SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-Q

(Mark One)

   [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
         SECURITIES EXCHANGE ACT OF 1934
         For the quarterly period ended  JUNE 30, 1999
                                         -------------
                                   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   000-23967

                               ZMAX CORPORATION
   -------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

            DELAWARE                                     52-2040275
   -------------------------------------------------------------------------
  (State or other jurisdiction of          (IRS Employer Identification No.)
  incorporation or organization)

                   20251 CENTURY BLVD. GERMANTOWN, MD 20874
   -------------------------------------------------------------------------
     (Address of principal executive offices)                (Zip Code)

 Registrant's telephone number, including area code:  (301) 353-9500
                                                      --------------

   -------------------------------------------------------------------------
Former name,  former  address and former  fiscal year,  if changed  since last
report.

      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 filing requirements for the past 90 days.
Yes [X]   No [ ]

      APPLICABLE  ONLY TO  CORPORATE  ISSUERS:  Indicate  the number of shares
outstanding of each of the issuer's  classes of common stock,  as of August 2,
1999; 12,949,913 shares of common stock, $.001 par value per share.

<PAGE>

                               ZMAX CORPORATION

                                     INDEX


                                                                      Page No.
                                                                      --------
PART I.     FINANCIAL INFORMATION

Item 1.     Financial Statements

Consolidated Balance Sheets - June 30, 1999
  (unaudited) and December 31, 1998                                       1

Consolidated Statements of Operations for the three and six
  months ended June 30, 1999 and 1998 (unaudited)                         2

Consolidated Statements of Cash Flows for the three and six
  months ended June 30, 1999 and 1998 (unaudited)                         3

Notes to Consolidated Financial Statements                                4

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

Item 3.     Quantitative and Qualitative Disclosures About
            Market Risk                                                   15

Item 4.     Submission of Matters to a Vote of Security Holders           15

PART II.    OTHER INFORMATION

Item 5.     Exhibits and Reports on Form 8-K                              16

SIGNATURES                                                                17


<PAGE>

                        PART 1. FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

                       ZMAX CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                               June 30,        December 31,
                                                                                 1999              1998
                                                                            -------------     -------------
                                                                             (Unaudited)
            ASSETS
<S>                                                                         <C>               <C>
Current assets:
  Cash and cash equivalents                                                 $  4,242,489      $  4,521,126
  Accounts receivable, net                                                     4,605,506         2,545,659
  Prepaid expenses and other assets                                              308,383           127,952
                                                                            -------------     -------------
  Total current assets                                                         9,156,378         7,194,737

Property and equipment, net                                                      598,791           477,870
Intangible assets, net                                                         8,886,654         9,740,217
Other assets                                                                      85,582            33,538
                                                                            -------------     -------------

  Total assets                                                              $ 18,727,405      $ 17,446,362
                                                                            =============     =============

            LIABILITIES & SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued expenses                                     $  2,107,810      $  1,596,074
  Current portion of capital lease obligation                                     33,832            35,519
                                                                            -------------     -------------
  Total current liabilities                                                 $  2,141,642      $  1,631,593

Long-term capital lease obligation, net of current portion                        53,602            34,716
                                                                            -------------     -------------
  Total liabilities                                                            2,195,244         1,666,309

Commitments and contingencies (Note 4)
Shareholders' equity
  Preferred stock, $0.001 par value, 10,000,000 shares authorized,
    none issued and outstanding                                                        -                 -
  Common stock, $0.001 par value, 50,000,000 shares authorized,
    12,949,913 and 13,117,214  shares issued and outstanding as of
    June 30, 1999 and December 31,  1998,  respectively,  none and
    167,301 shares subject to cancellation agreements
    as of June 30, 1999 and December 31, 1998, respectively                       13,117            13,117
  Additional paid-in capital                                                  41,763,101        41,763,101
  Accumulated deficit                                                        (25,244,057)      (25,996,165)
                                                                            -------------     -------------

  Total shareholders' equity                                                  16,532,161        15,780,053

Total liabilities & shareholders' equity                                    $ 18,727,405      $ 17,446,362
                                                                            =============     =============
</TABLE>

     The accompanying notes are an integral part of these balance sheets.


                                      1

<PAGE>

                       ZMAX CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                      Three Months                   Six Months
                                                      Ended June 30                 Ended June 30
                                               ---------------------------   --------------------------
                                                   1999           1998           1999          1998
                                               ------------   ------------   ------------   -----------
                                                       (unaudited)                   (unaudited)
<S>                                            <C>            <C>            <C>            <C>
Revenues:
  Professional services                        $  6,376,516   $  2,502,779   $ 11,291,378   $  4,027,103
  Software                                          702,215              -        893,998              -
                                               -------------  -------------  -------------  -------------
    Total revenues                                7,078,731      2,502,779     12,185,376      4,027,103

Operating expenses:
  Cost of sales - Professional services           2,744,862        843,015      5,167,508      1,309,823
  Cost of sales - Software                           19,808              -         39,733              -
  Research and development                          112.255         83,935        280,170        211,622
  Sales and marketing                               670,346        276,037      1,217,326        541,546
  General and administrative                      2,142,846        853,527      3,968,420      1,910,632
  Depreciation and amortization                     414,294        304,239        821,202        625,881

    Income (loss) from operations                   974,320        142,026        691,017       (572,401)

Other income (expenses):
  Interest income                                    31,315         87,121         68,578        142,552
  Interest expense                                   (2,387)         8,845         (4,497)         1,990
  Other                                                (131)        (3,987)        (2,990)       (19,867)
                                               -------------  -------------  -------------  -------------
Net income (loss)                              $  1,003,117   $    234,005   $    752,108   $   (447,726)
                                               =============  =============  =============  =============
Basic net income (loss) per share              $       0.08   $       0.02   $       0.06   $      (0.05)
                                               =============  =============  =============  =============
Basic weighted average shares outstanding        12,949,913     11,249,913     12,949,913      9,849,913
                                               =============  =============  =============  =============
Diluted net income (loss) per share            $       0.08   $       0.02   $       0.06   $      (0.05)
                                               =============  =============  =============  =============
Diluted weighted average shares outstanding      12,972,653     11,488,002     13,034,804      9,849,913
                                               =============  =============  =============  =============
</TABLE>

       The accompanying notes are an integral part of these statements.


                                      2

<PAGE>

                       ZMAX CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                          Three Months                   Six Months
                                                                          Ended June 30                 Ended June 30
                                                                   ---------------------------   --------------------------
                                                                       1999           1998           1999          1998
                                                                   ------------   ------------   ------------   -----------
                                                                           (unaudited)                   (unaudited)
<S>                                                                <C>            <C>            <C>            <C>
Cash flows from operating activities:

  Net income (loss)                                                $  1,003,117   $    234,005   $    752,108   $   (447,726)
  Adjustments to reconcile loss to net cash
    Depreciation and amortization expense                               429,146        304,239        844,873        625,881

  Changes in assets and liabilities
    Accounts receivable                                              (1,337,302)    (1,091,327)    (2,059,847)    (1,431,379)
    Prepaid expenses and other assets                                   (83,660)       (67,951)      (232,475)       (48,004)
    Accounts payable and accrued expenses                               470,532        201,555        511,736        359,586
    Customer deposits                                                         -       (204,478)             -       (222,968)
                                                                   -------------  -------------  -------------  -------------
      Net cash provided by (used in) operating activities               481,833       (623,957)      (183,605)    (1,164,610)
                                                                   -------------  -------------  -------------  -------------
  Net cash used in investing activities:
    Purchases of property and equipment                                 (31,156)       (20,565)      (112,231)       (74,945)
                                                                   -------------  -------------  -------------  -------------
      Net cash used in investing activities                             (31,156)       (20,565)      (112,231)       (74,945)
                                                                   -------------  -------------  -------------  -------------
  Net cash provided by (used in)  financing activities
    Net borrowings (payments) on long-term obligations                   25,740       (274,193)        17,199       (539,541)
                                                                   -------------  -------------  -------------  -------------
      Net cash (used in) provided by financing activities                25,740       (274,193)        17,199       (539,541)
                                                                   -------------  -------------  -------------  -------------
  Net increase (decrease) in cash                                       476,417       (918,715)      (278,637)    (1,779,096)
                                                                   -------------  -------------  -------------  -------------
  Cash, beginning of period                                           3,766,072      5,544,703      4,521,126      6,405,084
                                                                   -------------  -------------  -------------  -------------
  Cash, end of period                                              $  4,242,489   $  4,625,988   $  4,242,489   $  4,625,988
                                                                   =============  =============  =============  =============
</TABLE>

       The accompanying notes are an integral part of these statements.


                                      3

<PAGE>

                       ZMAX CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    BASIS OF PRESENTATION, ORGANIZATION, AND NATURE OF OPERATIONS:

BASIS OF PRESENTATION

      The accompanying  unaudited  financial  statements have been prepared in
accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete  financial  statements.  In the opinion of management,
all  adjustments,  consisting  of  normal  recurring  adjustments,  considered
necessary  for  a  fair  presentation  have  been  included.  These  financial
statements should be read in conjunction with the financial statements of ZMAX
Corporation ("ZMAX" or the "Company"),  as of December 31, 1998, and the notes
thereto  included in the Annual Report on Form 10-K filed by the Company.  The
results of  operations  for the three and six months ended June 30, 1999,  are
not  necessarily  indicative  of the results that may be expected for the year
ending December 31, 1999.

NATURE OF OPERATIONS

      On November 6, 1996, ZMAX Corporation  ("ZMAX" or the "Company"),  which
was then a shell company  listed on the OTC Bulletin  Board,  acquired 100% of
the outstanding  common stock of Century Services,  Inc.  ("CSI"),  a Maryland
corporation.  CSI was a privately held company formed on December 13, 1995, to
perform  computer  re-engineering  with a focus on providing a solution to the
Year 2000 problem.

      For financial  reporting  purposes,  this  acquisition  was treated as a
recapitalization  of CSI with CSI as the  acquirer  (a  reverse  acquisition).
Accordingly,  the historical financial statements of ZMAX prior to November 6,
1996,  are  the  historical  financial  statements  of CSI.  The  accompanying
consolidated  financial  statements include all of the accounts of CSI and the
accounts of ZMAX since the  acquisition  on November 6, 1996.  On December 14,
1998,  ZMAX acquired  Eclipse  Information  Systems,  Inc. ("  Eclipse").  The
accompanying consolidated financial statements include the accounts of Eclipse
since the date of acquisition. All significant inter-company amounts have been
eliminated.

      During 1998, the Company's  revenue was derived primarily from Year 2000
services.  The Company also began  licensing a Year 2000  software tool during
1998; however, such licensing revenue was not significant in 1998. In December
1998, the Company expanded its operations  through the acquisition of Eclipse.
Eclipse  performs  management and  information  systems  consulting  services.
Eclipse also resells certain hardware and software products to its customers.

      While the Company's  revenue in 1998 was primarily derived from its Year
2000 or "millennium"  services there can be no assurance that the Company will
be successful in diversifying through  acquisitions and developing  additional
post-Year  2000  services.  Further,  the failure of the  Company's  Year 2000


                                      4

<PAGE>

methodology  and tools to function  properly or the  existence of  significant
errors or problems  following  completion of millennium  conversions  or other
associated  Year  2000  work  performed  by  the  Company  could   necessitate
significant   expenditures   by  the  Company  to  remedy  the  problem.   The
consequences  of failures,  errors or problems could  materially and adversely
affect the Company's business, operating results and financial condition.

      The Company's operations are subject to certain risks and uncertainties,
including among others,  rapidly changing  technology,  uncertain  markets for
millennium services, current and potential competitors with greater financial,
technological,   production  and  marketing  resources,  reliance  on  certain
significant  customers,  the need to develop additional products and services,
limited protection of proprietary information,  the risk of third party claims
of infringement,  potential contract liability related to the Company's access
to key  aspects of  customers  computer  systems,  dependence  upon  strategic
alliances,  the need for  additional  technical  personnel,  dependence on key
management   personnel,   management   of   growth,   uncertainty   of  future
profitability and possible  fluctuations in financial results. The Company may
also require  additional capital that may not be available to it. In addition,
there are risks associated with the market activity in ZMAX common stock.

2.    SIGNIFICANT ACCOUNTING POLICIES:

CASH AND CASH EQUIVALENTS

      Investments  with  original  maturities  of  three  months  or less  are
considered cash equivalents for the purpose of these financial statements.

REVENUE RECOGNITION

      Revenues on time-and-materials contracts are recognized based upon hours
incurred  at  contract  rates  plus  direct  costs.  Revenues  on  fixed-price
contracts are recognized on the percentage-of-completion method based on costs
incurred  in  relation  to  total  estimated  costs.  Anticipated  losses  are
recognized as soon as they become known.  Provisions  for estimated  losses on
uncompleted  contracts  are  made in the  period  in  which  such  losses  are
determined.

      Unbilled accounts receivable on  time-and-materials  contracts represent
costs incurred and gross profit recognized during the period presented but not
billed until the following period. Unbilled accounts receivable on fixed-price
contracts  consists  of  amounts  incurred  that  are not yet  billable  under
contract  terms.  At June 30, 1999 and December 31,  1998,  unbilled  accounts
receivable totaled approximately $1,040,284 and $410,178, respectively.

      Revenue  from  the  sale of  perpetual  and term  software  licenses  is
recognized at the time of delivery and acceptance of software  products by the
customer,  provided that collection is probable.  Maintenance  revenue that is
bundled with an initial  license fee is deferred and  recognized  ratably over
the maintenance period. Amounts deferred for maintenance are based on the fair
value  of  equivalent  maintenance  services  sold  separately.  The  American
Institute of Certified  Public  Accountants  issued Statement of Position 97-2


                                      5

<PAGE>

"Software Revenue  Recognition"  ("SOP 97-2"),  which superceded  Statement of
Position 91-1 "Software  Revenue  Recognition."  SOP 97-2 provides  additional
guidance with respect to multiple element  arrangements;  returns,  exchanges,
and platform transfer rights; resellers; services; funded software development
arrangements;  and  contract  accounting.  The Company  recognizes  revenue in
accordance with SOP 97-2 and Statement of Position 98- 9, "Modification of SOP
97-2.  Software  Revenue  Recognition.  With Respect to Certain  Transitions".
Prior to 1998,  the Company had no revenue from the license of  software.  For
the three and six months ended June 30, 1999 software revenues were,  $702,215
and $893,998, respectively.

SIGNIFICANT CUSTOMERS

      For the three  months ended June 30, 1999,  two  customers  individually
represented  16% and 12% of revenue.  For three  months  ended June 30,  1998,
three  customers  individually  represented  31%,  18%  and  14%  of  revenue,
respectively.   For  the  six  months  ended  June  30,  1999,  two  customers
individually  represented  14% and 10% of  revenue,  respectively.  Due to the
nature of the Company's  business and the relative size of certain  contracts,
the loss of any single  significant  customer  could  have a material  adverse
effect on the Company's results of operations.

CONCENTRATIONS OF CREDIT RISK

      Financial  instruments  that  potentially  subject the Company to credit
risk consist of cash and cash  equivalents and accounts  receivable.  Accounts
receivable  includes  amounts due from relatively large companies in a variety
of industries.  As of June 30, 1999, one customer individually represented 12%
of accounts  receivable.  As of December 31, 1998, two customers  individually
represented 16% and 13% of accounts receivable.

INCOME TAXES

      The Company  accounts for income taxes in accordance  with SFAS No. 109,
"Accounting  for Income  Taxes."  Under SFAS No. 109,  deferred tax assets and
liabilities  are  computed  based  on the  difference  between  the  financial
statement  and income tax bases of assets and  liabilities  using the  enacted
marginal tax rate.  SFAS No. 109  requires  that the net deferred tax asset be
reduced  by a  valuation  allowance  if,  based  on the  weight  of  available
evidence,  it is more  likely  than not that  some  portion  or all of the net
deferred tax asset will not be realized.

BASIC AND DILUTED NET GAIN PER SHARE

      Basic  income or loss per share  includes no dilution and is computed by
dividing net income or loss by the weighted  average  number of common  shares
outstanding  for the period.  Diluted  income or loss per share  includes  the
potential  dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. Outstanding shares
subject to cancellation  agreements have not been included in either the basic
or diluted  calculation.  The  calculation  of the basic and diluted  weighted
average shares is shown below:


                                      6

<PAGE>

                        ZMAX CORPORATION AND SUBSIDIARY

         CALCULATION OF BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                      Three Months                   Six Months
                                                      Ended June 30                 Ended June 30
                                               ---------------------------   --------------------------
                                                   1999           1998           1999          1998
                                               ------------   ------------   ------------   -----------
                                                       (unaudited)                   (unaudited)
<S>                                            <C>            <C>            <C>            <C>
WEIGHTED AVERAGE SHARE CALCULATIONS

Weighted average shares of common stock
  Outstanding                                    12,977,797     11,729,714     13,047,505     10,329,714

Less: Average number of cancelable shares
  common stock outstanding                          (27,884)      (479,801)       (97,592)      (479,801)
                                               -------------  -------------  -------------  -------------
Basic weighted average shares outstanding        12,949,913     11,249,913     12,949,913      9,849,913

Treasury stock effect of options and warrants        22,740        238,089         84,891              -

Diluted weighted average shares outstanding:     12,972,653     11,488,002     13,034,804      9,849,913
                                               =============  =============  =============  =============
</TABLE>


NEW ACCOUNTING PRONOUNCEMENTS

      The Company has adopted SFAS No. 131,  "Disclosures about Segments of an
Enterprise and Related  Information."  SFAS No. 131 establishes  standards for
the way that public business  enterprises  report  information about operating
segments in annual  financial  statements and requires that those  enterprises
report  selected  information  about operating  segments in interim  financial
reports  issued to  shareholders.  It also  establishes  standards for related
disclosures about products and services, geographic areas and major customers.
The  adoption  of SFAS No. 131 has had no impact on the  Company's  results of
operations, financial position or cash flows.

      In March 1998, the AICPA issued  Statement of Position 98-1  "Accounting
for the Costs of Computer  Software  Developed or Obtained for Internal  Use",
("SOP 98-1").  SOP 98-1 requires the Company to capitalize  internal  computer
software costs once the  capitalization  criteria of the SOP are met. SOP 98-1
is effective  January 1, 1999, and is applied to all projects in progress upon
the initial  application  of the SOP.  The  adoption of SOP 98-1 has not had a
material impact on the Company's results of operations, financial position, or
cash flows.


                                      7

<PAGE>

3.    STOCK SUBJECT TO CANCELLATION

      In September 1995, ZMAX entered into stock cancellation  agreements with
certain  stockholders  that provided for the cancellation of 775,808 shares of
ZMAX common stock. In March 1997, 296,007 of these shares were returned to the
Company and  canceled.  An  additional  312,500  shares  were  returned to the
Company and canceled in December 1998. The remaining  167,301 were returned to
the Company and canceled in April 1999.

4.    COMMITMENTS AND CONTINGENCIES:

LITIGATION

      The  Company is  periodically  a party to disputes  arising  from normal
business activities. In the opinion of management, resolution of these matters
will not have a material adverse effect upon the financial  position or future
operating  results of the Company,  and adequate  provision  for any potential
losses has been made in the accompanying financial statements.


                                      8

<PAGE>

ITEM 2.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      The following  discussion  and analysis of the  financial  condition and
results of operations of the Company  should be read in  conjunction  with the
financial  statements  and the notes  thereto  which appear  elsewhere in this
quarterly  report and the  Company's  Annual  Report on Form 10-K for the year
ended December 31, 1998.

OVERVIEW

      ZMAX  Corporation  ("ZMAX"  or  the  "Company")  focuses  on  acquiring,
building  and  operating  companies  in  the  information   technology  ("IT")
industry.  In 1996, the Company acquired all of the stock of Century Services,
Inc.  ("CSI").  In December  1998,  the Company  acquired  all of the stock of
Eclipse Information Systems, Inc. ("Eclipse").

      On December 14, 1998 ZMAX acquired all of the outstanding  capital stock
of Eclipse. The results of operations of Eclipse are included in the financial
statements of ZMAX from the date of acquisition. Eclipse markets IT consulting
services to a variety of commercial  companies  through a series of technology
practices  that  specialize in  delivering  solutions  focused in  distributed
client  server  environments.   Eclipse  provides  services  in  ERP  packaged
solutions,  internet & intranet  solutions,  network solutions,  client server
solutions, and AS/400 solutions.

      On November 6, 1996, ZMAX acquired all of the outstanding  stock of CSI.
Prior to this transaction, ZMAX had no operations and its activities consisted
of efforts to establish or acquire a new  business and to raise  capital.  CSI
was a privately held company formed on December 13, 1995 which  specializes in
assisting business  organizations and government agencies with what has become
popularly known as the "Year 2000" problem  ("Y2K").  For financial  reporting
purposes, the acquisition was treated as a recapitalization of CSI with CSI as
the acquirer (a reverse acquisition).

      CSI  markets  Y2K  services to a variety of  commercial  and  government
organizations.  The Company  believes  some demand for CSI's Y2K  services may
continue to exist  after the Year 2000,  although  this  demand will  diminish
significantly  over  time  and  will  eventually  disappear.   However,  CSI's
proprietary  computer  software  tools  may be  used  in  conversion  projects
unrelated to Y2K work. CSI plans to pursue business opportunities unrelated to
the Y2K problem in the information services market and to develop products and
services  to take  advantage  of  these  opportunities,  such as  migrating  a
client's software application from a mainframe to a client-server environment.
With the recent  acquisition  of  Eclipse,  the Company  believes  synergistic
benefits may be realized as the two organizations  further develop  additional
services and technologies together.

      Through  December  31,  1998,  the  Company's  revenues  were  generated
primarily from CSI's consulting and conversion fees and software sales related
to Y2K services.  With the acquisition of Eclipse and its plans to continue to


                                      9

<PAGE>

diversify,  the Company's  future  revenues will be less  concentrated  on Y2K
products.

      In the next 12 months,  the Company intends to continue to integrate the
services of  Eclipse's  with that of CSI's and other  potentially  synergistic
acquisitions.  Further,  the  Company  intends to expand the  services of both
subsidiaries  through the opening of other offices in key geographic  markets.
In the six  months  ended June 30,  1999 the  Company  opened  new  offices in
Minneapolis,  Detroit,  and Boston and performed  initial  analysis on several
other cities.  The Company also intends to make additional  investments in the
expansion and further  development  of additional IT services and markets.  In
view  of  these   investments  the  Company   believes  the   period-to-period
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future  performance.  Specifically,  as
the Company  increases  its  investments  in non-Y2K  services,  it will incur
training, salary and other costs prior to the recognition of related revenues.
In addition,  a large percentage of the Company's  revenues are expected to be
derived from a relatively small number of large-scale, comprehensive projects.
Consequently,  the Company's  revenues and operating results may be subject to
substantial fluctuations in any given year and from quarter to quarter.

RESULTS OF OPERATIONS

FOR THE  QUARTER  ENDED JUNE 30, 1999  COMPARED TO THE QUARTER  ENDED JUNE 30,
1998

      REVENUES.   Revenues  for  the  quarter   ended  June  30,  1999,   were
approximately   $7,079,000,  an  increase  of  approximately  $4,576,000  over
revenues of approximately  $2,503,000 for the quarter ended June 30, 1998. The
increase  in  revenues  during  the  second  quarter  of 1999 was a result  of
increased  sales  activity  of Y2K  services  as  compared  to 1998,  revenues
generated from the licensing of the Company's proprietary software tool during
the second quarter of 1999, and  additional IT consulting  revenues  generated
from the Company's  acquisition  of Eclipse in December  1998. For the quarter
ended June 30, 1999, Y2K services  represented  55% of revenues as compared to
100% for Year 2000 services for the quarter ended June 30, 1998. The remaining
revenues for the quarter ended June 30, 1999 relate to IT consulting  services
and software sales.

      GROSS  PROFIT.  Gross profit for the quarter  ended June 30,  1999,  was
approximately  $4,314,000,  or 61% of revenues,  an increase of  approximately
$2,654,000 over gross profit of approximately  $1,660,000, or 67% of revenues,
for the quarter  ended June 30,  1998.  The  increase  in gross  profitability
during the quarter  ended June 30, 1999,  was a result of increased  revenues;
however,  the decrease in gross profit as a percentage  of revenue is a result
of  increased  IT  consulting  work  as part of the  Eclipse  acquisition.  IT
consulting typically has lower margins than Y2K services.

      RESEARCH  AND  DEVELOPMENT.  Research and  development  expenses for the
quarter ended June 30, 1999, were approximately  $112,000,  or 2% of revenues,
an increase of approximately  $28,000,  from approximately  $84,000,  or 3% of
revenues,  for the quarter ended June 30, 1998. The Company  initiated efforts
in the fourth quarter of 1998 to market a validation and verification  toolset
that the  Company  developed  using  aspects of the  Company's  VISION  2000TM


                                      10

<PAGE>

toolsuite. The Company continues to incur research and development expenses as
it modifies, enhances, and updates this tool.

      SALES AND MARKETING.  Sales and marketing expenses for the quarter ended
June 30, 1999, were approximately $670,000, or 10% of revenues, an increase of
approximately  $394,000,  from approximately $276,000 of such expenses, or 11%
of revenues,  for the quarter  ended June 30, 1998.  The increase in sales and
marketing  expenses for the second quarter of 1999 was primarily  attributable
to the acquisition of Eclipse,  commission expenses related to increased sales
revenue, and further investments in marketing efforts related to the Company's
services.

      GENERAL AND ADMINISTRATIVE.  General and administrative expenses for the
quarter  ended  June  30,  1999,  were  approximately  $2,143,000,  or  30% of
revenues,   an  increase   of   approximately   $1,289,000,   as  compared  to
approximately  $854,000 of such expenses, or 34% of revenues,  incurred by the
Company  for the  quarter  ended June 30,  1998.  The  increase in general and
administrative  expenses  for the quarter  ended June 30,  1999 was  primarily
attributable  to  general  and  administrative  expenses  associated  with the
on-going  operations of Eclipse and the costs  associated  with the opening of
the  Minneapolis,   Boston,  and  Detroit  offices.  The  Company  anticipates
additional  investments will be made as it expands its presence throughout the
United States with new offices and acquisitions.

      DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for
the  quarter  ended  June  30,  1999,  was  approximately  $414,000,  or 6% of
revenues, an increase of approximately  $110,000, as compared to approximately
$304,000 of such expenses, or 12% of revenues, incurred by the Company for the
quarter ended June 30, 1998.  The increase in  depreciation  and  amortization
expense  for the three  months  ended 1999 was  primarily  attributable  to an
increase in depreciable assets and intangibles associated with the acquisition
of Eclipse.

      OTHER INCOME.  Interest  income for the quarter ended June 30, 1999, was
approximately  $31,000, or 1% of revenues, a decrease of approximately $56,000
as compared to approximately $87,000, or 3% of revenues, for the quarter ended
June 30, 1998. The decrease in interest  income for the quarter ended June 30,
1999 was  primarily  attributable  to lesser  amounts  of cash  available  for
investment during 1999.

      EBITDA (EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION)
As a result of the above,  EBITDA  for the  quarter  ended  June 30,  1999 was
approximately  $1,388,000.  This  represented  an  increase  of  approximately
$942,000  as  compared  to EBITDA of  approximately  $446,000  for the quarter
ending June 30, 1998.

      NET INCOME.  As a result of the above,  net income for the quarter ended
June 30, 1999, was approximately  $1,003,000,  or 14% of revenues, an increase
of  approximately  $769,000,  as  compared  to  net  income  of  approximately
$234,000, or 9% of revenues, for the quarter ended June 30, 1998.


                                      11

<PAGE>

FOR THE SIX MONTHS  ENDED JUNE 30, 1999  COMPARED TO THE SIX MONTHS ENDED JUNE
30, 1998

      REVENUES.  Revenues  for  the six  months  ended  June  30,  1999,  were
approximately  $12,185,000,  an  increase  of  approximately  $8,158,000  over
revenues of  approximately  $4,027,000 for the six months ended June 30, 1998.
The  increase  in  revenues  during  the  first  half of 1999 was a result  of
increased  sales  activity  of Y2K  services  as  compared  to 1998,  revenues
generated from the licensing of the Company's proprietary software tool during
the first half of 1999, and additional IT consulting  revenues  generated from
the  Company's  acquisition  of Eclipse in December  1998.  For the six months
ended June 30, 1999, Y2K services  represented  50% of revenues as compared to
100% for the six months ended June 30, 1998.  The  remaining  revenues for the
six months ended June 30, 1999 were related to IT consulting services.

      GROSS PROFIT.  Gross profit for the six months ended June 30, 1999,  was
approximately  $6,978,000,  or 57% of revenues,  an increase of  approximately
$4,261,000 over gross profit of approximately  $2,717,000, or 67% of revenues,
for the six months  ended June 30, 1998.  The increase in gross profit  during
the six  months  ended  June 30,  1999,  was a result of  increased  revenues;
however,  the decrease in gross profit as a percentage  of revenue is a result
of  increased  IT  consulting  work  as part of the  Eclipse  acquisition.  IT
consulting typically has lower margins than Y2K services.

      RESEARCH AND DEVELOPMENT.  Research and development expenses for the six
months ended June 30, 1999, were  approximately  $280,000,  or 2% of revenues.
Research and development expenses for the six months ended June 30, 1998, were
approximately  $212,000,  or 5% of revenues.  The Company initiated efforts in
the fourth  quarter of 1998 to market a validation  and  verification  toolset
that the  Company  developed  using  aspects of the  Company's  VISION  2000TM
toolsuite. The Company continues to incur research and development expenses as
it modifies, enhances, and updates this tool.

      SALES AND  MARKETING.  Sales and  marketing  expenses for the six months
ended June 30, 1999, were  approximately  $1,217,000,  or 10% of revenues,  an
increase  of  approximately  $675,000,  from  approximately  $542,000  of such
expenses,  or 13% of revenues,  for the six months  ended June 30,  1998.  The
increase  in sales  and  marketing  expenses  for the  first  half of 1999 was
primarily  attributable  to the  acquisition of Eclipse,  commission  expenses
related to  increased  sales  revenue,  and further  investments  in marketing
efforts related to the Company's services.

      GENERAL AND ADMINISTRATIVE.  General and administrative expenses for the
six months  ended June 30,  1999,  were  approximately  $3,968,000,  or 33% of
revenues,   an  increase   of   approximately   $2,058,000,   as  compared  to
approximately $1,911,000 of such expenses, or 47% of revenues, incurred by the
Company for the six months  ended June 30,  1998.  The increase in general and
administrative   expenses  for  the  six  months  ended  1999  was   primarily
attributable  to  general  and  administrative  expenses  associated  with the
on-going  operations of Eclipse and the costs  associated  with the opening of
the  Minneapolis,   Boston,  and  Detroit  offices.  The  Company  anticipates
additional  investments will be made as it expands its presence throughout the
United States with new offices and acquisitions.


                                      12

<PAGE>

      DEPRECIATION AND  AMORTIZATION.  Depreciation and amortization  expenses
for the six months ended June 30, 1999, was approximately  $821,000,  or 7% of
revenues, an increase of approximately  $195,000, as compared to approximately
$626,000 of such expenses, or 16% of revenues, incurred by the Company for the
six months ended June 30, 1998. The increase in depreciation  and amortization
expenses  for the six  months  ended  1999 was  primarily  attributable  to an
increase in depreciable assets and intangibles associated with the acquisition
of Eclipse.

      OTHER  INCOME.  Interest  income for the six months ended June 30, 1999,
was  approximately  $69,000,  or 1% of revenues,  a decrease of  approximately
$74,000 as compared to approximately  $143,000, or 4% of revenues, for the six
months ended June 30, 1998. The decrease in interest income for the six months
ended  June 30,  1999 was  primarily  attributable  to lesser  amounts of cash
available for investment during 1999.

      EBITDA (EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION)
As a result of the above,  EBITDA for the six months  ended June 30,  1999 was
approximately  $1,512,000.  This  represented  an  increase  of  approximately
$1,458,000 as compared to EBITDA of  approximately  $54,000 for the six months
ending June 30, 1998.

      NET  INCOME.  As a result of the  above,  net  income for the six months
ended  June 30,  1999,  was  approximately  $752,000,  or 6% of  revenues,  an
increase  of  approximately  $1,200,000,  as  compared  to  the  net  loss  of
approximately  $448,000, or 11% of revenues, for the six months ended June 30,
1998.

LIQUIDITY AND CAPITAL RESOURCES

      The Company  has,  since its  inception,  financed  its  operations  and
capital expenditures through the sale of stock, convertible notes, convertible
exchangeable  debentures and the proceeds from the exchange offer and exercise
of the  warrants  related to the  convertible  exchangeable  debentures.  Cash
generated  in  operations   during  the  quarter  ended  June  30,  1999,  was
approximately  $482,000, as compared to approximately  $(624,000) cash used in
operations for the quarter ended June 30, 1998.

      Capital  expenditures were  approximately  $31,000 for the quarter ended
June 30, 1999, as compared to  approximately  $21,000 during the quarter ended
June 30,  1998.  The increase in capital  expenditures  during 1998 is related
primarily  to the ongoing  purchase  requirements  of computer  equipment  for
Company personnel and expenditures  relating to new offices and infrastructure
improvement projects.

      As of June 30, 1999,  the Company had working  capital of  approximately
$7,014,000.   The   Company's   primary   source  of  liquidity   consists  of
approximately  $4,242,000  in cash  and  cash  equivalents  and  approximately
$4,606,000 of accounts receivable.

      The market for the  Company's  products is expanding  and the  Company's
business  environment is characterized  by rapid  technological  changes.  The
Company   requires   substantial   working   capital  to  fund  its  business,
particularly  to finance  accounts  receivable,  sales and marketing  efforts,


                                      13

<PAGE>

research and development, and capital expenditures.  The Company currently has
no  commitments  for  capital  expenditures.   The  Company's  future  capital
requirements will depend on many factors including the rate of revenue growth,
if any, the timing and extent of spending to support research and development,
technological  changes and market  acceptance of the Company's  services.  The
Company  believes  that its current cash  position is  sufficient  to meet its
capital  expenditure  and  working  capital  requirements  for the near  term;
however, the growth and technological change make it difficult for the Company
to predict future liquidity requirements with certainty. Over the longer term,
the  Company  must  successfully  execute  its plans to  generate  significant
positive cash flows if it is to sustain adequate  liquidity  without impairing
growth or requiring  the infusion of additional  funds from external  sources.
Additionally, a major expansion, such as would occur with the acquisition of a
major new subsidiary, might also require external financing that could include
additional debt or equity  capital.  There can be no assurance that additional
financing, if required, will be available on acceptable terms, if at all.

OTHER

      Inflation has not had a significant effect on the Company's  operations,
as  increased  costs to the Company  have  generally  been offset by increased
prices of products and services sold.

      The  preparation  of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to make  estimates and
assumptions  that affect the reported  amounts of assets and  liabilities  and
disclosure of contingent  assets and  liabilities at the date of the financial
statements  and the  reported  amounts of  revenues  and  expenses  during the
reporting period. Actual results could differ from those estimates.

      The Company is an information  technology ("IT") corporation which is in
the business of performing evaluation,  testing and re-engineering services in
providing  solutions  to the Year 2000  problem.  The Company  owns,  markets,
utilizes and licenses the use by others of its proprietary  Year 2000 software
re-engineering tools and methodologies. The Company's management believes that
its operating and  information  systems are Year 2000  compliant.  The Company
expects no material impact on its operating and  information  systems from the
Year 2000 issue.

      This  report  contains  forward-looking  statements  setting  forth  the
Company's   beliefs  or   expectations   relating  to  future   revenues   and
profitability. Actual results may differ materially from projected or expected
results due to changes in the demand for the Company's  products and services,
uncertainties  relating to the results of operations,  dependence on its major
customers,   risks  associated  with  rapid  technological  change,  potential
fluctuations in quarterly  results,  its dependence on key employees and other
risks and  uncertainties  affecting the  technology  industry  generally.  The
Company   disclaims  any  intent  or  obligation  to  up-date  publicly  these
forward-looking  statements,  whether as a result of new  information,  future
events or otherwise.

      Most of the Company's current cost structure is fixed.  Expenses consist
primarily  of the  salaries  and  benefits  paid to the  Company's  technical,
marketing and administrative personnel. Amortization and depreciation expenses


                                      14

<PAGE>

relate to property,  equipment and intangible  assets. As a result of its plan
to expand its operations  through internal growth and acquisitions the Company
expects  these costs to increase in absolute  dollars,  while  decreasing as a
percentage of revenue.

      The  Company's  profitability  depends  upon both the volume of revenues
from professional and consulting services and software sales and the Company's
ability to manage costs.  Because a significant  portion of the Company's cost
structure is fixed, the Company must effectively manage these costs to achieve
profitability.  In addition, certain of the Company's projects are priced on a
fixed fee basis. The  profitability on an individual fixed fee project depends
upon the completion of the project  within the budgeted  number of staff hours
and within the agreed upon time frame.  To date,  the Company has been able to
maintain its operating margins through efficiencies achieved by the use of the
Company's  proprietary software tools, by completing fixed fee projects within
budget, and by effectively managing general overhead costs.


ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      NOT APPLICABLE


                                      15

<PAGE>

PART II.    OTHER INFORMATION

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

      The Company's Annual Meeting of Stockholders was held on May 21, 1999.

      The following three persons were elected by the following votes to serve
as Class II directors of the Board of Directors for three years or until their
successors are elected and qualified:

 Name                       Votes For              Votes Withheld
 ----                       ---------              --------------
Steve L. Komar              6,755,740                  52,985
James T. McCubbin           6,755,740                  52,985


      Stockholders  approved  the  increase  in the number of shares of Common
Stock of the Company for issuance  under the Company's  1997  Incentive  Stock
Option Plan by 1,300,000  shares from a prior total of  1,700,000  shares to a
new  total of  3,000,000  shares.  Such  proposal  was  approved  by a vote of
4,636,295 shares for and 193,786 shares against, with 6,875 shares abstaining.

      Stockholders  ratified  the  selection  of  Arthur  Anderson  LLP as the
independent  accountants  for the Company for the current  fiscal  year.  Such
proposal  was  approved  by a vote of  6,804,280  shares for and 2,445  shares
against, with 2,000 shares abstaining.


ITEM 5.     EXHIBITS AND REPORTS ON FORM 8-K

(a)   EXHIBITS

      The following exhibit is filed herewith:

            27 - Financial Data Schedule

(b)   REPORTS ON FORM 8-K

      NONE


                                      16

<PAGE>

                                  SIGNATURES

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


                               ZMAX Corporation


Date:  August 11, 1999           /s/MICHAEL C. HIGGINS
                                 ---------------------
                                 Michael C. Higgins
                                 President


                                 /s/JAMES T. MCCUBBIN
                                 --------------------
                                 James T. McCubbin
                                 Vice President - Principal Financial
                                   and Accounting Officer