SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


(Mark One)

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

For the quarterly period ended June 30, 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 August 12, 1998, the registrant had outstanding  16,427,567 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 June 30, 1998



                                      INDEX

<TABLE>
<CAPTION>
                                                                                      Page Reference
                                                                                      --------------

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS
<S>                                                                                          <C>
        Consolidated Balance Sheets as of June 30, 1998 (unaudited) and
        December 31, 1997.....................................................................3

        Consolidated Statements of Operations (unaudited) for the Three Months and
        Six Months Ended June 30, 1998 and 1997...............................................4

        Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended
        June 30, 1998 and 1997................................................................5

        Notes to Consolidated Financial Statements (unaudited)................................6

Item 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS ........................................................................9

PART II - OTHER INFORMATION................................................................. 13

    Item 1.  Legal Proceedings
    Item 2.  Changes in Securities and Use of Proceeds
    Item 3.  Default Upon Senior Securities
    Item 4.  Submission of  Matters to a Vote of Security Holders
    Item 5.  Other Information
    Item 6.  Exhibits and Reports on Form 8-K

SIGNATURES...................................................................................14
</TABLE>

                                       2

<PAGE>


PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements

                         OAO TECHNOLOGY SOLUTIONS, INC.
                           CONSOLIDATED BALANCE SHEETS
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                              June 30, 1998   December 31,
                                                                               (Unaudited)       1997
                                                                               -----------    -----------
                                    ASSETS
<S>                                                                              <C>            <C>     
Current Assets:                                                                                
  Cash and cash equivalents                                                      $ 17,589       $ 22,221
  Accounts receivable:                                                                         
     Billed, net of allowance for uncollectible accounts                                       
       of $933 and $50, respectively                                               11,598         12,146
     Unbilled, net of allowance for uncollectible accounts                                     
       of $2,127 and $239, respectively                                             4,040          9,400
  Other current assets                                                              3,132            875
                                                                                  -------        -------
     Total current assets                                                          36,359         44,642
Property and equipment, net                                                         6,130          4,611
Deposits and other assets                                                             395            753
Goodwill                                                                            1,852            336
                                                                                  -------        -------
     Total assets                                                                $ 44,736       $ 50,342
                                                                                  =======        =======
                                                                                               
                      LIABILITIES AND STOCKHOLDERS' EQUITY                                     
                                                                                               
Current Liabilities:                                                                           
  Accounts payable                                                               $    640       $  3,773
  Accrued expenses                                                                  6,635          5,720
  Notes payable                                                                        --            378
  Other current liabilities                                                           242            970
  Current maturities of capital lease obligations                                     323            552
                                                                                  -------        -------
     Total current liabilities                                                      7,840         11,393
                                                                                               
Capital lease obligations, net of current portion                                     791            883
Commitments and Contingencies                                                                  
Stockholders' Equity:                                                                          
  Common Stock, par value $0.01 per share,                                                     
     authorized, 25,000,000; 16,404,150 and 16,285,050                                         
     issued and outstanding at June 30, 1998 and                                               
     December 31, 1997, respectively                                                  164            163
  Additional paid-in capital                                                       34,741         34,454
  Deferred compensation                                                              (195)           (76)
  Stockholders' receivable                                                             (4)          (133)
  Retained earnings                                                                 1,624          3,658
  Unrealized (loss) on foreign currency translation                                  (225)            --
                                                                                  -------        -------
     Total stockholders' equity                                                    36,105         38,066
                                                                                  -------        -------
     Total liabilities and stockholders' equity                                  $ 44,736       $ 50,342
                                                                                 ========       ========
</TABLE>                              


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


                                       3

<PAGE>


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

<TABLE>
<CAPTION>
                                                    Three Months Ended                    Six Months Ended
                                                         June 30,                             June 30,
                                                 -------------------------            -------------------------
                                                  1998               1997             1998                1997
                                                  ----               ----             ----                ----
<S>                                               <C>                <C>               <C>                <C>   
Revenues                                       $  20,340           $ 20,177          $ 43,346           $ 39,338
Direct Costs                                      18,009             15,953            36,733             30,773
                                                --------           --------          --------           --------
Gross Profit                                       2,331              4,224             6,613              8,565

Selling, General and Administrative                6,705              2,996            10,108              6,315
                                                --------           --------          --------           --------

(Loss) Income from Operations                     (4,374)             1,228            (3,495)             2,250
Interest and Other (Income) Expense, net            (195)                82              (381)                87
                                                --------           --------          --------           --------
(Loss) Income Before Income Taxes                 (4,179)             1,146            (3,114)             2,163
Income Tax (Benefit) Provision                    (1,507)               498            (1,080)               931
                                                --------           --------          --------           --------
Net (Loss) Income                               $ (2,672)           $   648          $ (2,034)           $ 1,232
                                                =========          ========          ========           ========

Net (Loss) Income Per Common Share:
     Diluted                                    $   (0.16)          $  0.06          $  (0.12)           $  0.12
                                                =========           =======          ========            =======
     Basic                                      $   (0.16)          $  0.06          $  (0.12)           $  0.12
                                                =========           =======          ========            =======

Weighted  Average  Number of  Common
Shares Outstanding:



    Diluted                                       16,392             10,187            16,346             10,133
                                                 =======             ======            ======             ======
    Basic                                         16,392             10,000            16,346             10,000
                                                 =======             ======            ======             ======
</TABLE>




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

                                       4

<PAGE>


                         OAO TECHNOLOGY SOLUTIONS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                                               Six Months Ended June 30,
                                                                               -------------------------
                                                                                   1998         1997
                                                                                   ----         ----
<S>                                                                              <C>         <C>     
Cash flows from operating activities:
Net (Loss) Income                                                                $ (2,034)   $  1,232
Adjustments  to  reconcile  net  (loss)  income to net cash used in  operating
activities:
   Depreciation and amortization                                                      435         210
   Increase in the allowance for uncollectible accounts                             2,771          --
Changes in assets and liabilities, net of effects of acquisition:
   Accounts receivable                                                              3,299      (6,297)
   Other current assets                                                            (2,254)       (257)
   Deposits and other assets                                                          328        (107)
   Accounts payable                                                                (4,046)        322
   Accrued expenses                                                                   915       1,260
   Other current liabilities                                                         (728)        388
                                                                                   ------      ------ 
     Net cash used in operating activities                                         (1,314)     (3,249)
                                                                                   ------      ------ 

Cash flows from investing activities:
   Acquisition of DHR Technologies, net of cash acquired                             (938)         --
   Purchases of property and equipment                                             (1,745)     (1,412)
                                                                                   ------      ------ 
     Net cash used in investing activities                                         (2,683)     (1,412)
                                                                                   ------      ------ 
Cash flows from financing activities:
   Borrowings under revolving credit agreement                                         --       4,175
   Proceeds from the exercise of stock options                                        160          --
   Payments on stockholders' receivable                                               129          --
   Payments on capital lease obligations                                             (321)         --
   Payments on notes payable                                                         (378)         --
                                                                                   ------      ------
     Net cash (used in) provided by financing activities                             (410)      4,175
                                                                                   ------      ------ 
Effect of exchange rate changes on cash                                              (225)         --

Net decrease in cash and cash equivalents                                          (4,632)       (486)
Cash and cash equivalents, beginning of period                                     22,221         876
                                                                                   ------      ------ 
Cash and cash equivalents, end of period                                         $ 17,589    $    390
                                                                                 ========    ========

Supplemental Disclosures of Cash Flow Information
   Cash payments for income taxes                                                $    645    $    535
</TABLE>



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

                                       5

<PAGE>


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


1.   OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

     OAO Technology Solutions,  Inc. (the "Company") along with its wholly owned
subsidiaries,  provides a wide range of information  technology ("IT") solutions
and  professional  services,  including  systems and software  engineering;  the
operation  of   large-scale   megaplexes  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  systems 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 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.  The results of operations  for the three and six month periods ended June
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 which has 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 June 30, 1998, and is in the process of
obtaining  waivers  from the bank for  those  covenants  until  the terms of the
existing Agreement can be renegotiated.

3.   EARNINGS PER SHARE

     Basic  earnings 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 six months ended June 30,  1998,  common
equivalents  of  781,000  and  857,000,  respectively,  were  anti-dilutive  and
therefore not included in the calculation of diluted earnings per share. For the
three  and six  months  ended  June  30,  1997,  the  Company's  diluted  shares
outstanding  were 187,000 and 133,000,  respectively,  to arrive at total common
and dilutive  shares  outstanding  of 10,187,000 and  10,133,000,  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.

4.   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 

                                       6

<PAGE>

income,  is from foreign currency  translation  adjustments  which are disclosed
separately  in the  Stockholders'  Equity  section of the  Consolidated  Balance
Sheets.  There  were no  adjustments  to net  income to arrive at  comprehensive
income for the three or six months ended June 30, 1997.  Comprehensive  loss was
$(2.9)  million and $(2.3)  million for the three and six months  ended June 30,
1998.

5.   ACQUISITIONS

     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,
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.  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.

6.   SUBSEQUENT EVENT -- ACQUISITION

     On July 24, 1998, the Company entered into a Stock Purchase  Agreement (the
"Agreement")  with the shareholders of OAO Services,  Inc.  ("Services") for the
purchase of all of the outstanding shares of capital stock of Services in a cash
transaction.  The Company and Services, a subsidiary of OAO Corporation ("OAO"),
are  related  parties  as a common  group  of  shareholders  hold a  substantial
ownership  interest in both  companies.  Services,  a nationwide  provider of IT
staffing  augmentation  services,  supplies  technically  skilled personnel on a
contract  basis,  and had revenues of  approximately  $28.6  million for the six
months ended June 30, 1998.  Substantially  all of Services  revenues  have been
derived from IBM Global  Services.  The acquisition  will be accounted for under
the  purchase  method of  accounting,  thus the  results  of  operations  of the
acquired company will be included in the consolidated  financial statements from
the date of  acquisition.  The purchase price of  approximately  $2.3 million in
cash is subject to adjustment  based on a balance  sheet audit of Services,  and
will be  allocated  based on the fair  values  of the  assets  acquired  and the
liabilities  assumed as of the date of  acquisition.  In  addition,  the Company
retired  approximately  $4.6 million of Service's  working capital  financing in
connection  with the  acquisition.  Furthermore,  the Agreement  provides for an
earn-out  provision  payable  in  installments  at the end of each of the fiscal
years ending December 31, 1999, 2000 and 2001.  This earn-out  provision,  which
may not exceed $5.0  million,  will be  determined  using an agreed upon formula
based  upon  pretax  results of the  Company  during the  earn-out  period.  The
financial  statements for Services and pro forma  financial  information for the
Company and Services  will be filed  subsequent  to  completion of the Services'
balance sheet audit.

     During the three and six months  ended June 30, 1998 and 1997,  the Company
served as a  subcontractor  on several  contracts with Services.  Total revenues
recorded under these contracts amounted to $221,000 and $600,000,  respectively,
for the three and six months ended June 30, 1998,  and $884,000 and $1.8 million
for the same prior year  periods.  At June 30,  1998 and 1997,  the  Company has
$831,000  and  $727,000 of billed  receivables  and $0 and  $230,000 of unbilled
receivables, respectively, which are due from Services.

     At the date of its  investment  in the  Company,  April 8, 1996,  Safeguard
Scientifics,  Inc.  ("Safeguard") paid $5.0 million to Services, in return for a
grant by Services  to the  Company of an option to  purchase at anytime  through
April 8, 2000,  all of the shares of common  stock of  Services  at an  exercise
price based on revenues and earnings  levels of Services for the 12 months prior
to the date of exercise.  Pursuant to the terms of an  agreement  dated July 11,
1997, the Services' option was canceled in consideration of the right granted to
the Company and

                                       7

<PAGE>


Safeguard to receive certain future payments in the event of any sale of OAO and
Services or any public  offering by OAO which occurs prior to April 8, 2000.  In
each  instance,  the  minimum  amount to be  received  by the  Company  would be
$500,000,  with the  potential  for a higher  amount  based on the  value of the
transaction.  In connection with the acquisition of Services by the Company, the
right  granted  through  the  agreement  dated July 11,  1997 to the Company and
Safeguard was waived.



                                       8

<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,  including  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. Engagement Clients include, among many others, Sears,
Blue Cross/Blue Shield and Boeing. In addition,  the Company provides consulting
services  and  software to managed  care  organizations  through its  Healthcare
division ("Healthcare"). During the first half of 1998, the Company has invested
approximately   $887,000  in  the   development  of  a  new  line  of  business,
Applications  Development and Maintenance ("ADM"), by opening centers in Ontario
and New Brunswick, Canada devoted solely to the provision of these services (the
"Northshore  Solution").  Additionally,  on July 24, 1998, the Company completed
its acquisition of OAO Services,  Inc.  ("Services"),  a nationwide  provider of
staffing  augmentation  services.  

Results of Operations
Revenues

     The Company's revenue increased approximately 0.5% and 10.2%, respectively,
to $20.3  million and $43.3  million for the three and six months ended June 30,
1998  compared  to $20.2  million  and $39.3  million  for the same  prior  year
periods.  Revenue from Healthcare increased 30.0% and 133.3% to $1.3 million and
$4.2  million,  respectively,  for the three and six months  ended June 30, 1998
from  approximately  $1.0  million  and $1.8  million  for the same  prior  year
periods.   The  increase  in  revenue  from   Healthcare  is   attributable   to
approximately  $980,000  and $3.2  million of  revenue  during the three and six
months  ended  June 30,  1998  from the  Company's  subsidiary,  OAO  HealthCare
Solutions,  which  sells the MC400  software  package  and was  acquired  by the
Company in November  1997.  Revenues and earnings from the Company's  Healthcare
division  declined from the first  quarter of 1998 to the second  quarter due to
sales and delivery resource constraints which have been addressed by the Company
in order to position  the  division  for growth and to meet demand for the MC400
product.

     Revenue from one of the Company's  strategic  clients  increased  65.0% and
90.5%,  respectively,  to $6.6  million and $14.1  million for the three and six
months  ended June 30,  1998,  compared to  approximately  $4.0 million and $7.4
million for the same prior year periods. Due to the second quarter expiration of
certain  projects,  third and fourth  quarter  1998  revenues  are  expected  to
decrease compared to the first two quarters of the current year.

     The increases in revenue from Healthcare and one of the Company's strategic
clients were offset by the decrease in revenue from one of the  Company's  other
strategic  clients.  For the three and six months ended June 30, 1998, the other
strategic  client's revenue  decreased 20.8% and 21.3%,  respectively,  to $11.4
million  and $22.9  million  for the three and six months  ended  June 30,  1998
compared to $14.4 million and $29.1


                                       9
<PAGE>

     million  for  the  same  prior  year  periods.  This  decrease  is due to a
combination  of  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 expiration of approximately  five projects during the current year. In March
1998, the Company  announced a new initiative to provide certain ADM services to
the client.  This new line of business has provided  approximately  $408,000 and
$530,000 in revenue for the three and six months ended June 30, 1998.  While the
Company is continuing to  participate in proposal  efforts with the client,  and
will continue to pursue the expansion of the  NorthShore  Solution both with the
client and other  customers,  it  expects  the  pricing  pressures  and  certain
contract  expirations  to continue.  Accordingly,  revenue from the client could
potentially continue to decrease.

     On July 24, 1998, the Company entered into a Stock Purchase  Agreement (the
"Agreement")  with the shareholders of OAO Services,  Inc.  ("Services") for the
purchase of all of the outstanding shares of capital stock of Services in a cash
transaction.  Services,  a  nationwide  provider  of  IT  staffing  augmentation
services,  supplies  technically  skilled personnel on a contract basis, and had
revenues of approximately  $28.6 million for the six months ended June 30, 1998.
Substantially all of Services revenues have been derived from one customer.  The
acquisition will be accounted for under the purchase method of accounting,  thus
the  results of  operations  of the  acquired  company  will be  included in the
consolidated  financial  statements from the date of  acquisition.  The purchase
price of approximately  $2.3 million in cash is subject to adjustment based on a
balance sheet audit of Services,  and will be allocated based on the fair values
of  the  assets  acquired  and  the  liabilities  assumed  as  of  the  date  of
acquisition.  In addition,  the Company  retired  approximately  $4.6 million of
Service's   working  capital  financing  in  connection  with  the  acquisition.
Furthermore,  the  Agreement  provides  for an  earn-out  provision  payable  in
installments  at the end of each of the fiscal years  ending  December 31, 1999,
2000 and 2001. This earn-out provision,  which may not exceed $5.0 million, will
be  determined  using an agreed upon  formula  based upon pretax  results of the
Company during the earn-out period.

Direct Costs

     The Company's  direct costs  increased  12.5% and 19.2%,  respectively,  to
$18.0  million  and $36.7  million  for the three and six months  ended June 30,
1998,  compared  to $16.0  million  and $30.8  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 88.5% and
84.7% for the three and six months  ended June 30,  1998,  compared to 79.1% and
78.2% for the comparable periods in 1997.

     Gross margin for the Healthcare division was $(465,000) and $1.3 million or
(35.8)% and 31.0% of the  related  revenues  for the three and six months  ended
June 30,  1998,  compared  to  $317,000  and  $736,000 or 31.7% and 40.9% of the
related revenues for the same prior year periods. Healthcare margins for the six
months  ended June  30,1998,  increased  from the prior  year  period due to the
acquisition of MC400 in November  1997.  Healthcare  margins  decreased from the
first to second  quarter of 1998  primarily  due to fewer high  margin  software
sales  which  resulted  from the lack of  delivery  resources  for the  product.
Additionally,  the  Company  incurred  costs to build the sales,  marketing  and
development  infrastructure  to alleviate the delivery  constraints  in order to
meet the demand for MC400 and position the division for growth.

     Gross  margins for the Company's  business  with its two primary  strategic
clients  was $3.1  million  and $5.3  million or 17.2% and 14.3% of the  related
revenues  for the  three  and six  months  ended  June 30,  1998,  respectively,
compared  to $3.7  million  and $7.7  million or 20.1% and 21.1% of the  related
revenues  for the same  prior year  periods.  Margins  related to the  Company's
business  with  the  clients  decreased  as a result  of  pricing  pressures  on
continuing  projects which accelerated during the first quarter of 1998, and due
to the  expiration  of several  projects  during the current  year. In addition,
margins were  adversely  impacted by  approximately  $887,000 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.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased 123.3% and 60.3% for
the three and six months ended June 30, 1998 to $6.7 million and $10.1  million,
respectively,  compared to $3.0 million and $6.3 million for the same prior year
periods. As a percentage of revenues,  these costs increased to 33.0% and 23.3%,
respectively,  for the three and six months  ended June 30,  1998,  compared  to
14.8% and 16.1% for the same prior year periods.

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<PAGE>


The increases are due to provisions  for  uncollectible  accounts  receivable of
approximately $3.1 million, and accruals for severance costs which were recorded
during the second  quarter of 1998.  During this  period,  the Company  executed
certain aggressive cost reduction  initiatives.  The Company expects to continue
to pursue additional such initiatives in the third quarter which could result in
initial one-time costs.

Interest Income, Expense and Tax Benefit, Provision

     Interest  and  other  income  primarily  represents  income  earned  on the
proceeds from the Company's  Initial  Public  Offering  completed on December 4,
1997.  The Company's  effective tax rate for the three and six months ended June
30, 1998 of 36.1% and 34.7%,  respectively,  decreased  from 43.5% and 43.0% for
the same prior year periods due to a change in the  distribution of income among
various tax jurisdictions and certain nondeductible charges.

Liquidity and Capital Resources

     Cash and cash  equivalents  were $17.6 million at June 30, 1998,  and $22.2
million at December 31, 1997.  Cash flows used in  operations  were $1.3 million
for the six months ended June 30, 1998 and $3.2 million for the six months ended
June 30,  1997.  The  Company  primarily  funded  its uses of cash in 1998  from
operations  and the  proceeds  received  from  the  Offering,  and in 1997  from
borrowings  under the Company's  credit  facility prior to the completion of the
Offering.  The use of cash in operations for the six months ended June 30, 1998,
was primarily the result of the loss incurred reduced by non-cash  charges,  net
of the related tax benefits.

     The Company's  business is not capital  intensive,  and expenditures in any
given year are ordinarily not significant. Capital expenditures in the first six
months of 1998 included  expenditures  associated  with the development of a new
operational,  administrative  and  financial  information  system.  The  Company
expects to incur  additional  capitalized  costs associated with the development
and implementation of the new management  information systems through the fourth
quarter of 1998.

     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.  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 June 30, 1998, and is in the process of
obtaining  waivers  from the bank for  those  covenants  until  the terms of the
existing Agreement can be renegotiated.

     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.

Recent Authoritative Pronouncements

     Effective  January 1, 1998,  the  Company  adopted  Statement  of  Position
("SOP") 97-2, "Software Revenue Recognition" which is effective for all software
transactions  the Company  enters into  subsequent  to December  15,  1997.  The
adoption  of this  statement  did not have a  material  effect on the  Company's
financial position.

     In 1997 and 1998, the Financial  Accounting Standards Board ("FASB") issued
pronouncements  relating  to the  presentation  and  disclosure  of  information
related to segment data and the  disclosure of  information  about  pensions and
other postretirement  benefits,  respectively.  The Company is required to adopt
the  provisions  of these  

                                       11

<PAGE>


pronouncements,  if  applicable,  for the year ending  December  31,  1998.  The
adoption  of  these  pronouncements  will not have an  impact  on the  Company's
financial position and results of operations, but may change the presentation of
certain of the Company's Notes to the Consolidated Financial Statements.

     In March,  1998,  the American  Institute of Certified  Public  Accountants
("AICPA")  issued SOP 98-5,  "Reporting  on the Costs of  Start-Up  Activities,"
which  requires  costs  of  start-up  activities  and  organization  costs to be
expensed as incurred.  This SOP is effective for financial statements for fiscal
years beginning after December 15, 1998. The Company is currently  assessing the
impact of early application of the SOP.


                                       12


<PAGE>



                           PART II - OTHER INFORMATION



Item 1. Legal Proceedings - Not Applicable


Item 2. Changes in Securities and Use of Proceeds - Not Applicable


Item 3. Default Upon Senior Securities - Not Applicable


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

     The  information  required by this Item is incorporated by reference to the
Registrant's  definitive  Proxy Statement for the Annual Meeting of Stockholders
held on May 21, 1998 filed with the Commission April 20, 1998.


Item 5. Other  Information. 

     Stockholders  intending to present  proposals at the next Annual Meeting of
Stockholders to be held in 1999 must notify the Company of the proposal no later
than  December  21, 1998 if they wish to include the  proposal on the  Company's
proxy card and,  along with any  supporting  statement,  in the Company's  proxy
statement.  As to any proposal  presented by a stockholder at the Annual Meeting
of  Stockholders  that  has  not  been  included  in the  Proxy  Statement,  the
management proxies will be allowed to use their  discretionary  voting authority
unless notice of such proposal is received by the Company no later than March 6,
1999.


Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

 Exhibit                                                                  Page
   No.                   Description                                       No.
----------  ---------------------------------------------------------- ---------
   10.5     Employment agreement between Gregory Pratt and the          15 - 26
            Company, dated as of June 25, 1998

   11.1     Statement Regarding Computation of Earnings Per Share. (1)     27

   27.1     Financial Data Schedule. (1)                                   28

----------
(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 to
          report its acquisition of all of the outstanding  capital stock of OAO
          Services,  Inc., a District of Columbia corporation (see Footnote 6 in
          the Notes to Consolidated Financial Statements), pursuant to the Stock
          Purchase  Agreement  dated as of July 24, 1998 among the Company,  OAO
          Corporation and William R. Hill.


                                       13

<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:   8/14/98                           By: /s/ Gregory A. Pratt
                                             ----------------------------------
                                          Gregory A. Pratt
                                          Chief Executive Officer and President

Date:   8/14/98                           By: /s/ Samuel D. Horgan
                                             ----------------------------------
                                          Samuel D. Horgan
                                          Chief Financial Officer


                                       14