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 September 30, 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 0-23173


                         OAO TECHNOLOGY SOLUTIONS, INC.
             (Exact name of registrant as specified in its charter)


Delaware                                                 52-1973990
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                           Identification No.)


7500 Greenway Center Drive
Greenbelt, Maryland                                      20770
(Address of principal executive offices)                 (Zip Code)


Registrant's telephone number, including area code (301) 486-0400


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

     As of November 9, 1998, the registrant had outstanding 16,449,649 shares of
its Common Stock, par value $0.01 per share.



<PAGE>



                         OAO TECHNOLOGY SOLUTIONS, INC.

 Quarterly Report on Form 10-Q for the Quarterly Period Ended September 30, 1998



                                      INDEX


                                                                         Page
                                                                       Reference
                                                                       ---------

COVER PAGE..................................................................   1

INDEX.......................................................................   2

PART I - FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

           Condensed Consolidated Balance Sheets as of September 30, 1998 
           (Unaudited) and December 31, 1997................................   3

           Condensed Consolidated Statements of Operations for the Three Months
           and Nine Months Ended September 30, 1998 and 1997 (Unaudited)....   4

           Condensed Consolidated Statements of Cash Flows for the Nine Months
           Ended September 30, 1998 and 1997 (Unaudited)....................   5

           Notes to Condensed Consolidated Financial Statements
           (Unaudited) .....................................................   6

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS................................  10

PART II - OTHER INFORMATION.................................................  14

Item 6.  Exhibits and Reports on Form 8-K

SIGNATURES..................................................................  15



                                       2
<PAGE>


PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements

                         OAO TECHNOLOGY SOLUTIONS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                              September 30,   December 31,
                                                                                   1998          1997
                                                                               -----------     ---------
<S>                                                                              <C>           <C>     
                                              ASSETS
Current Assets:
  Cash and cash equivalents                                                      $  9,841      $ 22,221
  Accounts receivable:
     Billed, net of allowance for uncollectible accounts
       of $1,092 and $50, respectively                                             14,686        12,146
     Unbilled, net of allowance for uncollectible accounts
       of $1,789 and $239, respectively                                            11,620         9,400
  Note receivable- related party                                                    2,520          --
  Income tax receivable                                                               769          --
  Deferred tax asset                                                                2,126          --
  Other current assets                                                                795           875
                                                                                 --------      --------
     Total current assets                                                          42,357        44,642
Property and equipment, net                                                         4,204         4,611
Deposits and other assets                                                             471           753
Goodwill                                                                            4,096           336
                                                                                 --------      --------
     Total assets                                                                $ 51,128      $ 50,342
                                                                                 ========      ========

                               LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                                                               $  8,022      $  3,773
  Accrued expenses                                                                  7,175         5,720
  Income tax payable                                                                  190           477
  Unearned revenue                                                                    639           379
  Note payable                                                                       --             378
  Current maturities of capital lease obligations                                     223           552
  Deferred income taxes                                                              --             114
                                                                                 --------      --------
     Total current liabilities                                                     16,249        11,393

Capital lease obligations, net of current maturities                                  777           883
Commitments and contingencies                                                        --            --
Stockholders' Equity:
  Common Stock, par value $0.01 per share,
     authorized, 25,000,000; 16,430,315 and 16,285,050
     issued and outstanding at September 30, 1998, and                                164           163
     December 31, 1997, respectively
  Additional paid-in capital                                                       34,807        34,454
  Stockholders' receivable                                                             (4)         (133)
  Retained (deficit) earnings                                                        (348)        3,658
  Accumulated other comprehensive income                                             (517)          (76)
                                                                                 --------      --------
     Total stockholders' equity                                                    34,102        38,066
                                                                                 --------      --------
     Total liabilities and stockholders' equity                                  $ 51,128      $ 50,342
                                                                                 ========      ========
</TABLE>


The  accompanying  notes are an integral  part of these  condensed  consolidated
statements.


                                       3
<PAGE>


                         OAO TECHNOLOGY SOLUTIONS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                               Three Months Ended         Nine Months Ended
                                                  September 30,              September 30,
                                             ----------------------     ----------------------
                                               1998          1997         1998          1997
                                             --------      --------     --------      --------
<S>                                          <C>           <C>          <C>           <C>     
Revenues                                     $ 34,520      $ 20,618     $ 77,866      $ 59,956
Direct Costs                                   29,888        16,137       66,621        46,910
                                             --------      --------     --------      --------
Gross Profit                                    4,632         4,481       11,245        13,046
Selling, General and Administrative             4,884         3,140       14,992         9,455
Restructuring and Other Charges                 2,900          --          2,900          --
                                             --------      --------     --------      --------
(Loss)Income from Operations                   (3,152)        1,341       (6,647)        3,591
Interest and Other (Income) Expense, net         (134)          106         (515)          193
                                             --------      --------     --------      --------
(Loss) Income Before Income Taxes              (3,018)        1,235       (6,132)        3,398
Income Tax (Benefit) Provision                 (1,046)          519       (2,126)        1,450
                                             --------      --------     --------      --------

Net (Loss) Income                            $ (1,972)     $    716     $ (4,006)     $  1,948
                                             ========      ========     ========      ========
Net (Loss) Income Per Common Share:

     Diluted                                 $  (0.12)     $   0.07     $  (0.24)     $   0.19
                                             ========      ========     ========      ========
     Basic                                   $  (0.12)     $   0.07     $  (0.24)     $   0.19
                                             ========      ========     ========      ========

Weighted Average Number of Common
Shares Outstanding:

    Diluted                                    16,430        10,489       16,375        10,414
                                             ========      ========     ========      ========
    Basic                                      16,430        10,001       16,375        10,001
                                             ========      ========     ========      ========
</TABLE>


The  accompanying  notes are an integral  part of these  condensed  consolidated
statements.

                                       4
<PAGE>


                         OAO TECHNOLOGY SOLUTIONS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                    Nine Months Ended
                                                                                       September 30,
                                                                                  ----------------------
                                                                                    1998          1997
                                                                                  --------      --------
<S>                                                                               <C>           <C>     
Cash flows from operating activities:
Net (Loss) Income                                                                 $ (4,006)     $  1,948
Adjustments to reconcile net income to net cash used in operating activities:
   Depreciation and amortization                                                       697           163
   Asset abandonment costs                                                           2,100          --
   Increase in the allowance for uncollectible accounts                              2,417          --
Changes in assets and liabilities, net of effects of acquisitions:
   Accounts receivable                                                               3,234        (5,493)
   Other current assets                                                                104          (340)
   Income tax receivable and deferred tax asset                                     (2,895)         --
   Deposits and other assets                                                           312          (603)
   Accounts payable                                                                 (4,920)         (813)
   Accrued expenses                                                                     66          (304)
   Unearned revenue                                                                    260           (25)
   Income taxes payable                                                               (401)          928
                                                                                  --------      --------
     Net cash used in operating activities                                          (3,032)       (4,539)
                                                                                  --------      --------

Cash flows from investing activities:
   Acquisition of OAO Services                                                      (2,195)         --
   Payment on OAO Services debt agreement                                           (3,465)         --
   Acquisition of DHR Technologies, net of cash acquired                              (938)         --
   Purchases of property and equipment                                              (1,979)       (1,925)
                                                                                  --------      --------
     Net cash used in investing activities                                          (8,577)       (1,925)
                                                                                  --------      --------

Cash flows from financing activities:

   Borrowings under revolving credit agreement                                        --           6,041
   Proceeds from the exercise of stock options                                         235          --
   Payments on stockholders' receivable                                                129          --
   Payments on capital lease obligations                                              (435)         --
   Payments on notes payable                                                          (378)         --
                                                                                  --------      --------
     Net cash (used in) provided by financing activities                              (449)        6,041
                                                                                  --------      --------

Effect of exchange rate changes on cash                                               (322)         --

Net decrease in cash and cash equivalents                                          (12,380)         (423)
Cash and cash equivalents, beginning of period                                      22,221           876
                                                                                  --------      --------
Cash and cash equivalents, end of period                                          $  9,841      $    453
                                                                                  --------      --------

Supplemental Disclosures of Cash Flow Information
   Cash payments for income taxes                                                     $769          $128
</TABLE>


The  accompanying  notes are an integral  part of these  condensed  consolidated
statements.


                                       5
<PAGE>


                         OAO TECHNOLOGY SOLUTIONS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1.   OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

     OAO Technology Solutions,  Inc. (the "Company" or "OAOT" ) provides clients
with a wide range of IT solutions and professional  services including:  systems
and software engineering;  the operation of large-scale service delivery centers
and networks,  distributed  systems  management;  applications  development  and
maintenance;  staffing  augmentation  services;  enterprise  resource  planning,
integration,  implementation and training services;  as well as state-of-the-art
software solutions for the managed care marketplace.

     The condensed  consolidated  financial statements included herein have been
prepared by the Company without audit,  pursuant to the rules and regulations of
the Securities and Exchange  Commission  ("SEC") and include,  in the opinion of
management,  all  adjustments,  consisting  of  normal,  recurring  adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote  disclosures  normally included in financial statements prepared in
accordance with generally accepted accounting  principles have been condensed or
omitted  pursuant to such rules and  regulations.  The Company believes that its
disclosures are adequate to make the information presented not misleading. These
condensed  consolidated  financial statements should be read in conjunction with
the  financial  statements  and notes thereto  included in the Company's  Annual
Report on Form  10-K for the year  ended  December  31,  1997.  The  results  of
operations  for the three and nine month periods ended  September 30, 1998,  are
not necessarily indicative of the results to be expected for the full year.

2.   CREDIT AGREEMENTS

     The Company  currently has a $10.0 million  revolving credit agreement (the
"Agreement") with a commercial bank. Advances under the Agreement are limited to
80% of certain eligible accounts receivable of the Company. The Company also has
a $750,000  line of credit (the "Line") with the same bank and the same terms as
the Agreement.  There currently are no outstanding  borrowings  under either the
Agreement or the Line. The Company is required to maintain certain financial and
other covenants under these  facilities.  The Company was not in compliance with
certain  covenants  as  of  September  30,  1998,  and  is  in  the  process  of
renegotiating the terms of the existing Agreement.

3.   EARNINGS (LOSS) PER SHARE

     Basic earnings (loss) per share has been calculated as net earnings divided
by weighted-average common shares outstanding,  while diluted earnings per share
has been computed as net earnings divided by weighted average common and diluted
shares outstanding.  For the three and nine months ended September 30, 1998, all
common  equivalents  were  anti-dilutive  and  therefore  not  included  in  the
calculation of diluted  earnings per share.  For the three and nine months ended
September 30, 1997, the Company's  diluted shares  outstanding  were 488,000 and
413,000  respectively,  for total  common and  dilutive  shares  outstanding  of
10,489,000 and 10,414,000,  respectively.  Shares outstanding are computed using
the  weighted-average  number of shares of common and common equivalent  shares,
which consist of stock options, for each period.


                                       6
<PAGE>

4.   RESTRUCTURING AND OTHER CHARGES

     Restructuring Charge

     During the nine month periods ended  September 30, 1998, in connection with
management plans to reduce costs and improve operating efficiencies, the Company
recorded  pre-tax   restructuring   charges  of  approximately   $800,000.   The
restructuring  costs related to involuntary  employee  termination  benefits and
other costs associated with restructuring actions. Employee termination benefits
include severance, wage continuation, outplacement services and other benefits.

     Asset Abandonment

     During the three months ended September 30, 1998, the Company  reviewed the
status of its  enterprise  wide  financial  management  project  and  identified
previously capitalized costs of approximately $2.1 million related to components
of this project which were being  abandoned  during the projects  implementation
and have been written off.

5.   ACQUISITIONS

     DHR Technologies, Inc. Acquisition

     On April 2, 1998, the Company  acquired  certain assets and  liabilities of
DHR Technologies,  Inc. ("DHR") for  approximately  $1.1 million in cash. DHR, a
Maryland-based  information  technology services company and software developer,
provided  technical  services  in a variety  of  disciplines,  including  object
oriented software engineering; World Wide Web/multimedia applications;  training
and consulting; and maintenance engineering.  The acquisition has been accounted
for under the purchase  method of accounting,  thus the results of operations of
the acquired company have been included in the consolidated  financial statement
from the date of acquisition. The purchase price was allocated based on the fair
values of the  assets  acquired,  including  among  other  assets  approximately
$162,000 of cash, and the liabilities  assumed at the date of  acquisition.  The
purchase  resulted  in an excess of purchase  price over net assets  acquired of
approximately  $1.5 million,  which is being amortized on a straight-line  basis
over 7 years. Pro forma information  related to this acquisition is not included
herein as the acquisition was not material.

     OAO Services, Inc. Acquisition

     On July 24,  1998,  the Company  completed  the  acquisition  of all of the
outstanding  capital stock of OAO Services,  Inc.,  pursuant to a Stock Purchase
Agreement  dated July 24,  1998  among OAO  Services,  Inc.,  the  Company,  OAO
Corporation ("OAOC") and an individual  shareholder (the individual  shareholder
together with OAOC, the  "Stockholders").  The  acquisition  was effective as of
July 1, 1998.

     Pursuant to the terms of the Stock Purchase  Agreement,  the purchase price
payable by the Company to the  Stockholders  in connection  with the acquisition
included (i) cash in the amount of $2,305,000, subject to certain purchase price
adjustments,  (ii)  the  payment  by OAOT  to the  bank  of  $4,561,000  for the
retirement  of  outstanding  debt under a financing  agreement  (of this amount,
$3,465,611  is a paydown of the portion of the debt  allocated  to the  Company,
with the remainder, being a payment of the balance allocated to OAOC), and (iii)
earn-out  payments  to the  Stockholders  in amounts  equal to 10% of the OAOT's
Pre-Tax Profit, as defined in the Stock Purchase  Agreement,  in excess, if any,
of $2,000,000,  subject to increases as defined in the Stock Purchase Agreement,
for the three years ending  December 31, 1999,  2000 and 2001.  The aggregate of
all  earn-out  payments  under  the Stock  Purchase  Agreement  will not  exceed
$5,000,000,  and  each  earn-out  payment  will be  payable  by OAOT on the 90th
business day after the OAOT receipt of its audited financial  statements for the
year for which such payment is to be made.


                                       7
<PAGE>

     Also on July 24, 1998, in connection  with the acquisition of OAO Services,
OAOT entered into an  Administrative  Services  Agreement with OAOC, under which
OAOC will provide OAO Services with administrative  support services through the
earlier of the date that OAOT  determines,  in its sole  discretion,  that it no
longer  requires  such  services,  or December 31, 1998.  In  consideration  for
providing  such services,  OAOT will pay to OAOC $100,000 per month.  During the
three and nine month periods  ended  September  30, 1998,  the Company  incurred
$300,000 of costs under this agreement.

     As of September  30, 1998,  the Company had a receivable  of  approximately
$2.5 million due from OAOC.  In  connection  with its purchase of OAO  Services,
Inc.  from OAOC,  the Company paid excess cash purchase  price of  approximately
$352,000,  which together with the repayment of OAOC debt of approximately  $2.2
million at closing by the Company  results in the total  amount due from OAOC to
the Company of approximately $2.5 million. The Company entered into a promissory
note from OAOC for this amount bearing interest at Prime plus 2% due December 1,
1999. The note is guaranteed by an individual,  who is the Chairman of the Board
of  Directors  and  Chief  Executive  Officer  of OAOC,  holder of 95% of OAOC's
outstanding shares of capital stock, the Vice Chairman of the Board of Directors
of the Company,  and owner of  approximately  20% of the  outstanding  shares of
common  stock of the  Company,  and has  pledged as security  approximately  1.3
million of the shares of the Company's stock,  currently valued at approximately
$5.0 million.

     The  unaudited pro forma  information  for the periods set forth below give
effect to the OAO Services acquisition as if it had occurred at the beginning of
each period.  The pro forma information is presented for informational  purposes
only  and is not  necessarily  indicative  of the  results  of  operations  that
actually  would have been achieved had the  acquisition  been  consummated as of
that time (unaudited, dollars in thousands)


                                     Nine months ended         Year ended
                                    September 30, 1998      December 31, 1997
                                    ------------------      -----------------

   Revenue                               $119,948                 $143,557
   Net  (Loss) Income                    $(3,602)                  $3,513
   Diluted Earnings Per Share             $(.22)                    $.31
   Basic Earnings Per Share               $(.22)                    $.27



                                       8
<PAGE>

6.   COMPREHENSIVE (LOSS) INCOME

     In 1998, the Company  adopted  Statement of Financial  Accounting  Standard
("SFAS") No. 130,  "Reporting  Comprehensive  Income"  which was  effective  for
fiscal years  beginning  after  December 15, 1997.  Comprehensive  income is the
change in equity of a business  enterprise during a period from transactions and
other events and circumstances from non-owner  sources.  The Company's source of
other  comprehensive  income  other than net income,  is from  foreign  currency
translation adjustments and deferred compensation.  There were no adjustments to
net income to arrive at comprehensive  income for the three or nine months ended
September  30, 1997.  The  components  of  comprehensive  income are as follows:
(dollars in thousands)

<TABLE>
<CAPTION>
                                   Three months      Three months      Nine months       Nine months
                                      ended             ended             ended            ended
                                   September 30,     September 30,     September 30,    September 30,
                                       1998              1997             1998              1997
                                      ------------------------------------------------------------
<S>                                   <C>               <C>              <C>               <C>    
Net (Loss) Income                     $(1,972)          $   716          $(4,006)          $ 1,948
Other Comprehensive Income:
Deferred Compensation                    --                --               (195)             --
Foreign Currency Translation              (97)             --               (322)             --
                                      -------------------------          -------------------------
Comprehensive (Loss) Income           $(2,069)          $   716          $(4,523)          $ 1,948
</TABLE>

7.   NEW AUTHORITATIVE PRONOUNCEMENTS

     In July 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131,  "Disclosures about Segments of an Enterprise and Related Information,"
and in February 1998 issued SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits."

     SFAS No. 131 establishes  standards for the way public business enterprises
report  information about operating  segments and the related  disclosures about
products  and  services,  geographic  areas and major  customers.  SFAS No.  132
requires revised disclosures about pensions and  post-retirement  benefit plans.
Adoption  of SFAS  No.  132 will not have a  material  effect  on the  Company's
presentation  of pension  disclosures.  The Company is evaluating  the effect of
implementing SFAS No. 131 on its presentation of operating  segments and related
disclosures.  The Company will adopt SFAS Nos. 131 and 132 in the fourth quarter
of 1998.

     In March 1998,  the  American  Institute of  Certified  Public  Accountants
("AICPA") issued  Statement of Position 98-1,  "Accounting for Costs of Computer
Software  Developed  or  Obtained  for  Internal  Use." This  Statement  will be
effective in 1999 and establishes accounting standards for costs incurred in the
development or implementation of computer software.  This new Statement requires
the capitalization of certain software implementation costs relating to software
developed or  implemented  for the Company's use. This Statement is not expected
to have a significant  effect on the Company's  financial position or results of
operations.


                                       9
<PAGE>

Item 2.


                         OAO TECHNOLOGY SOLUTIONS, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



     The following should be read in conjunction with the Consolidated Financial
Statements of the Company and Notes thereto included elsewhere in this quarterly
report.  This report contains  certain  forward-looking  statements that involve
risks and  uncertainties.  Future events and the Company's  actual results could
differ   materially  from  the  results   reflected  in  these   forward-looking
statements.  Factors  that might cause such a  difference  include,  but are not
limited to, dependence on key strategic customers,  limited ability to establish
new  strategic   partner   relationships,   risks  associated  with  fixed-price
contracts,  ability  to sustain  and manage  growth,  variability  of  quarterly
operating  results,  dependence  on  key  personnel,   competition,   and  risks
associated with international sales.

Overview 

     The  Company   provides  a  wide  range  of  outsourced  IT  solutions  and
professional services, and competes in four lines of business, including Managed
Services,  Staff  Augmentation,  Enterprise  Resource  Planning,  and Healthcare
Solutions.

     Managed  Services   includes  the  operation  of  large-scale  data  center
complexes and networks ("Megacenter Operations"), distributed systems management
("DSM"),  staffing  services and other IT services.  The Company  provides these
services to strategic clients ("Strategic Clients") as part of an IT outsourcing
team serving engagement  clients  ("Engagement  Clients"),  who are the ultimate
end-users of the services.  The Company's  primary  Strategic  Clients have been
IBM's Global Services  ("IBM") and Digital  Equipment  Corporation  ("Digital").
Engagement  Clients  include  Ameritech,  Blue  Cross/Blue  Shield and McDonnell
Douglas.  During the nine months of 1998, the Company has invested approximately
$1.1 million the development of a new line of business, Applications Development
and  Maintenance  ("ADM") by opening a center in New  Brunswick,  Canada devoted
solely to the provision of these services (the "Northshore Solution").

     The  OAO  Services   acquisition  in  July  of  1998  comprises  the  Staff
Augmentation  line of business.  Staff  Augmentation  offers a broad range of IT
skills including systems engineers, architects, and managers. OAO Services is an
IBM National Technical Subcontracting (NTS) Supplier,  offering customer support
center services, year 2000 support services, and deskside support services.

     Enterprise  Resource  Planning was developed  with the  acquisition  of DHR
Technologies in April of 1998. DHR provides advanced computerized  solutions and
related  technical  services  to power,  industrial,  healthcare  and  financial
clients.

     In  addition,  the Company  provides  consulting  services  and software to
managed  care  organizations   through  its  Healthcare   Solutions   subsidiary
("Healthcare").

Results of Operations

Revenues

     The   Company's   revenue   increased   approximately   67.4%  and   29.9%,
respectively,  to $34.5  million and $77.9 million for the three and nine months
ended  September  30, 1998  compared to $20.6  million and $60.0 million for the
same prior year periods.  Revenue from Managed Services decreased 13.4% and 3.6%
respectively,  to $17.3  million and $55.7 million for the three and nine months
ended  September  30, 1998  compared to $19.9  million and $57.8 million for the
same prior periods.  This decrease is due to the  expiration of certain  Digital
projects,  and a  combination  of IBM  pricing  pressures  resulting  in revenue
reductions on three continuing contracts;  the elimination of approximately $2.5
million in revenue from a non-recurring  project which occurred during the first
half of 1997;  and the shutdown of  approximately  five IBM projects  during the
current year. In March 1998,  the Company  announced a new initiative to provide
certain  ADM   services  to  IBM.   This  new  line  of  business  has  provided
approximately $479,000 and $1.0 million in revenue for the three and nine months
ended  September 30, 1998.  


                                       10
<PAGE>

While the Company is continuing to participate in proposal efforts with IBM, and
will continue to pursue the expansion of the  NorthShore  Solution both with IBM
and other  customers,  it expects the  pricing  pressures  and certain  contract
expirations  to  continue.  Accordingly,  revenue  from  IBM and  Digital  could
potentially continue to decrease.

     Revenue  from Staff  Augmentation  was $14.9  million for the three  months
ended September 30, 1998. In July,  1998, the Company acquired certain assets of
OAO Services, Inc. ("Services") in a cash transaction.  The acquisition has been
accounted  for under the  purchase  method of  accounting,  thus the  results of
operations  of the  acquired  company  have been  included  in the  consolidated
financial  statements  from the date of  acquisition.  The  purchase  price  was
allocated  based on the fair values of the assets  acquired and the  liabilities
assumed  at the date of  acquisition.  Prior to the  acquisition,  Services  had
revenues of approximately $28.6 million, $16.5 million and $50.8 million for the
six months  ended June 30, 1998,  and the three and nine months ended  September
30, 1997,  respectively.  Revenue from Staff  Augmentation is expected to remain
consistent in the fourth quarter of 1998.

     In April 1998, the Company  acquired  certain  assets of DHR  Technologies,
Inc.  ("DHR") for  approximately  $1.1  million in cash.  DHR, a  Maryland-based
information  technology  services  company  and  software  developer,   provides
technical  services  in a  variety  of  disciplines,  including  object-oriented
software  engineering;  World Wide  Web/multimedia  applications;  training  and
consulting; and maintenance engineering.  The acquisition has been accounted for
under the purchase  method of accounting,  thus the results of operations of the
acquired  company have been included in the  consolidated  financial  statements
from the date of acquisition.  For the three and nine months ended September 30,
1998, DHR contributed  Enterprise  Resource  Planning  revenue of  approximately
$484,000,  and $1.2  million  respectively.  Revenue  from  Enterprise  Resource
Planning is expected to remain constant in the fourth quarter of 1998.

     Revenue from Healthcare was approximately $1.9 million and $6.0 million for
the three and nine months ended  September 30, 1998. The increase in revenue was
contributed by the Company's subsidiary,  OAO Healthcare Solutions,  which sells
the MC400  software  package and was  acquired by the Company in November  1997.
This  increase  in  Healthcare  was offset by a decrease in revenue for the nine
months  ended  September  30,  1998 due to the decline of revenues on one legacy
project nearing completion.  Revenue from Healthcare is expected to increase for
the  fourth  quarter  of 1998,  however,  no  assurance  can be given that these
expectations will be met.

Direct Costs

     The Company's  direct costs  increased  85.2% and 42.0%,  respectively,  to
$29.9  million and $66.6  million for the three and nine months ended  September
30, 1998,  compared to $16.1  million and $46.9  million for the same prior year
periods.  Direct costs consist primarily of direct labor cost and related fringe
benefit costs.  As a percentage of revenue,  direct costs increased to 86.6% and
85.6% for the three and nine months ended September 30, 1998,  compared to 78.3%
and 78.2% for the comparable periods in 1997.

     Gross  margin for Managed  Services  was $3.1  million and $8.9  million or
18.0% and 16.0% of the  related  revenues  for the three and nine  months  ended
September 30, 1998, respectively,  compared to $4.2 million and $12.1 million or
21.0% of the  related  revenues  for the same prior year  periods.  Margins  for
Managed  Services  decreased  primarily as a result of IBM pricing  pressures on
continuing  projects which accelerated during the first quarter of 1998, and due
to the expiration of several IBM and Digital  projects  during the current year.
In addition,  margins were adversely  impacted by approximately  $1.1 million of
start-up costs incurred year to date related to the Northshore Solution project.
These costs are  expected to continue at a declining  rate for the  remainder of
1998.  Staff  Augmentation  gross  margin  was $1.9  million or 12.9% of related
revenues for the three  months ended  September  30, 1998.  Enterprise  Resource
Planning  gross margin was  $(538,000)  and  $(723,000)  or (111.2%) and (61.4%)
respectively  for the three and nine months  ended  September  30,  1998.  Gross
margin for  Healthcare  was  $140,000  and $1.2 million or 7.4% and 18.9% of the
related  revenues  for the three  and nine  months  ended  September  30,  1998,
compared to $297,000 and $967,000 or 42.5% and 44.4% of the related revenues for
the same prior year periods.  Healthcare  margins decreased for the three months
ended  September  30, 1998 due to a decline in revenue on one  existing  project
nearing  completion.  Healthcare  margins  increased  for the nine months  ended
September  30,  1998  due to the  acquisition  of OAO  Healthcare  Solutions  in
November 1997. Healthcare margins are expected to increase


                                       11
<PAGE>

in the fourth quarter of 1998 compared to the current quarter due to an increase
in the delivery of MC400 software licenses.  Management can provide no assurance
that this expectation will be met.

Selling, General and Administrative Expenses

     Selling,  general and administrative expenses increased 55.5% and 56.1% for
the three and nine months  ended  September  30, 1998 to $4.9  million and $14.8
million,  respectively,  compared to $3.1  million and $9.5 million for the same
prior year periods. As a percentage of revenues,  these costs decreased to 14.1%
for the three months  ended  September  30, 1998  compared to 15.2% for the same
prior year period.  The decrease is  attributable to recently  implemented  cost
cutting initiatives.  As a percentage of revenues these costs increased to 19.0%
for the nine months ended  September  30,  1998,  compared to 15.8% for the same
prior year  periods.  The  increases  are due to  provisions  for  uncollectible
accounts  receivable  of  approximately  $3.2  million and  $625,000  which were
recorded  during  the  second  and  third  quarter  of 1998,  respectively.

Restructuring and  Other Charges

     During the three  months  ended  September  30, 1998,  in  connection  with
management plans to reduce costs and improve operating efficiencies, the Company
recorded  pre-tax   restructuring   charges  of  approximately   $800,000.   The
restructuring  costs  relate  primarily  to  involuntary   employee  termination
benefits.  Employee termination  benefits include severance,  wage continuation,
outplacement services and other benefits.

     During  1997,  the  Company  began  implementation  of an  enterprise  wide
financial  management project.  The program included modules for general ledger,
accounts receivable,  accounts payable,  project accounting and human resources.
During the three  months  ended  September  30, 1998,  due to  significant  cost
overruns and project definition changes, the Company hired an outside consultant
to  review  the  status  of this  project.  Based on this  review,  the  Company
abandoned   certain  of  the   original   software   modules   and  the  related
implementation  costs.  As a  result,  the  Company  recorded  a  write  off  of
approximately $2.1 million related to this abandonment. Other

Liquidity and Capital Resources

     Cash and cash  equivalents  were $9.8 million as of September 30, 1998, and
$453,000 as of  September  30,  1997.  Cash flows used in  operations  were $3.0
million for the nine months  ended  September  30, 1998 and $4.5 million for the
nine months ended September 30, 1997. The Company  primarily  funded its uses of
cash in 1998 from operations and the proceeds received from the rights offering,
and in 1997 from  borrowings  under the Company's  credit  facility prior to the
completion of the rights  offering.  The use of cash in operations  for the nine
months ended  September  30, 1998,  was  primarily the result of the increase in
income tax  receivable  as well as  decreases  in accounts  payable and accounts
receivable.

     The use of cash in investing activities for the nine months ended September
30, 1998 was primarily the result of the acquisitions of OAO Services,  Inc. and
DHR  Technologies,  Inc. The Company's  business is not capital  intensive,  and
expenditures  in  any  given  year  are  ordinarily  not  significant.   Capital
expenditures in the first nine months of 1998 included  expenditures  associated
with the development of a operational,  administrative and financial information
system.  The Company has recorded an asset  abandonment cost on the operational,
administrative  and financial  information system of approximately $2.1 million.
The Company expects to incur additional  capitalized costs of approximately $1.0
million  associated with the development and  implementation of a new management
information systems through the first quarter of 1999.

     The Company  currently has a $10.0 million  revolving credit agreement (the
"Agreement") with a commercial bank. Advances under the Agreement are limited to
80% of certain eligible accounts receivable of the Company. The Company also has
a $750,000  line of credit  (the  "Line")  with the same bank which has the same
terms as the Agreement.  The Company is required to maintain  certain  financial
and  other  covenants  under  these  facilities  with  which  they  were  not in
compliance as of September 30, 1998.  Since there  currently are no  outstanding
borrowings  under  either  the  Agreement  or the  Line,  there is no  liability
resulting  from the  violation  of the  covenants.  However,  under the existing
Agreement,  funds would not be  available  for the  Company's  use.  The Company
believes it would be able to obtain funds if needed by  renegotiating  the terms
of the existing  Agreement or entering into a new financing  arrangement  with a
different bank.

     The Company  currently  anticipates that its existing cash balances as well
as cash  generated from  operations  will be sufficient to satisfy its operating
cash needs for the foreseeable future. The Company believes that additional bank
credit would be available to fund such operating and capital requirements if the
Company's cash needs expand more rapidly than expected. In addition, the Company
could consider seeking  additional public or private debt or equity financing to
fund future growth opportunities.  No assurance can be given, however, that such
bank  credit or debt or equity  financing  will be  available  to the Company on
terms and conditions acceptable to the Company, if at all.


                                       12
<PAGE>

Year 2000 (Y2K) Issue

     The Company  recognizes the need to ensure that its operations  will not be
adversely impacted by Y2K failures. Accordingly, in January of 1998, the Company
initiated a program to  determine  it's state of readiness  for its  information
technology and  non-information  technology systems and to identify and properly
address issues  associated with the Y2K issue.  The Company has made substantial
progress in assessing  how it will be impacted by the issue.  In June of 1998, a
company wide  initiative  began to assess third party vendor state of readiness.
The  Company is in the process of  obtaining  compliance  certificates  from its
third party vendors,  however,  the Company is unable to definitively  determine
that all third party vendors will reach  Y2K-ready  status.  As of September 30,
1998,  the Company has surveyed all of its  business and critical  systems,  and
plans for replacement of  non-compliant  equipment and software have been put in
place. The cost of the replacement  systems is estimated at  approximately  $1.0
million,  scheduled  to be incurred in the fourth  quarter of 1998 and the first
quarter of 1999 under the normal course of business. The Comapny does not have a
written  contingency plan in place addressing the effect,  if any, should any of
its third party vendors fail to deliver Y2K compliance.  Any additional need for
contingency  plans or back-up systems will be addressed and determined during th
first half of 1999.

     The activities  involved in the Company's Y2K program  necessarily  involve
estimates and projections,  as described above, of activities and resources that
will be required in the future.  These  estimates and projections may be revised
as work  progresses  on this  program.  If any of the  significant  third  party
vendors are not Y2K  compliant  and/or the Company  fails to identify or replace
non-compliant   equipment  or  software  and  noncompliance  causes  a  material
disruption to the business of the Company,  the Company's revenues and financial
position could be materially adversely affected.  There can be no assurance that
the Year 2000 will not have a material adverse effect on the Company's financial
position of results of operations.



                                       13
<PAGE>

                           PART II - OTHER INFORMATION


Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

  Exhibit                                                              Page
    No.                     Description                                 No.
--------------------------------------------------------------------------------
    27.1      Financial Data Schedule.  (1)                             16



----------

(1)  Filed herewith.


(b)  Reports on Form 8-K

     1.   The Company filed a Form 8-K with the  Commission on June 29, 1998, to
          report its  announcement  of the  appointment of a new Chief Executive
          Officer,  the signing of letters of intent to acquire  two  companies,
          and the  expected  loss for the second  quarter of 1998.  No financial
          statements were filed with this report.

     2.   The Company filed a form 8-K with the Commission on August 7, 1998, in
          connection with the July 24, 1998 acquistion of all of the outstanding
          capital stock of OAO Services, Inc. No financial statements were filed
          with this report

     3.   The Company filed a Form 8-K/A with the Commission on October 6, 1998,
          to provide  the  financial  statements  required to be included in the
          current report on Form 8-K dated July 24, 1998 in connection  with the
          acquisition of all of the  outstanding  capital stock of OAO Services,
          Inc.


                                       14
<PAGE>

                                   SIGNATURES

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



                                          OAO Technology Solutions, Inc.
                                          (Registrant)
                                          
Date:  11/16/98                              By: /s/ GREGORY A. PRATT
                                             -----------------------------------
                                          Gregory A. Pratt
                                          Chief Executive Officer and President
                                          
Date:  11/16/98                              By: /s/ SAMUEL D. HORGAN
                                              ----------------------------------
                                          Samuel D. Horgan
                                          Chief Financial Officer
                            

                                       15