the world, could have a material adverse effect on
the rate of orders received by the commercial divisions.
Significantly lower production volumes resulting in under-
utilization of the Company's manufacturing would adversely
affect the Company's business financial condition and results
of operations.

Technological Change

The Company's knowledge base and skills in the government
contracting area are sophisticated and involve areas in which
there have been and are expected to continue to be significant
technological change. There is no assurance that the Company
will continue to be able to offer services that satisfy its
customers' requirements at a competitive price. Many of the
Company's products are incorporated into sophisticated
machinery, equipment or electronic systems. Technological
changes may be incorporated into competitors' products that may
adversely affect the market for the Company's products.
Further, there can be no assurance that the Company's research
and product development efforts will be successful or result in
new or improved products that may be required to sustain the
Company's market position.

Uncertainty of Future Financing

Although the Company has no immediate plans to raise
additional capital, in the future it may need to raise
additional funds through public or private debt or equity
financing. There can be no assurance that any such funding
will be available or of the terms or timing of any such
funding.



SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

Date: March 30, 1999

DYNAMICS RESEARCH CORPORATION

by: /s/ Albert Rand
Albert Rand, President
(Principal Executive Officer)


Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
indicated on the 30th of March, 1999.

/s/ Albert Rand
Albert Rand Director, President, Chief Executive Officer


/s/ Douglas R. Potter
Douglas R. Potter Vice President of Finance, Chief
Financial Officer (Principal Financial and
Accounting Officer)


/s/ John S. Anderegg, Jr.
John S. Anderegg, Jr. Director, Chairman


/s/ Francis J. Aguilar
Dr. Francis J. Aguilar Director


/s/ Martin V. Joyce, Jr.
Martin V. Joyce, Jr. Director

/s/ Kenneth F. Kames
Kenneth F. Kames Director


/s/ James P. Mullins
Gen. James P.Mullins Director


SCHEDULE VIII

DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 1998

(in thousands of dollars)

ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS



Balance, December 30, 1995 $402
Additions charged to expense 54
Write-off of uncollectible accounts, net (116)

Balance, December 28, 1996 $340
Additions charged to expense 86
Write-off of uncollectible accounts, net (209)

Balance, December 31, 1997 $217
Additions charged to expense 149
Write-off of uncollectible accounts, net (50)

Balance, December 31, 1998 $316



ACCRUAL OF LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS

Balance, December 31, 1997 $ -
Additions charged to discontinued
operations expense 4,418


Balance, December 31, 1998 $4,418



EXHIBIT INDEX

3.0 Certificate of Incorporation and By-Laws.

3.1 Restated Articles of Organization dated May 22, 1987. (Incorporated
by reference to the Registrant's Form 10-Q for the quarter ended
6/13/87)

3.2 By-Laws dated May 22, 1987. (Incorporated by reference to the
Registrant's Form 10-Q for the quarter ended 6/13/87)

4.0 Instruments defining the rights of security holders, including
indentures.

4.1 Common stock certificate.

4.2 Certificate of Vote of Directors Establishing Series B Preferred
Stock (Incorporated by reference to the Registrant's Form 8-K
on June 25, 1998).

4.3 Amendment to Certificate of Vote Establishing Series B
Preferred Stock.

4.4 Rights Agreement dated as of February 17, 1998 between the
Company and American Stock Transfer & Trust Company,
as Rights Agent. (Incorporated by reference to the Registrant's
Form 8-K on June 25, 1998)


10.0 Material Contracts

10.1 Amended 1983 Stock Option Plan. (Incorporated by reference to the
Registrant's Form 10-K for the year ended 12/27/87)

10.2 Form of Dynamics Research Corporation Indemnification Agreement
for Directors. (Incorporated by reference to the Registrant's Form
10-K for the year ended 12/28/91)

10.3 Form of Dynamics Research Corporation Severance Agreement for Messrs.
Anderegg and Rand. (Incorporated by reference to the Registrant's
Form 10-K for the year ended 12/28/91)

10.4 Dynamics Research Corporation Deferred Compensation Plan for
Non-Employee Directors. (Incorporated by reference to the
Registrant's Form 10-K for the year ended 12/28/91)

10.5 Form of Consulting Agreement between Dynamics Research Corporation
and Albert Rand. (Incorporated by reference to the Registrant's
Form 10-Q for the quarter ended 3/31/97)

10.6 Form of Supplemental Retirement Pension Agreement between Dynamics
Research Corporation and Albert Rand. (Incorporated by reference
to the Registrant's Form 10-Q for the quarter ended 3/31/97)

10.7 Amended 1993 Equity Incentive Plan.

10.8 Amended 1995 Stock Option Plan for Non-Employee Directors.

10.9 Amended and Restated Revolving Credit Agreement dated as of December
31,1998 between Dynamics Research Corporation and a syndicate of banks
and financial institutions, with Brown Brothers Harriman and Company
as the agent.

10.10 First Amendment to Amended and Restated Revolving Credit Agreement
dated as of December 31, 1998 between Dynamics Research Corporation
and a syndicate of banks and financial institutions, with Brown
Brothers Harriman and Company as the agent.

13.0 Annual Report to security holders, Form 10-Q or quarterly reports to
security holders.

13.1 The Company's Annual Report to Shareholders for the year ended
December 31, 1998 filed herewith with the exception of the
information incorporated by reference in parts I, II and IV of this
Form 10-K is not deemed to be filed as part of this report.

23.0 Consents of experts and counsel

23.1 Consent of Independent Accountants (Arthur Andersen LLP) dated
March 26, 1999 filed herewith.

99.0 Important Factors Regarding Forward-Looking Statements.

All documents incorporated by reference may be found at Commission
file number 1-7348.