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  MARCH 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   000-23967

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

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

                   20251 CENTURY BLVD. GERMANTOWN, MD 20874
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     (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 May 13,
1998, 11,729,714 shares of common stock, $.001 par value per share.


<PAGE>

                               ZMAX CORPORATION

<TABLE>
                                     INDEX

<CAPTION>
                                                                     Page No.
                                                                     --------
<S>                                                                     <C>
PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements

Consolidated Balance Sheets - March 31, 1998
      (unaudited) and December 31, 1997                                  1

Consolidated Statements of Operations for the three
      months ended March 31, 1998 and 1997 (unaudited)                   3

Consolidated Statements of Cash Flows for the three
      months ended March 31, 1998 and 1997 (unaudited)                   4

Notes to Consolidated Financial Statements                               5

Item 2.    Management's Discussion and Analysis of Financial

Condition and Results of Operations                                      9

PART II.   OTHER INFORMATION

Exhibits and Reports on Form 8-K                                        13

SIGNATURES                                                              16
</TABLE>


<PAGE>

                        PART 1. FINANCIAL INFORMATION


ITEM 1.     FINANCIAL STATEMENTS

                        ZMAX CORPORATION AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                    March 31,       December 31,
                                                      1998              1997
                                                 -------------     -------------
                                                  (Unaudited)
            ASSETS
<S>                                              <C>               <C>
CURRENT ASSETS:
  Cash and cash equivalents                      $  5,544,703      $  6,405,084
  Accounts receivable                               1,407,311         1,067,258
  Prepaid expenses and other assets                    61,558            81,506
                                                 -------------     -------------
    Total current assets                            7,013,572         7,553,848

  Property and equipment, net                         301,900           277,981
  Intangible assets, net                            3,742,085         4,033,265
  Other assets                                          4,983             4,983
                                                 -------------     -------------
    Total assets                                 $ 11,062,540      $ 11,870,077
                                                 =============     =============
</TABLE>

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


                                      1

<PAGE>

                      LIABILITIES & SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                    March 31,       December 31,
                                                      1998              1997
                                                 -------------     -------------
                                                  (Unaudited)
<S>                                              <C>               <C>
CURRENT LIABILITIES:
  Accounts payable and accrued expenses          $    983,936      $    826,117
  Customer deposits                                   907,549           926,039
  Current portion of long-term debt                   274,193           539,541
                                                 -------------     -------------
    Total current liabilities                       2,165,678         2,291,697
                                                 -------------     -------------
    Total liabilities                               2,165,678         2,291,697
                                                 -------------     -------------
Commitments and contingencies (Notes 4 and 5)
Stockholders' 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,
    11,729,714 shares issued and 
    outstanding as of March 31, 1998
    and December 31, 1997, 479,801 
    shares subject to Cancellation 
    Agreements as of March 31, 1998 and
    December 31, 1997 (Note 3)                         11,729            11,729
  Additional paid-in capital                       35,280,105        35,280,105
  Accumulated deficit                             (26,394,972)      (25,713,454)
                                                 -------------     -------------
    Total stockholders' equity                      8,896,861         9,578,380
                                                 -------------     -------------
    Total liabilities and 
    stockholders' equity                         $ 11,062,540      $ 11,870,077
                                                 =============     =============
</TABLE>

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


                                      2

<PAGE>

                        ZMAX CORPORATION AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                 Three Months      Three Months
                                                Ended March 31,   Ended March 31,
                                                      1998             1997
                                                ---------------   ---------------
                                                  (Unaudited)       (Unaudited)
<S>                                              <C>               <C>
Revenues                                         $  1,524,324      $          -
Operating expenses:
  Cost of revenues                                    466,808                 -
  Research and development                            127,687                 -
  Sales and marketing                                 265,509           157,748
  General and administrative                        1,057,105         1,019,195
  Amortization and depreciation                       321,642           154,730
                                                 -------------     -------------
    Loss from operations                             (714,427)       (1,331,673)

Other Income (expense):
  Interest income                                      55,431            49,478
  Interest expense                                     (6,855)         (889,446)
  Other                                               (15,880)            1,218
                                                 -------------     -------------
Net loss before income taxes                         (681,731)       (2,170,423)

(Provision) benefit for income taxes                        -            26,096

Net loss                                         $   (681,731)     $ (2,144,327)
                                                 -------------     -------------
Basic and diluted net loss per share             $      (0.08)     $      (0.63)
                                                 -------------     -------------
Basic and diluted weighted average shares
outstanding                                         8,449,913         3,424,271
                                                 =============     =============
</TABLE>

       The accompanying notes are an integral part of these statements.


                                      3

<PAGE>

                        ZMAX CORPORATION AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                 Three Months      Three Months
                                                Ended March 31,   Ended March 31,
                                                      1998             1997
                                                ---------------   ---------------
                                                  (Unaudited)       (Unaudited)
<S>                                              <C>               <C>
Cash flows from operating activities:
  Net loss                                       $   (681,731)     $ (2,144,327)
  Adjustments to reconcile loss to net cash
    Depreciation and amortization expense             321,642           154,730
    Amortization of deferred financing costs                -           148,967
    Amortization of discount on Notes and Debentures        -           591,408
    Stock compensation expense                              -           300,000
  Changes in assets and liabilities
    Accounts receivable                              (340,052)                -
    Prepaid expenses and other assets                  19,947            17,649
    Accounts payable and accrued expenses             158,032           148,650
    Deferred income tax                                     -           (26,096)
    Customer deposits                                 (18,490)                -
                                                 -------------     -------------
      Net cash used in operating activities          (540,652)         (809,019)
                                                 -------------     -------------
  Net cash used in investing activities:
    Purchases of property                             (54,381)         (172,158)
                                                 -------------     -------------
      Net cash used in investing activities           (54,381)         (172,158)
                                                 -------------     -------------
  Net cash used in financing activities:
    Payments on long-term obligations                (265,348)         (129,576)
                                                 -------------     -------------
      Net cash used in financing activities          (265,348)         (129,576)
                                                 -------------     -------------
  Net decrease in cash                               (860,381)       (1,110,753)
                                                 -------------     -------------
  Cash, beginning of period                         6,405,084         4,842,169
                                                 -------------     -------------
  Cash, end of period                            $  5,544,703      $  3,731,416
                                                 =============     =============
</TABLE>

       The accompanying notes are an integral part of these statements.


                                      4

<PAGE>

                        ZMAX CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

BASIS OF PRESENTATION

      The  unaudited  financial  statements  as of March 31,  1998 and for the
three  months  ended  March 31,  1998 and  1997,  presented  herein  have been
prepared by the Company,  without audit, pursuant to the rules and regulations
of the Securities and Exchange  Commission.  Accordingly,  they do not include
all of the information and footnotes required by generally accepted accounting
principles  for complete  financial  statements.  These  financial  statements
should  be  read  in  conjunction  with  the  financial   statements  of  ZMAX
Corporation,  as of  December  31,  1997,  and notes  there to included in the
Company's  1997 Annual Report on Form 10-K. The financial  statements  reflect
all adjustments  (consisting of normal  recurring  adjustments)  which, in the
opinion of management, are necessary to present fairly the financial position,
results of  operations  and cash flows of the Company as of March 31, 1998 and
1997.  The  results of  operations  for the three ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.

      On November 6, 1996, ZMAX Corporation  ("ZMAX"),  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.

NATURE OF OPERATIONS

      Prior to the CSI transaction,  ZMAX's activities consisted of efforts to
establish a new business and raise capital. The operations of CSI consisted of
activities to obtain  financing,  to acquire and develop its proprietary  Year
2000  software  re-engineering  tools and  methodologies,  and to  market  its
services to potential customers. Since the acquisition of CSI, the Company has
been  focused on the  computer  software  re-engineering  market.  The Company
generated its first  revenues  during 1997.  Substantial  time may pass before
significant  revenues  and  profitability  may be  realized  and,  during this
period,  the Company may require additional funds that may not be available to
it.

      The  Company  has  limited  experience  in  providing  its Year  2000 or
"millennium"  services.  The Company has completed a limited  number of pilots
and  conversion  projects.  There can be no assurance that the Company will be
successful in completing  large-scale  conversions,  that the Company will not
experience  delays or failures in providing its millennium  services,  or that
its millennium  services will be effective.  The failure of the Company's Year
2000 methodology to function  properly or the existence of significant  errors
or bugs  following  completion of  millennium  conversions  could  necessitate
significant expenditures by the Company to remedy the problem.


                                      5

<PAGE>

The  consequences of failures,  errors or bugs 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 and undeveloped
markets for  millennium  services,  current  and  potential  competitors  with
greater financial, technological, production and marketing resources, 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
customer's 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.  In addition,  there are risks  associated
with the market activity in ZMAX stock.

2.    SIGNIFICANT ACCOUNTING POLICIES:

CASH AND CASH EQUIVALENTS

      Investments  with  original  maturities  of  three  months  or less  are
considered cash equivalents for 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 near the period end but not billed
until the  following  period.  Unbilled  accounts  receivable  on  fixed-price
contracts  consists of amounts  incurred  which are not yet  invoicable  under
contract  terms.  At March 31,  1998,  unbilled  accounts  receivable  totaled
$521,224.

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.


                                      6

<PAGE>

NET LOSS PER SHARE

      The Company has adopted Statement of Financial  Accounting  Standard No.
128,  "Earnings  Per Share"  which  requires  dual  presentation  of basic and
diluted  earnings per share on the face of the statement of operations for all
periods presented.  Basic earnings per share excludes dilution and is computed
by dividing income  available to common  stockholders by the  weighted-average
number of common shares outstanding for the period. Diluted earnings per share
reflects  the  potential  dilution  that could  occur if  securities  or other
contracts to issue Common Stock were  exercised or converted into Common Stock
or resulted in the  issuance of Common  Stock that then shared in the earnings
of the Company.  Options and warrants to purchase  shares of Common Stock were
not  included  in the  computation  of loss per share as the  effect  would be
antidilutive.  Outstanding  shares  subject  to  cancellation  agreements  and
restricted  shares are also not included.  As a result,  the basic and diluted
earnings per share amounts are identical.

      In June 1997, the Financial  Accounting  Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and No. 131, "Disclosures about Segments
of an Enterprise and Related  Information."  These statements become effective
for the  Company's  1998  financial  statements.  The  adoption  of these  new
pronouncements will not impact the Company's results of operations,  financial
position or cash flows.


3.    COMMON STOCK AND PREFERRED STOCK:

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 479,801 shares are subject to cancellation
but had not been  returned  to the Company  for  cancellation  as of March 31,
1998.

STOCK PURCHASE AGREEMENT

      On November 6, 1996, a Stock Purchase Agreement between CSI and ZMAX was
executed  and  the  transaction  was  consummated.  In  return  for all of the
outstanding  stock of CSI, ZMAX issued 3,200,000 shares of common stock to the
two  stockholders  of CSI.  At the  closing,  the former  stockholders  of CSI
retained  400,000  shares  of such  ZMAX  common  stock  and  deposited  their
remaining  2,800,000 shares of ZMAX common stock (the "Restricted Stock") into
an escrow  subject to quarterly  release of such shares back to the former CSI
stockholders based upon the cash flows (as defined) of CSI. Under the terms of
the  Stock  Purchase  Agreement,  one  share of  Restricted  Stock  will to be
released to such  stockholders  for every $1.25 of cash flow generated by CSI.
The former CSI  stockholders are entitled to vote the shares of the Restricted
Stock  as  well  as  to  receive  their  respective  pro  rata  share  of  any
distributions or dividends  declared thereon.  The Restricted Stock is subject
to forfeiture under certain conditions. The transaction was accounted for as a
recapitalization of CSI with CSI as the acquirer (a reverse acquisition).


                                      7

<PAGE>

      In 1998, ZMAX and the former CSI  stockholders  reformed  certain of the
agreements  relating  to ZMAX's  acquisition  of CSI to reflect  the  original
intent of the parties. As a result, the original escrow to hold the Restricted
Stock was  replaced by the former CSI  stockholders  holding  their  shares of
Restricted Stock. The amended  agreements,  however,  provide for the lapse of
such restrictions on  transferability on November 6, 2001 if such restrictions
have not already been released as a result of the CSI cash flow.

4.    COMMITMENTS AND CONTINGENCIES:

LITIGATION

      On April 17,  1997,  Alan L. Leaven and Canadian  Petroleum  Corporation
filed suit in the Third  Judicial  district  Court of Salt Lake  County,  Utah
against the Company (f/k/a  Mediterranean Oil Corp., f/k/a Pandora,  Inc.) and
John Does.  The complaint  alleges  various common law claims arising from the
alleged untimely failure to remove legends  restricting the transferability of
shares of the  Company's  common  stock that had been issued by the Company in
payment of legal fees incurred.  The plaintiffs  have computed  damages in the
approximate  amount of $87,000.  The Company believes the complaint is without
legal merit and will vigorously defend itself. The Company accrued $40,000 for
legal expenses related to this issue in 1997. As of March 31, 1998, $9,744 had
been incurred for this matter.

      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 its  Annual  Report  on Form  10-K for the  year  ended
December 31, 1997.

      The  information  set forth below  includes  forward-looking  statements
relating  to actual  results  that may differ  from  projected  results.  Some
factors that could cause results to differ  materially from those projected in
the forward-looking  statements are set forth below. Readers are cautioned not
to put undue reliance on forward-looking statements. The Company disclaims any
intent or  obligation to update  publicly  these  forward-looking  statements,
whether as a result of new information, future events or otherwise.

OVERVIEW

      On  November  6,  1996,  ZMAX,  a shell  company  listed on the NASD OTC
Bulletin  Board  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. For financial  reporting  purposes,
the acquisition has been treated as a recapitalization  of CSI with CSI as the
acquirer (a reverse acquisition). The historical financial statements prior to
November 6, 1996 are those of CSI.

      CSI  markets  millennium   services  to  a  variety  of  commercial  and
government  organizations.  In the next 12 months, the Company intends to make
additional  investments  in the further  development  and  marketing  of CSI's
millennium services and other software  re-engineering  services. In addition,
the  Company  currently  intends  to pursue  acquisitions  in the  information
technology industry that will complement CSI.

      In view of the development costs relating to CSI's millennium  services,
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 CSI increases its workforce in order
to meet the future demand for its millennium services, it will incur training,
salary  and other  costs  prior to the  recognition  of related  revenues.  In
addition,  most of CSI's revenues are expected to be derived from a relatively
small number of large-scale,  comprehensive  millennium  conversion  projects.
Consequently,  CSI's revenues and operating results are expected to be subject
to substantial variations in any given year and from quarter to quarter.

      The Company  believes  some  demand for CSI's  millennium  services  may
continue to exist for some time after the year 2000, although this demand will
diminish  significantly over time and will eventually disappear.  However, the
Company's  proprietary  computer  software  tools  may be used  in  conversion
projects  unrelated  to Year  2000  compliance.  The  Company  plans to pursue


                                      9

<PAGE>

businesses and business  opportunities  unrelated to the millennium 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.  However,  there
can be no assurance that the Company will be able to  successfully  expand its
business beyond the millennium conversion market. The failure to diversify and
develop additional products and services could materially and adversely affect
the Company's business, operating results and financial condition.

      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 and benefits,  travel,  promotions and
trade show expenses,  office expenses and other general  overhead  costs.  The
Amortization  and  depreciation  expenses relate to property and equipment and
intangible  assets.  As a result of its plan to expand its  operations  and to
offer a wider range of information  services,  the Company expects these costs
to increase.

      Margins for the Company's  millennium services business will depend upon
volume  of  service  because  a  significant  portion  of the  Company's  cost
structure is fixed. Most of the Company's  millennium  conversion projects are
expected to be priced on a fixed fee basis. Therefore, the profitability of an
individual  project  will  depend  upon  completing  the  project  within  the
estimated number of staff hours and within the agreed time frame.

RESULTS OF OPERATIONS

      REVENUES.  Net  revenues  for the  quarter  ended March 31,  1998,  were
approximately  $1.5  million.  During the quarter  ended March 31,  1997,  the
Company had not yet commenced  operations and therefore had not recognized any
revenues. The increase in revenues in 1998 was a result of the commencement of
operations during the second quarter of 1997 with several contracts commencing
during the fourth  quarter of 1997 and  continuing  into the first  quarter of
1998.

      GROSS  PROFIT.  Gross profit for the quarter  ended March 31, 1998,  was
approximately 69.4% of revenues. The Company continues to face competition and
there can be no  assurances  that the  current  levels of gross  margin can be
maintained.

      RESEARCH  AND  DEVELOPMENT.  Research and  development  expenses for the
quarter  ended March 31, 1998 were  approximately  $128,000.  During the first
quarter of 1998, the company initiated efforts to refine its Year 2000 toolset
and to prepare the toolset for potential licensing to end-users.

      SALES AND MARKETING.  Sales and marketing expenses for the quarter ended
March 31, 1998 were approximately  $266,000 as compared to $158,000 during the
quarter ended March 31, 1997. The increase related  primarily to the increased
size of the sales and marketing infrastructure including additional personnel,
commissions  and  marketing  expenses  directly  related  to  implemented  the
Company's sales strategy.

      GENERAL AND ADMINISTRATIVE.  General and administrative expenses for the
quarter  ended March 31, 1998 were  approximately  $1.1 million as compared to
$1.0  million  during the quarter  ended  March 31,  1997.  The 1997  expenses
included  $300,000 of stock  compensation  expense for services  provided by a


                                      10

<PAGE>

consultant.  The  remaining  increase in expenses  during the 1998 period is a
result of increased  staffing levels and the development of infrastructure for
finance,  administration,  and general  management  activities  to support the
growth of the business.

      OTHER INCOME  (EXPENSE).  Other  income for the quarter  ended March 31,
1998 was  approximately  $33,000 as  compared  to other  expenses  of $839,000
during the  quarter  ended  March 31,  1997.  The  decrease in expense in 1998
relates  primarily to the elimination of &875,000 in interest  expense related
to the amortization of the deferred  financing costs and the amortization of a
discount on the convertible  notes. The convertible  notes were converted into
common stock in April 1997.

      NET  LOSS  The net  loss  for the  quarter  ended  March  31,  1998  was
approximately  $682,000 as compared to $2,144,000  for the quarter ended March
31, 1997.  This decrease is primarily a result of the revenues that  generated
gross profit of approximately $1,058,000 and the reduction of interest expense
of $875,000.

LIQUIDITY AND CAPITAL RESOURCES

      The Company,  since  inception has financed its  operations  and capital
expenditures  through  the  sale  of  stock,  convertible  notes,  convertible
exchangeable debentures and the proceeds from the exchange and exercise of the
warrants  related to the  convertible  exchangeable  debentures.  Cash used in
operations  during the quarters ended March 31, 1998 and 1997 was $541,000 and
$809,000 respectively. The decrease in cash used in operations during 1998 was
primarily a result of the  generation  of gross  profit which was offset by an
increase in  accounts  receivable.  Capital  expenditures  were  approximately
$54,000  and  $172,000  for the  quarters  ended  March  31,  1998  and  1997,
respectively,  and related  primarily to the computer  equipment  purchased to
support the increased number of employees.

      As of March 31, 1998,  the Company had working  capital of $4.8 million.
The Company's primary source of liquidity consists of $5.5 million in cash and
cash equivalents.

      The  market  for the  Company's  products  is  growing  rapidly  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,   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 of
cash.  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


                                      11

<PAGE>

assurance  that  additional  financing,  if  required,  will be  available  on
acceptable terms, if at all.

      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 foregoing discussion contains forward-looking information within the
meaning of Section  27A of the  Securities  Act of 1933 and Section 21E of the
Securities  Exchange Act of 1934, and is subject to the safe harbor created by
those  sections.  The Company assumes no obligations to update the information
contained in this press release.  The Company's future results may be impacted
by various  important  factors  including,  but not limited to, its ability to
implement its provider  deployment model, its lengthy sales cycle,  dependence
on its major customers,  risks associated with rapid technological  change and
the emerging services market, potential fluctuations in quarterly results, its
dependence on sole and limited source  suppliers and fluctuations in component
pricing and its  dependence  on key employees and other risk factors set forth
in the Company's  Annual  Report on Form 10-K for the year ended  December 31,
1997.


                                      12

<PAGE>

                          PART II. OTHER INFORMATION


ITEM 6.     EXHIBIT AND REPORTS ON FORM 8-K

(a)         EXHIBITS

EXHIBIT
  NO.                             DESCRIPTION

2.1   Stock Purchase Agreement among ZMAX Corporation,  Michael C. Higgins and
      Michael S.  Cannon,  dated  November  6, 1996,  for the  acquisition  of
      Century Services,  Inc. (Incorporated herein by reference to Exhibit 2.1
      to the  Registrant's  Registration  Statement  on  Form  S-4  (File  No.
      333-29833).)

2.2   Agreement  and Plan of  Merger  between  ZMAX  Corporation  and New ZMAX
      Corporation,  dated June 10, 1997.  (Incorporated herein by reference to
      Exhibit 2.2 to the Registrant's Registration Statement on Form S-4 (File
      No. 333-29833).)

3.1   Amended and Restated  Certificate of Incorporation of ZMAX  Corporation.
      (Incorporated  herein by  reference  to Exhibit 3.5 to the  Registrant's
      Registration Statement on Form S-4 (File No. 333-29833).)

3.2   Bylaws of ZMAX Corporation. (Incorporated herein by reference to Exhibit
      3.6 to the  Registrant's  Registration  Statement  on Form S-4 (File No.
      333-29833).)

4.1   Form  of  Warrant  to  Purchase   Common  Stock  of  ZMAX   Corporation.
      (Incorporated  herein by  reference  to Exhibit 4.2 to the  Registrant's
      Registration Statement on Form S-4 (File No. 333-29833).)

10.1  ZMAX  Corporation  1997 Stock  Incentive Plan.  (Incorporated  herein by
      reference to Exhibit 10.1 to the Registrant's  Registration Statement on
      Form S-4 (File No. 333- 29833).)*

10.2  Form of ZMAX Corporation 1997 Non-qualified  Stock Option Award (form of
      grant  and  vesting  schedule).  (Incorporated  herein by  reference  to
      Exhibit  10.2 to the  Registrant's  Registration  Statement  on Form S-4
      (File No. 333-29833).)*

10.3  ZMAX Corporation 1997 Directors Formula Stock Option Plan. (Incorporated
      herein by  reference to Exhibit  10.3 to the  Registrant's  Registration
      Statement on Form S-4 (File No. 333-29833).)*

10.4  Form of ZMAX Corporation  Directors  Formula Stock Option Award (form of
      grant  and  vesting  schedule).  (Incorporated  herein by  reference  to
      Exhibit  10.4 to the  Registrant's  Registration  Statement  on Form S-4
      (File No. 333-29833).)*


                                      13

<PAGE>

10.5  Employment  Agreement  between  Century  Services,  Inc.  and Michael C.
      Higgins,  dated November 6, 1996.  (Incorporated  herein by reference to
      Exhibit  10.5 to the  Registrant's  Registration  Statement  on Form S-4
      (File No. 333-29833).)*

10.6  First Amendment to the Employment  Agreement  between Century  Services,
      Inc. and Michael C. Higgins, dated May 21, 1997. (Incorporated herein by
      reference to Exhibit 10.6 to the Registrant's  Registration Statement on
      Form S-4 (File No. 333-29833).)*

10.7  Employment  Agreement  between  Century  Services,  Inc. and Joseph Yeh,
      dated June 18, 1997.  (Incorporated  herein by reference to Exhibit 10.7
      to the  Registrant's  Registration  Statement  on  Form  S-4  (File  No.
      333-29833).)*

10.8  Separation  Agreement  between  Century  Services,  Inc.  and Michael S.
      Cannon,  dated April 22,  1997.  (Incorporated  herein by  reference  to
      Exhibit  10.8 to the  Registrant's  Registration  Statement  on Form S-4
      (File No. 333-29833).)*

10.9  Consulting Agreement among ZMAX Corporation, MBY, Inc. and Michel Berty,
      dated April 1, 1997.  (Incorporated  herein by reference to Exhibit 10.9
      to the  Registrant's  Registration  Statement  on  Form  S-4  (File  No.
      333-29833).)*

10.10 Consulting Agreement among ZMAX Corporation, Wareham Management Ltd. and
      G.W.  Norman  Wareham,  dated  May 30,  1997.  (Incorporated  herein  by
      reference to Exhibit 10.10 to the Registrant's Registration Statement on
      Form S-4 (File No. 333-29833).)*

10.11 Consulting Agreement between ZMAX Corporation and Shafiq Nazerali, dated
      May 30, 1997.  (Incorporated herein by reference to Exhibit 10.11 to the
      Registrant's Registration Statement on Form S-4 (File No. 333-29833).)*

10.12 Earn Out Stock  Escrow  Agreement  among  ZMAX  Corporation,  Michael C.
      Higgins, Michael S. Cannon and Powell, Goldstein, Frazer & Murphy, dated
      November 6, 1996.  (Incorporated herein by reference to Exhibit 10.12 to
      the   Registrant's   Registration   Statement  on  Form  S-4  (File  No.
      333-29833).)

10.13 ZMAX  Corporation  Stockholders  Agreement  among  Michael  C.  Higgins,
      Michael  S.  Cannon  and  ZMAX  Corporation,  dated  November  6,  1996.
      (Incorporated  herein by reference to Exhibit 10.13 to the  Registrant's
      Registration Statement on Form S-4 (File No. 333-29833).)

10.14 Stock Pledge and Security  Agreement from Michael C. Higgins in favor of
      ZMAX  Corporation,  dated  November  6,  1996.  (Incorporated  herein by
      reference to Exhibit 10.14 to the Registrant's Registration Statement on
      Form S-4 (File No. 333-29833).)

10.15 Letter Agreement among ZMAX Corporation,  IMS  International,  Inc., Wan
      Hsien  Information  International  Corporation,   Ltd.,  Multi-Dimension
      International,  and Institute  for  Information  Industry  Regarding the
      Purchase by ZMAX  Corporation of the "COCACT"  Software  Program,  dated


                                      14

<PAGE>

      April 30, 1997.  (Incorporated  herein by reference to Exhibit  10.15 to
      the  Registrant's  Registration  Statement  on Form S-4 (File  No.  333-
      29833).)

10.16 Letter Agreement  between ZMAX Corporation and Institute for Information
      Industry  Regarding  the  Purchase by ZMAX  Corporation  of the "COCACT"
      Software  Program,  dated  April  30,  1997.   (Incorporated  herein  by
      reference to Exhibit 10.16 to the Registrant's Registration Statement on
      Form S-4 (File No. 333-29833).)

10.17 Letter  Agreement  between ZMAX  Corporation  and Wan Hsien  Information
      International   Corporation   Ltd.   Regarding   the  Purchase  by  ZMAX
      Corporation of the "COCACT" Software  Program,  dated April 30, 1997, as
      amended.  (Incorporated  herein by  reference  to  Exhibit  10.17 to the
      Registrant's Registration Statement on Form S-4 (File No. 333- 29833).)

10.18 Conversion  Agreement  between  Fiserv  Federal  Systems,  Inc. and ZMAX
      Corporation,  dated April 28, 1997. (Incorporated herein by reference to
      Exhibit  10.18 to the  Registrant's  Registration  Statement on Form S-4
      (File No. 333-29833).)

10.19 Agreement between ZMAX Corporation and Investor  Communications Company,
      LLC,  dated as of May 20,  1997.  (Incorporated  herein by  reference to
      Exhibit 2.2 to the Registrant's Registration Statement on Form S-4 (File
      No. 333-29833).)

10.20 Investor  Relations  Consulting  Agreement  between ZMAX Corporation and
      Investor  Communications  Company,  LLC,  dated  as  of  May  20,  1997.
      (Incorporated  herein by reference to Exhibit 10.20 to the  Registrant's
      Registration Statement on Form S-4 (File No. 333-29833).)

10.21 Reformation  Agreement  between ZMAX  Corporation and Michael C. Higgins
      and Michael S. Cannon, dated as of March 31, 1998.

11.1  Statement regarding computation of earnings per share

21    Subsidiaries of ZMAX Corporation

27    Financial Data Schedule

      (b)   REPORTS ON FORM 8-K

                  None


                                      15

<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:  May 13, 1998              /s/MICHAEL C. HIGGINS
                                 ---------------------
                                 Michael C. Higgins
                                 President


                                 /s/G.W. NORMAN WAREHAM
                                 ----------------------
                                 G.W. Norman Wareham
                                 Vice President - Principal Financial Officer


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