ZMAX CORP, S-4/A, 1997-08-12

ZMAX CORP
S-4/A, 1997-08-12
COMPUTER INTEGRATED SYSTEMS DESIGN

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 11, 1997

REGISTRATION STATEMENT NO. 333-29833
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

AMENDMENT NO. 1

TO
FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------

ZMAX CORPORATION
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)

NEVADA 666 87-0434977
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)

----------------

NEW ZMAX CORPORATION
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 666 52-2040275
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)

----------------

20251 CENTURY BOULEVARD
GERMANTOWN, MARYLAND 20874
(301) 353-9500
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
BOTH CO-REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)

----------------

MICHAEL C. HIGGINS
PRESIDENT
20251 CENTURY BOULEVARD
GERMANTOWN, MARYLAND 20874
(301) 353-9500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF BOTH CO-REGISTRANTS' AGENT FOR SERVICE)

----------------

COPIES TO:
RICHARD H. MILLER MICHAEL H. CHANIN
POWELL, GOLDSTEIN, FRAZER & MURPHY POWELL, GOLDSTEIN, FRAZER & MURPHY
LLP LLP
SIXTEENTH FLOOR SIXTH FLOOR SOUTH
191 PEACHTREE STREET, NE 1001 PENNSYLVANIA AVENUE, NW
ATLANTA, GEORGIA 30303 WASHINGTON, DC 20004
(404) 572-6600 (202) 347-0066

----------------

Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.

----------------

If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]

----------------

The Co-Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Co-Registrants
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

[LOGO OF ZMAX CORPORATION APPEARS HERE]

ZMAX CORPORATION
20251 CENTURY BOULEVARD
GERMANTOWN, MARYLAND 20874

To the Stockholders of
ZMAX Corporation:

You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of ZMAX Corporation, a Nevada corporation ("Old ZMAX"), to be held at the
offices of Old ZMAX at 20251 Century Boulevard, Germantown, Maryland on
September , 1997, at 11:00 A.M., local time. A Notice of Annual Meeting, a
Proxy Statement/Prospectus and a Proxy containing information about the
matters to be acted upon at the Annual Meeting are enclosed.

At the Annual Meeting you will be asked to (i) elect nominees to serve as
directors of Old ZMAX until the next annual meeting of stockholders, (ii)
approve the ZMAX Corporation 1997 Stock Incentive Plan and (iii) consider and
vote upon a proposal to adopt an Agreement and Plan of Merger, dated as of
June 10, 1997 (the "Merger Agreement"), between Old ZMAX and New ZMAX
Corporation, a Delaware corporation ("New ZMAX"), pursuant to which Old ZMAX
will be merged with and into New ZMAX (the "Merger"). If the Merger Agreement
is approved and the Merger becomes effective, each holder of Common Stock,
$0.001 par value, of Old ZMAX ("Old ZMAX Common Stock") will have the right to
receive, and such shares of Old ZMAX Common Stock will become exchangeable
for, one share of Common Stock, $0.001 par value, of New ZMAX for each share
of Old ZMAX Common Stock held at the time of the Merger.

The Board of Directors of Old ZMAX has fixed August , 1997 as the record
date for the determination of stockholders entitled to notice of and to vote
at the Annual Meeting. Stockholders are urged to review carefully the
information contained in the accompanying Proxy Statement/Prospectus,
including in particular the information under the captions "Risk Factors" and
"The Merger" prior to making any voting decision in connection with their Old
ZMAX Common Stock.

It is very important that your views be represented whether or not you are
able to attend the Annual Meeting. Accordingly, please complete, sign and date
your proxy card and return it to us in the enclosed envelope as soon as
possible. Failure to return your proxy card or to vote in person at the Annual
Meeting will have the effect of a vote against the Merger. Returning your
completed proxy card will not limit your right to vote in person if you attend
the Annual Meeting.

Sincerely,

Michael C. Higgins
President

Germantown, Maryland
August , 1997
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ZMAX CORPORATION
20251 CENTURY BOULEVARD
GERMANTOWN, MARYLAND 20874

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER , 1997

Notice is hereby given that the 1997 Annual Meeting of Stockholders (the
"Meeting") of ZMAX Corporation, a Nevada corporation ("Old ZMAX"), will be
held at the offices of Old ZMAX at 20251 Century Boulevard, Germantown,
Maryland on September , 1997, at 11:00 A.M., local time, for the following
purposes;

1. To elect directors to serve until the next annual meeting of
stockholders.

2. To approve the ZMAX Corporation 1997 Stock Incentive Plan.

3. To approve and adopt an Agreement and Plan of Merger, dated as of June
10, 1997 (the "Merger Agreement"), between Old ZMAX and New ZMAX
Corporation, a Delaware corporation ("New ZMAX"), pursuant to which, among
other things (i) Old ZMAX will be merged with and into New ZMAX (the
"Merger") and (ii) each share of Common Stock, $0.001 par value, of Old
ZMAX ("Old ZMAX Common Stock") will be converted into the right to receive,
and become exchangeable for, one share of Common Stock, $0.001 par value,
of New ZMAX as more fully described in the accompanying Proxy
Statement/Prospectus. Pursuant to Nevada law, Old ZMAX stockholders will be
entitled to dissenters' rights in connection with the Merger, as more fully
described in the accompanying Proxy Statement/Prospectus. A copy of the
Merger Agreement is attached as Annex A to the Proxy Statement/Prospectus
and is incorporated herein by reference.

4. To transact any other business incidental to the Meeting that may
properly come before the Meeting or any adjournment or postponement
thereof.

The Board of Directors of Old ZMAX has fixed August , 1997 as the record
date for the determination of stockholders entitled to notice of and to vote
at the Meeting. Whether or not you plan to attend the Meeting, please
complete, date and sign the enclosed proxy card and mail it promptly in the
enclosed pre-addressed envelope, which requires no postage if mailed in the
United States.

By Order of the Board of Directors,

G.W. Norman Wareham
Secretary

Germantown, Maryland
August , 1997
<PAGE>

SUBJECT TO COMPLETION--DATED AUGUST , 1997
--

PROXY STATEMENT/PROSPECTUS
OF
ZMAX CORPORATION

For Annual Meeting of Offer to Exchange up to
Holders of Shares of 1,210,000 shares of its
Common Stock, $0.001 par Common Stock and
value, of ZMAX Warrants for up to
Corporation 1,210,000 shares of its
Common Stock for all of
its outstanding 8%
Convertible Exchangeable
Subordinated Debentures

-----------

PROSPECTUS OF
NEW ZMAX CORPORATION

Up to 11,870,514 Shares of
Common Stock, $0.001 Par Value

-----------

This Proxy Statement/Prospectus is being furnished by ZMAX Corporation, a
Nevada corporation ("Old ZMAX"), and New ZMAX Corporation, a Delaware
corporation ("New ZMAX"), to holders of shares of Common Stock, $0.001 par
value, of Old ZMAX ("Old ZMAX Common Stock") in connection with the
solicitation of proxies by the Board of Directors of Old ZMAX (the "Old ZMAX
Board") for use at the Annual Meeting of Stockholders to be held at the time
and place and for the purposes set forth in the accompanying Notice of Annual
Meeting of Stockholders, or any adjournment or postponement thereof (the
"Meeting").

At the Meeting, the stockholders of Old ZMAX will be asked to (i) elect
directors to serve until the next annual meeting of stockholders, (ii) approve
the ZMAX Corporation 1997 Stock Incentive Plan and (iii) approve and adopt an
Agreement and Plan of Merger, dated as of June 10, 1997 (the "Merger
Agreement"), between Old ZMAX and New ZMAX. A copy of the Merger Agreement is
attached to this Proxy Statement/Prospectus as Annex A and is incorporated
herein by reference.

Under the terms of the Merger Agreement, upon completion of the merger of Old
ZMAX with and into New ZMAX (the "Merger"), each outstanding share of Old ZMAX
Common Stock will be converted into the right to receive and become
exchangeable for one share (the "Exchange Ratio") of Common Stock, $0.001 par
value, of New ZMAX ("New ZMAX Common Stock"). In addition, the directors of Old
ZMAX elected at the Meeting will become the directors of New ZMAX, and the Old
ZMAX 1997 Stock Incentive Plan will become the New ZMAX 1997 Stock Incentive
Plan.

This Proxy Statement/Prospectus also constitutes the prospectus of New ZMAX
with respect to 11,870,514 shares of New ZMAX Common Stock to be issued in
connection with the Merger in exchange for the outstanding shares of Old ZMAX
Common Stock. New ZMAX has filed a Registration Statement on Form S-4, together
with any amendments thereto (File No. 333-29833) (the "Registration
Statement"), with the Securities and Exchange Commission ("SEC" or
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), registering an aggregate of 11,870,514 shares of New ZMAX Common Stock
that may be issued in connection with the Merger. This Proxy
Statement/Prospectus and the Registration Statement do not cover any resales of
New ZMAX Common Stock that will be received by Old ZMAX stockholders in
connection with the Merger, and no person is authorized to make any use of this
Proxy Statement/Prospectus in connection with any such resale. However,
following the Merger, it is anticipated that shares of New ZMAX Common Stock
will be freely transferable without restriction under the Securities Act,
except for shares of New ZMAX Common Stock beneficially owned by affiliates of
New ZMAX or subject to contractual restrictions. See "Shares Eligible for
Future Sale."

SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT THE EXISTING HOLDERS OF OLD ZMAX COMMON STOCK SHOULD CONSIDER IN
EVALUATING THE MERGER, INCLUDING THEIR PROSPECTIVE INVESTMENT IN SHARES OF NEW
ZMAX COMMON STOCK.

Old ZMAX hereby offers, upon the terms and conditions set forth in this Proxy
Statement/Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal," which, together with this Proxy Statement/Prospectus, constitutes
the "Exchange Offer"), to each holder of Old ZMAX's 8% Convertible Exchangeable
Subordinated Debentures due 1999 (the "Debentures") the opportunity to exchange
all, but not less than all, Debentures held for (i) 220 shares of Old ZMAX
Common Stock and (ii) a Warrant (as defined herein) to purchase 220 shares of
Old ZMAX Common Stock for each $1,000 principal amount of Debentures
(collectively, the "Exchange Consideration"). This Proxy Statement/Prospectus
also constitutes the prospectus of Old ZMAX with respect to, and the
Registration Statement also registers, (i) up to 1,210,000 shares of Old ZMAX
Common Stock and Warrants for up to 1,210,000 shares of Old ZMAX Common Stock
issuable upon the acceptance of Debentures tendered for exchange in the
Exchange Offer and (ii) the issuance of up to 1,210,000 shares of Old ZMAX
Common Stock issuable upon the exercise of the Warrants issued in the Exchange
Offer.

(cover continued on following page)

-----------

The date of this Proxy Statement/Prospectus is August , 1997.
--
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>

(continuation of cover page)

This Proxy Statement/Prospectus and the enclosed forms of proxy are first
being mailed to stockholders of Old ZMAX on or about August , 1997.
--

On August , 1997, the last reported bid price of a share of Old ZMAX Common
--
Stock on the OTC Bulletin Board, a service provided by The Nasdaq Stock
Market, Inc., was $ .
---
Following the completion of the transactions described herein, the Company
intends to furnish to its stockholders annual reports containing audited
financial statements.

UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
-----
SECURITIES, WHETHER OR NOT PARTICIPATING IN THE TRANSACTIONS DESCRIBED HEREIN,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS.

THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERS CONTAINED HEREIN AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROXY STATEMENT/PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.

ii
<PAGE>

AVAILABLE INFORMATION

Old ZMAX and New ZMAX have filed with the Commission a Registration
Statement on Form S-4 under the Securities Act with respect to the securities
of Old ZMAX to be issued in the Exchange Offer and the shares of New ZMAX
Common Stock to be issued pursuant to the Merger Agreement. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted pursuant
to the rules and regulations of the SEC. Such additional information may be
obtained from the SEC's principal office in Washington, D.C.

Upon completion of the offering of New ZMAX Common Stock described in this
Proxy Statement/Prospectus, New ZMAX will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will file reports, proxy statements and
other information with the SEC. Copies of these materials may be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the SEC: 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of these materials can be obtained at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies may also be obtained through the Internet from
the SEC's site on the World Wide Web at the following address:
http://www.sec.gov.

iii
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 8
The Meeting.............................................................. 12
The Company.............................................................. 14
The Merger............................................................... 15
The Exchange Offer....................................................... 21
Capitalization........................................................... 27
Price Range of Common Stock and Dividend Policy.......................... 28
Selected Financial Data.................................................. 29
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30
Business................................................................. 35
Pro Forma Condensed Consolidated Financial Data.......................... 43
Management and Executive Compensation.................................... 48
Proposal to Elect Directors.............................................. 57
Proposal to Approve ZMAX Corporation 1997 Stock Incentive Plan........... 57
Principal Shareholders................................................... 61
Certain Relationships and Related Party Transactions..................... 63
Description of the Securities............................................ 64
Shares Eligible for Future Sale.......................................... 67
Comparison of Stockholder Rights......................................... 68
Stockholder Proposals for 1998 Annual Meeting............................ 73
Legal Matters............................................................ 73
Experts.................................................................. 73
Index to Financial Statements............................................ F-1
Report of Independent Public Accountants................................. F-2
Annex A--Agreement and Plan of Merger.................................... A-1
Annex B--Form of Amended and Restated New ZMAX Certificate of Incorpora-
tion.................................................................... B-1
Annex C--Form of Amended and Restated New ZMAX Bylaws.................... C-1
Annex D--Sections 92A.300-2A.500 of the Nevada Revised Statutes.......... D-1
</TABLE>

iv
<PAGE>

SUMMARY

The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Proxy Statement/Prospectus. Investors
are urged to review the entire Proxy Statement/Prospectus and the Annexes
hereto. Capitalized terms used and not otherwise defined in this Summary have
the meanings given to them elsewhere in this Proxy Statement/Prospectus. Unless
the context otherwise requires, the "Company" refers to Old ZMAX together with
its subsidiary with respect to matters arising prior to the Effective Time of
the Merger and to New ZMAX together with its subsidiary with respect to matters
arising after the Effective Time of the Merger. "Common Stock" refers to Old
ZMAX Common Stock prior to the Effective Time and New ZMAX Common Stock after
the Effective Time.

On November 6, 1996, Old ZMAX, a shell company listed on the OTC Bulletin
Board, acquired 100% of the outstanding common stock of Century Services, Inc.,
a Maryland corporation ("CSI"). At the time of the acquisition, Old ZMAX and
CSI were development stage companies with no operating revenue. CSI was a
privately held company formed on December 13, 1995 to perform computer re-
engineering with a focus on providing a solution to the Year 2000 problem. For
financial reporting purposes, the acquisition has been treated as a
recapitalization of CSI with CSI as the acquirer (a reverse acquisition). The
historical financial statements prior to November 6, 1996 are those of CSI. The
accompanying consolidated financial statements include all of the accounts of
CSI and the accounts of Old ZMAX for the period from the acquisition on
November 6, 1996, through December 31, 1996.

OVERVIEW

THE MERGER

ZMAX Corporation, a Nevada corporation ("Old ZMAX"), proposes to merge with
and into New ZMAX Corporation, a Delaware corporation ("New ZMAX"), pursuant to
an Agreement and Plan of Merger dated as of June 10, 1997 between Old ZMAX and
New ZMAX (the "Merger Agreement"). See "The Merger." At the time the Merger
becomes effective, each outstanding share of Common Stock, $0.001 par value, of
Old ZMAX ("Old ZMAX Common Stock") will be converted into the right to receive,
and will be exchangeable for one share of Common Stock, $0.001 par value, of
New ZMAX ("New ZMAX Common Stock"). New ZMAX intends to apply for quotation of
the New ZMAX Common Stock on the Nasdaq SmallCap Market. Shares of New ZMAX
Common Stock issued in the Merger will be freely transferable without
restriction under the Securities Act of 1933, as amended, except for shares of
New ZMAX Common Stock beneficially owned by affiliates of New ZMAX or subject
to contractual restriction. See "Shares Eligible for Future Sale."

THE EXCHANGE OFFER

Old ZMAX hereby offers, upon the terms and conditions set forth in this Proxy
Statement/Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal," which together with this Proxy Statement/Prospectus, constitutes
the "Exchange Offer"), to each holder of Old ZMAX's 8% Convertible Exchangeable
Subordinated Debentures due 1999 (the "Debentures") the opportunity to exchange
all, but not less than all, Debentures held by such holder for (i) 220 shares
of Old ZMAX Common Stock and (ii) a Warrant to purchase 220 shares of Old ZMAX
Common Stock (the "Warrant Shares"), for each $1,000 principal amount of
Debentures. The Letter of Transmittal also invites the exchanging Debenture
holder to immediately exercise the Warrants received in the Exchange Offer. The
exchange of at least 90% of the Debentures for Old ZMAX Common Stock and the
exercise of Warrants for at least 80% of the Warrant Shares are conditions to
the consummation of the Merger. See "The Exchange Offer" and "The Merger--The
Merger Agreement--Conditions to the Merger."

THE MEETING

At the Old ZMAX 1997 Annual Meeting of Stockholders (the "Meeting"), the
stockholders of Old ZMAX will be asked to (i) elect directors to serve until
the next annual meeting, (ii) approve the ZMAX Corporation

1
<PAGE>

1997 Stock Incentive Plan (the "Incentive Plan"), and (iii) consider and vote
upon the proposal to approve and adopt the Merger Agreement. The Meeting is
scheduled to be held at 11:00 A.M., local time, on September , 1997, at the
offices of Old ZMAX. The Board of Directors of Old ZMAX (the "Old ZMAX Board")
has fixed the close of business on August , 1997 as the record date (the
"Record Date") for the determination of holders of Old ZMAX Common Stock
entitled to notice of and to vote at the Meeting. Only holders of record of Old
ZMAX Common Stock at the close of business on the Record Date will be entitled
to notice of and to vote at the Meeting. See "The Meeting."

The Old ZMAX Board unanimously approved the Merger Agreement and recommends
that Old ZMAX stockholders vote "FOR" approval and adoption of the Merger
Agreement. See "The Merger--Recommendations of the Board and Principal Reasons
for the Merger and the Exchange Offer" and "The Merger--Interests of Certain
Persons." The Old ZMAX Board also recommends that Old ZMAX stockholders vote
"FOR" the nominees for election as directors and "FOR" the approval of the
Incentive Plan.

THE PARTIES

Old ZMAX focuses on acquiring, building and operating companies in the
information technology industry. In September 1996, Old ZMAX agreed to acquire
all of the shares in Century Services, Inc., a Maryland corporation ("CSI").
CSI offers re-engineering and information processing services to users of
large-scale computer systems in North America and Europe. CSI specializes in
assisting business organizations and government agencies with what has become
popularly known as the "Year 2000 problem." Over the next several years, CSI
expects to devote substantial resources to assisting its clients in preparing
for and implementing the conversion of their computer systems to allow those
clients to continue operations without interruption in the 21st Century. See
"The Company" and "Business."

New ZMAX is a newly formed, wholly owned subsidiary of Old ZMAX formed solely
for the purpose of effecting the Merger. New ZMAX has not previously conducted
any business but will assume and carry on Old ZMAX's business without change
after the Effective Time of the Merger.

Following the Merger, New ZMAX is expected to change its name to "ZMAX
Corporation." CSI will continue to conduct its business as a wholly owned
subsidiary of New ZMAX.

The address of the corporate headquarters for both Old ZMAX and New ZMAX is
20251 Century Boulevard, Germantown, Maryland 20874, and the telephone number
is (301)353-9500.

THE MERGER

At the time the Merger becomes effective, Old ZMAX will be merged with and
into New ZMAX and Old ZMAX will cease to exist as a corporation. New ZMAX will
be the surviving corporation in the Merger, and CSI will thereby become a
wholly owned subsidiary of New ZMAX. All issued and outstanding shares of Old
ZMAX Common Stock will represent the right to receive and will be exchangeable
for one share of New ZMAX Common Stock in the Merger. See "The Merger."

REQUIRED VOTE

Approval of the Merger requires the affirmative vote of the holders of a
majority of the outstanding shares of Old ZMAX Common Stock entitled to vote.

EFFECTIVE TIME

After all the conditions set forth in the Merger Agreement have been
satisfied or waived, the Merger will become effective at such time as a
Certificate of Merger required under the Nevada Revised Statutes (the "Nevada
Law") and the Delaware General Corporation Law (the "Delaware Law") is filed
with the Secretaries of State of the States of Nevada and Delaware (the
"Effective Time"). Such filing will be made simultaneously with or as soon as
practicable after the closing of the Merger.

2
<PAGE>

EXCHANGE OF STOCK CERTIFICATES

From and after the Effective Time, each share of Old ZMAX Common Stock will
be automatically converted into the right to receive one share of New ZMAX
Common Stock. As soon as practicable after the Effective Time, New ZMAX will
send transmittal instructions to each former Old ZMAX stockholder describing
the procedure for surrendering Old ZMAX stock certificates for New ZMAX stock
certificates.

RECOMMENDATIONS OF THE BOARD AND REASONS FOR THE MERGER

The Old ZMAX Board unanimously approved the Merger Agreement and recommends
that the Old ZMAX stockholders vote "FOR" approval and adoption of the Merger
Agreement. The recommendation of the Old ZMAX Board regarding the Merger
Agreement is based upon the belief of the Old ZMAX directors that the terms of
the Merger Agreement are fair from a financial point of view to the
stockholders of Old ZMAX. For a discussion of Old ZMAX's reasons for the
Merger, see "The Merger--Recommendations of the Board and Principal Reasons for
the Merger and the Exchange Offer."

INTERESTS OF CERTAIN PERSONS

CONDITIONS TO THE MERGER

The obligations of New ZMAX and Old ZMAX to consummate the Merger are subject
to the satisfaction or waiver of certain conditions, including (i) the approval
of the Merger Agreement by the Old ZMAX stockholders, (ii) the exchange of at
least 90% of the Debentures in the Exchange Offer and (iii) the exercise of
Warrants for at least 80% of the Warrant Shares. See "The Merger--The Merger
Agreement--Conditions to the Merger."

RIGHTS TO TERMINATE AND AMENDMENTS

The Merger Agreement may be terminated prior to the closing of the
transactions contemplated thereby under certain circumstances. Subject to
compliance with applicable law, the Merger Agreement may be amended at any time
prior to the Effective Time by a written agreement executed by New ZMAX and Old
ZMAX.

COMPARISON OF RIGHTS UNDER APPLICABLE LAW

The rights of stockholders of Old ZMAX are currently governed by the Nevada
Law, the Old ZMAX Articles of Incorporation and the Old ZMAX Bylaws. After the
Merger, Old ZMAX stockholders will become stockholders of New ZMAX and from and
after the Effective Time their rights as stockholders of New ZMAX will be
governed by the Delaware Law, the Amended and Restated New ZMAX Certificate of
Incorporation and the Amended and Restated New ZMAX Bylaws that will be adopted
as part of the Merger. See "Comparison of Stockholder Rights."

CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

In the opinion of tax counsel to the Company, it is expected that the Merger
will constitute a reorganization for U.S. federal income tax purposes and,
accordingly, that no gain or loss will be recognized by holders of Old

3
<PAGE>

ZMAX Common Stock upon the exchange of Old ZMAX Common Stock for shares of New
ZMAX Common Stock (except with respect to any cash received upon the exercise
of dissenters' rights). See "The Merger--U.S. Federal Income Tax Consequences
of the Merger." Each stockholder of Old ZMAX is urged to consult such
stockholder's tax advisor to determine the specific tax consequences of the
Merger to such stockholder.

DISSENTERS' RIGHTS

Holders of Old ZMAX Common Stock are entitled to dissenters' rights under the
Nevada Law in connection with the Merger. See "The Merger--Dissenters' Rights"
and Sections 92A.300-92A.500 of the Nevada Law attached as Annex D hereto.

REGULATORY MATTERS

Old ZMAX is not aware of any regulatory requirements that must be satisfied
or approvals that must be obtained in connection with the Merger other than
state "blue sky" securities laws.

MARKET PRICE AND TRADING INFORMATION

The Old ZMAX Common Stock is quoted on the OTC Bulletin Board, a service
provided by Nasdaq Stock Market, Inc., and subsequent to the Effective Time of
the Merger, New ZMAX intends to apply for quotation of the New ZMAX Common
Stock on the Nasdaq SmallCap Market under the symbol "ZMAX." On August 5, 1997,
the closing bid and asked sales prices of Old ZMAX Common Stock, as quoted on
the OTC Bulletin Board, were $13.00 and $13.125, respectively. See "Price Range
of Common Stock and Dividend Policy."

THE EXCHANGE OFFER

Old ZMAX offers to exchange (the "Exchange Offer") the Old ZMAX 8%
Convertible Exchangeable Subordinated Debentures due 1999 (the "Debentures") on
the terms and conditions set forth herein and the accompanying Letter of
Transmittal (which, together with this Proxy Statement/Prospectus, constitutes
the Exchange Offer). As of the date of this Proxy Statement/Prospectus, $5.5
million aggregate principal amount of Debentures were outstanding. See "The
Exchange Offer" and "Description of Securities--Debentures."

BACKGROUND

The Debentures were issued by Old ZMAX on December 6, 1996 to 18 non-U.S.
accredited investors and financial institutions.

SECURITIES OFFERED IN EXCHANGE

Each Debenture holder will receive (i) 220 shares of Old ZMAX Common Stock
and (ii) a Warrant to purchase 220 shares of Old ZMAX Common Stock per $1,000
principal amount of Debentures exchanged. No additional payment or adjustment
will be made for accrued but unpaid interest from June 1, 1997 (the last
interest payment date) to the date of the exchange. The Warrants are
exercisable immediately upon issuance at a purchase price of $7 per share of
Old ZMAX Common Stock increasing to $8 per share on the first anniversary of
the date of issuance, and expire on the second anniversary of the date of
issuance. See "Description of Securities--Debentures." The securities issuable
in the Exchange Offer represent a significant premium over the securities
issuable pursuant to the original conversion terms of the Debentures in order
to induce holders of at least 90% of the outstanding Debentures to exchange
their Debentures in the Exchange Offer, thereby reducing the Company's
indebtedness.

4
<PAGE>

EXPIRATION DATE

The Exchange Offer will expire at 5:00 p.m. Eastern Standard Time on
September , 1997 (the "Expiration Date").

CONDITIONS

The consummation of the Exchange Offer is subject to the satisfaction of
certain conditions, which may be waived by the Company. See "The Exchange
Offer--Conditions of the Exchange Offer."

PURPOSE AND EFFECTS OF THE EXCHANGE OFFER

The Company is undertaking the Exchange Offer to retire outstanding debt,
improve the Company's debt-to-equity ratio and increase stockholders' equity.
The estimated net proceeds from the exercise of the Warrants issuable in the
Exchange Offer ranges from $5,776,000, if the minimum of 80% of the Warrants
are exercised, to $7,470,000 if the maximum number of Warrants issuable in the
Exchange Offer are exercised. Net proceeds from the Exchange Offer will be used
for general working capital purposes, including enhanced marketing of the
Company's Year 2000 services and expansion of operations. See "The Exchange
Offer--Purposes and Effects of the Exchange Offer."

PROCEDURES FOR TENDERING

For Debentures to be validly tendered pursuant to the Exchange Offer, a
Letter of Transmittal (or a facsimile thereof) that has been properly completed
and duly executed by the registered holder of the Debenture, and any other
documents required by the Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date.

CONSEQUENCES FOR NONTENDERING DEBENTURE HOLDERS

The Company currently intends to redeem for cash any Debentures remaining
outstanding following completion of the Exchange Offer at 100% of the principal
amount thereof plus any interest accrued thereon.

WITHDRAWAL RIGHTS

Debentures tendered pursuant to the Exchange Offer may be withdrawn, subject
to the procedures described herein, at any time on or before September ,
1997.

TAX CONSEQUENCES OF THE EXCHANGE

Since the Debenture holders are each non-U.S. persons, each Debenture holder
is urged to consult such holder's tax advisor to determine the specific tax
consequences of the exchange to such holder under tax laws in applicable
jurisdictions.

EXCHANGE AGENT

The Company plans to engage Rinderknecht Glaus & Stadelhofer, a Zurich,
Switzerland based law firm, to serve as the exchange agent (the "Exchange
Agent") in connection with the Exchange Offer. The Exchange Agent will provide
certain information and assistance to the holders of Debentures. The Exchange
Agent's telephone number is (011 41 1) 287 2424.

5
<PAGE>

RISK FACTORS

In considering the transactions described herein, investors should consider
the following: (i) Old ZMAX's history of losses; (ii) the fact that CSI has
expended substantial time and financial resources in developing a new and
innovative solution for the Year 2000 problem that has not yet been utilized in
any large scale conversion project; (iii) uncertainty regarding New ZMAX's and
CSI's future additional capital requirements; (iv) significant competition in
the Year 2000 industry; (v) New ZMAX's and CSI's dependence on its ability to
hire and retain key personnel; (vi) the uncertainty with respect to the payment
of dividends on the New ZMAX Common Stock; (vii) the potential volatility of
the stock price as demonstrated by the quoted market price compared to prices
in the CSI recapitalization transactions, and (viii) the limited information on
the Company and its security holders and the limitations on the ability to
enforce securities laws against non-U.S. persons. See "Risk Factors."

6
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

On November 6, 1996, Old ZMAX, a shell company listed on the OTC Bulletin
Board, acquired 100% of the outstanding common stock of Century Services, Inc.,
a Maryland corporation ("CSI"). CSI was a privately held company formed on
December 13, 1995 to perform computer re-engineering with a focus on providing
a solution to the Year 2000 problem. For financial reporting purposes, the
acquisition has been treated as a recapitalization of CSI with CSI as the
acquirer (a reverse acquisition). The historical financial statements prior to
November 6, 1996 are those of CSI. The accompanying summary consolidated
financial data include all of the accounts of CSI and the accounts of ZMAX for
the period from the acquisition on November 6, 1996, through December 31, 1996.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
DECEMBER 13, DECEMBER 13, DECEMBER 13,
1995 (DATE OF 1995 (DATE OF 1995 (DATE OF
INCEPTION) TO YEAR ENDED INCEPTION) TO INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1996 3/31/96 3/31/97 1997
------------- ------------ ------------- -------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Operating Revenue....... $ -- $ -- $ -- $ -- $ -- $ --
Loss from Operations.... -- (1,509,413) (1,509,413) (46,814) (1,331,673) (2,841,086)
Net loss................ -- (11,506,755) (11,506,755) (46,814) (2,144,327) (13,651,082)
Loss from Operations per
Common Share........... $ -- $ (1.76) $ (0.12) $ (0.39)
Net loss per Common
Share.................. $ -- $ (13.45) $ (0.12) $ (0.63)
Weighted Average Shares
Outstanding............ 400,000 855,712 400,000 3,424,371
Shares Outstanding--
period end............. 400,000 4,200,079 400,000 3,424,371
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------
PRO FORMA AS
ACTUAL ADJUSTED(A)
------------ ------------
<S> <C> <C>
Balance Sheet Data
Cash............................................... 3,731,416 12,201,416
Working capital.................................... 986,650 8,490,588
Total assets....................................... 7,836,589 17,764,891
Long-term obligations, less current portion........ 6,027,857 142,857
Total deficit accumulated during the development
stage............................................. (13,651,082) (22,795,024)
Total stockholders equity.......................... (1,424,539) 14,742,120
</TABLE>
- --------

(A) Pro Forma As Adjusted assumes (i) that the Debentures are fully exchanged
in the Exchange Offer for 1,210,000 shares of Old ZMAX Common Stock and
Warrants to purchase an equal number of shares, (ii) the full exercise of
the Warrants into 1,210,000 shares of Old ZMAX Common Stock at $7.00 per
share and (iii) that the fair market value of the Company's Common Stock on
the date of the Exchange Offer is $13.125 (the closing price on August 5,
1997 as quoted on the OTC Bulletin Board). Pro Forma As Adjusted also
includes issuances of Old ZMAX Common Stock since March 31, 1997 (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments"), including (i) 1,600,000 shares issued in
April 1997 upon the conversion of the Company's convertible notes,
(ii) 670,000 shares issued in April 1997 in connection with the CSI
transaction, (iii) 234,365 shares issued in April 1997 in connection with
the Company's purchase of Fiserv's interest in the Fiserv Century Services
Joint Venture, (iv) 32,077 shares issued in May 1997 as satisfaction for a
promissory note, (v) 150,000 shares issuable in connection with the
Company's acquisition of the COCACT Software, and (vi) 60,000 shares
issuable to a consultant for services rendered. For shares not issued as of
August 5, 1997, the closing price of $13.125 on August 5, 1997 is assumed
to be the fair market value of the Company's Common Stock on the date of
issuance. Pro Forma As Adjusted also assumes that the Merger has been
consummated and that no stockholders exercised their dissenters' rights.
See "The Merger--Dissenters' Rights."

7
<PAGE>

RISK FACTORS

Investment in the Company involves a high degree of risk. Investors should
consider carefully the following factors, in addition to the other information
contained in this Proxy Statement/Prospectus, in evaluating the transactions
described herein. This Proxy Statement/Prospectus contains, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially. Factors
that could cause or contribute to such difference include, but are not limited
to, those discussed below, as well as those discussed elsewhere in this Proxy
Statement/Prospectus.

Lack of Experience in Millennium Services. The Company has limited
experience in providing its Year 2000 or "millennium" services. Although the
Company has successfully completed a number of assessment projects and small-
scale (pilot) conversion projects, the Company has not completed a large-scale
millennium conversion project either alone or together with a strategic
partner. Pilot projects performed by the Company to date have generally
consisted of performing test conversions on a small portion of a client's
mainframe computer system. There can be no assurance that the Company will be
successful in completing large-scale conversions, that the Company will not
experience delays or failures in providing its millennium services, or that
its millennium services will be effective. In the pilot projects completed to
date, the amount of failures, errors and bugs detected, and the cost of
correcting them, have not been significant and have not had a material adverse
affect on the Company's business, operating results or financial condition.
However, the failure of the Company's Year 2000 methodology to function
properly in the future or the existence of significant errors or bugs
following completion of future millennium conversions could necessitate
significant expenditures by the Company to remedy the problem. The
consequences of failures, errors or bugs could materially and adversely affect
the Company's business, operating results and financial condition.

Recent Losses and Need for Additional Working Capital. The Company is a
development stage company and did not generate any revenue prior to the second
quarter of 1997. The Company incurred losses of $11.5 million and $2.1 million
for the year ended December 31, 1996 and the three months ended March 31,
1997, respectively. As a result, the Company had an accumulated deficit of
$11.5 million and $13.7 million as of December 31, 1996 and March 31, 1997,
respectively. The Company expects to require significant amounts of cash to
support marketing and other anticipated activities related to the
establishment of its Year 2000 services business. Due to the Company's lack of
profitable operating history, the Company may have difficulty obtaining
additional capital on terms acceptable to the Company, if available at all.
There can be no assurance that the Company will not experience liquidity
problems because of adverse market conditions or other unfavorable events.
Further, because of the various business risks described elsewhere in this
"Risk Factors" discussion, there can be no assurance that the Company will be
profitable. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

No Liquid Market; Possible Volatility of Stock Price. Prior to the
completion of the transactions contemplated by this Proxy
Statement/Prospectus, the U.S. trading market for the Old ZMAX Common Stock
has been limited and characterized by significant price and volume volatility.
Old ZMAX has not been subject to the periodic reporting requirements of the
Exchange Act and accordingly current public information regarding Old ZMAX and
its business has not been widely disseminated by Old ZMAX. As a result of the
foregoing, historical price quotations for the Old ZMAX Common Stock may not
be indicative of the operations, financial conditions or prospects for the
Company. In this regard, the Company issued Common Stock and Common Stock
equivalents in the fall of 1996 at prices less than the quoted market price at
such time. See Notes 7 and 9 of the Financial Statements of ZMAX Corporation
for the year ended December 31, 1996 included elsewhere herein. There can be
no assurance that an active trading market for the New ZMAX Common Stock will
develop or, if such a market does develop, that the market price for the New
ZMAX Common Stock price will not be subject to significant fluctuations in
response to factors such as, among others, variations in the Company's
anticipated or actual results of operations, announcements of new products or
technological innovations by the Company or its competitors, and changes in
earnings estimates by analysts. In addition, the stock market is subject to
price and volume fluctuations that affect the market prices for companies in
general, and small capitalization, emerging

8
<PAGE>

growth and technology companies like the Company in particular, which
fluctuations are often unrelated to the operating performance of such
companies. These broad market fluctuations could adversely affect the market
prices of the New ZMAX Common Stock. Investors in the Company may experience
dilution of their investment upon certain events, such as the issuance of
shares of New ZMAX Common Stock pursuant to the exercise of outstanding
warrants and stock options.

Limited Information on Security Holders; Enforcement of Securities Laws
Against Non-U.S. Persons. The beneficial ownership reporting requirements of
Section 13(d) of the Exchange Act are not applicable to the Company's
stockholders because the Old ZMAX Common Stock is not a registered class of
equity securities under the Exchange Act. The Company believes a substantial
portion of its equity securities are held by non-U.S. persons, including non-
U.S. banks that hold securities on behalf of their customers and are
prohibited by local bank secrecy laws from disclosing information regarding
the beneficial ownership of accounts. Up to an additional 2,420,000 shares of
New ZMAX Common Stock would be issued to non-U.S. persons in connection with
the Exchange Offer and the exercise of the Warrants. As a result of the
foregoing, non-U.S. persons may be able to substantially influence the trading
market for the Common Stock. The Company and its shareholders may have
difficulty in effecting service of process and enforcing civil liabilities
arising under U.S. securities laws against non-U.S. persons.

Availability of Technical Personnel. The Company's strategy will require the
addition of skilled technical, marketing and management personnel. The Company
competes with major computer, communications, consulting and software
companies, as well as information service departments of major corporations,
in seeking to attract qualified personnel. This competition is expected to
intensify as demand for millennium services grows. There can be no assurance
that the Company will be able to attract and retain the personnel necessary to
pursue its strategy.

Uncertain and Undeveloped Market for Millennium Services. Millennium
services are expected to represent the significant portion of the Company's
business for the next several years. Although the Company believes that the
market for millennium services will grow significantly as the Year 2000
approaches, there can be no assurance that this market will develop to the
extent anticipated by the Company, or at all. Significant expenses for sales
and marketing may be required to inform the public of the Year 2000 problem
and the need for millennium services. There can be no assurance that the
millennium services industry will devote the resources necessary to
effectively inform the public of the Year 2000 problem or that potential
clients will understand or acknowledge its significance. In addition,
companies affected by the Year 2000 problem may not be willing or able to
allocate the resources, financial or otherwise, to address the problem in a
timely manner. Many companies may be able to resolve the problem using
internal staff, by discontinuing the use of some older programs, or by
replacing existing systems with new Year 2000 compliant systems. Therefore,
the development of the market for millennium services is uncertain and
unpredictable. If the market for millennium services fails to grow, or grows
more slowly than anticipated, the Company's business, operating results and
financial condition could be materially and adversely affected.

Competition. The market for millennium services is highly competitive and
will become increasingly competitive as the Year 2000 approaches. The primary
competitive factors in the computer services industry are availability of
equipment and facilities, price, service and whether the provider's personnel
possess the skills and knowledge necessary to solve information processing
problems. A number of companies engaged in millennium services are more
established, benefit from greater name recognition and have substantially
greater financial, technical and marketing resources than the Company.
Moreover, other than technical expertise, there are no significant proprietary
or other barriers to entry in the Year 2000 services market that could keep
competitors from developing similar services or providing competing services
to those offered by the Company. There can be no assurance that the Company
will be able to compete successfully against its competitors or that the
competitive pressures faced by the Company will not affect its financial
performance.

9
<PAGE>

Rapid Technological Change. The information technology industry is
characterized by rapidly evolving technology and changing methodologies. The
introduction of software tools embodying new technology and the emergence of
new methodologies could render obsolete existing products and services,
including the Company's. The Company's future success will depend on its
ability to continue to refine and update its proprietary methodologies for
correcting the Year 2000 problem. There can be no assurance that one or more
of the Company's competitors will not develop a software tool or methodology
that is superior to, or achieves a greater market acceptance than, the
Company's methodology. The development of a superior tool or methodology by
one or more competitors, or any failure by the Company to successfully respond
to such development, could materially and adversely affect the Company's
business, operating results and financial condition.

Need to Develop Additional Products and Services. The Company currently
expects to generate most of its revenue from, and devote most of its resources
to, its Year 2000 services. The Company believes that the demand for its
millennium services will continue to exist for some time after the Year 2000,
however, this demand will diminish significantly over time and will eventually
disappear. Therefore, the Company plans to continue actively pursuing business
opportunities unrelated to the Year 2000 problem in the computer software re-
engineering and consulting market, with a focus on the conversion marketplace,
and to develop products and services to take advantage of those opportunities.
The Company intends to use the relationships developed and experience obtained
while performing complex Year 2000 conversion projects to address other
information systems requirements of its clients. However, there can be no
assurance that the Company will be able to successfully expand its business
beyond the millennium conversion market. The failure to develop additional
computer software and services could materially and adversely affect the
Company's business, operating results and financial condition.

Dependence on Key Executives. The Company is largely dependent on the
efforts of Michael C. Higgins, its President, and Joseph Yeh, its Senior Vice
President--Technology. There can be no assurance that the Company will be able
to retain the services of Mr. Higgins or Mr. Yeh. Although the Company intends
to obtain life insurance on the lives of Mr. Higgins and Mr. Yeh, the loss of
either of them could materially and adversely affect the Company's business,
operating results and financial condition. See "Management and Executive
Compensation."

Limited Protection of Proprietary Information. The Company depends in part
on its proprietary know-how to differentiate its millennium services from that
of its competitors. The Company does not have any patents and relies upon a
combination of trade secret, copyright and trademark laws and contractual
restrictions to establish and protect its proprietary information. The Company
generally enters into non-disclosure and confidentiality agreements with its
employees, consultants and clients. Despite these precautions, it may be
possible for an unauthorized third party to replicate the Company's millennium
service methodology or to obtain and use information that the Company regards
as proprietary. There can be no assurance that the means used by the Company
to protect its proprietary information will be adequate or that the Company's
competitors will not independently develop substantially similar or superior
techniques to resolve the Year 2000 problem.

Risks of Third Party Claims of Infringement. As the number of competitors
providing millennium services increases, overlapping techniques used in such
services will become more likely. There can be no assurance that third parties
will not assert infringement claims against the Company in the future, that
assertion of such claims will not result in litigation, or that the Company
would prevail in such litigation or be able to obtain a license for the use of
any infringed intellectual property from a third party on commercially
reasonable terms. Furthermore, litigation, regardless of its outcome, could
result in substantial cost to the Company and divert management's attention
from the Company's operations. Any infringement claim or litigation against
the Company could materially and adversely affect the Company's business,
operating results and financial condition.

Potential Contract Liability. The Company's millennium services involve key
aspects of its clients' computer systems. Any failure in a client's system
could result in a claim for substantial damages against the Company,
regardless of the Company's responsibility for such failure. The Company
attempts to limit by contract its liability for damages arising from negligent
acts, errors, mistakes or omissions in rendering its

10
<PAGE>

professional services. Despite this precaution, there can be no assurance that
the limitations of liability set forth in its service contracts would be
enforceable or would otherwise protect the Company from liability for damages.
The Company maintains general liability coverage, and is in the process of
evaluating coverage options for errors and omissions and professional
liability. However, there can be no assurance that such coverage will continue
to be available in sufficient amounts to cover one or more large claims, or
that the insurer will not disclaim coverage as to any future claim. The
successful assertion of one or more large claims against the Company that
exceed available insurance coverage, or changes in the Company's insurance
policies, including premium increases or the imposition of a large deductible
or co-insurance requirements, could materially and adversely affect the
Company's business, operating results and financial condition.

Risk of Low-Priced Stocks. The Company intends to apply for the listing of
the Common Stock on the Nasdaq SmallCap Market effective upon completion of
the transactions contemplated by this Proxy Statement/Prospectus. To qualify
for listing and to continue to be listed on the Nasdaq SmallCap Market, a
company must meet certain financial criteria. Although the Company expects to
meet these criteria upon completion of the Merger, there can be no assurance
that the Company will meet such tests or will continue to do so in the future.
Failure to obtain a listing on the Nasdaq SmallCap Market would reduce market
interest in the New ZMAX Common Stock. Failure to meet such criteria in the
future may result in the delisting of the New ZMAX Common Stock from the
Nasdaq SmallCap Market.

Shares Eligible for Future Sale. Upon completion of the transactions
contemplated by this Proxy Statement/Prospectus, all of the outstanding New
ZMAX Common Stock will generally be freely transferable without restriction
under the Securities Act, except for 3,475,942 shares held by affiliates of
the Company or shares subject to contractual restrictions. In addition,
136,000 shares will be issuable to affiliates upon the exercise of stock
options exercisable as of the consummation of the transactions. The
possibility that substantial amounts of Common Stock may be sold in the public
market would likely have a material adverse effect on prevailing market prices
of the Common Stock and could impair the Company's ability to raise capital
through the sale of its equity securities. See "Shares Eligible for Future
Sale."

Management of Growth. The Company expects to experience significant
expansion that will place substantial demands upon its management, systems and
resources, including its sales, project management and consulting personnel,
as well as the Company's research and development, finance and administrative
operations. The Company's ability to manage its future growth, if any, will
require the Company to continually improve its financial and management
controls and reporting systems and procedures, as well as implementing new
systems as necessary and expanding, training and managing its workforce. There
can be no assurance that the Company's controls, systems or procedures will
continue to be adequate to support the Company's operations. The Company's
management team has had limited prior experience managing a public company or
a rapidly growing business. The failure of the Company's management to respond
effectively to changing business conditions could have a material adverse
effect upon the Company's business, operating results and financial condition.

11
<PAGE>

THE MEETING

PURPOSE OF THE MEETING

Old ZMAX has called its 1997 Annual Meeting of Stockholders (the "Meeting")
to be held at the offices of Old ZMAX on September , 1997, at 11:00 A.M.
local time. At the Meeting, the holders of Old ZMAX Common Stock will be asked
(i) to elect nominees to serve as directors of the Company, (ii) to approve
the Incentive Plan and (iii) to approve and adopt the Merger Agreement and the
transactions contemplated thereby. See "The Merger."

DIRECTOR NOMINEES

Pursuant to the Old ZMAX Bylaws, the Board of Directors of Old ZMAX has set
the size of the Board of Directors at six members and has nominated the
following persons to serve as directors of Old ZMAX subject to vote of the Old
ZMAX stockholders at the Meeting:

<TABLE>
<S> <C>
Michel Berty Steve L. Komar
Michael C. Higgins G.W. Norman Wareham
Ted Fine Edward Yourdon
</TABLE>

For a biographical description of the experience and qualifications of the
nominees, see "Management and Executive Compensation--Directors and Director
Nominees" and "Proposal to Elect Directors."

STOCK INCENTIVE PLAN

The Incentive Plan was adopted by the Old ZMAX Board of Directors and
provides the Company with increased flexibility to grant equity-based
compensation to key employees, officers, directors and consultants of the
Company. For a detailed description of the Incentive Plan, see "Proposal to
Approve ZMAX Corporation 1997 Stock Incentive Plan."

RECOMMENDATIONS OF THE BOARD

The Old ZMAX Board recommends a vote "FOR" each of the nominees for the
Board of Directors and "FOR" approval of the Incentive Plan. The Old ZMAX
Board has also unanimously approved the Merger Agreement and the transactions
contemplated thereby and recommends that the Old ZMAX stockholders vote "FOR"
approval and adoption of the Merger Agreement and the transactions
contemplated thereby. See "The Merger--Recommendations of the Board and
Principal Reasons for the Merger and the Exchange Offer." In rendering its
recommendation to the Old ZMAX stockholders, the Old ZMAX Board concluded that
the overall effect of the Merger and the other transactions that will occur in
conjunction with the Merger, including the Exchange Offer and the Warrant
exercise, would result in a significant infusion of equity capital and the
development of a more liquid trading market for New ZMAX Common Stock
following the Merger and the availability of current public information
regarding New ZMAX since, following the Merger, New ZMAX will be subject to
the periodic reporting obligations contained in the Securities Exchange Act of
1934, as amended (the "Exchange Act"). This result should facilitate the
ability of New ZMAX to access the capital markets in the future. The
obligations of New ZMAX and Old ZMAX to consummate the Merger are subject to
the satisfaction or waiver of a number of conditions, including the approval
of the Merger Agreement by the Old ZMAX stockholders, the exchange of at least
90% of the Debentures and the exercise of Warrants for at least 80% of the
Warrant Shares. See "The Merger--The Merger Agreement--Conditions to the
Merger."

DATE, TIME AND PLACE; RECORD DATE

The Meeting is scheduled to be held at 11:00 A.M., local time on September
, 1997, at the offices of Old ZMAX at 20251 Century Boulevard, Germantown,
Maryland. The Old ZMAX Board has fixed the close of business on August , 1997
as the record date (the "Record Date") for the determination of holders of Old
ZMAX Common Stock entitled to notice of and to vote at Meeting. Only holders
of record of Old ZMAX Common Stock at the close of business on the Record Date
will be entitled to notice of and to vote at the Meeting.

12
<PAGE>

QUORUM AND VOTING RIGHTS

Under the Nevada Law, directors are elected by plurality vote, and
therefore, the six candidates receiving the highest number of votes of shares
of Old ZMAX Common Stock entitled to be voted will be elected. Votes withheld
from any candidate(s) and abstentions will have no effect on the election of
directors. The approval of the Incentive Plan requires the affirmative vote of
a majority of the shares of Old ZMAX Common Stock present in person or
represented by proxy at the Meeting and entitled to vote on such matters.
Pursuant to the Nevada Law, the affirmative vote of the holders of at least a
majority of shares of Old ZMAX Common Stock outstanding and entitled to vote
as of the Record Date is required to approve and adopt the Merger Agreement
and the transactions contemplated thereby. Abstentions and broker non-votes
will have the effect of a vote against the proposals to approve the Merger
Agreement and the Incentive Plan. A broker non-vote occurs when a nominee of a
beneficial owner of shares of Old ZMAX Common Stock does not have
discretionary authority with respect to a matter and does not receive voting
instructions from such beneficial owner.

At the Record Date, there were 9,414,514 shares of Old ZMAX Common Stock
outstanding. Holders of record of Old ZMAX Common Stock on the Record Date are
entitled to one vote per share at the Meeting. The presence, either in person
or by proxy, of the holders of a majority of the outstanding shares of Old
ZMAX Common Stock outstanding and entitled to vote as of the Record Date at
the Meeting is necessary to constitute a quorum at the Meeting.

The Old ZMAX Board is soliciting proxies so that each holder of Old ZMAX
Common Stock on the Record Date has the opportunity to vote in the election of
directors, to approve the Incentive Plan and to approve and adopt the Merger
Agreement at the Meeting. When a proxy card is returned properly signed and
dated, the shares represented thereby will be voted in accordance with the
instructions on the proxy card. If a stockholder does not return a signed
proxy card, his or her shares will not be voted and thus will have the effect
of a vote against the approval of the Incentive Plan and the Merger Agreement.
Abstentions will be counted for purposes of determining the existence of a
quorum at the Meeting. Since approval of the Incentive Plan requires the
affirmative vote of a majority of the shares of Old ZMAX Common Stock present
and entitled to vote at the Meeting and approval of the Merger requires the
affirmative vote of a majority of the issued and outstanding shares of Old
ZMAX Common Stock entitled to vote thereon, abstentions will have the effect
of a negative vote on these proposals. If a stockholder returns a signed proxy
card, but does not indicate how his or her shares are to be voted, the shares
of Old ZMAX Common Stock represented by such proxy card will be voted "FOR"
election of the nominees named herein as directors, "FOR" approval of the
Incentive Plan and "FOR" approval and adoption of the Merger Agreement and the
transactions contemplated thereby. The proxy card also confers discretionary
authority on the individuals appointed by the Old ZMAX Board and named on the
proxy card to vote the shares represented thereby on any matter incidental to
the Meeting that is properly presented for action at the Meeting.

Any Old ZMAX stockholder who executes and returns a proxy card may revoke
such proxy at any time before it is voted by (i) notifying in writing the
Secretary of Old ZMAX at c/o ZMAX Corporation, 20251 Century Boulevard,
Germantown, Maryland 20874, (ii) granting a subsequent proxy or (iii)
appearing in person and voting at the Meeting. Attendance at the Meeting will
not in and of itself constitute revocation of a proxy.

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THE COMPANY

The Company was organized as a Nevada corporation on April 24, 1986, under
the name of Pandora, Inc. for the purpose of creating a vehicle to obtain
capital to seek out, investigate and acquire interests in products, properties
and businesses that may have potential for profit. Until May 4, 1992, the
Company transacted no business other than the investigation of various
business opportunities. On May 4, 1992, the Company amended its Articles of
Incorporation to change the name of the Company to Oryx Gold Corporation in
connection with a reorganization in which the Company acquired 100% ownership
of American Oil and Gas Corporation ("American Oil"). American Oil was
organized on November 22, 1991, as a Nevada corporation, and conducted no
business other than the acquisition of an interest in certain unpatented
placer mining claims in Nevada. The Company intended to develop the mining
claims and other acquired interests in the mining and gas industry in a manner
profitable to the Company and, on August 16, 1995, the Company changed its
name to Mediterranean Oil Corporation to more accurately reflect the nature of
its business. The Company did not subsequently pursue this business. American
Oil's corporate status has been suspended by the Secretary of State of Nevada
as of December 1, 1995, and this subsidiary has been abandoned by the Company.

In the summer of 1996, the Company identified Century Services, Inc. ("CSI")
as a new acquisition target and signed a letter of intent to acquire all of
the issued and outstanding stock of CSI on September 20, 1996. In connection
with preparing for the CSI transaction, the Company undertook a reverse share
split to reduce the number of shares of its Common Stock outstanding and
changed its name to ZMAX Corporation. Following this restructuring, on
November 6, 1996, the Company acquired 100% of the issued and outstanding
stock of CSI, and CSI is now a wholly owned subsidiary of the Company. CSI was
a privately held company formed as a Maryland corporation in December 1995 to
perform software re-engineering related to providing a solution to the Year
2000 problem. Since the CSI transaction, the Company has focused on the
software re-engineering market in general and the Year 2000 market in
particular. For financial reporting purposes, the CSI transaction has been
treated as a recapitalization of CSI with CSI as the acquirer (a reverse
acquisition).

Prior to the recapitalization, in April 1996, CSI entered into a strategic
partnership with Fiserv Federal Systems, Inc. ("Fiserv Federal") to form
Fiserv Century Services Joint Venture (the "Joint Venture"). CSI and Fiserv
Federal each owned 50% of the Joint Venture. Fiserv Federal is part of Fiserv,
Inc., a publicly-held company that offers centralized data processing services
to financial institutions. The Joint Venture was engaged in the business of
marketing Year 2000 computer consulting services using computer software
exclusively licensed to CSI. As part of the CSI recapitalization, Fiserv
agreed to sell its interest in the Joint Venture to Old ZMAX. Since Old ZMAX's
acquisition of Fiserv Federal's interest in the Joint Venture, CSI has carried
on the operations of the Joint Venture. After the CSI recapitalization, Old
ZMAX transferred all of its interest in the Joint Venture to CSI as of January
1, 1997, and CSI, as the sole remaining venture partner, terminated the Joint
Venture. At this time, all of the Company's Year 2000 business is operated by
CSI.

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THE MERGER

Subject to the conditions summarized below, the Company will be
reincorporated in Delaware by merging Old ZMAX with and into New ZMAX (the
"Merger") pursuant to the Merger Agreement. New ZMAX will succeed to all the
business, properties, assets and liabilities of Old ZMAX, and the stockholders
of Old ZMAX will, upon surrender of their shares of Old ZMAX Common Stock for
exchange, become stockholders of New ZMAX. The shares of Old ZMAX Common Stock
held by the former CSI stockholders that are in escrow and subject to earn out
will remain subject to escrow on the same terms. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--CSI
Recapitalization." After the Merger, the rights of the Company's stockholders
will be governed by the Delaware Law and by the Amended and Restated New ZMAX
Certificate of Incorporation and Amended and Restated Bylaws that will be
adopted as part of the Merger, rather than by the Nevada Law and the Old ZMAX
Articles of Incorporation and Bylaws. A copy of the New ZMAX Amended and
Restated Certificate of Incorporation is attached as Annex B (the "New ZMAX
Certificate of Incorporation"), and a copy of the Amended and Restated Bylaws
is attached as Annex C (the "New ZMAX Bylaws").

RECOMMENDATIONS OF THE BOARD AND PRINCIPAL REASONS FOR THE MERGER AND THE
EXCHANGE OFFER

To implement its business plan and achieve its strategic objective to
deliver high quality millennium services in a cost effective manner, the
Company will require significant amounts of cash, including equity capital, to
support its activities. In view of the Company's lack of profitable operations
coupled with its lack of experience in the millennium services business, the
Company believes that most potential investors would only be willing to
consider an investment in the form of a loan or in an equity security that has
preferential rights to the rights of Old ZMAX Common Stock in the event of
liquidation. In addition, any borrowing arrangement would likely bear interest
at a level substantially in excess of prevailing market rates that are
available to some of the Company's competitors, thereby putting the Company at
a competitive disadvantage in terms of its cost structure.

The Company is undertaking the Exchange Offer in order to facilitate the
consummation of the restructuring contemplated by the Merger through the
retirement of outstanding debt of the Company, to improve the Company's debt
to equity ratio by decreasing total liabilities, increasing total
stockholders' equity and eliminating approximately $440,000 of annual interest
expense. The Debentures accrue interest at 8% per annum, payable semi-annually
commencing June 1, 1997. The Debentures may not be redeemed until the Company
has first made an exchange offer. Upon completion of the Exchange Offer, the
Company will have the option of (i) redeeming any remaining outstanding
Debentures at par through the date of redemption or (ii) paying interest on
the outstanding Debentures semi-annually until paying off the Debentures at
maturity in December 1999. To minimize any additional dilution upon the
conversion of Debentures not surrendered for exchange in the Exchange Offer,
the Company presently intends to redeem for cash any Debentures outstanding
promptly after completion of the Exchange Offer.

In the Exchange Offer, each exchanging Debenture holder will also receive a
Warrant to purchase Old ZMAX Common Stock at a price of $7 per share through
the first anniversary of the completion of the Exchange Offer and thereafter
at $8 per share. The Warrants expire on the second anniversary of the
completion of the Exchange Offer. The obligation of Old ZMAX to consummate the
Merger is conditioned on the exchange of at least 90% of the Debentures and
the immediate exercise of Warrants issued in the Exchange Offer so that at
least 80% of the Warrant Shares are issued. As a result of this exchange and
exercise, the Company will issue at least 2,057,000 shares of Old ZMAX Common
Stock and receive in connection therewith at least $6.7 million in cash that
will be reflected on the Company's balance sheet as equity capital.

As an incentive to induce Debenture holders to surrender their Debentures
for exchange in the Exchange Offer and to exercise their Warrants received in
connection with the Exchange Offer, Old ZMAX and New ZMAX have determined to
register the securities issuable in connection with the Exchange Offer and the
Merger

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<PAGE>

under the Securities Act. Following the Merger, all shares of New ZMAX Common
Stock issued in the Merger will be freely transferable without restriction or
further registration under the Securities Act except for shares beneficially
owned by "affiliates" of the Company (as defined in Rule 144 under the
Securities Act which, generally speaking, includes all directors, executive
officers and beneficial owners of 10% or more of the Company's issued and
outstanding common stock) whose shares will be "restricted securities."
Restricted securities generally may only be sold in compliance with Rule 144.
Absent registration of the New ZMAX Common Stock to be issued in the Merger,
all of the outstanding shares of Old ZMAX converted subsequently into New ZMAX
Common Stock would constitute "restricted securities" under the Securities
Act. The Company intends to apply for the listing of the New ZMAX Common Stock
on the Nasdaq SmallCap Market effective upon completion of the Merger. See
"The Exchange Offer--Exercise of Warrants."

In addition, as a result of the Merger, New ZMAX will be subject to the
periodic reporting requirements of the Exchange Act. Following the Merger, New
ZMAX will prepare and file with the Commission annual and quarterly reports on
forms prescribed by the Commission. Other information required by the
Commission such as proxy statements and reports regarding purchases and sales
of New ZMAX Common Stock by affiliates of New ZMAX also will be publicly
available. The Old ZMAX Board of Directors determined that the availability of
current public information relating to the Company along with the existence of
a market in which to execute purchases and sales of New ZMAX Common Stock will
provide a significant benefit to the investing market in general and New ZMAX
stockholders in particular. Furthermore, the foregoing factors should also
facilitate the ability of New ZMAX to access the capital markets in the future
in an expeditious manner and on more competitive terms than are currently
available to Old ZMAX.

The Exchange Offer will result in converting approximately $5.5 million of
indebtedness into equity and the exercise of the Warrants will enable the
Company to benefit from the infusion of at least $6.7 million in new equity
capital. The Old ZMAX Board concluded that there were not any alternative
transactions available to Old ZMAX at the present time that would provide the
same benefits as will be realized from the Exchange Offer, the exercise of the
Warrants and the Merger. In particular, the Old ZMAX Board considered the
possibility of an underwritten initial public offering of Old ZMAX Common
Stock as well as a private placement of Old ZMAX debt or equity securities.
The Old ZMAX Board concluded that it was not feasible to pursue either
alternative in light of the estimated expenses associated therewith as well as
the uncertainty regarding the price (and other terms in the case of a private
placement of debt securities) at which either alternative transaction could be
marketed (assuming that prevailing financial market conditions at an
indeterminable future date would permit the marketing of the transaction at
all). Furthermore, unlike the Exchange Offer and the Warrant exercise where
the extent of dilution to be incurred by existing Old ZMAX stockholders as
well as the gross proceeds to be received could be calculated with reasonable
certainty, such determinations could not be made as to either an initial
public offering or a private placement transaction. In addition, the Old ZMAX
Board believed that either of the alternative transactions would almost
certainly be subject to a number of contingencies, some of which may be
presently unforeseeable, which could have the effect of hindering, delaying or
terminating such transaction whereas the conditions to the consummation of the
Exchange Offer and the Merger were established by the Old ZMAX Board and were
not believed to be significant. Finally, the Old ZMAX Board concluded that
neither of the alternatives considered would have been capable of being
accomplished as expeditiously as the Exchange Offer, the exercise of the
Warrants and the Merger.

In considering the Merger, the Board of Directors determined that the best
interests of the Company will be served by changing the state of incorporation
of the Company from Nevada to Delaware. As the Company plans for the future,
the Board of Directors and management believe that it is essential to be able
to draw upon well established principles of corporate governance in making
legal and business decisions. The prominence and predictability of Delaware
corporate law provide a reliable foundation on which the Company's governance
decisions can be based. The Company believes that its stockholders will
benefit from the responsiveness of Delaware corporate law to their needs and
to those of the Company. The advantages of Delaware corporate law are
described below.

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ADVANTAGES OF DELAWARE CORPORATE LAW

By changing the state of incorporation of the Company from Nevada to
Delaware, the Company will receive the following advantages:

Prominence, Predictability and Flexibility of Delaware Law. For many years,
Delaware has followed a policy of encouraging incorporation in that state. In
furtherance of that policy, Delaware has been a leader in adopting, construing
and implementing comprehensive, flexible corporate laws responsive to the
legal and business needs of corporations organized in Delaware. Many
corporations have chosen Delaware initially as a state of incorporation or
have subsequently changed corporate domicile to Delaware. Because of
Delaware's prominence as the state of incorporation for many major
corporations, both the legislature and courts in Delaware have demonstrated an
ability and a willingness to act quickly and effectively to meet changing
business needs. The Delaware courts have developed considerable expertise in
dealing with corporate issues and a substantial body of case law has developed
construing Delaware law and establishing public policies with respect to
corporate legal affairs.

Increased Ability to Attract and Retain Qualified Directors. Both Nevada and
Delaware law permit a corporation to include a provision in its charter that
reduces or limits the monetary liability of directors for breaches of
fiduciary duty in certain circumstances. The Company believes that, in
general, Delaware case law regarding a corporation's ability to limit director
liability is more developed and provides more guidance than Nevada law. The
increasing frequency of claims and litigation directed against directors has
greatly expanded the risks facing directors of corporations in exercising
their respective duties. The amount of time and money required to respond to
such claims and to defend such litigation can be substantial. It is the
Company's desire to reduce these risks to its directors and to limit
situations in which monetary damages can be recovered against directors so
that the Company may continue to attract and retain qualified directors who
otherwise might be unwilling to serve because of the risks involved.

Well Established Principles of Corporate Governance. There is substantial
judicial precedent in the Delaware courts as to the legal principles
applicable to measures that may be taken by a corporation and as to the
conduct of the Board of Directors under the business judgment rule. The
Company believes that its stockholders will benefit from the well established
principles of corporate governance that Delaware law affords.

No Change in Board Members, Business, Management, Employee Benefit Plans or
Location of Principal Facilities of the Company. The reincorporation achieved
by the Merger will effect only a change in the legal domicile of the Company
and certain other changes of a legal nature, certain of which are described in
this Proxy Statement/Prospectus. The reincorporation contemplated by the
Merger will NOT result in any change in the business, management, fiscal year,
assets or liabilities (except to the extent of legal and other costs of
effecting the Merger) or location of the principal facilities of the Company.

VOTE REQUIRED FOR THE MERGER

Pursuant to the Nevada Law, the affirmative vote of the holders of at least
a majority of the shares of Old ZMAX Common Stock outstanding as of the Record
Date and entitled to vote are required to approve and adopt the Merger
Agreement and the transactions contemplated thereby. At the Record Date, there
were 9,450,514 shares of Old ZMAX Common Stock outstanding. Approval of the
Merger will also constitute approval of the New ZMAX Certificate of
Incorporation and New ZMAX Bylaws.

THE MERGER AGREEMENT

The following is a summary of certain provisions of the Merger Agreement and
related matters. The Merger Agreement is attached at Annex A hereto.

Conversion of Shares. Upon the effectiveness of the Merger, each outstanding
share of Old ZMAX Common Stock will be automatically converted into the right
to receive, upon surrender, one share of New

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<PAGE>

ZMAX Common Stock, and each outstanding share of New ZMAX Common Stock will be
cancelled. Because of the one-for-one Merger exchange ratio, no fractional
shares of New ZMAX Common Stock will be issued in the Merger.

Exchange of Stock Certificates. From and after the Effective Time, each
share of Old ZMAX Common Stock will be automatically converted into the right
to receive one share of New ZMAX Common Stock. As soon as practicable after
the Effective Time, New ZMAX will send transmittal instructions to each former
Old ZMAX stockholder describing the procedure for surrendering Old ZMAX stock
certificates for New ZMAX stock certificates. COMPANY STOCKHOLDERS SHOULD NOT
SEND IN THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM.

Conditions to the Merger. The Merger is subject to the satisfaction or
waiver of the following conditions: (i) approval of the Merger by the
stockholders of Old ZMAX, (ii) at least 90% of the Debentures will have been
exchanged in the Exchange Offer and (iii) Warrants issued in the Exchange
Offer for at least 80% of the Warrant Shares will have been exercised and the
exercise price received.

Effective Time. After all the conditions set forth in the Merger Agreement
have been satisfied or waived, the Merger will become effective at such time
as a Certificate of Merger required under the Nevada Law and the Delaware Law
is filed with the Secretaries of State of the States of Nevada and Delaware.
Such filing will be made simultaneously with or as soon as practicable after
the closing of the transactions contemplated by the Merger Agreement.

Termination; Amendment. The Merger Agreement may be terminated or abandoned
by the Board of Directors of Old ZMAX or New ZMAX at any time prior to the
filing of the certificate of merger with the Secretary of State of Nevada or
Delaware. The Board of Directors of Old ZMAX and New ZMAX may jointly amend,
modify and supplement the Merger Agreement in such manner as they may deem
appropriate at any time before approval or adoption of the Merger Agreement by
Old ZMAX stockholders. Any amendment, modification or supplement to the Merger
Agreement after the approval or adoption by the Old ZMAX stockholders but
prior to the Effective Time of the Merger will require approval or adoption by
the Old ZMAX stockholders. However, approval or adoption by the Old ZMAX
stockholders will not be required with respect to any amendment, modification
or supplement to the Merger Agreement that (i) does not alter (a) the amount
or kind of shares or rights to be received under the Merger Agreement in
exchange for any of the shares of the Old ZMAX Common Stock, or (b) any term
of the New ZMAX Certificate of Incorporation as provided for in the Merger
Agreement, or (ii) otherwise alters any of the terms and conditions of the
Merger Agreement if such alteration would not adversely affect the holders of
the Old ZMAX Common Stock.

INTERESTS OF CERTAIN PERSONS

None of Old ZMAX's directors, director nominees or executive officers have
any material interest in the Merger other than their respective pro rata
interest as a result of their beneficial ownership of Old ZMAX Common Stock.
No option or employee benefit will vest or accelerate as a result of the
Merger. None of Old ZMAX's directors, director nominees or executive officers,
directly or indirectly, hold any Debenture. As of the Record Date, Old ZMAX's
current directors, executive officers and their affiliates owned [1,867,942]
shares of Old ZMAX Common Stock entitled to vote at the Meeting (representing
[19.8%] of the outstanding Old ZMAX Common Stock), and each of such
individuals have indicated their intention to cause these shares to be voted
in favor of the Merger Agreement and the transactions contemplated by the
Merger Agreement. These individuals also hold options for an additional
124,000 shares of Old ZMAX Common Stock that are currently exercisable. In
addition, pursuant to the Company's Directors Formula Stock Option Plan, one
of the Company's director nominees will be entitled to receive options for
12,000 shares of Old ZMAX Common Stock upon his election to the Board of
Directors, 8,000 of which will be currently exercisable.

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DISSENTERS' RIGHTS

Old ZMAX stockholders who oppose the proposed Merger will have the right to
receive payment for the value of their shares as set forth in Sections 92A.300
through 92A.500 of the Nevada Law attached as Annex D. Such dissenters' rights
will be available only to stockholders of Old ZMAX who (i) before the vote to
authorize the Merger, notify Old ZMAX in writing of their intention to demand
payment for their shares of Old ZMAX Common Stock and (ii) refrain from voting
in favor of the Merger. Voting against the Merger will not constitute
notifying Old ZMAX of the intention to demand payment if the Merger is
effectuated.

A stockholder must exercise dissenters' rights for all of the shares that he
or she owns of record. A stockholder who holds shares beneficially, and not of
record, may assert dissenter's rights for the beneficially owned shares only
by submitting a written consent of the stockholder of record along with the
written notice of dissent. A stockholder exercising dissenter's rights with
respect to shares that he or she owns beneficially may not exercise
dissenter's rights for fewer than all the shares held by the owner of record.

Since the vote to authorize the Merger will take place at the Meeting, Old
ZMAX will be required to notify by mail those stockholders who, by virtue of a
timely notice of their intention to demand payment and having refrained from
voting in favor of the Merger, are entitled to payment for their shares
("Dissenters Notices"). Dissenters Notices must be sent no later than ten days
after consummation of the Merger. The notice must (i) state where demand for
payment must be sent, (ii) state when certificates must be deposited, (iii)
state the restrictions on transfer of shares that are not evidenced by a
certificate once demand has been made, (iv) supply a form on which to demand
payment, (v) set a date by which demand must be received, and (vi) include a
copy of the relevant portions of the Nevada Law.

Unless a stockholder acquired his or her shares after Old ZMAX sends the
Dissenters Notices, Old ZMAX must calculate the fair market value of the
shares plus interest, and within 30 days of the date Old ZMAX receives the
demand, pay this amount to any stockholder that properly exercised dissenters'
rights and deposited certificates with Old ZMAX. If Old ZMAX does not pay
within 30 days, a stockholder may enforce in court Old ZMAX's obligation to
pay. The payment must be accompanied by (i) Old ZMAX's interim balance sheet,
(ii) a statement of the fair market value of the shares, (iii) an explanation
of how the interest was calculated, (iv) a statement of dissenters' right to
demand payment, and (v) a copy of the relevant portions of the Nevada Law.

Within 30 days of when the Company pays a dissenting stockholder for his or
her shares, the stockholder has the right to challenge the Company's
calculation of the fair market value of the shares and interest due, and must
state the amount that he or she believes to represent the true fair market
value and interest of the shares. If the Company and the stockholder are not
able to settle on an amount, the Company may petition a court within 60 days
of making payment to the dissenting stockholder. If the Company does not
either settle with the stockholder or petition a court for a determination
within 60 days, the Company is obligated to pay the stockholder the amount
demanded that exceeds the Company's calculation of fair market value plus
interest. All dissenters are entitled to judgment for the amount by which the
fair market value of their shares is found to exceed the amount previously
remitted, with interest.

If beneficial owners of more than 5% of the issued and outstanding shares of
Old ZMAX Common Stock exercise their dissenters' rights, the Company may
determine to abandon the Merger. See "The Merger--The Merger Agreement--
Conditions to the Merger."

CHANGES AFFECTING STOCKHOLDERS

Differences between Nevada and Delaware law will result in certain changes
affecting stockholders. For a discussion of certain significant differences
between Nevada and Delaware law, see "Comparison of Stockholders Rights."

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The New ZMAX Certificate of Incorporation that will be adopted as part of
the Merger is substantially similar to the Articles of Incorporation of Old
ZMAX in all material respects, except that the New ZMAX Certificate of
Incorporation will (i) provide for a classified Board of Directors with
staggered terms, (ii) consistent with the Delaware Law, limit the liability to
the Company of only directors, as opposed to the Old ZMAX limitation for both
directors and officers, and (iii) consistent with the Delaware Law, obligate
the Company to indemnify only directors, as opposed to Old ZMAX's obligation
to indemnify officers, employees and agents as well. In this regard, it should
be noted that the New ZMAX Board of Directors retains the discretionary
authority to authorize the indemnification of officers, employees and agents,
subject to certain conditions under the Delaware Law. A copy of the New ZMAX
Certificate of Incorporation is included as Annex B hereto.

The New ZMAX Bylaws that will be adopted as part of the Merger is the same
as the Bylaws of Old ZMAX in all material respects, except that the New ZMAX
Bylaws (i) implement the classified board adopted in the Certificate of
Incorporation, (ii) increase from 10% to 25% the number of issued and
outstanding shares of the Company's common stock that must be beneficially
owned by stockholders seeking to call a special meeting of the stockholders,
(iii) prohibit the stockholders from taking action by written consent, and
(iv) provide certain changes necessary to conform to Delaware law. See
"Comparison of Stockholder Rights." A copy of the New ZMAX Bylaws is included
as Annex C hereto.

FEES AND EXPENSES

The expenses of the Merger, will be borne by the Company. The expenses
include soliciting stockholder approval, offering the Exchange Offer to the
Debenture holders, SEC registration fees, NASD listing fees, and legal,
accounting and printing fees. The solicitation of stockholders and Debenture
holders is being made by mail. However, additional solicitation may be made by
fax, telephone or in person by officers and regular employees or consultants
of the Company.

The total cash expenditures to be incurred by the Company in connection with
the Merger and the Exchange Offer are estimated to be approximately
$1,000,000.

U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The following is a summary of the material U.S. federal income tax
consequences of the Merger to Old ZMAX and its stockholders.

The Company has received an opinion from Powell, Goldstein, Frazer & Murphy
LLP to the effect that the merger of Old ZMAX into New ZMAX, as described
above, will constitute a tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended, (the "Code"), and
that for federal income tax purposes:

(1) Neither Old ZMAX nor its stockholders will recognize any gain or loss
by reason of the exchange of Old ZMAX Common Stock for New ZMAX Common
Stock, or the transfer of assets (subject to liabilities) by Old ZMAX to
New ZMAX in connection with the Merger.

(2) The shares of New ZMAX Common Stock issued as a result of the Merger
in the hands of a stockholder will have an aggregate basis for computing
gain or loss equal to the aggregate basis of shares of Old ZMAX Common
Stock (less that portion, if any, allocable to fractional shares) held by
that stockholder immediately prior to the Merger.

(3) The holding period of the shares of New ZMAX Common Stock issued as a
result of the Merger in the hands of a stockholder will include the period
during which the stockholder held the shares of Old ZMAX Common Stock prior
to the Merger provided the shares of Old ZMAX Common Stock were held as a
capital asset at the effective time of the Merger.

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<PAGE>

(4) A stockholder who receives solely cash pursuant to such stockholder's
statutory dissenters or appraisal right will be treated as having received
such payment in redemption of such stockholder's Old ZMAX Common Stock, as
provided in Section 302(a)(1) of the Code. Each affected stockholder is
urged to consult such stockholder's own tax advisor for the effect of such
redemption (i.e., exchange or dividend treatment) in light of such
stockholder's particular facts and circumstances.

The tax analysis and conclusions stated above are limited to certain U.S.
federal income tax consequences of the Merger. Tax consequences to foreign
persons may vary depending on the law of the applicable jurisdiction. Each
stockholder is urged to consult such stockholder's tax advisor to determine
the specific tax consequences of the Merger to such stockholder.

THE EXCHANGE OFFER

The Company is making the following Exchange Offer to holders of Debentures.

BACKGROUND

On December 6, 1996, Old ZMAX issued its 8% Convertible Exchangeable
Subordinated Debentures to 18 non-U.S. accredited investors and financial
institutions.

TERMS OF THE EXCHANGE OFFER

Old ZMAX hereby offers, upon the terms and subject to the conditions set
forth in this Proxy Statement/Prospectus and the accompanying Letter of
Transmittal, to each holder of Debentures the opportunity to exchange all, but
not less than all, Debentures held for (i) 220 shares of Old ZMAX Common Stock
and (ii) a Warrant to purchase 220 shares of Old ZMAX Common Stock
(collectively, the "Exchange Consideration") for each $1,000 principal amount
of Debentures. No payment or adjustment will be paid in respect of accrued and
unpaid interest from June 1, 1997 (the most recent interest payment date) to
the date of exchange. Tendering Debenture holders will receive the Exchange
Consideration in lieu of any payment in respect of accrued and unpaid
interest. As of the date of this Proxy Statement/Prospectus, $5.5 million
aggregate principal amount of Debentures were outstanding. Assuming all of the
outstanding Debentures are validly tendered and accepted for exchange,
tendering holders of Debentures will receive an aggregate of 1,210,000 shares
of authorized but previously unissued Old ZMAX Common Stock plus Warrants to
purchase an additional 1,210,000 shares of Old ZMAX Common Stock. Pursuant to
the terms of the Debentures and because the Debentures are issued in integral
multiples of $1,000, no fractional shares will be issued in the Exchange
Offer.

The Company presently intends to redeem for cash any Debenture remaining
outstanding following completion of the Exchange Offer at 100% of principal
amount thereof plus any interest accrued thereon to the date of redemption.
The Company anticipates that all of the Debentures will be tendered in the
Exchange Offer because the market price of the Exchange Consideration per
$1,000 principal amount of Debentures exceeds $1,000 and the redemption price.
In addition, as a result of the Merger, Old ZMAX Common Stock received by
tendering holders of Debentures in the Exchange Offer and upon exercise of
Warrants prior to the Effective Time of the Merger would be converted into
shares of New ZMAX Common Stock which would not be "restricted securities"
under the Securities Act. By contrast, the Debentures and Old ZMAX or New ZMAX
Common Stock issuable upon conversion thereof (rather than pursuant to the
Exchange Offer) would be restricted securities.

Old ZMAX has the right, but not the obligation, to waive or amend the terms
of the Exchange Offer or extend the Exchange Offer, provided that any modified
consideration will be provided to all tendering holders, even if they tendered
their Debentures prior to the modification. Any amendment applicable to the
Exchange Offer will apply to all Debentures exchangeable in the Exchange
Offer, regardless of when or in what order such Debentures were tendered.

21
<PAGE>

PURPOSES AND EFFECTS OF THE EXCHANGE OFFER

The Company is undertaking the Exchange Offer in order to facilitate the
consummation of the restructuring contemplated by the Merger through the
retirement of outstanding debt of the Company, to improve the Company's debt
to equity ratio by decreasing total liabilities, increasing total
stockholders' equity and eliminating approximately $440,000 of annual interest
expense. The estimated net proceeds from the exercise of the Warrants issuable
in the Exchange Offer ranges from $5,776,000, if the minimum of 80% of the
Warrants are exercised, to $7,470,000 if the maximum number of Warrants
issuable in the Exchange Offer are exercised. Net proceeds from the Exchange
Offer will be used for general working capital purposes and implementation of
its business plan, including enhanced marketing of the Company's Year 2000
services and expansion of operations.

Under generally accepted accounting principles, because the Exchange
Consideration includes securities in excess of the securities issuable
pursuant to the original conversion terms of the Debentures, the Company will
be required to recognize as expense the fair value of the securities issuable
upon the exchange of the Debentures in excess of the fair value of the
securities issuable pursuant to the original conversion terms of the
Debentures. Accordingly, the Company will recognize an expense equal to (i)
the fair value of the incremental number of shares of Old ZMAX Common Stock
issued in the exchange in excess of the number of shares of Old ZMAX Common
Stock issuable upon conversion of the Debentures in accordance with their
terms plus (ii) the fair value of the Warrants issued in the exchange. As a
result, assuming all of the Debentures are tendered and accepted for exchange
pursuant to the Exchange Offer, and assuming that the fair market value of the
Old ZMAX Common Stock is $13.125 (the closing price on August 5, 1997 as
quoted on the OTC Bulletin Board) on the date of the exchange, the Company
will recognize an expense of approximately $8.9 million upon consummation of
the Exchange Offer in the third quarter of 1997. Including the effect of that
expense, the net effect of the Exchange Offer would increase stockholders'
equity by $11.7 million. See "Capitalization" and " Unaudited Pro Forma
Financial Data."

EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS

The Exchange Offer will expire at 5:00 p.m., Eastern Standard Time, on
September , 1997 [21st business day after commencement], unless the Company,
in its sole discretion, extends the Exchange Offer. During any extensions, all
Debentures previously validly tendered pursuant to the Exchange Offer and not
yet accepted will remain subject to the Exchange Offer (subject to withdrawal
rights specified herein). The later of 5:00 p.m., Eastern Standard Time on
September , 1997, or the latest time and date to which the Exchange Offer may
be extended is referred to herein as the "Expiration Date."

The Company expressly reserves the right, at any time or from time to time,
to extend the period of time for which the Exchange Offer is to remain open.
Any extension or expiration of the Exchange Offer will be followed as promptly
as practicable by the sending of notice of such extension or expiration to the
holders of the Debentures by first class mail, fax or otherwise.

The Exchange Offer may be amended at any time. If the Company makes a
material change in the terms of the Exchange Offer or in the information
concerning the Exchange Offer or if it waives a material condition of the
Exchange Offer, the Company will disseminate additional Exchange Offer
material and will extend the Exchange Offer in each case to the extent
required by law.

The Company reserves the right, in its sole discretion, to terminate the
Exchange Offer at any time prior to the consummation thereof. See "--
Conditions of the Exchange Offer."

PROCEDURES FOR TENDERING DEBENTURES

For the Debentures to be effectively tendered pursuant to the Exchange
Offer, a Letter of Transmittal (or a facsimile thereof) that has been properly
completed and duly executed by the registered holder thereof, and any other
documents required by the Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein. In order for a holder of the
Debentures to participate in the Exchange Offer, the Debenture holder must
return these documents on or before the Expiration Date. The Letter of
Transmittal should be sent only to the Exchange Agent. See "--Letter of
Transmittal" and "--Exchange Agent and Information Source."

22
<PAGE>

ACCEPTANCE OF DEBENTURES FOR EXCHANGE AND DELIVERY OF THE EXCHANGE
CONSIDERATION

Upon the terms and subject to the conditions of the Exchange Offer,
acceptance of the Debentures validly tendered under the Exchange Offer and not
withdrawn, and delivery of certificates representing the Old ZMAX Common Stock
and Warrants in exchange for the Debentures will be made as promptly as
practicable after the Expiration Date. The Company, however, expressly
reserves the right to delay acceptance of any of the Debentures or to
terminate the Exchange Offer and not accept for exchange any Debentures not
already accepted if any conditions set forth under "--Conditions of the
Exchange Offer" are not satisfied and have not been waived by the Company. For
purposes of the Exchange Offer, the Company will be deemed to have accepted
for exchange validly tendered Debentures upon execution of a written
acceptance thereof. See "--Conditions of the Exchange Offer."

LETTER OF TRANSMITTAL

The Letter of Transmittal notifies each Debenture holder of the Exchange
Offer and must be completed and returned by the Debenture holder to
participate in the Exchange Offer. The Letter of Transmittal contains, among
other things, the following terms and conditions, which are part of the
Exchange Offer.

The party tendering the Debentures for exchange (the "Transferor") assigns
the Debentures to the Company and irrevocably appoints the Exchange Agent as
the Transferor's agent and attorney-in-fact to cause the Debentures to be
assigned and exchanged. The Transferor represents that it has full power and
authority to tender and assign the Debentures, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Debentures. The Transferor also represents that it will, upon
request, execute and deliver any additional documents requested by the Company
to complete the assignment and exchange of tendered Debentures. All authority
conferred by the Transferor to the Exchange Agent will survive the death,
bankruptcy or incapacity of the Transferor and every obligation of the
Transferor will be binding upon the heirs, personal representatives,
successors and assigns of the Transferor.

CONDITIONS OF THE EXCHANGE OFFER

Notwithstanding any other provision of the Exchange Offer, the Company is
not required to accept for exchange or, subject to any applicable rules and
regulations of the SEC, exchange any Debentures tendered and may postpone the
acceptance of or, subject to the restrictions set forth above, may terminate
or amend the Exchange Offer if, at any time prior to the time of acceptance
for exchange or issuance of the Exchange Consideration in respect of any such
Debentures (whether or not any other Debentures have already been accepted for
exchange and payment or paid for pursuant to the Exchange Offer), any of the
following events occur:

(a) the holders of the requisite number of shares of Old ZMAX Common
Stock do not approve the Merger Agreement and the transactions contemplated
thereby at the Meeting; or

(b) any change (or any condition, event or development involving a
prospective change) occurs or is threatened in the business, properties,
assets, liabilities, capitalization, shareholders' equity, financial
condition, operations, results of operations or prospects of Old ZMAX or
any of its subsidiaries, or in the general economic or financial market
conditions in the United States or abroad, that, in the sole judgment of
the Company, is or may be materially adverse to Old ZMAX and its
subsidiaries or its stockholders or to the value of the Debentures or the
Old ZMAX Common Stock or there is a significant decrease in the market
prices of or trading in the Common Stock, or the Company becomes aware of
any fact or occurrence which, in the sole judgment of the Company, is or
may be materially adverse with respect to the value of the Debentures or
the Exchange Offer's contemplated benefits to the Company; or

(c) there occurs (1) any general suspension of trading in, or limitation
on prices for, securities on any national securities exchange or the over-
the-counter market, (2) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (3) a
declaration of a national emergency or a commencement of a war, armed
hostilities or other national or international calamity

23
<PAGE>

directly or indirectly involving the United States, (4) any limitation
(whether or not mandatory) by any governmental or regulatory authority on,
or any other event which in the sole judgment of the Company might affect,
the nature or extension of credit by banks or other financial institutions,
(5) any significant adverse change in the United States securities or
financial markets, or (6) in the case of any of the foregoing existing at
the time of the commencement of the Exchange Offer, in the sole judgment of
the Company, a material acceleration, escalation or worsening thereof; or

(d) any action is taken or threatened, or any statute, rule, regulation,
judgment, order or injunction proposed, sought, promulgated, enacted,
entered, enforced or deemed applicable to the Exchange Offer by any
government or governmental authority or by any court, that, in the sole
judgment of the Company, might, directly or indirectly, (1) make the
acceptance for exchange for some or all of the Debentures illegal or
otherwise restrict or prohibit consummation of the Exchange Offer, (2)
result in a delay in, or restrict the ability of the Company, or render the
Company unable, to accept for exchange some or all of the Debentures, (3)
otherwise adversely affect Old ZMAX or any of its subsidiaries or
affiliates or (4) result in a material limitation in the benefits expected
to be derived by the Company as a result of the transactions contemplated
by the Exchange Offer; or

(e) there is threatened, instituted or pending any action, proceeding or
claim by or before any court or governmental, administrative or regulatory
agency or authority or any other person or tribunal, domestic or foreign,
challenging the making of the Exchange Offer, the acquisition by the
Company of any Debentures, or seeking to obtain any material damages as a
result thereof, or, in the sole judgment of the Company, otherwise
adversely affecting Old ZMAX or any of its subsidiaries or affiliates or
the value of the Debentures or the Old ZMAX Common Stock;

that, in the sole judgment of the Company in any such case, and regardless of
the circumstances (including any action or omission by Old ZMAX or any of its
affiliates or subsidiaries) giving rise to any such condition, makes it
inadvisable to proceed with the Exchange Offer or such acceptance for exchange
of Debentures.

All of the foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise to
such condition and may be waived by the Company, in whole or in part, at any
time and from time to time, in the sole discretion of the Company. The failure
of the Company at any time to exercise any of the foregoing rights will not be
deemed to be a waiver of any such right, and each such right will be deemed an
ongoing right which may be asserted at any time and from time to time. Any
determination by the Company concerning the foregoing conditions is final and
binding.

If any of the foregoing conditions are not satisfied (or, with respect to
the above enumerated events, has occurred), the Company may, subject to
applicable law, (i) terminate the Exchange Offer and return all Debentures
tendered pursuant to the Exchange Offer to tendering Debenture holders; (ii)
extend the Exchange Offer and retain all tendered Debentures until the
Expiration Date for the extended Exchange Offer; or (iii) waive the
unsatisfied conditions with respect to the Exchange Offer and accept all
Debentures tendered pursuant to the Exchange Offer.

CERTAIN CONSEQUENCES TO TENDERING AND NONTENDERING HOLDERS

The Old ZMAX Common Stock received by tendering holders of Debentures that
are accepted for exchange and upon exercise of Warrants will, as an equity
security, be junior in right of payment to all existing and future
indebtedness of the Company, including Debentures not tendered or not accepted
for exchange, and will also be junior in right of payment to any preferred
stock of the Company which by its terms is senior in right of payment to the
Common Stock. As of the date of the Proxy Statement/Prospectus the Company
does not have any preferred stock outstanding and does not have any plans,
arrangements or understandings regarding the issuance of any preferred shares.
See "Description of Securities." Dividends on the Old ZMAX Common Stock are
payable when, as and if declared by the Board of Directors of Old ZMAX. The
Company has not paid cash dividends on its Common Stock and does not expect to
do so in the foreseeable future. The Company presently intends to redeem for
cash any Debenture remaining outstanding following completion of the Exchange
Offer at 100% of principal amount thereof plus any interest accrued thereon to
the date of redemption.

24
<PAGE>

WITHDRAWAL RIGHTS

All tenders duly and validly made under the Exchange Offer may be withdrawn
at any time on or before 5:00 p.m., Eastern Standard Time, September , 1997.
Holders of Debentures who wish to exercise this right of withdrawal must give
notice of withdrawal in writing or by telegram, telex or fax, which notice
must be timely received by the Exchange Agent at its address set forth herein.
Any notice of withdrawal must specify the name of the person who tendered the
Debentures to be withdrawn and the principal amount of the Debentures to be
withdrawn. The notice of withdrawal must be signed by the holder of the
Debentures in the same manner as the original signature on the Letter of
Transmittal (including any required signature guarantees) or be accompanied by
evidence satisfactory to the Company that the person withdrawing the tender
has succeeded to the beneficial ownership of the Debentures.

All questions as to the validity (including time of receipt) of notices of
withdrawal will be determined by the Company, in its sole discretion, which
determination is final and binding. Neither the Company nor any other person
will be under any duty to give notification of any defects or irregularities
in any notice of withdrawal or incur any liability for failure to give any
such notification.

EXERCISE OF WARRANTS

Tendering holders of Debentures who exercise their Warrants prior to the
Merger will receive New ZMAX Common Stock in the Merger if the Merger is
approved by the Old ZMAX stockholders. These shares of New ZMAX Common Stock
received by the Debenture holders will generally be freely transferable
without restriction or further registration under the Securities Act, except
that any shares held by "affiliates" of the Company (as defined in Rule 144
under the Securities Act) may generally only be sold in compliance with the
limitations of Rule 144.

Although the Registration Statement of which this Proxy Statement/Prospectus
is a part registers the Warrants and Old ZMAX Common Stock issuable upon
exercise thereof, the Registration Statement will not remain current and in
effect significantly beyond the Effective Time of the Merger. Following the
Effective Time of the Merger, holders of Warrants must provide the Company
with certain representations and documentation relating the availability of an
exemption from the registration requirements of the Securities Act as a
condition to the valid exercise of Warrants. New ZMAX Common Stock issued in
respect of Warrants exercised following the Effective Time of the Merger will
generally be restricted securities. Since New ZMAX Common Stock issued in the
Merger following the exercise of Warrants for Old ZMAX Common Stock prior to
the Merger will generally not be restricted securities, the Company
anticipates that a substantial portion of the Warrants will be exercised prior
to the Effective Time of the Merger and the exchange of at least 90% of the
Debentures and the exercise of the Warrants for at least 80% of the Warrant
Shares are conditions to the Merger.

The Company intends to use the proceeds from the exercise of Warrants for
working capital and general corporate purposes.

TRANSFER TAXES

The holder of the Debenture must pay any transfer taxes applicable to the
transfer and exchange of Debentures for the Exchange Consideration pursuant to
the Exchange Offer. The amount of any such transfer taxes (whether imposed on
the tendering holder or any other person) will be payable by the tendering
holder prior to the issuance of the Exchange Consideration.

TAX CONSEQUENCES OF THE EXCHANGE

All of the Debentures are held by non-U.S. persons. In order to confirm that
tendering holders of Debentures are not subject to U.S. federal taxation in
connection with the Exchange Offer, each tendering holder of Debentures will
certify in its Letter of Transmittal, among other things, that its investment
in the Debentures is not connected with a U.S. trade of business, and with
respect to each Debenture holder who is an individual, that

25
<PAGE>

such holder has not been and will not be present in the U.S. for 183 days in
the tax year. Tax consequences to foreign persons may vary depending on the
law of the applicable jurisdiction. Each Debenture holder is urged to consult
such holder's tax advisor to determine the specific tax consequences of the
Exchange to such holder.

EXCHANGE AGENT AND INFORMATION SOURCE

The Company plans to engage Rinderknecht Glaus & Stadelhofer as the Exchange
Agent in connection with the Exchange Offer. All deliveries, correspondence
and questions sent or presented to the Exchange Agent relating to the Exchange
Offer and the Letter of Transmittal should be directed to the address or
telephone number set forth below:

By Mail Or By Hand:

Rinderknecht Glaus & Stadelhofer

Beethovenstrasse 7

Postfach 4451

CH 8022 Zurich

Attention: Herr Carl Stadelhofer

(011 41 1) 287 2424 (telephone)

(011 41 1) 287 2400 (fax)

All inquiries relating to the Exchange Offer should be directed to Carl
Stadelhofer, Esq. The Exchange Agent will provide Debenture holders with
certain information regarding the Exchange Offer, assist Debenture holders in
obtaining copies of the Proxy Statement/Prospectus and Letter of Transmittal
and respond to questions from Debenture holders with respect to the
preparation of the Letter of Transmittal.

26
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of March
31, 1997, (i) on a historical basis; (ii) on a pro forma basis, to give effect
to the Exchange Offer, the full exercise of Warrants issued in the Exchange
Offer and the Merger, and (iii) as adjusted to account for the conversion of
Company debt into equity and issuances of additional shares of Common Stock
since March 31, 1997, as described in Note C.

<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------------
PRO FORMA(B) PRO FORMA
ACTUAL(A) AS ADJUSTED(C)
------------ ------------ --------------
<S> <C> <C> <C>
Convertible notes................... $ 2,100,000 $ 2,100,000 --
8% convertible exchangeable
subordinated debentures............ 5,500,000 -- --
Long-term debt, net of current
portion............................ 527,857 527,857 $ 142,857
Stockholders' equity(D)(E)
Preferred Stock, $0.001 par value,
10,000,000 shares authorized,
none issued and outstanding...... -- -- --
Common stock, $0.001 par value,
50,000,000 shares authorized,
6,704,072 shares issued and
outstanding actual, 9,124,072
shares issued and outstanding pro
forma, and 11,870,514 shares
issued and outstanding pro forma
as adjusted, 479,801 shares
subject to cancellation
agreements....................... 4,200 6,620 9,366
Additional paid-in capital........ 7,027,764 27,572,477 37,527,778
Issuable common stock(F).......... 5,299,579 5,299,579 --
Receivable for stock
subscription..................... (105,000) (105,000) --
Deficit accumulated during
development stage................ (13,651,082) (22,506,082) (22,795,024)
------------ ------------ ------------
Total stockholders equity........... (1,424,539) 10,267,594 14,742,120
------------ ------------ ------------
$ 6,703,318 $ 12,895,451 $ 14,884,977
============ ============ ============
</TABLE>
- --------
(A) Actual includes 479,801 shares held of record by certain stockholders that
are subject to cancellation agreements with the Company but have not been
surrendered for cancellation. See "Description of Securities--Cancellation
of Certain Shares."

(B) Pro Forma assumes that the Company's Debentures are fully exchanged in the
Exchange Offer for 1,210,000 shares of Old ZMAX Common Stock and Warrants
to purchase an equal number of shares, the full exercise of the Warrants
into 1,210,000 shares at $7 per share of Old ZMAX Common Stock and assumes
that the fair market value of the Company's Common Stock on the date of
the Exchange is $13.125 (the closing price on August 5, 1997 as quoted on
the OTC Bulletin Board). Pro Forma also assumes that the Merger has been
consummated and that no Old ZMAX stockholders exercise their dissenters'
rights. See "The Merger--Dissenters' Rights."

(C) Pro forma as adjusted represents issuances of Old ZMAX Common Stock since
March 31, 1997 (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Recent Developments"), including (i)
1,600,000 shares issued in April 1997 upon the conversion of the Company's
convertible notes, (ii) 670,000 shares issued in April 1997 in connection
with the CSI transaction, (iii) 234,365 shares issued in April 1997 in
connection with the Company's purchase of Fiserv's interest in the Fiserv
Century Services Joint Venture, (iv) 32,077 shares issued in May 1997 as
satisfaction for a promissory note, (v) 150,000 shares issuable in
connection with the Company's acquisition of the COCACT software, and (vi)
60,000 shares issuable to a consultant for services rendered. For shares
not issued as of August 5, 1997, the closing price of $13.125 on August 5,
1997 is assumed to be the fair market value of the Company's Common Stock
on the date of issuance.

(D) Excludes (i) 208,126 shares of Common Stock issuable upon exercise of
options outstanding as of March 31, 1997 with a weighted average exercise
price of $11.00, (ii) 1,200,000 shares issuable upon exercise of options
granted at $14.31 in April 1997 under the 1997 Stock Incentive Plan of
which options to purchase 100,000 of such shares are currently
exercisable, (iii) 36,000 shares issuable upon exercise of options granted
at $14.06 in May 1997 under the 1997 Directors Formula Stock Option Plan
of which options to purchase 24,000 of such shares are currently
exercisable, (iv) 500,000 shares of Common Stock reserved for issuance to
executives under the Company's bonus program or upon exercise of options
that may be granted under the 1997 Stock Incentive Plan, (v) 84,000 shares
of Common Stock reserved for issuance upon exercise of options that may be
granted under the 1997 Directors Formula Stock Option Plan, and (vi)
12,000 shares issuable upon exercise of options that will be granted to a
director nominee upon such nominees taking office of which options for
8,000 of such shares will be immediately exercisable.

(E) Gives effect to the Merger. The authorized capital stock of the Old ZMAX
consists of 95,000,000 shares of Old ZMAX Common Stock and 10,000,000
shares of preferred stock, of which 5,000,000 shares have been designated
as Series A Preferred Shares. Upon completion of the Merger, the
authorized capital stock of New ZMAX, the surviving corporation of the
Merger, will consist of 50,000,000 shares of Common Stock and 10,000,000
shares of Preferred Stock.

(F) Represents 904,365 shares issuable as of March 31, 1997 pursuant to
agreements existing at March 31, 1997 related to the CSI transaction and
the purchase of Fiserv's interest in the Fiserv Century Services Joint
Venture. See "Notes to Consolidated Financial Statements."

27
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock has been quoted on the OTC Bulletin Board (a
quotation service provided by Nasdaq Stock Market, Inc.) under the symbol
"ZMAX" since August 20, 1996, and under the trading symbols of "MEDO" and
"ORYX" before that date. The stock prices listed below, which have been
adjusted to reflect to the 1 for 80 reverse stock split of the Old ZMAX Common
Stock as of August 27, 1996, represent the high and low closing bid prices of
the Old ZMAX Common Stock, as quoted by the OTC Bulletin Board for each fiscal
quarter beginning with the first fiscal quarter of 1995.

<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR 1995:
Quarter ended March 31, 1995................................ $30.00 $10.00
Quarter ended June 30, 1995................................. $50.00 $10.00
Quarter ended September 30, 1995............................ $32.50 $ 7.50
Quarter ended December 31, 1995............................. $20.00 $ 2.40
FISCAL YEAR 1996:
Quarter ended March 31, 1996................................ $ 3.995 $ .80
Quarter ended June 30, 1996................................. $ 4.00 $ 1.60
Quarter ended September 30, 1996............................ $ 6.75 $ 1.25
Quarter ended December 31, 1996............................. $16.25 $ 5.00
FISCAL YEAR 1997:
Quarter ended March 31, 1997................................ $20.00 $10.00
Quarter ended June 30, 1997................................. $17.25 $12.125
July 1 through August 5, 1997............................... $14.6875 $12.6875
</TABLE>

On August 5, 1997, the last reported bid price of Old ZMAX Common Stock
quoted on the OTC Bulletin Board was $13.00 per share. The foregoing
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not represent actual transactions. The U.S. trading market
for the Old ZMAX Common Stock has been limited and characterized by
significant price and volume volatility. Old ZMAX has not been subject to the
periodic reporting requirements of the Exchange Act and accordingly current
public information regarding Old ZMAX and its business has not been widely
disseminated by Old ZMAX. As a result of the foregoing, historical price
quotations for the Old ZMAX Common Stock may not be indicative of the
operations, financial conditions or prospects for the Company as evidenced by
Old ZMAX's issuance of Common Stock and Common Stock equivalents in the fall
of 1996 at prices less than the quoted market price at such time. As of August
, 1997, the Company believes there were approximately 124 record owners of
the Company's Common Stock, including shares held by banks, brokers and
depository companies who hold as nominees for numerous beneficial owners.

The Company has not paid any cash dividends on its Common Stock in the past
and does not expect to pay cash dividends in the foreseeable future. The
Company currently intends to retain any future earnings to finance the
development and operation of its business. The Company's future dividend
policy will be determined by the Board of Directors and will depend upon,
among other factors, the Company's earnings, financial condition, capital
requirements, the impact of the distribution of any dividends on the Company's
financial condition and tax liabilities and such other conditions as the Board
of Directors may deem relevant.

28
<PAGE>

SELECTED FINANCIAL DATA

The tables below present selected historical financial data of Old ZMAX. The
Old ZMAX historical data for the period from December 13, 1995 (Date of
Inception) to December 31, 1995 and for the year ended December 31, 1996, are
based on the historical financial statements of ZMAX Corporation as audited by
Arthur Andersen LLP, independent public accountants. On November 6, 1996, Old
ZMAX, a shell company listed on the OTC Bulletin Board, acquired 100% of the
outstanding common stock of Century Services, Inc. ("CSI"), a Maryland
corporation. CSI was a privately held company formed on December 13, 1995 to
perform computer re-engineering with a focus on providing a solution to the
Year 2000 problem. For financial reporting purposes, the acquisition has been
treated as a recapitalization of CSI with CSI as the acquirer (a reverse
acquisition). The historical financial statements prior to November 6, 1996
are those of CSI. The accompanying selected financial data include all of the
accounts of CSI and the accounts of Old ZMAX for the period from the
acquisition on November 6, 1996, through December 31, 1996. The selected
financial data for Old ZMAX for the three-month periods ended March 31, 1996
and 1997, has been obtained from unaudited financial statements and, in the
opinion of the management of Old ZMAX, include all adjustments necessary to
present fairly the data for such periods. Operating results for the three
month period ended March 31, 1997 are not necessarily indicative of the
results that will be expected for the year ending December 31, 1997. The
information set forth below should be read in conjunction with, "Management's
Discussion and Analysis of Financial Conditions and Results of Operations" and
the historical financial statements and notes thereto included elsewhere in
this Proxy Statement/Prospectus.

<TABLE>
<CAPTION>
DECEMBER 13, DECEMBER 13,
1995 (DATE OF 1995 (DATE OF THREE MONTHS ENDED DECEMBER 13,
INCEPTION) TO YEAR ENDED INCEPTION) TO MARCH 31, 1995 (DATE OF
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------- INCEPTION) TO
1995 1996 1996 1996 1997 MARCH 31, 1997
------------- ------------ ------------- ------- ---------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Selling and marketing... $ -- $ 228,803 $ 228,803 $ -- $ 157,748 $ 386,551
General and
administrative......... -- 1,087,077 1,087,077 46,814 1,019,195 2,106,272
Amortization and
depreciation........... -- 193,533 193,533 -- 154,730 348,263
Loss from operations.. -- (1,509,413) (1,509,413) (46,814) (1,331,673) (2,841,086)
Other income (expense):
Interest income......... -- 14,248 14,248 -- 49,478 63,726
Interest expense........ -- (7,125,386) (7,125,386) -- (889,446) (8,014,832)
Other................... -- (2,903,600) (2,903,600) -- 1,218 (2,902,382)
Income tax benefit...... -- 17,396 17,396 -- 26,096 43,492
Net loss.............. -- (11,506,755) $(11,506,755) (46,814) (2,144,327) $(13,651,082)
Net loss per share.... $ -- $ (13.45) $ (0.12) $ (0.63)
Weighted average
number of common
stock shares
outstanding.......... 400,000 855,712 400,000 3,424,271
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996 MARCH 31, 1997
-------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ -- $ 4,842,169 $ 3,731,416
Working capital (deficit)............... (110,000) 2,725,534 986,650
Total assets............................ 110,000 9,096,530 7,836,589
Total liabilities....................... 110,000 8,676,742 9,261,128
Deficit accumulated during the
development stage...................... -- (11,506,755) (13,651,082)
Total stockholders' equity (deficit).... -- 419,788 (1,424,539)
</TABLE>

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

PRELIMINARY NOTE REGARDING FORWARD LOOKING STATEMENTS

The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in "Risk Factors" and
"Business" includes forward-looking statements. Factors that could cause
results to differ materially from those projected in the forward-looking
statements are set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" below and in "Risk Factors."

OVERVIEW

On November 6, 1996, Old ZMAX, a shell company listed on the OTC Bulletin
Board incorporated in Nevada, acquired all of the outstanding stock of CSI.
Prior to this transaction, Old ZMAX had no operations and its activities
consisted of efforts to establish or acquire a new business and to raise
capital. CSI was a privately held company formed on December 13, 1995. For
financial reporting purposes, the acquisition has been treated as a
recapitalization of CSI with CSI as the acquirer (a reverse acquisition). The
historical financial statements prior to November 6, 1996 are those of CSI.

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

In view of the development costs relating to CSI's millennium services, the
Company believes the period-to-period comparisons of its financial results are
not necessarily meaningful and should not be relied upon as an indication of
future performance. Specifically, as CSI increases its workforce in order to
meet future demand for its millennium services, it will incur training, salary
and other costs prior to the recognition of related revenues. In addition,
most of CSI's revenues are expected to be derived from a relatively small
number of large-scale, comprehensive millennium conversion projects provided
by CSI and its strategic partners. Consequently, CSI's revenues and operating
results are expected to be subject to substantial variations in any given year
and from quarter to quarter. See "Risk Factors--Uncertain and Undeveloped
Market for Millennium Services."

The Company believes some demand for CSI's millennium services may continue
to exist for some time after the year 2000, although this demand will diminish
significantly over time and will eventually disappear. However, the Company's
proprietary tools may be used in conversion projects unrelated to Year 2000
compliance. The Company plans to pursue businesses and business opportunities
unrelated to the millennium problem in the information services market and to
develop products and services to take advantage of these opportunities, such
as migrating a client's software application from a mainframe to a client-
server environment. However, there can be no assurance that the Company will
be able to successfully expand its business beyond the millennium conversion
market. The failure to diversify and develop additional products and services
could materially and adversely affect the Company's business, operating
results and financial condition. See "Risk Factors--Need to Develop Additional
Products and Services."

Most of the Company's current cost structure is fixed. Expenses consist
primarily of the salaries and benefits paid to the Company's technical,
marketing and administrative personnel and benefits, travel, promotions and
trade show expenses, office expenses and other general overhead costs.
Amortization and depreciation expense relates to property and equipment and
intangibles assets. As a result of its plan to expand its operations and to
offer a wider range of information services, the Company expects these costs
to increase.

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

CSI RECAPITALIZATION

Old ZMAX purchased all of the outstanding shares of CSI stock pursuant to a
stock purchase agreement between Michael Higgins and Michael Cannon, the sole
CSI shareholders, and Old ZMAX dated November 6, 1996 (the "Stock Purchase
Agreement"). The combination of CSI and Old ZMAX has been accounted for as a
recapitalization of CSI, a reverse acquisition in which CSI, a private
operating company acquired ZMAX, a shell company listed on the OTC Bulletin
Board. Mr. Higgins and Mr. Cannon (the "Former CSI Stockholders") effectively
entered into an agreement with the transaction promoters to raise capital
through offshore placements using ZMAX as the vehicle. As part of that
process, the interest of Fiserv in the Year 2000 business (through its joint
venture interest) was reacquired (as described below) and a stock performance
compensation plan was put in place for the Former CSI Stockholders who
continued as employees of CSI (as described below).

At the closing on November 6, 1996, Old ZMAX issued 3,200,000 shares of Old
ZMAX Common Stock in the name of the Former CSI Stockholders, of which 400,000
shares were delivered to the Former CSI Stockholders. The remaining 2,800,000
shares (the "Escrowed Stock") were placed in escrow subject to quarterly
release based on the cash flows generated by CSI. One share of Escrowed Stock
will be released from escrow for each $1.25 of cash flow generated. The Former
CSI Stockholders are entitled to vote the Escrowed Stock and to receive their
respective pro rata share of any distributions or dividends on the Escrowed
Stock. The Escrowed Stock is subject to forfeiture if the Former CSI
Stockholder's employment agreement with CSI is terminated for cause or if the
Former CSI Stockholder breaches any non-compete or other restrictive covenant
with CSI. As of August 5, 1997, no Escrowed Stock had been released from
escrow.

In connection with the CSI transaction, the Former CSI Stockholders entered
into a stockholders' agreement with the Company dated November 6, 1996 (as
amended, the "Stockholders Agreement"). Under the Stockholders Agreement, the
Former CSI Stockholders may not sell, pledge, encumber, give, bequeath, or
otherwise transfer or dispose of their Old ZMAX stock without complying with
the terms of the agreement or obtaining the prior written consent of the
Company. A Former CSI Stockholder who receives a qualified offer (as defined
in the agreement) must notify the Company of the offer and the Company has an
option to elect to purchase the stock under the terms contained in the
qualified offer. The Former CSI Stockholders are not required to comply with
the provisions described above in order to effect a sale or disposition of
their stock made in compliance with SEC Rule 144 under the Securities Act.

At the time of the CSI recapitalization, the Former CSI Stockholders were
also employed by the Company under employment agreements with CSI. If the
employment of the Former CSI Stockholder is terminated for cause (as defined
in the employment agreement) or if following the termination of the employment
agreement, the Former CSI Stockholder is determined to have breached any non-
competition covenants or other restrictions in his employment agreement, the
Company will have an option to elect to purchase the stock at its current
value (as defined in the Stockholders Agreement). If the employment of the
Former CSI Stockholder is terminated for a reason other than for cause,
excluding expiration of the employment agreement by its terms, or if the
employee becomes permanently disabled, the stockholder will offer its stock
for sale to the Company at a price designated by the offering Former CSI
Stockholder and the Company will have an option to elect to purchase the stock
at the offer price or, if the Former CSI Stockholder fails to designate a
price, the current value price (as defined in the Stockholders Agreement).

In the event that a Former CSI Stockholder dies, the Company will have the
option to purchase and the Former CSI Stockholder's estate will be required to
sell all of the stock at the current value price (as defined in

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the Stockholders Agreement). Any Escrowed Stock subsequently received by a
Former CSI Stockholder's estate will be subject to this provision at the time
of earn out.

Under the terms of the Stockholders Agreement, the stock may only be offered
for sale, sold or transferred pursuant to an effective registration under the
Securities Act or an exemption therefrom. The transfer restrictions, and
purchase options granted in the Stockholders Agreement last for a term of
three years from the date of the agreement and will expire on November 6,
1999. The restrictions apply to any additional shares of Old ZMAX stock
acquired after the execution of the Stockholders Agreement. There are
currently 3,200,000 shares of Old ZMAX Common Stock subject to the
Stockholders Agreement.

In the Stock Purchase Agreement, the Former CSI Stockholders agreed to
indemnify the Company for breaches of the representations and warranties made
to the Company in that agreement. In order to secure their indemnification
obligations, each Former CSI Stockholder pledged the shares of Old ZMAX Common
Stock, including the Escrowed Stock, received by him in the CSI transaction
Acquisition in favor of the Company pursuant to a stock pledge and security
agreement dated November 6, 1996 (the "Stock Pledge Agreement"). In the event
the Company incurs losses as a result of a breach of a representation or
warranty made by the Former CSI Stockholders, the Company is authorized to
transfer, cancel or liquidate the Old ZMAX Common Stock registered in the name
of the Former CSI Stockholders to offset its losses. The term of the Stock
Pledge Agreements expires on August 6, 1997, at which time the certificates
representing the Escrowed Stock will continue to be held in escrow subject to
earn out as described above.

As part of the CSI recapitalization, Old ZMAX acquired the interests of
Fiserv, Inc. in the Fiserv Century Services Joint Venture. See "The Company."
As part of this joint venture acquisition, Old ZMAX agreed to issue to Fiserv
3% of the shares of Old ZMAX outstanding on the closing date of the CSI
recapitalization, or 234,365 shares, and to allow Fiserv to appoint a member
to the Old ZMAX Board of Directors. The issuance of these shares to Fiserv was
completed in April 1997.

With funding from the Company, CSI is now implementing its business plan and
marketing campaign. See "Business." In the next 12 months, the Company intends
to make additional investments in the further development and marketing of
CSI's millennium services as well as investigating related acquisitions in the
information technology industry that will complement CSI.

RECENT DEVELOPMENTS

Conversion of $2.1 million Notes. From September 1996 to November 1996, the
Company issued a total of $2.1 million in convertible notes to six non-U.S.
accredited investors and financial institutions. The notes were due in January
and March of 1997 and were convertible, at the option of the holder, into a
total of 1,600,000 shares of the Company's common stock. Of the total,
$600,000 of the notes were convertible at a rate of one share per $1.00 of
principal. The remaining $1,500,000 were convertible at a rate of one share
per $1.50 of principal. All holders of the convertible notes notified the
Company of the exercise of their conversion rights in early 1997, prior to the
due dates of the notes. In March 1997, the Board of Directors approved the
conversion and, in April 1997, all $2.1 million of convertible notes were
converted into an aggregate 1,600,000 shares of Old ZMAX Common Stock.

Issuance of Finders Fee Shares. In connection with the CSI transaction and
related financing, Old ZMAX agreed to issue 320,000 shares of Old ZMAX Common
Stock to Shafiq Nazerali as a fee for his services. At the direction of Mr.
Nazerali, these shares were issued to Valorinvest Ltd. in April 1997. Old ZMAX
also agreed to grant 350,000 shares of Old ZMAX Common Stock to the original
finder of the CSI transaction for $0.30 per share in order to acquire such
finder's rights to the transaction. These shares were issued and the
consideration received in May, 1997.

Conversion of Fiserv Debt. As part of the CSI recapitalization, the Company
acquired the interest of Fiserv, Inc. in the Fiserv Century Services Joint
Venture in exchange for, among other consideration, Old ZMAX's promissory note
for $385,000. This promissory note has been converted into 32,077 shares of
Old ZMAX Common Stock issued to Fiserv, Inc. in May 1997.

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Acquisition of COCACT Software. On April 30, 1997, Old ZMAX entered into an
agreement with Taiwan's Institute for Information Industry to purchase all
right, title and interest to the Change of Century Analysis and Conversion
Tool (COCACT) software program, an integral part of CSI's VISION 2000SM
solution. Conditions of the purchase agreement included a three month software
development and enhancement project to bring COCACT to the required level of
performance. The purchase price for the COCACT software is $1.1 million in
cash plus 150,000 shares of Old ZMAX Common Stock issuable upon completion and
testing of certain COCACT enhancements to be performed by the seller. The
first installment of the purchase price in the amount of $250,000 was paid in
May 1997, and future installments, as well as the issuance of the shares, will
be made after the software development and enhancement project is completed
and tested.

RESULTS OF OPERATIONS

Prior to the CSI transaction, Old ZMAX was a development stage company whose
purpose was to create a vehicle to obtain capital and to seek out,
investigate, and acquire interests in products, properties and businesses that
may have potential for profit. From the date of its inception (April 24, 1986)
through December 31, 1995, Old ZMAX had incurred a cumulative loss of $1.7
million. As of December 31, 1995, Old ZMAX had no assets and liabilities of
$1.4 million.

For financial reporting purposes, the CSI transaction has been treated as a
recapitalization of CSI with CSI as the acquirer (a reverse acquisition). The
historical financial statements including the results of operations prior to
November 6, 1996 are those of CSI.

CSI is a development stage company that was formed on December 13, 1995. Its
1995 activities were limited to acquiring the rights to two of its software
tools. In 1996, the Company incurred a loss of $11.5 million or $13.45 per
share. No revenues were generated in 1996. Included in the 1996 loss were
several significant non-cash charges including approximately $2.9 million of
expense related to the CSI transaction, approximately $7.0 million in interest
charges related to the amortization of the discount on the Company's
convertible debt that resulted from an allocation of the proceeds of the debt
to additional paid-in capital to reflect the beneficial conversion feature on
the convertible debt, approximately $380,000 in amortization of intangibles
and deferred financing costs, and approximately $300,000 in non-employee stock
compensation expense. The remaining expenses are primarily attributable to the
salaries and benefits paid to the Company's technical, marketing and
administrative personnel along with other marketing and administrative
expenses.

Results for the three months ended March 31, 1996, were a loss of $46,814 or
$0.12 per share. The loss was primarily related to the commencement of
operations by CSI in early 1996. Results for the three months ended March 31,
1997, were a loss of $1.3 million or $0.63 per share. No revenues were
generated in either quarter. Included in the 1997 loss were several
significant non-cash charges. Approximately $590,000 in interest charges were
recorded related to the amortization of the discount on the Company's $2.1
million convertible notes that resulted from an allocation of the proceeds of
the debt to additional paid-in capital to reflect the beneficial conversion
feature on the debt. Approximately $297,000 in amortization of intangibles and
deferred financing costs was recorded. Approximately $300,000 in non-employee
stock compensation was charged to expense. The remaining loss reflects the
costs related to the increased operations of CSI and fees and expenses
associated with the preparation of documents in connection with the Merger,
the Exchange Offer and the transactions contemplated thereby. Current assets
totaled $3.7 million, a decrease of $1.2 million from December 31, 1996,
attributable to a decrease in cash that was used for operations and for the
purchase of property and equipment and payment on the Company's long-term
obligation related to its purchase of the COCACT software tool.

LIQUIDITY AND CAPITAL RESOURCES

As part of the recapitalization of CSI, Old ZMAX, prior to the CSI
transaction, sold 2,800,000 shares of Common Stock for $0.30 per share or
$840,000 in the aggregate. The proceeds were used to satisfy outstanding
liabilities of Old ZMAX. Also as part of the recapitalization of CSI, Old
ZMAX, prior to the recapitalization issued $1.5 million of convertible notes
for cash. A portion of the proceeds was used to satisfy outstanding

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liabilities of Old ZMAX. In addition, prior to the CSI transaction, Old ZMAX
issued a $480,000 convertible note as satisfaction for certain liabilities of
Old ZMAX. Subsequent to the CSI transaction, the Company issued an additional
$120,000 in convertible notes for cash. In early 1997, the holders of the
convertible notes exercised their conversion rights and the $2.1 million in
aggregate convertible notes were converted into a total of 1,600,000 shares of
Common Stock. In December 1996, the Company issued $5.5 million in convertible
exchangeable subordinated debentures for cash. As of December 31, 1996 and
March 31, 1997, the Company had approximately $4.9 million and $3.7 million in
cash, respectively, and $2.7 million and $1.0 million of working capital,
respectively.

The nature of the information technology industry, combined with the rapidly
growing demand for Year 2000 services worldwide, makes it difficult for the
Company to predict future liquidity requirements with certainty. However, the
Company believes that existing cash, together with the proceeds from the
exercise of the Warrants (see "The Exchange Offer"), will be adequate to
finance continuing operations, investments in property and equipment, and
expenditure for the development of additional software improvements in the
Company's VISION 2000 SM toolset.

Over the longer term, the Company must successfully execute its plans to
generate significant positive cash flows if it is to sustain adequate
liquidity without impairing growth or requiring the infusion of additional
funds from external sources of cash. See "Business." Additionally, a major
expansion, such as would occur with the acquisition of a major new subsidiary
might also require external financing that could include additional debt or
equity capital.

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BUSINESS

INTRODUCTION

The Company focuses on acquiring, building and operating companies in the
information technology industry. In 1996, the Company acquired all of the
stock of CSI. See "The Company." CSI intends to provide re-engineering and
information processing services to users of large-scale computer systems in
North America and Europe. CSI specializes in assisting business organizations
and government agencies with what has become popularly known as the "Year 2000
problem." Over the next several years, CSI expects to devote substantial
resources to assisting its clients in preparing for and implementing the
conversion of their computer systems to allow those clients to continue
operations without interruption in the 21st Century.

CSI's management purchased a suite of software tools from Integrated
Microcomputer Systems, Inc., a sixteen year old software re-engineering firm.
Prior to CSI's acquiring rights to these tools, this software suite has been
used in a number of software re-engineering projects. CSI enhanced the tool
suite to specifically address the Year 2000 problem. CSI's total system
solution, known as VISION 2000SM, encompasses a management methodology,
assembly-line processes, and a proprietary automated tool suite to identify
and convert date-sensitive software applications to Year 2000 compliance.

THE YEAR 2000 PROBLEM

Throughout most of the history of computer data processing by business and
government, data storage was severely limited both by the design shortcomings
of the storage media themselves and by memory access speed considerations.
Consequently, computer programmers typically encoded years using a two digit
format (e.g., "97" for "1997") rather than a complete, four digit format.
However, the use of a two-digit format makes it impossible to distinguish
between dates in different centuries. Programs required to process a date
after the Year 2000 may interpret the date as 100 years earlier than the
intended date (e.g., 1905 for 2005); may go to an arbitrary default date such
as 1985; or may fail to process the date altogether. Even though a particular
program may have the ability to accommodate a 21st Century date, it may be
unable to communicate that date to other application programs with which it
must interact. As the Year 2000 approaches, a number of these programs have
begun to operate inaccurately, or have failed completely, due to their
inherent inability to properly interpret dates beyond 1999.

Many industry analysts see no precedent to the Year 2000 problem, given our
society's increasing reliance on computing devices and automated
communications networks. Indeed, the very size and complexity of computing
applications makes the Year 2000 problem as much a management issue as a
programming one. Large mainframe applications, 10 to 20 years old, are
referred to as "legacy systems" because they have outlived generations of
programmers. Such systems have patch upon patch of code developed by this
succession of programmers, and limited accurate documentation. In some cases,
the original source code bears little or no resemblance to the object code in
the current production environment or the original code is missing altogether.
This is problematic because source code must match the object production code
before Year 2000 remediation can be effective.

Until recently, many organizations have been able to perform specific tasks
that rely on dates after 1999 by using stand-alone Year 2000 compliant
applications, modifying small amounts of computer code or simply manually
manipulating data. Such solutions are no longer practical as the percentage of
an organization's applications encountering dates after 1999 increases. As the
millennium draws nearer, more and more applications will be at risk.

Because a single application can potentially corrupt an organization's
entire information network by passing on non-compliant data, resolving the
Year 2000 problem requires individual identification and analysis of all
applications and systems used by the organization. An organization's systems
may include internally developed custom mainframe programs and a large number
of new applications from multiple sources, leading to an

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absence of standards among highly integrated and interdependent applications.
Changes to applications may require a corresponding change to the data used by
those applications. Computer hardware and operating systems generally include
date-sensitive programs or processing functions that can be similarly
affected.

The Year 2000 problem affects not only data processing functions but also
process control applications. For example, applications such as traffic
regulation, environmental control and factory automation commonly change
programs by date. While these systems are not typically affected by the Year
2000 problem today (as they have no current need to process dates
substantially in the future), as the millennium approaches, many of these
process applications will have to be reprogrammed to allow them to function
after the Year 2000.

The extensive reliance of business firms and government agencies upon
computer-based information systems makes it critical for those organizations
to assess and correct their Year 2000 problem within the next 2 1/2 years.
Many organizations will analyze and modify their existing systems because it
may be very difficult for them to abandon existing systems and replace them
with new Year 2000 compliant systems within the limited time available. And,
besides problems arising in its own systems, an organization may be directly
affected by the date-dependent programs and databases used by outside
organizations. For example, suppliers may have software applications that are
directly integrated with a manufacturer's real-time purchasing application.
With the explosive growth in electronic data interchange (EDI), electronic
funds transfer (EFT) and other forms of electronic commerce, the dimensions of
the Year 2000 problem become compounded.

THE MARKET

The Year 2000 problem is particularly important to large organizations with
mainframe computer systems such as banks, securities firms, insurance
companies, healthcare providers, transportation companies, and the full
spectrum of federal, state and city government agencies. Solving the Year 2000
problem is essential in order for these organizations to continue to operate
without interruption into the 21st Century. In some cases, the survivability
of a firm or agency may depend upon its ability to resolve the Year 2000
problem.

An average business mainframe computer may consist of approximately 10
million lines of software code. To manually inventory, analyze, convert, test
and integrate even that modest volume of code would take several years to
complete. The majority of the software code is written in the COBOL language,
which is now considered to be an obsolete language, or in other antiquated
languages such as Assembler. To compound the problem, industry experts have
stated that there are insufficient COBOL programmers and programmers trained
in assembler languages to manually resolve the Year 2000 problem. There are
currently estimated to be only 500,000 COBOL programmers worldwide. Many
programmers trained in COBOL have either retired or have been retrained in
more modern software languages and are reluctant to go back to COBOL
programming for the resolution of the short term Year 2000 problem.

The Gartner Group, a leading information technology consulting company,
estimates that the world-wide cost of resolving the Year 2000 problem is
between $300 billion and $600 billion and that a typical Fortune 500 company
could incur expenses of $50 million to $100 million to resolve its Year 2000
problem.

The Company believes that many organizations will initially attempt to
resolve the Year 2000 problem internally. Others may simply (and expensively)
eliminate and replace programs and equipment. However, the Company believes a
large number of organizations will choose to engage a millennium services
provider to manage some or all of their conversion project. The reasons this
should occur include the substantial increase in technical personnel required
as well as the shortage of programming expertise as noted above. Some industry
analysts including The Gartner Group have suggested that the magnitude of the
Year 2000 problem--and the limited time in which to implement a solution--may
cause demand for millennium services to exceed the availability of qualified
providers. The market reaction to the Year 2000 problem has been slow in
developing which may result in the resource demand peaking in late 1998 and
1999. This may lessen the amount of time the Company will be able to provide
its millennium services to potential clients.

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STRATEGY

The Company's objectives are: (1) initially to maximize growth in sales of
its millennium services while achieving high profit margins on these sales and
(2) over the long term, to leverage its assets (including its expertise and
client relationships) obtained through providing its millennium services to
develop additional business opportunities in the re-engineering and conversion
industry and related areas. The Company's strategy for achieving these
objectives includes the following key elements:

Distinguish the Company as a Full Service Provider of Millennium
Services. The Company has developed methodologies for analyzing and re-
engineering information systems under a wide variety of scenarios. The Company
intends to market this expertise, which enables the Company to provide the
full range of services typically necessary to manage a client's entire Year
2000 project, including inventory analysis, impact assessment, strategic
planning, conversion, testing and implementation to production. The Company
believes that few Year 2000 solution providers can match the depth, accuracy
and quality of CSI's full service solution.

Maintain Technological Leadership. The Company intends to conduct research
and development activities in order to improve the functionality, flexibility,
ease of use and cost-effectiveness of its millennium solution. The Company
works closely with its strategic partners and customers to develop new
features and methodologies to meet their requirements. The Company intends to
continue to independently market and deliver a number of comprehensive
millennium conversion solutions to enhance sales, to gather market
information, and to gain the necessary expertise to continually improve its
technology and services.

Achieve Market Penetration Through Teaming Arrangements. As a small, start-
up company, CSI has only limited resources to undertake marketing efforts. To
maximize its marketing impact, the Company has endeavored to team with
established strategic industry participants such as large software developers,
system integration companies, and systems manufacturers. The Company believes
that teaming arrangements can provide customers with superior, comprehensive
millennium conversion solutions. Teaming arrangements also provide the Company
the opportunity to enhance its internal marketing efforts by capitalizing on
the existing client relationships and ongoing sales and marketing efforts of
its strategic partners in various markets. To date, CSI has entered into non-
exclusive teaming arrangements with EDS Federal, Hewlett Packard, Hitachi Data
Systems and First Technology Systems.

Penetrate Additional Geographic Markets. Initially, the Company has targeted
the United States market for its millennium services to be followed by
penetration of selected parts of the Western European market. The Company may
pursue opportunities in other geographic areas either directly or through its
strategic alliances, although no specific plans for such expansion have been
developed.

Pursue Additional Business Opportunities. The Company intends to pursue
additional business opportunities in the conversion industry and related areas
utilizing its software tools, experience, and client relationships obtained
while providing millennium services. The Company believes that, while
performing millennium conversions, it will discover new information systems
requirements, such as migrating a client's application from a mainframe
environment to a client server environment or developing enhancements to a
client's existing applications. In turn, the Company will strive to develop
and market new services and software to meet those requirements.

MILLENNIUM SERVICES

There are no shortcuts to solving the Year 2000 problem. It requires a
comprehensive and rigorous management approach together with a set of
integrated automated tools. The Company believes that its VISION 2000SM
solution encompasses dependable proprietary tools, methodology and processes
to convert legacy

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software applications to Year 2000 compliance. VISION 2000SM consists of two
phases: Phase 1, Global Impact Analysis (GIA), and Phase 2, Conversion and
Implementation (C&I). Each phase is further divided into 3 steps that are
described below.

VISION 2000SM--Global Impact Analysis

CSI recognizes that achieving Year 2000 compliance is a management issue
rather than a purely technical issue. Massive software changes must be managed
in a consistent, cohesive and timely manner with minimum cost, interruption
and risk to the organization. CSI's VISION 2000SM Global Impact Analysis (GIA)
is designed to provide its clients with detailed and rigorous analysis,
assessment and planning tools. The Company believes that these three elements
are the cornerstones of a successful Year 2000 conversion.

The first step of the GIA phase is the inventory analysis. During this step
the source code of the client's applications systems--including JCL/ECL,
source library, copybook, file definitions, macros, etc.--are gathered for
detailed analysis. The primary functions of the inventory analysis are
designed to validate the completeness of the source code and to define the
domain of the conversion project. CSI uses its proprietary tool, VISION 2000SM
Baseline Inventory Control (BIC) to accomplish these functions. BIC is a
robust, mature, menu-driven, Windows 95-based software tool that is designed
to parse source code into component objects and identify all data-flow and
control-flow relationships among systems, subsystems and program modules. BIC
is designed to identify missing or overlapping source modules to be reported
and addressed with the client. BIC also generates statistical reports,
reference reports and application analysis reports. In addition, the results
from its complexity analysis will become one of the input parameters to VISION
2000SM Strategic Planner (described below) for schedule and resource planning.

The second step of the GIA phase is the Year 2000 date impact analysis.
VISION 2000SM utilizes three levels of naming patterns to identify potential
date data. It uses CSI's extensive library of generic name patterns at the
enterprise level; a project development naming standard (if available) at each
application; and any unique program specific naming conventions at the
program-module level. During the data gathering and candidate field
confirmation processes, CSI collects information about the physical
characteristics and semantic attributes of each primary date candidate. These
candidates become the initial seed from which the VISION 2000SM proprietary
algorithm performs global data-flow analysis and computes equivalent classes
of date-related objects. Data-flow analysis is performed at both the program
module level, which identifies all date field data flow propagations, and at
the global level, which identifies all date field usages in subroutine
parameters or global common data objects (e.g., fields, databases). The
evaluation of the data flow analysis is crucial since during the conversion
phase a conversion rule is assigned and executed to affect changes while at
the same time maintaining semantic integrity of the source code. The VISION
2000SM Date Analyzer is designed to target the identification of date and
date-related data from the collection of seeds and produces reports that
detail date-impacted information, including the number of date candidates,
date-related occurrences and the density of date-related occurrences within
each programming unit.

The third step of the GIA phase is the development of the strategic plan to
achieve Year 2000 compliance. This includes a series of assessments that
provide conversion alternatives, comprehensive test criteria and
recommendations for each critical decision point. CSI documents each strategic
decision made by the client in a comprehensive strategic plan. During
strategic planning, a date conversion strategy (e.g., expansion, compression
or windowing) must be selected for each subsystem and each major file or
database. Decisions must also be made concerning the conversion of active and
archive files and databases, including when the conversion will take place.
Next, a test strategy must be selected. Testing can only uncover errors but
would never be able to certify the application is error free. Therefore, a
test strategy must be selected to maximize the end user's confidence,
demonstrate conversion quality and balance the cost versus the risk.

All the information gathered during these three steps of the GIA is entered
into the VISION 2000SM Strategic Planner to produce a project implementation
plan. This plan details the schedule, resource requirements, conversion
processes, testing processes, responsibilities and costs to execute the Year
2000 implementation plan.

38
<PAGE>

VISION 2000SM--Conversion and Implementation

The Company believes that its VISION 2000SM conversion and implementation
process is an integrated combination of effective, secure and efficient
automated tools and methodologies working in concert designed to produce
consistent, high quality conversion results. The VISION 2000SM Y2K Converter
was designed and developed specifically for Year 2000 conversion tasks. The
VISION 2000SM Y2K Converter is a rule-based toolset that runs on Windows 95
workstations networked to an NT server. It is designed to convert numerous
platforms of COBOL (IBM, UNISYS, DEC, HP, WANG, etc.) and PL/1 source code.
The Y2K Converter operates in two modes of conversion: global mode and
interactive mode. During global mode conversion, all source components which
directly or indirectly reference a common global date object are modified in
unison. The interactive mode is used when human intervention is required. In
the interactive mode, a programmer browses the color-coded source code and
follows the recommendation provided by the Y2K Converter. Through the use of
function keys, the programmer executes the changes, minimizing or eliminating
the potential for human error in keyboarding. Whenever a line of source code
is modified, VISION 2000SM automatically duplicates the original source line,
marks the original as a comment, and modifies the duplicated line. At the same
time, it "audit stamps" the new line with information indicating who performed
the change, what rules were followed, and when the change was executed.

After conversion, the next step is to verify that the converted application
behaves correctly through a series of tests. CSI's testing methodology and
philosophy is to employ, to the maximum extent possible, the test tools, test
cases, and testers already used by the client. CSI test staff and the client's
test personnel together perform the following tests:

. Regression Test: This test is designed to ascertain whether all functions
of the applications work in the intended manner after the conversion.

. Future Date Test: This test is designed to detect potential errors that
may exist when the date format is changed to a four-digit format. This is
similar to the regression test except that the test data are conditioned
to occur in the future.

. Century Cross Over Date Test: This test is designed to compare
transactions and records that occur at the end of 1999 and cross over
into 2000.

. Integration Test: This test is designed to uncover any error that is not
apparent in each individual component.

Before the successfully tested application is placed back into production,
CSI uses its bridge generator to create temporary or permanent bridges to the
client's application. Bridges are required to provide a transparent and
consistent data view of the modified date fields to the converted application,
as well as to any yet-to-be converted portion of the application software.

VISION 2000SM Baseline Inventory Control is designed to define the scope of
a Year 2000 project. VISION 2000SM Date Analyzer attempts to identify every
occurrence of date and date-related objects within an application system.
VISION 2000SM Date Converter works to apply consistent, rule-based conversion
that minimizes commission errors. The VISION 2000SM solution is designed to
produce quality output and thus reduce the testing effort.

MARKETING

The Company has initiated a multi-faceted marketing plan to ensure the
market place is aware and knowledgeable of the Company's millennium services.

Internet. The Company maintains a site on the Worldwide Web and is also
listed on the Year 2000 Home Page, which automatically links back to the
Company's web site. Potential clients seeking Year 2000 compliance support can
access the Year 2000 Home Page and obtain information on the Company's
millennium services, VISION 2000SM, and will be automatically linked to the
Company's web site to obtain more detailed information on VISION 2000SM.

39
<PAGE>

Trade Shows. CSI has co-sponsored Year 2000 conferences and expositions in
concert with the Software Productivity Group in London, Toronto and New York
City. CSI is scheduled to be a co-sponsor at two additional Year 2000
conferences and expositions with the Software Productivity Group during 1997
in Chicago and San Francisco. These Year 2000 conferences have historically
been sold out with attendees numbering in excess of 500. CSI also participated
at the UNISYS Users Meeting in April, 1997. CSI has found that participating
in Year 2000 trade shows provides a vehicle to reach a large number of
potential clients in a short period of time.

Marketing Communications. The Company has contracts with Michael Baybak and
Company, Inc., a public relations and consulting company to enhance media
recognition of CSI's millennium services, technology and expertise. The
Company believes, the positive name recognition of CSI with Year 2000
compliance will further enhance its opportunities in the marketplace.

Joint Marketing. The Company will seek joint marketing opportunities with
its alliance partners. The Company believes that the marketing resources of
its alliance partners will add to the exposure and credibility of the
Company's VISION 2000SM solution.

SALES

Recognizing that the window for contacting and winning clients for Year 2000
services is small and closing with each passing day, the Company has initiated
a very aggressive and multi-faceted sales campaign. Highlights of the
Company's sales campaign are listed below:

Direct Marketing. CSI implemented a mail-out campaign to over 300 financial
institutions that will be followed by telephone contacts to determine interest
and potential buyers of millennium services.

Direct Sales. The Company uses a telemarketing approach that cold calls
select markets, i.e., financial institutions, communications companies, UNISYS
users, PL1 systems users, etc., to introduce CSI's millennium services and
arranges a technical briefing for the potential client. The Company's senior
sales and technical personnel conduct the technical briefing. This approach is
designed to maximize the use of CSI's talented employees and shorten the sales
cycle by responding to all the client's technical issues and concerns at the
technical briefing.

Independent Sales Representatives. The Company has recruited independent
sales representatives to sell CSI's VISION 2000SM solution. These sales
representatives operate on a sale-of-opportunity basis, utilizing their
existing industry contacts, and are only compensated on successful sales on a
percentage commission basis. These sales representatives pay their own
expenses. The Company also employs sales representative who earn a salary plus
a percentage commission basis.

Teaming Arrangements. CSI has entered into teaming arrangements with major
prime contractors who are addressing the Year 2000 problem or have a client
base in the market segment. These companies bring a substantial client base, a
national or international distribution system and provide credibility that CSI
could not match by itself. At the present time, CSI has established non-
exclusive teaming arrangements with EDS Federal, Hewlett Packard, Hitachi Data
Systems and First Technology Solutions. Although the Company has not yet
received any clients through its teaming arrangements, the Company believes
that as the Year 2000 approaches, parties with teaming arrangements with the
Company will receive demand from their client base for Year 2000 compliance
support and may call on CSI to provide these services.

CLIENTS

CSI has successfully performed Year 2000 assessment and conversion pilots
for several large companies. CSI has entered into four Year 2000 consulting
and/or compliance contracts with The Bessemer Group, Incorporated, Wisconsin
Power & Light Company, another major utility company and a Fortune 100
company. CSI is in final contract negotiations to perform Year 2000 conversion
services for a major investment banking

40
<PAGE>

company. CSI has also submitted proposals to provide its millennium and other
software re-engineering services to approximately 17 other companies in
telecommunications, utilities, health care, retail, manufacturing and related
industries in addition to state and federal government agencies. All of these
proposals are currently pending.

COMPETITION

The market for millennium services is highly competitive and will become
increasingly competitive as the Year 2000 approaches. A number of companies
engaged in millennium services are more established, benefit from greater name
recognition and have substantially greater financial, technical and marketing
resources than the Company. The Company classifies its existing competitors
addressing the Year 2000 problem into three categories: (1) Product Vendors;
(2) Full Service Providers; and (3) Consultants.

Product Vendors. Companies that have been providing legacy system support
through software tools have made modifications and enhancements to their
existing tools to support Year 2000 services. The majority of the available
tools utilized by product vendors support legacy code analysis for
applications written in COBOL. The Company believes that product vendors will
continue to proliferate and will offer piece-meal solutions to the Year 2000
problem. Most product vendors will likely concentrate in the assessment of
COBOL based systems and will likely attempt to form strategic alliances with
full service providers and consultants since the majority of clients will look
to outsource the Year 2000 solution. It is also possible that repair product
vendors may even attempt to become full service providers by acquiring proven
program managers and low cost converters. Product vendors that are currently
providing legacy system support for the Year 2000 problem include: ADPAC
Corp., Alydaar Software Corp., ISOGON, Mainware Inc., Quintic Systems, Inc.,
SEEC, Inc., Trans Century Data Systems, and Viasoft, Inc.

Full Service Providers. Major companies providing information technology
professional services to their clients, especially data center related
services (such as programmers and software development), are developing tools
to provide analysis and conversion support to their clients with Year 2000
problems. Although there are a limited number of full service providers, their
Year 2000 services afford them an opportunity to penetrate new accounts and
leverage other products and services. The Company believes that several full
service providers have acquired off-shore support to lower their cost. The
Company also believes that existing clients of full service providers will
seek assistance from the established full service provider relationship to
resolve their Year 2000 problems. The Company believes that full service
providers will remain limited in number and some will form strategic alliances
with product vendors if the tools offered by product vendors are perceived to
be superior in terms of quality and cost to those developed in-house by the
full service providers. Examples of full service providers are: Cap Gemini
America, Computer Horizons, EDS, IBM ISSC, IBS Conversions, Inc., and
Information Management Resources, Inc.

Consultants. The Company believes that most companies providing information
technology (IT) consulting to their clients will expand their services to
include Year 2000 support. However, the Company believes that most of the
efforts of IT consultants to date have been focused on the up-front segment of
the solution, i.e., assisting clients in determining the size and scope of
their Year 2000 problem and developing a fixed strategy to resolve the Year
2000 problem in concert with their client's long term IT plans. The Company
seeks to establish relationships with IT consultants and thereby work
cooperatively with consultants to resolve their clients' Year 2000 problems
utilizing the Company's services. The Company believes that consultants will
continue to leverage existing high level client relationships into a Year 2000
business. However, the Company also believes that consultants will typically
seek to form strategic alliances with product vendors. Examples of consultants
are Deloitte Touche and James Martin & Co.

INTELLECTUAL PROPERTY

The Company's intellectual property primarily consists of the methodologies
developed for use in its millennium services and ownership or exclusive rights
to the use of its software tool suite known as the VISION 2000 SM solution.
The Company does not have any patents and relies upon a combination of trade
secret,

41
<PAGE>

copyright and trademark laws and contractual restrictions to establish and
protect its ownership of its proprietary methodologies and exclusive rights to
use its software tool suite. The Company generally enters into non-disclosure
and confidentiality agreements with its employees, independent sales agents,
and clients. Despite these precautions, it may be possible for an unauthorized
third party to replicate the Company's methodologies or to obtain and use
information that the Company regards as proprietary.

As the number of competitors providing millennium services similar to those
offered by the Company increases, it is more likely that substantially similar
tools and methodologies will be used in providing such services. Although the
Company's software products and services have never been the subject of an
infringement claim, there can be no assurance that third parties will not
assert infringement claims against the Company in the future, that the
assertion of such claims will not result in litigation, or that the Company
would prevail in such litigation or be able to obtain a license for the use of
any allegedly infringed intellectual property from a third party on
commercially reasonable terms. Furthermore, litigation, regardless of its
outcome, could result in substantial cost to the Company and divert
management's attention from the Company's operations. Although the Company is
not aware of any basis upon which a third party could assert an infringement
claim, any infringement claim or litigation against the Company could
therefore materially adversely affect the Company's business, operating
results, and financial condition. See "Risk Factors--Risk of Third Party
Claims of Infringement."

PERSONNEL

As of August 5, 1997, the Company had 21 full-time employees including 5
persons in Sales, 10 persons in Operations/Engineering and 6 persons in
Management and Administration. The Company also employs temporary employees
and consultants.

PROPERTIES

The Company's corporate headquarters are located at 20251 Century Boulevard
in Germantown, Maryland, outside Washington, D.C. The Company currently
occupies approximately 13,000 square feet through a sublease that expires
September 30, 2000. The Company's annual rent for 1997 is $132,912, and is
subject to annual upward adjustment. The Company also pays its pro rata share
of increases to real estate taxes and operating expenses for the property. The
Company anticipates expanding its current facilities to accommodate the
expected continued growth of the Company. The Company believes that it can
obtain the additional facilities required to accommodate its projected needs
without difficulty and at commercially reasonable prices, although no
assurance can be given that it will be able to do so.

LEGAL PROCEEDINGS

The Company is not involved in any material legal proceedings except
possibly as described below. On April 17, 1997, Alan L. Levine and Canadian
American Petroleum Corporation filed suit in the Third Judicial District Court
of Sale Lake County, Utah against Old ZMAX, f/k/a Mediterranean Oil Corp.,
f/k/a Oryx Gold Corp., f/k/a Pandora, Inc. and John Does. The lawsuit seeks
unspecified consequential and punitive damages arising from the alleged delay
in the issuance of shares of Common Stock of Pandora, Inc. The plaintiffs
allege that they currently own approximately 64,000 shares of stock earned as
compensation for services rendered at various times prior to 1992. The lawsuit
is currently in the investigative stage and the time to answer has not
matured. Given the preliminary stage of this proceeding, the Company has not
been able to assess the relative materiality, or lack thereof, of the
plaintiff's claims. The Company intends to vigorously defend itself in this
action.

42
<PAGE>

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA

(UNAUDITED)

The following unaudited financial statements under the heading "Historical
Old ZMAX" represent the consolidated financial statements of ZMAX for the
respective dates. On November 6, 1996, ZMAX Corporation acquired 100% of the
outstanding common stock of CSI. For financial reporting purposes, the
acquisition has been treated as a recapitalization of CSI with CSI as the
acquirer (a reverse acquisition). The historical financial statements prior to
November 6, 1996 are those of CSI. The accompanying consolidated financial
statements include all of the accounts of CSI and accounts of ZMAX for the
period from the acquisition on November 6, 1996, through December 31, 1996 and
for all subsequent periods. All significant intercompany accounts have been
eliminated.

The following unaudited pro forma balance sheet under the heading "Pro Forma
New ZMAX After Exchange and Merger" gives effect to the exchange of the
convertible exchangeable subordinated debentures for 1,210,000 shares of Old
ZMAX Common Stock and warrants to purchase 1,210,000 shares of Old ZMAX Common
Stock. The Warrants are assumed to be fully exercised at $7.00 with an
additional 1,210,000 shares of Old ZMAX Common Stock issued. Both transactions
are recorded as if each had occurred on March 31, 1997. The pro forma balance
sheet under the heading "Pro Forma New ZMAX After Exchange and Merger" also
gives effect to the Merger as if it had occurred on March 31, 1997 and assumes
that no Old ZMAX stockholders exercise their dissenters' rights.

The unaudited pro forma balance sheet under the heading "Pro Forma New ZMAX
After Exchange, Merger, Conversion and COCACT" also gives effect to the
conversion of the $2,100,000 in convertible notes into 1,600,000 shares of Old
ZMAX Common Stock, as well as the purchase of the COCACT software for 150,000
shares of Old ZMAX Common Stock and $1,100,000 as if each had occurred on
March 31, 1997.

The unaudited pro forma statement of operations for the year ended December
31, 1996, under the heading "Pro Forma Old ZMAX Before Exchange and Merger"
gives effect to the acquisition of the Fiserv Century Services Joint Venture
for 234,365 shares of Old ZMAX Common Stock, $310,000 in cash and a $385,000
note payable as if it had occurred on January 1, 1996.

The unaudited pro forma statement of operations for the year ended December
31, 1996, under the heading "Pro Forma New ZMAX After Exchange and Merger"
also gives effect to (i) the exchange of the convertible exchangeable
subordinated debentures for 1,210,000 shares of Old ZMAX Common Stock and
warrants to purchase 1,210,000 shares of Old ZMAX Common Stock and the Merger
as if each had occurred on January 1, 1996.

The unaudited pro forma statement of operations for the year ended December
31, 1996, under the heading "Pro Forma New ZMAX After Exchange, Merger,
Conversion and COCACT" also gives effect to (i) the conversion of the
$2,100,000 in convertible notes into 1,600,000 shares of Old ZMAX Common Stock
and (ii) the purchase of the COCACT software for 150,000 shares of Old ZMAX
Common Stock and $1,100,000 as if each had occurred on January 1, 1996.

The unaudited pro forma statement of operations for the three month period
ended March 31, 1997 under the heading "Pro Forma New ZMAX After Exchange,
Merger, Conversion and COCACT gives effect to (i) the exchange of the
convertible exchangeable subordinated debentures for 1,210,000 shares of Old
ZMAX Common Stock and warrants to purchase 1,210,000 shares of Old ZMAX Common
Stock, (ii) the Merger, (iii) the conversion of the $2,100,000 in convertible
notes into 1,600,000 shares of Old ZMAX Common Stock, and (iv) the purchase of
the COCACT software for 150,000 shares of Old ZMAX Common Stock and $1,100,000
as if each had occurred on January 1, 1996. The warrants are also assumed to
be fully exercised on January 1, 1996 at $7.00 per share.

The information should be read in conjunction with the notes included herein
and the ZMAX Consolidated Financial Statements included herewith. The
unaudited pro forma condensed consolidated financial data do not purport to
represent what ZMAX's results of operations or financial position actually
would have been had such transactions and events occurred on the dates
specified, or to project ZMAX's results of operations or financial position
for any future period or date. The pro forma adjustments are based upon
available information and certain adjustments that the management of ZMAX
believes are reasonable. In the opinion of the management of ZMAX, all
adjustments have been made that are necessary to present the unaudited pro
forma financial data.

43
<PAGE>

ZMAX CORPORATION

(A DEVELOPMENT STAGE COMPANY)

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 1997

<TABLE>
<S> <C> <C> <C> <C> <C>
PRO FORMA
NEW ZMAX AFTER
PRO FORMA EXCHANGE,
EXCHANGE AND NEW ZMAX AFTER CONVERSION MERGER,
HISTORICAL MERGER (F) EXCHANGE AND AND COCACT CONVERSION
OLD ZMAX ADJUSTMENTS MERGER ADJUSTMENTS AND COCACT
----------- ------------ -------------- ----------- --------------
Cash.................... $ 3,731,416 $ 8,470,000 (A) $ 12,201,416 $ -- $ 12,201,416
Prepaid expenses and
other current assets... 10,113 -- 10,113 -- 10,113
----------- ------------ -------------- ----------- --------------
Total current assets.. 3,741,529 8,470,000 12,211,529 -- 12,211,529
Property and equipment.. 186,908 -- 186,908 -- 186,908
Intangible assets....... 2,630,285 -- 2,630,285 2,736,169 (G) 5,366,454
Deferred financing
costs................... 1,277,867 (1,277,867)(B) -- -- --
----------- ------------ -------------- ----------- --------------
Total assets.......... $ 7,836,589 $ 7,192,133 $ 15,028,722 $ 2,736,169 $ 17,764,891
=========== ============ ============== =========== ==============
Accounts payable and
accrued expenses....... $ 518,825 $ 1,000,000 (C) $ 1,518,825 -- 1,518,825
Convertible notes....... 2,100,000 -- 2,100,000 (2,100,000)(H) --
Current portion of long-
term debt............... 136,054 -- 136,054 767,419 (G) 903,473
----------- ------------ -------------- ----------- --------------
Total current liab-
ilities................. 2,754,879 1,000,000 3,754,879 (1,332,581) 2,422,298
Exchangeable
subordinated
debentures............. 5,500,000 (5,500,000)(D) -- -- --
Long-term debt.......... 527,857 -- 527,857 -- 527,857
Deferred tax liability.. 478,392 -- 478,392 -- 478,392
----------- ------------ -------------- ----------- --------------
Total liabilities..... 9,261,128 (4,500,000) 4,761,128 (1,332,581) 3,428,547
Preferred stock......... -- -- -- -- --
Common stock............ 4,200 2,420 (D) 6,620 1,750 (G,H) 8,370
Additional paid in
capital................. 7,027,764 20,544,713 (D) 27,572,477 4,067,000 (G,H) 31,639,477
Issuable common stock... 5,299,579 -- 5,299,579 -- 5,299,579
Receivable from stock
subscription........... (105,000) -- (105,000) -- (105,000)
Retained earnings....... (13,651,082) (8,855,000)(E) (22,506,082) -- (22,506,082)
----------- ------------ -------------- ----------- --------------
Total equity.......... (1,424,539) 11,692,133 10,267,594 4,068,750 14,336,344
----------- ------------ -------------- ----------- --------------
Total liabilities &
equity.................. $ 7,836,589 $ 7,192,133 $ 15,028,722 $ 2,736,169 $ 17,764,891
=========== ============ ============== =========== ==============
</TABLE>

See accompanying notes to this unaudited balance sheet.

44
<PAGE>

ZMAX CORPORATION

(A DEVELOPMENT STAGE COMPANY)

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
PRO FORMA
NEW ZMAX
FISERV PRO FORMA PRO FORMA AFTER
CENTURY OLD ZMAX EXCHANGE NEW ZMAX EXCHANGE,
HISTORICAL SERVICES BEFORE AND AFTER CONVERSION MERGER,
OLD JOINT PRO FORMA EXCHANGE MERGER (F) EXCHANGE AND COCACT CONVERSION
ZMAX VENTURE(I) ADJUSTMENTS AND MERGER ADJUSTMENTS AND MERGER ADJUSTMENTS AND COCACT
----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses:
General and
administrative....... $ 1,087,077 $113,384 $ -- $ 1,200,461 $ -- $ 1,200,461 $ -- $ 1,200,461
Selling and
marketing............ 228,803 -- -- 228,803 -- 228,803 -- 228,803
Amortization and
depreciation....... 193,533 -- 338,375 (J) 531,908 -- 531,908 547,236 (M) 1,079,144
----------- -------- -------- ----------- ------ ----------- -------- -----------
Income from
operations....... (1,509,413) (113,384) (338,375) (1,961,172) -- (1,961,172) (547,236) (2,508,408)
Other income
(expense):
Interest income..... 14,248 -- -- 14,248 -- 14,248 -- 14,248
Interest expense (7,125,386) (21,616) -- (7,147,002) 30,137 (L) (7,116,865) 28,000 (N) (7,088,865)
Other............... (2,903,600) -- -- (2,903,600) -- (2,903,600) -- (2,903,600)
----------- -------- -------- ----------- ------ ----------- -------- -----------
Net loss before
income tax
benefit.......... (11,524,151) (135,000) (338,375) (11,997,526) 30,137 (11,967,389) (519,236) (12,486,625)
Income tax benefit 17,396 -- 86,980 (K) 104,376 -- 104,376 -- 104,376
----------- -------- -------- ----------- ------ ----------- -------- -----------
Net loss.......... (11,506,755) (135,000) (251,395) (11,893,150) 30,137 (11,863,013) (519,236) (12,382,249)
----------- -------- -------- ----------- ------ ----------- -------- -----------
Net loss per share... $ (13.45) $ (10.91) $ (3.38) $ (2.35)
----------- ----------- ----------- -----------
Shares used in
computing net loss
per share............ 855,712 1,090,077 3,510,077 5,260,077
=========== =========== =========== ===========
</TABLE>

See accompanying notes to this unaudited statement.

45
<PAGE>

ZMAX CORPORATION

(A DEVELOPMENT STAGE COMPANY)

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE QUARTER ENDED MARCH 31, 1997

<TABLE>
<CAPTION>
PRO FORMA
EXCHANGE, NEW ZMAX
MERGER (F), AFTER EXCHANGE,
CONVERSION, MERGER,
HISTORICAL AND COCACT CONVERSION, AND
OLD ZMAX ADJUSTMENTS COCACT
----------- ----------- ---------------
<S> <C> <C> <C> <C>
EXPENSES:
General and administrative.. $ 1,019,195 $ -- $ 1,019,195
Selling and marketing....... 157,748 -- 157,748
Amortization and
depreciation................ 154,730 136,809 (M) 291,539
----------- -------- ----------- ---
Loss from operations........ (1,331,673) (136,809) (1,468,482)
OTHER INCOME (EXPENSE):
Interest income............. 49,478 -- 49,478
Interest expense............ (889,446) 128,647 (L,N) (760,799)
Other....................... 1,218 -- 1,218
----------- -------- ----------- ---
Net loss before income tax
benefit..................... (2,170,423) 128,647 (2,178,585)
INCOME TAX BENEFIT.......... 26,096 -- 26,096
----------- -------- ----------- ---
Net loss.................... $(2,144,327) $ (8,162) $(2,152,489)
----------- -------- ----------- ---
Net loss per common share... $ (0.63) $ (0.28)
----------- ----------- ---
Shares used in computing net
loss per share.............. 3,424,271 7,594,271
=========== ===========
</TABLE>

See accompanying notes to this unaudited statement.

46
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

(A) Reflects the cash to be received for the issuance of Old ZMAX Common Stock
pursuant to the exercise of the Warrants issued in connection with the
Exchange. Assumes Warrants will be fully exercised immediately at $7 per
share.

(B) Reflects the offset of deferred financing costs incurred in connection
with the original issuance of the Debentures against the proceeds from the
conversion of the Debentures into Old ZMAX Common Stock.

(C) Reflects the accrual of the estimated expenses to be incurred in
connection with the completion of the Exchange and Merger.

(D) Reflects the exchange of all of the Debentures and the issuance of Old
ZMAX Common Stock and Warrants which are assumed to be immediately
exercised. The deferred financing costs and the estimated expenses to be
incurred in connection with the completion of the Exchange have also been
offset against the proceeds of the Exchange.

(E) Reflects a one-time charge equal to the fair value of the securities
issuable upon the exchange of the Debentures ( 1,210,000 shares of Old
ZMAX Common Stock and warrants to purchase 1,210,000 shares of Old ZMAX
Common Stock) in excess of the fair value of the securities issuable
pursuant to the original conversion terms of the Debentures (1,100,000
shares of Common Stock). Assumes all of the Debentures are exchanged and
assumes a fair market value of $13.125 for the Old ZMAX Common Stock on
the date of the exchange.

(F) In the Merger, each outstanding share of Old ZMAX Common Stock, $0.001 par
value, will be converted into the right to receive and will be
exchangeable for one share of New ZMAX Common Stock, $0.001 par value.
Assumes that all outstanding shares of Old ZMAX Common Stock will be
exchanged for New ZMAX Common Stock and that no Old ZMAX stockholders
exercise their dissenters rights.

(G) Reflects the purchase of the COCACT software for 150,000 shares of Old
ZMAX Common Stock and $1,100,000 payable in installments. Assumes a fair
market value of $13.125 for the Old ZMAX Common Stock.

(H) Reflects the conversion of the $2,100,000 of convertible notes into
1,600,000 shares of Old ZMAX Common Stock.

(I) Historical Fiserv Century Services Joint Venture financial statements are
for the period from inception (April 17, 1996) to November 6, 1996. ZMAX
Corporation purchased a 50 percent interest in the joint venture from
Fiserv in September 1996, at which time the operations of the joint
venture were transferred to CSI in anticipation of a transaction between
CSI and ZMAX. On November 6, 1996, ZMAX acquired the remaining 50 percent
interest in the joint venture through its acquisition of CSI, the other
venture partner. The acquisition of the Fiserv joint venture interest has
been accounted for as a purchase. The acquisition of CSI (and the related
joint venture interest) has been accounted for as a recapitalization.

(J) Reflects incremental amortization of the goodwill associated with the
purchase of the joint venture interest from Fiserv. Assumes a useful life
of five years.

(K) Reflects the income tax benefit resulting from the amortization of
goodwill arising from the purchase of the joint venture interest from
Fiserv. Assumes an effective tax rate of 38%.

(L) Reflects the reduction of interest expense related to the exchange of the
$5,500,000 convertible exchangeable subordinated debentures.

(M) Reflects incremental amortization of the COCACT software. Assumes a useful
life of five years.

(N) Reflects the reduction of interest expense related to the conversion of
the $2,100,000 in convertible notes.

47
<PAGE>

MANAGEMENT AND EXECUTIVE COMPENSATION

DIRECTORS AND DIRECTOR NOMINEES

Certain information about the Old ZMAX's directors and director nominees is
listed below.

<TABLE>
<CAPTION>
NAME AGE
---- ---
<S> <C>
Michel Berty............................................................. 57
Michael C. Higgins....................................................... 52
G.W. Norman Wareham(1)................................................... 44
Steve L. Komar(1)........................................................ 55
Robert H. Miller......................................................... 44
Ted Fine................................................................. 60
Edward Yourdon (nominee)................................................. 53
</TABLE>
- --------
(1) Member of Compensation Committee

MR. BERTY was appointed a Director of Old ZMAX as of April 1, 1997, and was
elected the Chairman of the Board by the Board of Directors. Prior to joining
the Company, Mr. Berty was a member of senior management of the Cap Gemini
Group, a leading information technology consulting and services company, for
25 years. His last assignments were from 1985 to 1992, as General Secretary of
the Group in Paris, and from 1992 to 1997, as Chairman and CEO of Cap Gemini
America. Mr. Berty earned a PhD in Physics and an MBA from Paris La Sorbonne
University in France. He is a director of Intersolv, Inc., Sapiens
International Corporation Inc., Mastech, Inc. and Level 8 Systems, Inc., all
of which are Nasdaq traded companies, and Computron Software Inc., which is
traded on the OTC. Mr. Berty has significant expertise in the Year 2000
problem.

MR. HIGGINS co-founded CSI in December 1995, and serves as its President and
CEO. After the CSI recapitalization in November 1996, Mr. Higgins became a
director and was elected as the President of Old ZMAX in December 1996. Prior
to founding CSI, from 1993 to 1996, Mr. Higgins was a Vice President of
Integrated Microcomputer Systems Inc., a software reengineering company that
developed the VISION 2000SM proprietary tools used by the Company. From 1991
to 1993, Mr. Higgins was Vice President of Anstec Inc., an information
technology technical services company in Fairfax, Virginia. Mr. Higgins served
from 1986 to 1991, as a director of Martin Marietta Corp.'s Information
Services unit that specializes in providing information systems services to
the U.S. federal government. From 1970 to 1986, Mr. Higgins served in various
executive positions at AT&T including Division Sales Manager and Division
Engineering Manager. Mr. Higgins earned an MBA from Xavier University and a
B.S. in Engineering from the United States Military Academy at West Point.

MR. WAREHAM has been the Vice President and Chief Financial Officer of Old
ZMAX and on its Board of Directors since September 1996. Prior to joining Old
ZMAX, from 1994 to April 1995, Mr. Wareham served as the President of Global
Financial Corporation, a Turks and Caicos investment company. Mr. Wareham
currently serves as a director and/or officer of Intercap Resources Management
Corp., an oil and gas exploration and development company traded on the
Vancouver Stock Exchange and Cybernet Internet Services International Inc., a
start up Internet services company. In addition, Mr. Wareham is the President
of Wareham Management Ltd. which provides management consulting and accounting
services to Canadian and American public companies, including the Company. Mr.
Wareham is a certified general accountant and has been engaged in public
practice accounting for over twenty years.

MR. KOMAR was appointed to the Company's Board of Directors in November
1996, and serves as Fiserv, Inc.'s representative on the Board. Mr. Komar is a
Group Executive Vice President of Fiserv, Inc., a Nasdaq traded company and
leading provider of advanced data processing services and related products to
the financial industry. His responsibilities at Fiserv include overseeing
Fiserv's product companies that offer services to treasury and cash management
markets, the mortgage banking industry and the federal government sector. Mr.

48
<PAGE>

Komar was formerly Executive Vice President and Chief Financial Officer of
Citicorp Information Resources, Inc. ("CIR"), a wholly owned subsidiary of
Citicorp providing software and transaction processing services to financial
institutions, that was acquired by Fiserv in 1991. He was with CIR from 1985
through its divestiture date. Prior to that, Mr. Komar was Chief Financial
Officer of Diners Club International, a Citicorp subsidiary. From 1970 through
1980, he was associated with Gulf & Western Industries in several positions,
the two most current being Director of International Special Projects, and
President of Gulf & Western International Holding Company. Mr. Komar is a
graduate of the City University of New York with a B.S. in Accounting and
holds a Masters degree in Finance from Pace University.

MR. MILLER has been a director of the Company since November 1996. Since
1991, Mr. Miller has served as the President and a Director of Job Industries,
a company involved in the commercial application of ice blasting technology.
He is also a director of Ourominas Minerals, Inc., a Brazilian and Venezuelan
gold mining company. From 1993 to 1996, he served as a Director of Eurus
Resources, a mining and mineral exploration company, and from 1990 to 1994, as
a Chairman and a Director of Crystallex International Corporation, a
Venezuelan gold mining company.

MR. FINE was elected to the Board of Directors in May 1997. In 1993, Mr.
Fine co-founded Level 8 Systems, Inc., a middleware software company traded on
Nasdaq and currently serves on its board of directors. He is also a principal
and co-founder of Decision Drivers, Inc., a joint venture formed with The
Gartner Group in 1995 that develops sophisticated decision analysis software.
Mr. Fine consults on computer system strategic planning for a number of large,
public company clients, including the U.S. Postal Service, American Express
and the Norwest Corporation. Prior to 1994, Mr. Fine was employed by Citibank
for 19 years where he was responsible for managing Citibank's worldwide retail
banking systems and developed Citibank's global ATM Network.

MR. YOURDON is a software engineering consultant and has worked in the
computer software industry for 30 years, including positions with General
Electric and DEC. From 1994 to 1997, when the Company was acquired, Mr.
Yourdon was a director of Requisite, Inc., a leading supplier of groupware
tools for requirements management. Since January 1997, Mr. Yourdon has been a
director of Mastech Systems Corp., a leading supplier of software program and
systems development services. From 1991 to 1993, Mr. Yourdon was a member of
the expert advisory panel on I-CASE acquisition for the U.S. Department of
Defense. He is the editor of three software journals --American Programmer,
Corporate Internet Strategies and Application Development Strategies -- that
analyze software technology trends and products in the United States and
several other countries. In 1974, Mr. Yourdon founded and was the CEO of his
own consulting firm, Yourdon, Inc., that provided educational, publishing and
consulting services in state-of-the-art software engineering technology, which
company was sold in 1986. Mr. Yourdon is the author of over 200 technical
articles and 24 computer and programming books. Mr. Yourdon received a B.S. in
Applied Mathematics from MIT and has done graduate work at MIT and the
Polytechnic Institute of New York.

The Company compensates certain of its outside directors at $12,000 per
year. The Company also reimburses all directors their expenses in attending
Board of Directors meetings.

49
<PAGE>

EXECUTIVE OFFICERS, KEY EMPLOYEES AND CONSULTANTS

Certain information about the Old ZMAX's executive officers and key
personnel is listed below.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael C. Higgins................. 52 President and Chief Executive Officer
Joseph Yeh......................... 52 Senior Vice President-Technology
G.W. Norman Wareham................ 44 Vice President, Chief Financial Officer
and Secretary
Shafiq Nazerali.................... 36 Consultant
</TABLE>

Biographical information about these individuals who are also directors of
Old ZMAX is listed above. See "Management and Executive Compensation--
Directors and Director Nominees."

MR. YEH is the Senior Vice President-Technology of CSI and, beginning in
September 1996, was a consultant to the Company. For the eight year period
prior to his engagement by the Company, Mr. Yeh was an executive officer of
Integrated Microcomputer Systems, Inc. ("IMS") serving as its President from
1993 to 1996 and as its Senior Vice President from 1989 to 1993. Mr. Yeh also
managed IMS' Taiwan subsidiary, Information Management Services, Inc., in the
design and development of management information systems for both government
and commercial clients of the Republic of China. Mr. Yeh was instrumental in
the development of the Company's VISION 2000SM proprietary tools and
methodology. Mr. Yeh earned both an M.S. and B.S. in Computer Science from the
University of Maryland.

MR. NAZERALI has been a key consultant to the Company since September 1994,
providing advice in connection with the Company's efforts to raise capital for
its operations and with acquisition and strategic growth opportunities. Mr.
Nazerali is also a financial consultant at International Portfolio Management
Inc. and has held that position since January 1992. Since October 1994, Mr.
Nazerali has served as a director of Intercap Resources Management Corp., an
oil and gas exploration and development company traded on the Vancouver Stock
Exchange. For the period from August 1996 to July 1997, Mr. Nazerali was a
director and Vice President-Finance of Harambe Mining Co., a publicly listed
African mining company. From February through December of 1995, Mr. Nazerali
was a director of Multivision Communications Corp., a telecommunications
company traded on the Vancouver Stock Exchange. Previously, from July 1992 to
August 1995, he was the Vice President and/or director of Canbras
Communications Corp., a Brazilian telecommunications company. Mr. Nazerali
also currently sits on the Board of Directors of TDK Ventures Ltd, a publicly
listed development stage company. He is responsible for identifying
acquisition targets and raising venture funds for those entities. Mr. Nazerali
is a financial consultant and also engages in sourcing venture capital funds
for private and public companies focused in the technology and communications
industry.

With the exception of Mr. Higgins and Mr. Yeh who worked together at
Integrated Microcomputer Systems, Inc., the Company's senior management
personnel have worked together only a short time. There are no family
relationships between any director, executive officer or director nominees.

The Board of Directors elects officers annually or at such other times as
are necessary for the operation of the Company's business and such officers
serve at the discretion of the Board.

50
<PAGE>

The following table sets forth certain information regarding compensation
awarded to, paid to, or earned by, each person who served as Chief Executive
Officer of the Company in 1996 and each of the other executive officers of the
Company whose total annual salary and bonus exceeded $100,000 for the fiscal
year ended December 31, 1996 (these persons are sometimes referred to as the
"Named Executives").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS COMPENSATION(1)
- --------------------------- ---- ----------- ------------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael C. Higgins...... 1996 $ 62,000 $ 0 0 0 $ 0
President and Chief
Executive Officer 1995(1) $ 0 $0 0 0 $0
Michael S. Cannon....... 1996 $ 62,000 $ 0 0 0 $ 0
Executive Vice Presi-
dent 1995(2) $ 0 $ 0 0 0 $ 0
Edward Blessing (4)..... 1996 $ 58,034(3) $ 0 0 0 $ 0
President and Chairman
of the Board 1995 $ 0 $ 0 0 3,125(6) $ 0
1994 $ 0 $ 0 0 1,562(7) $ 0
Lloyd Merrifield (5).... 1996 $ 10,000 $ 0 0 0 $ 0
President and Chief Fi-
nancial Officer 1995 $ 0 $ 0 0 1,562(6) $ 0
1994 $ 0 $ 0 0 1,562(7) $ 0
</TABLE>
- --------
(1) CSI was formed in December 1995, and Mr. Higgins received no compensation
from CSI in 1995. Mr. Higgins was employed as President of CSI throughout
1996 and became President of Old ZMAX in December, 1996.
(2) CSI was formed in December 1995, and Mr. Cannon received no compensation
from CSI in 1995. Mr. Cannon was employed as the Senior Vice President-
Sales of CSI throughout 1996. Mr. Cannon resigned from the Company in
April 1997. Pursuant to the terms of his employment agreement with CSI and
his separation agreement with CSI, he is collecting severance from the
Company in the amount of $100,000 per year through November 1999. Mr.
Cannon has agreed to provide consulting services for sales and marketing
events as requested by the Company at no additional fee to the Company.
(3) Inclusive of reimbursement for expenses.
(4) Mr. Blessing served in these positions from June 13, 1995 to September 30,
1996.
(5) Mr. Merrifield served in these positions from September 27, 1994 to June
13, 1995. This amount was paid to Mr. Merrifield in 1996 for services
rendered by him in 1995 and 1994.
(6) These options did not survive the Named Executive's tenure as Chief
Executive Officer of the Company and are therefore cancelled.
(7) These options were voluntarily cancelled by the Named Executives upon
resignation from the Company.

The Company did not grant any stock options to purchase shares of Common
Stock or stock appreciation rights ("SARs") to the Named Executives or others
during fiscal year 1996. The Company has no stock options to purchase shares
of common stock held by the Named Executives on December 31, 1996. The Company
has no outstanding SARs.

EMPLOYMENT AGREEMENTS

The Company maintains written employment agreements with the following key
executive officers of its operating subsidiary:

Michael Higgins

As part of the CSI recapitalization, on November 6, 1996, CSI entered into
an employment agreement with Mr. Higgins to serve as President of CSI. The
agreement was amended effective January 1, 1997 to set forth the

51
<PAGE>

compensation determined by the Company's Compensation Committee. Mr. Higgins'
base salary is $150,000 per year for 1997, $175,000 for 1998 and $200,000 for
1999. The agreement provides for a bonus of up to 100% of base salary upon the
achievement of performance criteria including gross revenue and earnings
targets, which criteria will be adjusted each year by the Compensation
Committee. If the performance goals are not met or if Mr. Higgins is no longer
employed by the Company (unless for cause), the bonus may be paid at the
discretion of the Compensation Committee. The bonus is payable 25% in cash and
75% in Common Stock based on the fair market value of the Common Stock at the
end of the fiscal year. The agreement is for a three-year term commencing on
November 6, 1996, and is terminable by the executive upon 60 days notice to
the Company and by the Company on notice to the executive. The agreement
contains non-competition, non-solicitation and non-disclosure provisions
restricting the executive from employment with any competing business,
soliciting or diverting Company employees and customers to a competing
business or disclosing the Company's proprietary information to third parties
during the term of the agreement and for up to two years thereafter. Under
certain circumstances, the agreement requires the Company to make severance
payments to the executive for the remaining term of the agreement.

Mr. Yeh

On June 18, 1997 the Company entered into an employment agreement with Mr.
Yeh as CSI's Senior Vice President--Technology. This agreement is
retroactively effective to January 1, 1997 and replaces Mr. Yeh's consulting
agreement with the Company. The agreement is for a three year term commencing
January 1, 1997, and is terminable by the Company only for cause (as defined).
Mr. Yeh's base salary for 1997 is $125,000 and will increase by 10% in each
subsequent year. The agreement provides for a bonus of up to 100% of base
salary upon the achievement of performance criteria including gross revenue
and earnings targets, which criteria will be adjusted each year by the
Compensation Committee. If the performance goals are not met or if Mr. Yeh is
no longer employed by the Company (unless for cause), the bonus may be paid at
the discretion of the Compensation Committee. The bonus is payable 50% in cash
and 50% in Common Stock based on the fair market value of the Common Stock at
the end of the fiscal year. The agreement contains non-competition, non-
solicitation and non-disclosure provisions restricting the executive from
employment with any competing business, soliciting or diverting Company
employees and customers to a competing business or disclosing the Company's
proprietary information to third parties during the term of the agreement and
for up to two years thereafter. Under certain limited circumstances, the
agreement requires the Company to make severance payments to the executive for
a nine month period. If the agreement is terminated by the Company without
cause (as defined) the Company must continue to pay the executive's base
salary for the remainder of the term of the agreement.

See "Compensation Committee Report on Executive Compensation."

KEY CONSULTANT AGREEMENTS

The Company maintains written consulting agreements with the following key
consultants.

Michel Berty

On April 1, 1997, the Company entered into a consulting agreement with MBY,
Inc., a company wholly owned by Michel Berty, and Michel Berty for management
consulting services. This agreement is for a term of three years, with
successive automatic renewals for additional one-year periods. The monthly
consulting fee payable to MBY, Inc. is $20,000 plus reimbursement of out-of-
pocket expenses. If the consulting agreement is terminated by the Company
without cause prior to its expiration, the Company is obligated to continue to
pay the monthly $20,000 fee for the remaining term of the Agreement or one
year after such termination, whichever occurs first.

Shafiq Nazerali

On May 30, 1997, the Company entered into a consulting agreement with Mr.
Nazerali for services associated with raising capital, business development
and strategic opportunities. This agreement documents a long-standing
consulting arrangement with Mr. Nazerali and is for a term of one year, with
successive automatic

52
<PAGE>

renewals for additional one-year periods. The monthly consulting fee payable
to Mr. Nazerali is $10,000 plus reimbursement of out-of-pocket expenses.

G.W. Norman Wareham

On May 30, 1997, the Company entered into a consulting agreement with
Wareham Management Ltd. for accounting and financial services. This agreement
documents the oral consulting arrangements with Mr. Wareham and is for a term
of one year, with successive automatic renewals for additional one-year
periods. The monthly consulting fee payable to Wareham Management Ltd. is
$3,500 plus Canadian goods and services tax and reimbursement of out-of-pocket
expenses.

All of the Company's consulting agreements with its consultants are
terminable by the Company on notice and contain non-competition, non-
solicitation and non-disclosure provisions restricting the consultant from
engaging in any similar services for any competing business, soliciting or
diverting Company employees and clients to any competing business, or
disclosing the Company's intellectual property to third parties during the
term of the agreement and for two years thereafter.

BOARD OF DIRECTORS AND COMMITTEE MEETINGS

The Board of Directors of the Company held eleven meetings or written
consent actions during 1996. In December 1996, the Board of Directors
established a Compensation Committee. The Compensation Committee reviews and
makes recommendations to the Board of Directors regarding the compensation and
benefits of all the executive officers and consultants of the Company,
administers the Company's compensation and benefit plans, and reviews general
policies relating to compensation and benefits. The members of the
Compensation Committee are Messrs. Komar and Wareham. Mr. Nazerali consults
with the Compensation Committee upon request. The Compensation Committee did
not hold any meetings during 1996. The Company does not have any other Board
Committees. Each director attended at least 75% of the meetings of the Board
of Directors and all written consent actions were signed by all directors
holding office at the time the action was taken.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee consists entirely of nonemployee directors and
determines the compensation paid to the Chief Executive Officer and the other
executive officers and consultants of the Company. The Compensation Committee
believes that for the Company to be successful long-term and for it to
increase stockholder value it must be able to hire, retain, adequately
compensate and financially motivate talented and ambitious executives. The
Compensation Committee attempts to reward executives for both individual
achievement and overall Company success.

Executive compensation is made up of three components:

Base Salary. An executive's base salary is initially determined by
considering the executive's level of responsibility, prior experience and
compensation history. Published salaries of executives in similar positions
at other companies of comparable size (sales and/or number of employees) is
also considered in establishing base salary.

Stock Options. The Company adopted an incentive stock option plan to
provide stock option awards to certain executives. See "Proposal to Approve
ZMAX Corporation 1997 Stock Incentive Plan." The Compensation Committee
believes that the granting of stock options is directly linked to increased
executive commitment and motivation and to the long-term success of the
Company. The Compensation Committee awards stock options to certain
executives. The Compensation Committee intends to use both subjective
appraisals of the executive's performance and the Company's performance and
financial success during the previous year to determine option grants.

Bonus. The Company has also implemented an executive bonus program for
certain of its executives. Such bonuses are based, in part, on the
Company's financial performance during the previous fiscal year

53
<PAGE>

including achievement of gross revenue and net income targets. In addition,
objective individual measures of performance compared to the individual's
business unit profit performance may be considered. A subjective rating of
the executive's personal performance may also be considered. Bonuses may be
paid in cash or Common Stock or a combination of cash and Common Stock.
Bonuses are typically linked to a percentage of base salary.

The Compensation Committee recommended to the Board of Directors and the
Board of Directors approved a compensation package for the Company's Chief
Executive Officer, Mr. Higgins, that includes a $150,000 base salary with
annual increases plus a bonus of up to 100% of the base salary and for its
Senior Vice President--Technology, Mr. Yeh, that includes a $125,000 base
salary with annual increases and a bonus of up to 100% of the base salary.
Receipt of the bonus is subject to the Company's achievement of certain
performance criteria, including gross revenue and net income targets. If the
bonus targets are achieved, the bonus for Mr. Higgins would be paid 25% in
cash and 75% in Common Stock and the bonus for Mr. Yeh would be paid 50% in
cash and 50% in Common Stock. In each case, the number of shares of bonus
stock will be equal to the dollar amount of the bonus payable in stock divided
by the fair market value (as defined) of the Common Stock at the end of the
fiscal year. If the performance criteria are not achieved or the executive is
no longer employed by the Company (other than for cause termination), a bonus
may be awarded in the discretion of the Compensation Committee.

In determining the 1997 compensation packages for these executive officers,
the Compensation Committee considered that Mr. Higgins was a founder of the
Company, the experience and compensation history of each individual and
compensation packages awarded to similar executives of other similarly
situated start-up companies, to the extent such information could be learned.
The Compensation Committee also relied on competitive industry statistics and
other industry comparison data. The Compensation Committee ensured that the
incentive bonus compensation is only paid if the performance targets are met
and the Company is in a sound financial position.

Exceptions to the general principles stated above are made when the
Compensation Committee deems them appropriate to stockholder interest. The
Compensation Committee regularly considers other forms of compensation and
modifications of its present policies, and will make changes as it deems
appropriate The competitive opportunities to which the Company's executives
are exposed frequently come from private companies or divisions of large
companies, for which published compensation data is often unavailable and,
therefore, the Compensation Committee's information about such opportunities
is often anecdotal.

Section 162(m) of the Internal Revenue Code of 1986, as amended, establishes
a limit on the deductibility of annual compensation for certain executive
officers that exceeds $1,000,000 per year unless certain requirements are met.
The Company does not anticipate that any employee will exceed such $1,000,000
cap in the near future but will consider whether any necessary adjustments are
appropriate if it becomes likely that any executive officer's compensation may
exceed the $1,000,000 limit.

Compensation Committee

Steve L. Komar
G.W. Norman Wareham

54
<PAGE>

STOCKHOLDER RETURN PERFORMANCE GRAPH

The following graphs shows a comparison of cumulative total returns for Old
ZMAX (and its predecessors) Common Stock, the Nasdaq Stock Market (U.S.) Index
and the Nasdaq Computer & Data Processing Industry Index since December 31,
1992. The comparisons in this table are required by the Commission and,
therefore, are not intended to forecast or be indicative of possible future
performance of the Common Stock.

COMPARISON OF 48 MONTH CUMULATIVE TOTAL RETURN*
AMONG ZMAX CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX

[PERFORMANCE GRAPH APPEARS HERE]

<TABLE>
<CAPTION>
NASDAQ NASDAQ
Measurement Period ZMAX STOCK COMPUTER & DATA
(Fiscal Year Covered) CORPORATION MARKET PROCESSING
- --------------------- --------------- --------- ---------------
<S> <C> <C> <C>
Measurement Pt-12/31/1992 $100.00 $100.00 $100.00
FYE 12/31/1993 $178.00 $115.00 $106.00
FYE 12/31/1994 $178.00 $112.00 $129.00
FYE 12/31/1995 $ 11.00 $159.00 $196.00
FYE 12/31/1996 $ 73.00 $195.00 $242.00
</TABLE>

1997 DIRECTORS FORMULA STOCK OPTION PLAN

The Company maintains the ZMAX Corporation 1997 Directors Formula Stock
Option Plan (the "Director Plan"). The Board of Directors has reserved 120,000
shares of Common Stock for issuance pursuant to awards may be made under the
Director Plan subject to adjustment as provided therein. The number of shares
of Common Stock associated with any forfeited option are added back to the
number of shares that can be issued under the Director Plan.

The awards under the Director Plan are determined by the express terms of
the Director Plan. The Director Plan will be administered by a committee (the
"Committee"), the members of which are appointed by the Board of Directors.
The Committee will consist of at least one or more members of the Board of
Directors who will not receive a grant of an option under the Director Plan
and who are not currently eligible to receive a grant of an option under the
Director Plan. The Committee members are currently Messrs. Berty and Higgins.
The

55
<PAGE>

Committee will have the authority in its sole discretion to interpret the
Director Plan and to make all other determinations and to take all other
actions it deems necessary or advisable for the implementation and
administration of the Director Plan.

Other than Mr. Komar and Mr. Wareham, only nonemployee directors of the
Company who do not perform services for the Company are eligible to
participate in the Director Plan. The Director Plan provides for option grants
upon a nonemployee director's initial appointment after May 20, 1997 to the
Board of Directors to purchase 12,000 shares of Common Stock at a price per
share exercise price equal to the then fair market value of a share of Common
Stock. The nonemployee director will vest immediately in 8,000 shares of
Common Stock and will vest in an additional 2,000 shares after the completion
of the first year of continued service and an additional 2,000 shares after
the completion of the second year of continued service. Each option granted
pursuant to the Director Plan will be evidenced by an agreement and will be
subject to additional terms as set forth in the agreement.

Options become exercisable when vested and expire ten years after the date
of grant, subject to such shorter period provided in the agreement.

The Director Plan was effective on May 20, 1997, and will continue to be
effective until ten years after the effective date of the Director Plan,
unless sooner terminated by the Board of Directors.

The number of shares of Common Stock reserved for issuance upon exercise of
options granted under the Director Plan, the number of shares of Common Stock
subject to outstanding options and the exercise price of each option are
subject to adjustment in the event of any recapitalization of the Company or
similar event. The number of shares of stock subject to options granted in
connection with initial appointments or as annual service awards are also
subject to adjustment in such events. In the event of certain corporate
reorganizations and similar events, the options may be adjusted or, with
regard to vested options, cashed out depending upon the nature of the event.
As of the date of this Proxy Statement/Prospectus, 36,000 options have been
granted under the Director Plan and an additional 12,000 options will be
granted to a director nominee upon his taking office with the Company
following the completion of the transactions contemplated by this Proxy
Statement/Prospectus.

A participant will not recognize income upon the grant of an option or at
any time prior to the exercise of the option or a portion thereof. At the time
a participant exercises a nonqualified option or portion thereof, he or she
will recognize compensation taxable as ordinary income in an amount equal to
the excess of the fair market value of the Common Stock on the date the option
is exercised over the price paid for the Common Stock, and the Company will
then be entitled to a corresponding deduction.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

Pursuant to the Delaware Law, New ZMAX has adopted provisions in its
Certificate of Incorporation that eliminate the personal liability of its
directors to the Company and its stockholders for monetary damages for breach
of the directors' fiduciary duties in certain circumstances and authorize the
Company to indemnify its directors and other agents, by bylaw, agreements or
otherwise, to the full extent permitted by law. The Company's bylaws require
the Company to indemnify its directors to the full extent permitted by law,
including those circumstances in which indemnification would otherwise be
discretionary.

56
<PAGE>

PROPOSAL TO ELECT DIRECTORS

The Bylaws of the Company currently provide that the Board of Directors will
determine the number of directors to serve on the Board. The Company's Board
of Directors currently consists of seven members. Each director holds office
until the next Annual Meeting of Stockholders and until his or her successor
is elected and qualified or until his or her earlier resignation or removal.
The Board of Directors has proposed six nominees for directors of Old ZMAX for
vote at the Old ZMAX 1997 Annual Meeting of Stockholders. Other than Edward
Yourdon, each of the six nominees is presently serving as a director of the
Company. If no direction to the contrary is given, all proxies received by the
Board of Directors will be voted "FOR" the election of the six nominees. If
any nominee is unable or declines to serve, the proxy solicited herewith may
be voted for the election of another person in his or her stead at the
discretion of the Board of Directors. The Board of Directors knows of no
reason to anticipate that this will occur. The nominees for directors are:
Michel Berty, Michael C. Higgins, Steve L. Komar, G.W. Norman Wareham, Ted
Fine and Edward Yourdon. Biographical information for all of the nominees is
set forth above in "Directors and Director Nominees."

The Board of Directors of New ZMAX will be classified and the directors will
serve staggered terms as described under "Comparison of Stockholder Rights."
Assuming the nominees set forth above are elected to the Board of Old ZMAX and
the Merger is approved, such persons will become directors of New ZMAX as of
the Effective Time and will be classified as follows:

CLASS I--TERM EXPIRES AT THE 1998 ANNUAL MEETING
Michael C. Higgins
G.W. Norman Wareham

CLASS II--TERM EXPIRES AT THE 1999 ANNUAL MEETING
Michel Berty
Steve L. Komar

CLASS III--TERM EXPIRES AT THE 2000 ANNUAL MEETING
Ted Fine
Edward Yourdon

PROPOSAL TO APPROVE ZMAX CORPORATION 1997 STOCK INCENTIVE PLAN

The Company maintains the ZMAX Corporation 1997 Stock Incentive Plan (the
"Incentive Plan"). The Incentive Plan provides the Company with increased
flexibility to grant equity-based compensation to key employees, officers,
directors and consultants of the Company or an affiliate. The Board of
Directors has reserved 1,700,000 shares of common stock (the "Common Stock")
for issuance pursuant to awards that may be made under the Incentive Plan,
subject to adjustment as provided therein. The number of shares of Common
Stock associated with any forfeited Stock Incentive are added back to the
number of shares that can be issued under the Incentive Plan. The closing bid
price per share of Common Stock reported on the OTC Bulletin Board was $13.00
as of August 5, 1997.

The Incentive Plan was adopted by the Board of Directors on May 20, 1997.
The Incentive Plan is subject to approval of the stockholders within 12 months
after adoption of the Incentive Plan. If such approval is not obtained, any
Stock Incentives granted under the Incentive Plan will be void. The Incentive
Plan is being submitted for approval to the stockholders of Old ZMAX at the
Meeting. See "The Meeting."

Awards under the Incentive Plan will be determined by a committee (the
"Committee"), the members of which are selected by the Board of Directors. The
current members of the Committee are Messrs. Wareham and Komar. The Incentive
Plan permits the Committee to make awards of a variety of equity-based
incentives, including stock awards, options to purchase shares of Common
Stock, stock appreciation rights, phantom shares, performance unit
appreciation rights, and dividend equivalent rights (collectively, "Stock
Incentives").

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<PAGE>

The number of shares of Common Stock for which a Stock Incentive is granted
and to whom any Stock Incentive is granted shall be determined by the
Committee, subject to the provisions of the Incentive Plan. Stock Incentives
issuable may be made exercisable or settled at such prices and may be made
forfeitable or terminable under such terms as are established by the
Committee, to the extent not otherwise inconsistent with the terms of the
Incentive Plan. Each Stock Incentive will be evidenced by a Stock Incentive
Agreement or made subject to the terms of a Stock Incentive Program, each
containing terms and restrictions as the Committee may deem appropriate. No
participant, however, may be granted during any one year period rights to
shares of Common Stock under options and stock appreciation rights which, in
the aggregate, exceed 1,700,000 shares of Common Stock.

The Incentive Plan allows for the grant of incentive stock options and non-
qualified stock options. The Committee will determine whether an option is an
incentive stock option or a non-qualified stock option at the time the option
is granted. The exercise price of an option is established by the Committee.
The exercise price of an incentive stock option may not be less than the fair
market value of the Common Stock on the date of the grant (or less than 110%
of the fair market value if the participant controls more than 10% of the
voting power of the Company or a subsidiary). Non-qualified stock options may
be made exercisable at a price equal to, less than or more than the fair
market value of the Common Stock on the date that the option is awarded. The
Committee may permit an option exercise price to be paid in cash or by the
delivery of previously-owned shares of Common Stock, or to be satisfied
through a cashless exercise executed through a broker or by having a number of
shares of Common Stock otherwise issuable at the time of exercise withheld.

The term of an option will be specified in the applicable Stock Incentive
Agreement. The term of an incentive stock option may not exceed ten years from
the date of grant; however, any incentive stock option granted to a
participant who controls more than 10% of the voting power of the Company or a
subsidiary will not be exercisable after the expiration of five years after
the date the option is granted. Subject to any further limitations in a Stock
Incentive Agreement, in the event of a participant's termination of
employment, an incentive stock option will become unexercisable no later than
three months after the date of such termination of employment; provided,
however, that if such termination of employment is due to death or disability,
one year will be substituted for the three-month period.

Stock appreciation rights may be granted separately or in connection with
another Stock Incentive, and the Committee may provide that they are
exercisable at the discretion of the holder or that they will be paid at a
time or times certain or upon the occurrence or non-occurrence of certain
events. Stock appreciation rights may be settled in shares of Common Stock or
in cash, according to terms established by the Committee with respect to any
particular award.

The Committee may grant shares of Common Stock to a participant as stock
awards, subject to such restrictions and conditions, if any, as the Committee
may determine. Dividend equivalent rights, performance units and phantom
shares may be granted in such numbers or units and may be subject to such
conditions or restrictions as the Committee may determine and will be payable
in cash or shares of Common Stock, as the Committee may determine. The
Committee may make cash awards designed to cover tax obligations of employees
that result from the receipt or exercise of a Stock Incentive.

Stock Incentives generally are not transferable or assignable during a
holder's lifetime. However, Stock Incentives may include exercise, conversion
or settlement rights to a holder's estate or personal representative in the
event of the holder's death or disability. At the Committee's discretion,
Stock Incentives that are subject to termination upon termination of
employment may be cancelled, accelerated, paid or continued, subject to the
terms of the applicable Stock Incentive agreement and to the provisions of the
Incentive Plan.

The number of shares of Common Stock reserved for issuance in connection
with the grant or settlement of Stock Incentives or to which a Stock Incentive
is subject, as the case may be, and the exercise price of each option are
subject to adjustment in the event of any recapitalization of the Company. In
the event of certain corporate reorganizations, Stock Incentives may be
substituted, cancelled, accelerated, cashed-out or otherwise

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<PAGE>

adjusted by the Committee, provided such adjustment is not inconsistent with
the terms of the Incentive Plan or any agreement reflecting the terms of a
Stock Incentive.

Although the Incentive Plan may be amended by the Board of Directors without
stockholder approval, the Board of Directors also may condition any such
amendment upon stockholder approval if stockholder approval is deemed necessary
or appropriate in consideration of tax, securities or other laws. No such
action by the Board of Directors may adversely affect the rights of a holder of
a Stock Incentive without the holder's consent.

A participant will not recognize income upon the grant of an option or at any
time prior to the exercise of the option or a portion thereof. At the time a
participant exercises a nonqualified option or portion thereof, he or she will
recognize compensation taxable as ordinary income in an amount equal to the
excess of the fair market value of the Common Stock on the date the option is
exercised over the price paid for the Common Stock, and the Company will then
be entitled to a corresponding deduction.

A participant who exercises an incentive stock option will not be taxed at
the time he or she exercises his or her option or a portion thereof. Instead,
he or she will be taxed at the time he or she sells the Common Stock purchased
pursuant to the option. A participant will be taxed on the difference between
the price he or she paid for the stock and the amount for which he or she sells
the stock. If a participant does not sell the stock prior to two years from the
date of grant of the option and one year from the date the stock is issued to
him or her, the gain will be capital gain and the Company will not get a
corresponding deduction. If a participant sells the stock at a gain prior to
that time, the difference between the amount the participant paid for the stock
and the lesser of the fair market value on the date of exercise or the amount
for which the stock is sold will be taxed as ordinary income and the Company
will be entitled to a corresponding deduction. If the stock is sold for an
amount in excess of the fair market value on the date of exercise, the excess
amount is taxed as capital gain. If a participant sells the stock for less than
the amount he or she paid for the stock prior to the one or two year periods
indicated, no amount will be taxed as ordinary income and the loss will be
taxed as a capital loss. Exercise of an incentive stock option may subject a
participant to, or increase a participant's liability for, the alternative
minimum tax.

A participant generally will not recognize income upon the grant of a stock
appreciation right, dividend equivalent right, performance unit appreciation
right or phantom share (an "Equity Incentive"). At the time a participant
receives payment under any Equity Incentive, he or she generally will recognize
compensation taxable as ordinary income in an amount equal to the cash or the
fair market value of the Common Stock received, and the Company will then be
entitled to a corresponding deduction.

A participant will not be taxed upon the grant of a stock award if such award
is not transferrable by the participant or is subject to a "substantial risk of
forfeiture," as defined in the Code. However, when the shares of Common Stock
that are subject to the stock award become transferrable by the participant and
are no longer subject to a substantial risk of forfeiture, a participant will
recognize compensation taxable as ordinary income in an amount equal to the
fair market value of the stock subject to the stock award, less any amount paid
for such stock, and the Company will then be entitled to a corresponding
deduction. However, if a participant so elects at the time of receipt of a
stock award that is subject to a substantial risk of forfeiture, he or she may
include the fair market value of the stock subject to the stock award, less any
amount paid for such stock, in income at the time of grant and the Company also
will be entitled to a corresponding deduction at that time.

As of August 5, 1997, the Company has issued options to purchase 1,200,000
shares of Common Stock under the Incentive Plan to three individuals including
Messrs. Berty, Higgins and Yeh. On April 17, 1997, Messrs. Berty and Higgins
each received options to purchase 450,000 shares at an exercise price of $14.31
per share. So long as the executive is still employed by the Company, options
for 150,000 shares vest annually if the Company achieves targeted gross
revenues of $9,000,000. Vesting is accelerated to up to 225,000 shares annually
for performance above the target level and is reduced for performance below the
target levels. No vesting will occur if gross revenues are less than $7,000,000
in any fiscal year. On April 17, 1997, Mr. Yeh received options to purchase
300,000 shares at an exercise price of $14.31 per share. Options representing

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<PAGE>

100,000 shares vested immediately upon grant with an additional 100,000 shares
vesting at the end of each of fiscal years 1998 and 1999 so long as Mr. Yeh is
still employed by the Company. With respect to all of these options, if the
executive dies or is no longer employed by the Company at the end of any
fiscal year, the Compensation Committee may accelerate the vesting of these
options in its discretion, assuming, in the case of options tied to
performance goals, that the performance goals are met. The term of these
options is ten years from the date of grant, subject to prior forfeiture in
certain events pursuant to the Incentive Plan.

The Old ZMAX Board recommends that Old ZMAX stockholders vote "FOR" approval
and adoption of the Incentive Plan.

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<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain historical and pro forma information
as of August , 1997 with respect to the shares of Common Stock owned (i) by
each of the Company's directors, director nominees and executive officers,
(ii) by all directors, director nominees and officers as a group, and (iii) by
each person known to the Company to own beneficially more than 5% of the
outstanding shares of Old ZMAX Common Stock. The beneficial ownership
reporting requirements of Section 13(d) of the Exchange Act are not yet
applicable to the Company's stockholders because the Old ZMAX Common Stock is
not yet a registered class of equity securities under the Exchange Act. As a
result, there may be other beneficial owners of 5% or more of the outstanding
Old ZMAX Common Stock who hold such shares through nominees and are unknown to
the Company. As of August , 1997, there were 9,414,514 outstanding shares of
Old ZMAX Common Stock, which is the Company's only class of voting shares, and
124,000 option shares that are exercisable within 60 days. In addition, one of
the Company's director nominees will receive options for 12,000 shares upon
his election to the Board of Directors of which options for 8,000 shares will
be immediately exercisable. See "Description of Securities" and "Shares
Eligible for Future Sale."

<TABLE>
<CAPTION>
OLD ZMAX NEW ZMAX
ACTUAL PRO FORMA(1)
--------------------------- ---------------------------
DIRECTORS AND NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
EXECUTIVE OFFICERS SHARES OUTSTANDING SHARES OUTSTANDING
- ------------------ --------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Michael C. Higgins...... 1,600,000(2) 17% 1,600,000(2) 13.5%
Steve L. Komar.......... 274,442(3) 2.9% 274,442(3) 2.3%
Joseph Yeh.............. 100,000(4) 1% 100,000(4) *
G.W. Norman Wareham..... 8,000(5) * 8,000(5) *
Ted Fine................ 8,000(5) * 8,000(5) *
Edward Yourdon (director
nominee)............... 0 * 8,000(6) *
Robert Miller........... 1,500 * 1,500 *
All current directors,
director nominees and
officers as a group
(seven persons)........ 1,991,942(7) 21.1% 1,999,942(8) 16.7%
5% OR MORE STOCKHOLDERS
- -----------------------
Michael S. Cannon....... 1,600,000(2) 17% 1,600,000(2) 13.5%
2756 North Green Valley
Parkway
Suite 280
Henderson, Nevada 89014
Bank Sarasin & Cie...... 723,550(9) 7.7% 923,550(9) 7.8%
11 Lowenstrasse
8001 Zurich
Switzerland
Anker Bank.............. 301,225(10) 3.2% 601,225(10) 5.1%
Talstrasse 82
P.O. Box 4923
8022 Zurich
Switzerland
First Capital Invest 480,000 5.1% 480,000(9) 4.1%
Corp...................
Muehlebachstrasse 54
First Floor
8008 Zurich
Switzerland
</TABLE>
- --------

(1) Based on 11,834,514, shares outstanding, assuming (i) that the Company's
Debentures are fully exchanged in the Exchange Offer for 1,210,000 shares
of Common Stock and Warrants to purchase an equal number of shares and
(ii) the full exercise of the Warrants into 1,210,000 shares of Common
Stock. In addition, pro forma assumes that there will be 136,000 option
shares that are exercisable within 60 days of the Effective Time of the
Merger.

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<PAGE>

(2) Messrs. Higgins and Cannon were each issued 1,600,000 shares in the
recapitalization of CSI including 1,400,000 shares each that were placed
in escrow subject to release based on future cash flows generated by CSI
and will continue to remain subject to this escrow after the Effective
Time of the Merger. These shares are also pledged to the Company to secure
the indemnification obligations of Messrs. Higgins and Cannon in
connection with the CSI transaction. As of August , 1997, all 2,800,000
of the shares remain in escrow. See "Management's Discussion and Analysis
of Financial Conditions and Results of Operations--CSI Recapitalization."

(3) 266,442 of these shares are held in the name of Fiserv, Inc. Mr. Komar is
an Executive Vice President of Fiserv, Inc. Mr. Komar disclaims beneficial
ownership of these shares. The remaining 8,000 shares are subject to
presently exercisable stock options granted to Mr. Komar.
(4) Reflects shares subject to presently exercisable stock options.
(5) Reflects shares subject to presently exercisable stock options.
(6) Reflects shares subject to exercisable stock options that will be granted
to Mr. Yourdon upon his election to the Board of Directors.

(7) Includes 124,000 shares subject to presently exercisable stock options
granted to directors and executive officers.

(8) Includes 136,000 shares subject to presently exercisable stock options
granted to directors and executive officers.

(9) Includes 523,550 shares of Common Stock and 200,000 shares of Common Stock
issuable upon conversion of Debentures. Pro forma ownership includes an
additional 200,000 shares of Common Stock to be issued upon exercise of
Warrants issued in connection with the Exchange Offer. Bank Sarasin & Cie
has advised the Company that such shares are held as nominee for various
clients of Bank Sarasin & Cie, none of whom beneficially own more than
100,000 shares of Old ZMAX Common Stock and none of whom are acting in
concert. Bank Sarasin & Cie has advised the Company that its clients have
voting power and investment power with respect to these shares and that
Bank Sarasin & Cie disclaims beneficial ownership of these shares.

(10) Includes 1,225 shares of Common Stock and 300,000 shares of Common Stock
issuable upon conversion of Debentures. Pro forma ownership includes an
additional 600,000 shares of Common Stock to be issued upon exercise of
Warrants issued in connection with the Exchange Offer. Anker Bank has
advised the Company that such shares are held as nominee for various
clients of Anker Bank, none of whom beneficially own more than 100,000
shares of Common Stock and none of whom are acting in concert. Anker Bank
has advised the Company that its clients have voting power and investment
power with respect to these shares and that Anker Bank disclaims
beneficial ownership of these shares.
* Less than 1%

62
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Mr. Berty and Mr. Berty's wholly owned company MBY, Inc., are consultants to
the Company providing management advice. In 1997, MBY, Inc. will be entitled
to receive $180,000 in consulting fees plus reimbursement of out-of- pocket
expenses. See "Management and Executive Compensation--Key Consulting
Agreements."

Mr. Nazerali is a consultant to the Company providing advice in connection
with the Company's efforts to raise capital for its operations and on
acquisition opportunities. Mr. Nazerali received $120,000 consulting fees from
the Company for services rendered in 1996 and $155,635 in reimbursement for
his out-of-pocket expenses. See "Management and Executive Compensation--Key
Consulting Agreements." In addition, Mr. Nazerali was instrumental in the CSI
recapitalization and the financing for the working capital needs of the
Company following that transaction, including the offering of the Debentures
completed in December 1996. See "Description of Securities--Debentures." For
his services to the Company in the CSI recapitalization and Debenture
financing, he was awarded 320,000 shares of Common Stock of the Company. These
shares were issued in the name of Mr. Nazerali's designee, Valorinvest Ltd.,
an Irish company partially owned by Mr. Nazerali's brother. Valorinvest Ltd.
received approximately $563,000 from Old ZMAX in 1996 in connection with the
recapitalization of CSI as satisfaction for amounts owed by Old ZMAX as of
December 31, 1995.

The Company has engaged Wareham Management Ltd., a company owned by Mr.
Wareham, the Vice President and Chief Financial Officer of the Company, to
provide accounting, bookkeeping and related services under a consulting
agreement. In 1996, Wareham Management Ltd. received approximately $12,235
from the Company for services rendered and $3,016 in reimbursement for his
out-of-pocket expenses. See "Management and Executive Compensation--Key
Consulting Agreements."

Mr. Heideman, a director of the Company from October 1996 through June 18,
1997, was also a consultant to the Company pursuant to a consulting
arrangement. Mr. Heideman received $28,000 in compensation from the Company
for services rendered in 1996 and $4,800 in reimbursement for his out-of-
pocket expenses. This consulting arrangement was terminated by the Company in
April 1997. In addition, Mr. Heideman, through his company, NewDominion
Capital Group Inc., provided consulting services in connection with the CSI
transaction and received 20,000 shares of Common Stock for $.30 per share of
the Company as consideration for such services. These shares were issued in
the name of NewDominion Capital Group Inc. in April 1997.

As part of the recapitalization of CSI, the Company acquired the interest of
Fiserv, Inc. in the Fiserv Century Services Joint Venture in exchange for,
among other consideration, Old ZMAX's promissory note for $385,000. In May
1997, this promissory note was converted into 32,077 shares of Old ZMAX Common
Stock issued to Fiserv, Inc. Mr. Komar is a Group Executive Vice President of
Fiserv, Inc. and a director of the Company.

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<PAGE>

DESCRIPTION OF THE SECURITIES

The authorized capital stock of the Old ZMAX consists of 95,000,000 shares
of Old ZMAX Common Stock and 10,000,000 shares of preferred stock, of which
5,000,000 shares have been designated as Series A Preferred Shares. The
Articles of Incorporation authorize the Company's Board of Directors to direct
the issuance of shares of preferred stock in one or more series from time to
time and to fix the designations, powers, preferences, rights, qualifications,
limitations and restrictions of each series, including without limitation
dividend rates, whether dividends will be cumulative, the relative rights of
priority for payment of dividends, voting rights, terms and conditions of
conversion, terms and conditions of redemption, sinking fund provisions, and
rights upon liquidation.

Upon completion of the Merger, the authorized capital stock of New ZMAX will
consist of 50,000,000 shares of Common Stock and 10,000,000 shares of
preferred stock. The New ZMAX Certificate of Incorporation authorizes the
Company's Board of Directors to direct the issuance of shares of preferred
stock in one or more series from time to time and to fix the designations,
powers, preferences, rights, qualifications, limitations and restrictions of
each series, including without limitation dividend rates, whether dividends
will be cumulative, the relative rights of priority for payment of dividends,
voting rights, terms and conditions of conversion, terms and conditions of
redemption, sinking fund provisions, and rights upon liquidation.

COMMON STOCK

As of August , 1997, there were 9,414,514 shares of Old ZMAX Common Stock
issued and outstanding and 100 shares of New ZMAX Common Stock issued and
outstanding. The holders of Old ZMAX Common Stock and New ZMAX Common Stock
are entitled to one non-cumulative vote for each share held of record on all
matters submitted to a vote of shareholders. Subject to preferences that may
be applicable to outstanding shares of Preferred Stock, if any, the holders of
Old ZMAX Common Stock and New ZMAX Common Stock are entitled to receive
ratably such dividends as may be declared by the Company's Board of Directors
out of funds legally available therefor and are entitled to share ratably in
all of the assets of the Company available for distribution to holders of Old
ZMAX Common Stock and New ZMAX Common Stock upon liquidation, dissolution, or
winding up of the affairs of the Company. Holders of New ZMAX Common Stock
have no preemptive, subscription or conversion rights and there are no
redemption or sinking fund provisions or rights applicable thereto. The shares
of New ZMAX Common Stock issued in the Merger will be fully paid and
nonassessable.

COMMON STOCK SUBJECT TO RESERVATION

The Company has reserved 1,820,000 shares of Common Stock for issuance under
its Incentive Plan and Director Plan, including for issuance to executives
under its bonus program. See "Shares Eligible for Future Sale."

CANCELLATION OF CERTAIN SHARES

In September 1995, the Company entered into a stock cancellation agreement
with a stockholder in which it was agreed that the shares of Common Stock held
by the stockholder would be cancelled in exchange for the transfer to the
stockholder of certain mining claims held by American Oil, a now abandoned
subsidiary of the Company. Due to lack of documentation and proper signature
guarantees, 167,301 of the shares subject to cancellation remain outstanding,
which shares have also been reported lost by the stockholder. Assuming the
stockholder will provide necessary documentation, these lost certificates may
be cancelled of record upon the Company's agreement to indemnify the transfer
agent and the reservation of an equal number shares against the possible
presentation of a lost certificate by a bona fide holder. In the event of
presentation of a lost certificate for transfer, the shares would be
transferred to the presenting bona fide holder from the shares reserved for
this purpose. In such event, the Company may pursue indemnification remedies
against the former stockholder under a lost stock indemnity agreement signed
by the former stockholder in October 1996.

64
<PAGE>

In September 1995, the Company also entered into a stock cancellation
agreement with another stockholder in which it was agreed that the shares held
by the stockholder would be cancelled. Due to the shares being lost and the
lack of proper documentation, the Company has been unable to cancel these
shares of record. The Company's attempts to locate the stockholder to correct
document deficiencies have been unsuccessful and the Company currently has
decided to abandon its efforts to do so. The Company is currently considering
obtaining a court order to cancel these shares of record.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is American
Securities Transfer and Trust, Inc., 1825 Lawrence Street, Suite 444, Denver,
Colorado 80202. Its telephone number is (303) 234-5300.

PREFERRED STOCK

As of August 5, 1997, there were no shares of Old ZMAX preferred stock
issued and outstanding. If issued, holders of Series A Preferred would be
entitled to convert each share of Series A Preferred into four shares of
Common Stock of the Company at any time at the option of the holder. In all
other respects, the voting powers, preferences, limitations, restrictions and
relative rights of the Series A Preferred are the same as those of the Common
Stock.

None of the authorized preferred stock of New ZMAX is issued, outstanding or
designated as to class or series. The Board of Directors, without shareholder
approval, may issue preferred stock with voting and conversion rights that
could materially and adversely affect the voting power of the holders of
Common Stock. The issuance of preferred stock could also decrease the amount
of earnings and assets available for distribution to holders of Common Stock.
In addition, the issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of the Company. At present, the
Company has no plans to issue any shares of preferred stock.

DEBENTURES

On December 6, 1996, Old ZMAX issued Debentures to 18 non-U.S., accredited
investor subscribers in the aggregate principal amount of $5,500,000. The term
of the Debentures is three years, with a maturity date of December 6, 1999.
The Debentures bear interest at the simple rate of 8% paid semiannually,
commencing on June 1, 1997.

The Company may redeem or prepay the Debentures in full or in part at any
time upon ten days' prior written notice to the holder without penalty or
premium or payment of unearned interest, provided that prior to such
redemption the Company has satisfied the following two conditions: (1) the
Company has made an offer to exchange the Debenture for shares of Common Stock
and Warrants on the terms described below; and (2) the Company has prepared,
filed and caused to be declared effective by the SEC a registration statement
pursuant to the Securities Act regarding such exchange offer. If the exchange
offer is made within six months of the date of issuance of the Debenture
(i.e., June 6, 1997), the terms of the exchange offer for each $1,000
principal amount of the Debenture are (i) 200 shares of Common Stock plus (ii)
one Warrant (a "Warrant") to purchase 200 shares of Common Stock. If the
exchange offer is made after the six-month anniversary of the Debenture, each
$1,000 principal amount of the Debenture may be exchanged for (i) 220 shares
of Common Stock plus (ii) one Warrant to purchase 220 shares of Common Stock.

Prior to the maturity date and prior to redemption by the Company, each
holder of a Debenture has the right to convert all, but not less than all, of
the principal balance of the Debenture into Common Stock of the Company at the
rate of one share for each $5 of the principal amount of the Debenture, in
complete satisfaction of all amounts due and payable under the Debenture.

65
<PAGE>

The Debentures are non-negotiable and non-transferable.

Debentures not exchanged in the Exchange Offer will become the obligation of
New ZMAX after the Effective Time of the Merger. The Company presently plans
to redeem for cash any Debentures remaining outstanding after completion of
the Exchange Offer at 100% of the principal amount plus interest accrued to
the date of redemption. See "The Exchange Offer."

WARRANTS

Warrants issued in the Exchange Offer ("Warrants") may be exercised at the
price of $7 per share if exercised prior to the first year after issuance of
the Warrant, and at the price of $8 per share if exercised during the period
between the first anniversary and the second anniversary of the date of
issuance of the Warrant. The Warrants expire on the second anniversary of the
date of issuance. The Warrants contain adjustment clauses for events such as
reorganization, consolidation, or merger of the Company, reclassification, and
payment of dividends. Each Warrant is transferable in whole or in part upon
the prior written consent of the Company. Warrants that are not exercised
prior to the Merger will become the obligation of New ZMAX after the Effective
Time of the Merger.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices. Upon completion of the
Exchange Offer, the Merger and assuming the Warrants issued in the Exchange
Offer are exercised prior to the Effective Time of the Merger, 11,870,514
shares of New ZMAX Common Stock will be outstanding. The Company believes that
all of these will be freely transferable without restriction under the
Securities Act, except for any shares held by or for the account of an
"affiliate" of the Company, as that term is defined in Rule 144 promulgated
under the Securities Act, or by an individual or entity subject to a
contractual restriction on resale.

In general, assuming certain public information regarding the Company is
available, Rule 144 permits a person (or persons whose shares are aggregated)
who has beneficially owned restricted securities within the meaning of Rule
144 ("Restricted Securities") for at least one year is entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
(1) 1% of the then outstanding shares of the Company's Common Stock; or (ii)
the average weekly trading volume of the Company's Common Stock in the
applicable market during the four calendar weeks preceding the date of the
order to execute the transaction. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days preceding a sale, and who owns
Restricted Securities that were purchased from the Company (or any affiliate)
at least two years previously, is entitled to sell such shares under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements.

Approximately 1,820,000 shares of New ZMAX Common Stock will be reserved for
issuance to certain executives under its bonus program and upon the exercise
of options under the Company's equity incentive and option plans (the
"Plans"), of which 132,000 will be immediately exercisable following the
Effective Time of the Merger. The Company intends to file a registration
statement on Form S-8 to register the Common Stock reserved for issuance under
the Company's Plans. Shares of Common Stock issued under any of the Plans
after the effective date of a registration statement registering Common Stock
issued or issuable under a Plan, and Common Stock outstanding under such Plan,
will be eligible for resale in the open market, except for shares held by
affiliates and shares subject to any contractual restrictions.

STOCKHOLDERS' AGREEMENT

In connection with the Company's purchase of CSI, the former stockholders of
CSI entered into a stockholders' agreement with the Company dated November 6,
1996. This stockholders agreement contains restrictions on transfer and
various buy-sell arrangements between the former CSI stockholders and the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--CSI Recapitalization" and "Compensation Committee
Report on Executive Compensation."

67
<PAGE>

COMPARISON OF STOCKHOLDERS RIGHTS

Old ZMAX is incorporated under the laws of the State of Nevada and New ZMAX
will be incorporated under the laws of the State of Delaware. On consummation
of the Merger, the stockholders of Old ZMAX, whose rights currently are
governed by Nevada law and Old ZMAX's Articles of Incorporation and Bylaws
which were created pursuant to Nevada law, will become stockholders of a
Delaware company, New ZMAX, and their rights as stockholders will then be
governed by Delaware law and the New ZMAX Certificate of Incorporation and New
ZMAX Bylaws which were created under Delaware law.

Although the corporate statutes of Nevada and Delaware are substantially
similar, certain differences exist. The most significant differences, in the
judgment of the management of the Company, are summarized below. This summary
is not intended to be complete, and stockholders should refer to the Delaware
General Corporation Law (the "Delaware Law") and the Nevada Business
Corporation Act (the "Nevada Law") to understand how these laws will apply to
New ZMAX and Old ZMAX.

CLASSIFIED BOARD OF DIRECTORS

The Delaware Law permits any Delaware corporation to classify its board of
directors into as many as three classes as equally as possible with staggered
terms of office. After initial implementation of a classified board, one class
(consisting of approximately 1/3 of the entire board) will be elected at each
annual meeting of the stockholders to serve for a term of three years or until
their successors are elected and take office. The Nevada Law also permits
corporations to classify boards of directors provided that at least one-fourth
of the total number of directors is elected annually. Old ZMAX does not have a
classified board, but New ZMAX's board will be classified. For example, with
respect to removal of directors, under the Nevada Law, any one or all of the
directors of a corporation may be removed by the holders of not less than two-
thirds of the voting power of a corporation's stock. Nevada does not
distinguish between removal of directors with and without cause. Under the
Delaware Law, unless the certificate of incorporation otherwise provides,
directors of a corporation with a classified board may be removed only for
cause, by the holders of a majority of shares then entitled to vote in an
election of directors. The New ZMAX Certificate of Incorporation does not
provide for the removal of directors without cause and, therefore, New ZMAX
directors may only be removed for cause.

CUMULATIVE VOTING

Cumulative voting for directors entitles stockholders to cast a number of
votes that is equal to the number of voting shares held multiplied by the
number of directors to be elected. Stockholders may cast all such votes either
for one nominee or distribute such votes among up to as many candidates as
there are positions to be filled. Cumulative voting may enable a minority
stockholder or group of stockholders to elect at least one representative to
the board of directors where such stockholders would not otherwise be able to
elect any directors.

The Nevada Law permits cumulative voting in the election of directors as
long as certain procedures are followed. A Delaware corporation may provide
for cumulative voting in the corporation's certificate of incorporation. Old
ZMAX opted out of cumulative voting by including an appropriate provision in
its Articles of Incorporation. New ZMAX also will not adopt cumulative voting
because the New ZMAX Certificate of Incorporation will not provide for
cumulative voting in the election of directors.

Since neither Old ZMAX nor New ZMAX utilizes cumulative voting, there will
be no difference in stockholders' rights with respect to this issue.

68
<PAGE>

VACANCIES

Under the Delaware Law, subject to the rights, if any, of any series of
preferred stock to elect directors and to fill vacancies on the board of
directors, vacancies on the board of directors will be filled by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum. Any director so appointed will hold office for the
remainder of the full term of the class of directors in which the vacancy
occurred. Similarly, the Nevada Law provides that vacancies may be filled by a
majority of the remaining directors, though less than a quorum, unless the
articles of incorporation provide otherwise. In addition, the by-laws of Old
ZMAX and New ZMAX address the issue of director vacancies in the same manner.
Therefore, the change from Nevada law to Delaware law will not alter
stockholders' rights with respect to filling vacancies.

INDEMNIFICATION OF OFFICERS AND DIRECTORS AND ADVANCEMENT OF EXPENSES

Delaware and Nevada have substantially identical provisions regarding
indemnification by a corporation of its officers, directors, employees and
agents, except Nevada provides broader indemnification in connection with
stockholder derivative lawsuits. Delaware and Nevada law differ in their
provisions for advancement of expenses incurred by an officer or director in
defending a civil or criminal action, suit or proceeding. The Delaware Law
provides that expenses incurred by an officer or director in defending any
civil, criminal, administrative or investigative action, suit or proceeding
may be paid by the corporation in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined
that he or she is not entitled to be indemnified by the corporation. Thus, a
Delaware corporation has the discretion to decide whether or not to advance
expenses. Under the Nevada Law, the articles of incorporation, bylaws or an
agreement made by the corporation may provide that the corporation must pay
advancements of expenses in advance of the final disposition of the action,
suit or proceedings upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined that he
or she is not entitled to be indemnified by the corporation. Thus, a
corporation may have no discretion to decide whether or not to advance
expenses. There will be no difference in stockholders' rights with respect to
this issue because the Old ZMAX Articles of Incorporation and the New ZMAX
Certificate of Incorporation to be in effect after the Merger each provide for
advancement of expenses.

New ZMAX will be obligated to indemnify a narrower range of people than Old
ZMAX. Whereas the Old ZMAX Articles of Incorporation provide for Old ZMAX to
indemnify directors, officers, employees and some agents, the New ZMAX
Certificate of Incorporation only addresses indemnification of directors. In
this regard, it should be noted that the New ZMAX Board of Directors retains
the discretionary authority to authorize the indemnification of officers,
employees and agents, subject to certain conditions under the Delaware Law.

LIMITATION ON PERSONAL LIABILITY OF DIRECTORS

A Delaware corporation is permitted to adopt provisions in its certificate
of incorporation limiting or eliminating the liability of a director to a
company and its stockholders for monetary damages for breach of fiduciary duty
as a director, provided that such liability does not arise from certain
proscribed conduct, including breach of the duty of loyalty, acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law or liability to the corporation based on unlawful dividends
or distributions or improper personal benefit. The New ZMAX Certificate of
Incorporation will limit the liability of directors to the Company to the
fullest extent permitted by law.

69
<PAGE>

While the Nevada Law has a similar provision permitting the adoption of
provisions in the articles of incorporation limiting personal liability, the
Nevada provision differs in two respects. First, the Nevada provisions applies
to both directors and officers. Second, while the Delaware provisions excepts
from limitation on liability of breach of the duty of loyalty, the Nevada
counterpart does not contain this exception. Thus, the Nevada provision
expressly permits a corporation to limit the liability of officers, as well as
directors, and permits limitation of liability arising from a breach of the
duty of loyalty. The Old ZMAX Articles of Incorporation limited the liability
to the Company of directors, officers, employees and agents. Therefore, New
ZMAX will adopt a narrower limitation on liability, and more parties will
remain potentially liable to the Company. The Company, however, may determine
to indemnify such persons in its discretion subject to the conditions of the
Delaware Law.

DIVIDENDS

The Delaware Law is more restrictive than the Nevada Law with respect to
when dividends may be paid. Under the Delaware Law, unless otherwise provided
in the certificate of incorporation, a corporation may declare dividends, out
of surplus, or if no surplus exists, out of net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year (provided that
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets). In addition, the Delaware Law
provides that a corporation may redeem its shares only out of surplus.

The Nevada Law provides that no distribution (including dividends on, or
redemption or repurchases of, shares of capital stock) may be made if, after
giving effect to such distribution, the corporation would not be able to pay
its debts as they become due in the usual course of business, or the
corporation's total assets would be less than the sum of its total liabilities
plus the amount that would be needed at the time of a liquidation to satisfy
the preferential rights of preferred stockholders.

RESTRICTIONS ON BUSINESS COMBINATIONS

Both the Delaware Law and the Nevada Law contain provisions restricting the
ability of a corporation to engage in business combinations with an interested
stockholder. Under the Delaware Law, a corporation is not permitted to engage
in a business combination with any interested stockholder for a three-year
period following the date such stockholder became an interested stockholder,
unless (i) the transaction resulting in a person becoming an interested
stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquires 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
it an interested stockholder (excluding shares owned by persons who are both
officers and directors of the corporation, and shares held by certain employee
stock ownership plans); or (iii) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. The Delaware Law defines
"interested stockholder" generally as a person who owns 15% or more of the
outstanding shares of a corporation's voting stock.

The Nevada Law regulates business combinations more stringently. First, an
interested stockholder is defined as a beneficial owner of ten percent (10%)
or more of the voting power. Second, the three-year moratorium can be lifted
only by advance approval by a corporation's board of directors, as opposed to
Delaware's provision that allows interested stockholder combinations at the
time of the transaction with stockholder approval. Finally, after the three-
year period, combinations remain prohibited unless (i) they are approved by
the board of directors, the disinterested stockholders or a majority of the
outstanding voting power not beneficially owned by the interested party, or
(ii) the interested stockholders satisfy certain fair value requirements. As
in Delaware, a Nevada corporation may opt-out of the statute with appropriate
provisions in its articles of incorporation.

70
<PAGE>

AMENDMENT TO CERTIFICATE/ARTICLES OF INCORPORATION AND BYLAWS

Both the Delaware Law and the Nevada Law require the approval of the holders
of a majority of all outstanding shares entitled to vote, with each
stockholder being entitled to one vote for each share so held, to approve
proposed amendments to a corporation's certificate/articles of incorporation.
Neither state requires stockholder approval for the board of directors of a
corporation to fix the voting powers, designation, preferences, limitations,
restrictions and rights of a class of stock provided that the corporation's
organizational documents grant such power to its board of directors. The
holders of the outstanding shares of a particular class are entitled to vote
as a class on a proposed amendment if the amendment would alter or change the
power, preferences or special rights of one or more series of any class so as
to affect them adversely. The number of authorized shares of any such class of
stock may be increased or decreased (but not below the number of shares then
outstanding) by the affirmative vote of the holders of a majority of the stock
entitled to vote thereon (without a class vote) if so provided in any
amendment to the articles of incorporation or resolutions creating such class
of stock.

ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS

The Nevada Law and the Delaware Law each provide that, unless the charter
provides otherwise, any action required or permitted to be taken at a meeting
of the stockholders may be taken without a meeting if the holders of
outstanding stock having at least the minimum number of votes that would be
necessary to authorize or take such action at a meeting consents to the action
in writing. In addition, the Delaware Law requires the corporation to give
prompt notice of the taking of corporate action without a meeting by less than
unanimous written consent to those stockholders who did not consent in
writing. The Old ZMAX Articles of Incorporation did not limit stockholder
action by written consent, whereas the New ZMAX Certificate of Incorporation
prohibits written consent action unless signed by all stockholders. Therefore,
as stockholders of New ZMAX, the former Old ZMAX stockholders will no longer
have the right to act by majority written consent, unless and until the New
ZMAX Certificate of Incorporation is amended to so provide.

STOCKHOLDER VOTE FOR MERGERS AND OTHER CORPORATE REORGANIZATIONS

In general, both jurisdictions require authorization by an absolute majority
of outstanding shares entitled to vote, as well as approval by the board of
directors with respect to the terms of a merger or a sale of substantially all
of the assets of the corporation. Neither the Nevada Law nor the Delaware Law
requires stockholder approval by the stockholders of a surviving corporation
in a merger or consolidation as long as the surviving corporation issues no
more than 20% of its voting stock in the transaction.

DISSENTERS' RIGHTS

In both jurisdictions, dissenting stockholders of a corporation engaged in
certain major corporate transactions are entitled to appraisal rights.
Appraisal rights permit a stockholder to receive cash equal to the fair market
value of the stockholder's shares (as determined by agreement of the parties
or by a court), in lieu of the consideration such stockholder would otherwise
receive in any such transaction.

Under the Delaware Law, appraisal rights are generally available for the
shares of any class or series of stock of a Delaware corporation in a merger
or consolidation, provided that no appraisal rights are available for the
shares of any class or series of stock which, at the record date for the
meeting held to approve such transaction, were either (i) listed on a national
security exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. ("NASD") or (ii) held of record by more than 2,000 stockholders.
Even if the shares of any class or series of stock meet the requirements of
clause (i) or (ii) above, appraisal rights are available for such class or
series if the holders thereof receive in the merger or consolidation anything
except: (i) shares of stock of the corporation surviving or resulting from
such merger or consolidation; (ii) shares of stock of any other corporation
which at the effective date of the merger or consolidation is either listed on
a national securities exchange, or designated as a national market system
security on an interdealer quotation system by the NASD or held of record by
more than 2,000 stockholders; (iii) cash in lieu of fractional shares; or (iv)
any combination of the foregoing. No appraisal rights are available to
stockholders of the surviving corporation if the merger did not require their
approval.

71
<PAGE>

Under the Nevada Law, a stockholder is entitled to dissent from, and obtain
payment for the fair value of his or her shares in the event of consummation
of a plan of merger or plan of exchange in which the corporation is a party
and, to the extent that the articles of incorporation, bylaws or a resolution
of the board of directors provides that voting or nonvoting stockholders are
entitled to dissent and obtain payment for their shares any corporate action
taken pursuant to a vote of the stockholders. As with the Delaware Law, the
Nevada Law provides an exception to dissenters' rights. Holders of securities
(i) listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the NASD or (ii)
held by more than 2,000 stockholders of record are generally not entitled to
dissenters' rights.

STOCKHOLDER INSPECTION RIGHTS

The Delaware Law grants any stockholder the right to inspect and to copy for
any proper purpose the corporation's stock ledger, a list of its stockholders,
and its other records. A proper purpose is one reasonably related to such
person's interest as a stockholder. Directors also have the right to examine
the corporation's stock ledger, a list of its stockholders and its other
records for a purpose reasonably related to their positions as directors.

The Nevada Law provides the right to inspect the corporation's financial
records for only a shareholder who (i) owns at least 15% of the corporation's
issued and outstanding shares, or (ii) has been authorized in writing by the
holder(s) of at least 15% of the issued and outstanding shares. To inspect the
corporation's stock ledger, the stockholder must have been a stockholder of
record for six months prior to demanding inspection.

DERIVATIVE SUITS
Under both the Delaware Law and the Nevada Law, a stockholder may bring a
derivative action on behalf of the corporation only if the stockholder was a
stockholder of the corporation at the time of the transaction in question or
the stockholder acquired the stock thereafter by operation of law.

SPECIAL MEETINGS OF STOCKHOLDERS
Both the Delaware Law permits special meetings of stockholders to be called
by the board of directors or by any other person authorized in the certificate
of incorporation or bylaws to call a special stockholder meeting. The Nevada
Law does not address the manner in which special meetings of stockholders may
be called. The Old ZMAX Bylaws provide that special meetings of the
stockholders may be called by the President or a director, and that the
President must call such a meeting if requested by beneficial holders of at
least 10% of the outstanding shares of stock of the Company. Similarly, the
New ZMAX Bylaws provide that the President or a director may call a special
meeting of the stockholders, but the New ZMAX Bylaws do not require the
President to call such a meeting unless beneficial holders of at least 25% of
the outstanding shares of stock so request. Since New ZMAX requires a greater
number of shares to force a special meeting of stockholders, it could be more
difficult for the stockholders to force a special meeting as stockholders of
New ZMAX than when they were stockholders of Old ZMAX.

CERTAIN ANTITAKEOVER PROVISIONS

Certain provisions of the New ZMAX Certificate of Incorporation and the New
ZMAX Bylaws may discourage potential acquisition proposals, delay or prevent a
change in control of the Company and limit the price that certain investors
might be willing to pay in the future for shares of Common Stock. Such
provisions include the provisions providing for a classified Board of
Directors, authorizing the Board of Directors to fix the terms of any series
of preferred stock prior to issuance, requiring unanimous consent for
stockholder action by written consent and increasing the percentage of shares
required to call a meeting of stockholders.

72
<PAGE>

STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING

Any stockholder of the Company wishing to submit a proposal for action at
the Company's 1998 annual Meeting of Stockholders and desiring the proposal to
be considered for inclusion in the Company's proxy materials must provide a
written copy of the proposal to the management of the Company at its principal
executive office not later than , 1998, and must otherwise comply with
rules of the SEC relating to stockholder proposals.

LEGAL MATTERS

The validity of the New ZMAX securities offered hereby will be passed upon
by Powell, Goldstein, Frazer & Murphy LLP of Atlanta, Georgia and Washington,
D.C. The validity of the Old ZMAX securities offered hereby will be passed
upon by Erwin Thompson & Hascheff of Reno, Nevada.

EXPERTS

The consolidated financial statements of ZMAX Corporation (formerly known as
Mediterranean Oil Corporation and Oryx Gold Corporation) as of December 31,
1996, and for the year then ended, appearing in this Proxy
Statement/Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report, and are included herein in
reliance upon the authority of said firm as experts in giving such reports.

The financial statements of Mediterranean Oil Corporation (formerly known as
Oryx Gold Corporation) as of December 31, 1995, and for years ended December
31, 1995 and 1994, appearing in this Proxy Statement/Prospectus have been
audited by Amisano Hanson, Chartered Accountants, independent public
accountants, as indicated in their report, and are included herein in reliance
upon the authority of said firm as experts in giving such reports.

The financial statements of Fiserv Century Services Joint Venture as of
November 6, 1996, and for the period from Inception (April 17, 1996) to
November 6, 1996 appearing in this Proxy Statement/Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their report, and are included herein in reliance upon the authority of
said firm as experts in giving such reports.

73
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
ZMAX CORPORATION (A DEVELOPMENT STAGE COMPANY) ----
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants............ F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and March
31, 1997................................................................ F-3
Consolidated Statements of Operations for the period from December 13,
1995 (Date of Inception) to December 31, 1995, for the year ended
December 31, 1996, for the period from December 13, 1995 (Date of
Inception) to December 31, 1996, for the three months ended March 31,
1996 and 1997, and for the period from December 13, 1995 (Date of
Inception) to March 31, 1997............................................ F-4
Consolidated Statements of Stockholders Equity (Deficit) for the period
from December 13, 1995 (Date of Inception) to December 31, 1996, and for
the three months ended March 31, 1997................................... F-5
Consolidated Statements of Cash Flows for the period from December 13,
1995 (Date of Inception) to December 31, 1995, for the year ended
December 31, 1996, for the period from December 13, 1995 (Date of
Inception) to December 31, 1996, for the three months ended March 31,
1996 and 1997, and for the period from December 13, 1995 (Date of
Inception) to March 31, 1997............................................ F-6
Notes to Consolidated Financial Statements............................... F-7
MEDITERRANEAN OIL CORPORATION (FORMERLY ORYX GOLD CORPORATION) (A
DEVELOPMENT STAGE COMPANY)
Report of Amisano Hanson, Chartered Accountants.......................... F-24
Balance Sheets as at December 31, 1994 and 1995 and November 6, 1996..... F-25
Statements of Operations for the years ended December 31, 1993, 1994 and
1995, and for the period from April 24, 1986 (Date of Inception) to
December 31, 1995 and for the period from January 1, 1996 to November 6,
1996 and for the period from April 24, 1986 (Date of Inception) to
November 6, 1996........................................................ F-26
Statements of Stockholders Equity (Deficiency) for the period from April
24, 1986 to November 6, 1996............................................ F-27
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995, and for the period from April 24, 1986 (Date of Inception) to
December 31, 1995 and for the period from April 24, 1986 (Date of
Inception) to December 31, 1995 and for the period from January 1, 1996
to November 6, 1996 and for the period from April 24, 1986 (Date of
Inception) to November 6, 1996.......................................... F-28
Notes to the Financial Statements........................................ F-29
FISERV CENTURY SERVICES JOINT VENTURE (A DEVELOPMENT STAGE COMPANY)
Report of Arthur Andersen LLP, Independent Public Accountants............ F-33
Balance Sheet as of November 6, 1996..................................... F-34
Statement of Operations for the period from April 17, 1996 (Date of
Inception) to November 6, 1996.......................................... F-35
Statement of Partnership Deficit for the period from April 17, 1996 (Date
of Inception),
to November 6, 1996..................................................... F-36
Statement of Cash Flows for the period from April 17, 1996 (Date of
Inception),
to November 6, 1996..................................................... F-37
Notes to Financial Statements............................................ F-38
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ZMAX Corporation:

We have audited the accompanying consolidated balance sheets of ZMAX
Corporation (a Nevada corporation in the development stage) and its subsidiary
as of December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the period from inception
(December 13, 1995) to December 31, 1995, for the year ended December 31, 1996
and for the period from inception (December 13, 1995) to December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ZMAX Corporation and its
subsidiary as of December 31, 1995 and 1996, and the results of its operations
and its cash flows for the period from inception to December 31, 1995, for the
year ended December 31, 1996 and for the period from inception to December 31,
1996, in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Washington, D.C.
June 17, 1997

F-2
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
MARCH 31,
1995 1996 1997
-------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................................. $ -- $ 4,842,169 $ 3,731,416
Prepaid expenses and other assets..... -- 27,762 10,113
-------- ----------- -----------
Total current assets................ -- 4,869,931 3,741,529
-------- ----------- -----------
Property and equipment, net........... -- 20,871 186,908
Intangible assets, net................ 110,000 2,778,894 2,630,285
Deferred financing costs, net......... -- 1,426,834 1,277,867
-------- ----------- -----------
Total assets........................ $110,000 $ 9,096,530 $ 7,836,589
======== =========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued
expenses............................. $110,000 $ 370,175 $ 518,825
Convertible notes..................... -- 1,508,592 2,100,000
Current portion of long-term debt..... -- 265,630 136,054
-------- ----------- -----------
Total current liabilities........... 110,000 2,144,397 2,754,879
-------- ----------- -----------
Convertible exchangeable subordinated
debentures........................... -- 5,500,000 5,500,000
Long-term debt, net of current
portion.............................. -- 527,857 527,857
Deferred income taxes................. -- 504,488 478,392
-------- ----------- -----------
Total liabilities................... 110,000 8,676,742 9,261,128
-------- ----------- -----------
Commitments and contingencies (Notes 6,
10, 11 and 12)
Stockholders' (deficit) equity:
Preferred stock $0.001 par value,
10,000,000 shares authorized, none
issued and outstanding............... -- -- --
Common stock $0.001 par value,
50,000,000 shares authorized,
400,000, 7,000,079 and 6,704,072
shares issued and outstanding as of
December 31, 1995, 1996 and March 31,
1997, respectively, 2,800,000 shares
issued in escrow as of December 31,
1996 and March 31, 1997 (Note 4),
775,808 and 479,801 shares subject to
cancellation agreements as of
December 31, 1996, and March 31,
1997, respectively (Note 9).......... 400 4,200 4,200
Additional paid-in capital............ (200) 6,727,764 7,027,764
Issuable common stock, 904,365 shares
issuable as of December 31, 1996 and
March 31, 1997 (Note 4).............. -- 5,299,579 5,299,579
Receivable for stock subscription
(Note 4)............................. (200) (105,000) (105,000)
Deficit accumulated during the
development stage.................... -- (11,506,755) (13,651,082)
-------- ----------- -----------
Total stockholders' (deficit)
equity............................. -- 419,788 (1,424,539)
-------- ----------- -----------
Total liabilities and stockholders'
(deficit) equity................... $ -- $ 9,096,530 $ 7,836,589
======== =========== ===========
</TABLE>

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

F-3
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
DECEMBER 13, 1995
DECEMBER 13, 1995 (DATE OF THREE MONTHS ENDED
(DATE OF INCEPTION) YEAR ENDED INCEPTION) TO MARCH 31, DECEMBER 13, 1995
TO DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------------- (DATE OF INCEPTION)
1995 1996 1996 1996 1997 TO MARCH 31, 1997
------------------- ------------ ----------------- -------- ----------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Expenses:
Sales and marketing.. $ -- $ 228,803 $ 228,803 $ -- $ 157,748 $ 386,551
General and
administrative...... -- 1,087,077 1,087,077 46,814 1,019,195 2,106,272
Amortization and
depreciation........ -- 193,533 193,533 -- 154,730 348,263
------- ------------ ------------ -------- ----------- -----------
Loss from
operations........ -- (1,509,413) (1,509,413) (46,814) (1,331,673) (2,841,086)
Other income (expense):
Interest income...... -- 14,248 14,248 -- 49,478 63,726
Interest expense..... -- (7,125,386) (7,125,386) -- (889,446) (8,014,832)
Other................ -- (2,903,600) (2,903,600) -- 1,218 (2,902,382)
------- ------------ ------------ -------- ----------- -----------
Net loss before
benefit for income
taxes............. -- (11,524,151) (11,524,151) (46,814) (2,170,423) (13,694,574)
Benefit for income
taxes............. -- 17,396 17,396 -- 26,096 43,492
------- ------------ ------------ -------- ----------- -----------
Net loss........... $ -- $(11,506,755) $(11,506,755) $(46,814) $(2,144,327) (13,651,082)
======= ============ ============ ======== =========== ===========
Net loss per share..... $ -- $ (13.45) $ (0.12) $ (0.63)
------- ------------ -------- -----------
Weighted average shares
outstanding........... 400,000 855,712 400,000 3,424,271
======= ============ ======== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL ISSUABLE RECEIVABLE DURING THE
----------------- PAID-IN COMMON FOR STOCK DEVELOPMENT
SHARES AMOUNT CAPITAL STOCK SUBSCRIPTION STAGE TOTAL
--------- ------ ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 13,
1995 (Date of
Inception)............. -- $ -- $ -- $ -- $ -- $ -- $ --
Initial
capitalization........ 400,000 400 (200) -- (200) -- --
--------- ------ ---------- ---------- --------- ------------ ------------
Balance, December 31,
1995................... 400,000 400 (200) -- (200) -- --
Adjustment to record
existing
capitalization of
public shell company
November 6, 1996...... 3,800,079 3,800 807,964 1,373,379 200 -- 2,185,343
Common stock issued in
escrow in connection
with the CSI
recapitalization ..... 2,800,000 -- -- -- -- -- --
Common stock issuable
in connection with the
CSI recapitalization,
320,000 shares, $5.86
per share............. -- -- -- 1,875,200 -- 1,875,200
Common stock issuable
in connection with the
CSI recapitalization,
350,000 shares, $5.86
per share, net of
subscription proceeds
of $0.30.............. 2,051,000 (105,000) 1,946,000
Stock compensation
expense............... -- -- 300,000 -- -- -- 300,000
Allocation of proceeds
of Notes to beneficial
conversion feature.... -- -- 120,000 -- -- -- 120,000
Allocation of proceeds
of Debentures to
beneficial conversion
feature............... 5,500,000 5,500,000
Net loss............... (11,506,755) (11,506,755)
--------- ------ ---------- ---------- --------- ------------ ------------
Balance, December 31,
1996................... 7,000,079 4,200 6,727,764 5,299,579 (105,000) (11,506,755) 419,788
Cancellation of shares
(unaudited)........... (296,007) -- -- -- -- -- --
Stock compensation
expense (unaudited)... -- -- 300,000 -- -- -- 300,000
Net loss (unaudited)... -- -- -- -- -- (2,144,327) (2,144,327)
--------- ------ ---------- ---------- --------- ------------ ------------
Balance, March 31, 1997
(unaudited)............ 6,704,072 $4,200 $7,027,764 $5,299,579 $(105,000) $(13,651,082) $ (1,424,539)
========= ====== ========== ========== ========= ============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
DECEMBER 13, 1995 DECEMBER 13, 1995
DECEMBER 13, 1995 (DATE OF THREE MONTHS (DATE OF
(DATE OF INCEPTION) YEAR ENDED INCEPTION) TO ENDED MARCH 31, INCEPTION) TO
TO DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------------- MARCH 31,
1995 1996 1996 1996 1997 1997
------------------- ------------ ----------------- -------- ----------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $ -- $(11,506,755) $(11,506,755) $(46,814) $(2,144,327) $(13,651,082)
Adjustments to
reconcile loss to net
cash used in operating
activities
Depreciation and
amortization expense.. -- 193,533 193,533 -- 154,730 348,263
Amortization of
deferred financing
costs................. -- 185,767 185,767 -- 148,967 334,734
Amortization of
discount on Notes and
Debentures............ -- 7,008,592 7,008,592 -- 591,408 7,600,000
Non-cash expenses
related to CSI
recapitalization...... -- 2,883,600 2,883,600 -- -- 2,883,600
Stock compensation
expense............... -- 300,000 300,000 -- 300,000 600,000
Changes in assets and
liabilities
Prepaid expenses....... -- (27,762) (27,762) -- 17,649 (10,113)
Accounts payable....... 110,000 72,966 182,966 46,814 148,650 331,616
Deferred income taxes.. -- (17,396) (17,396) -- (26,096) (43,492)
-------- ------------ ------------ -------- ----------- ------------
Net cash used in
operating
activities........... 110,000 (907,455) (797,455) -- (809,019) (1,606,474)
-------- ------------ ------------ -------- ----------- ------------
Net cash used in
investing activities:
Purchases of property.. -- (21,144) (21,144) -- (172,158) (193,302)
Purchases of software.. (110,000) (831,892) (941,892) -- -- (941,892)
-------- ------------ ------------ -------- ----------- ------------
Net cash used in
investing
activities........... (110,000) (853,036) (963,036) -- (172,158) (1,135,194)
Net cash provided by
financing activities:
Proceeds from issuance
of convertible notes.. -- 120,000 120,000 -- -- 120,000
Proceeds from issuance
of convertible
exchangeable
subordinated
debentures............ -- 5,500,000 5,500,000 -- -- 5,500,000
Deferred financing
costs................. -- (675,000) (675,000) -- -- (675,000)
Net borrowings
(payments) on long-
term obligations...... -- 408,487 408,487 -- (129,576) 278,911
Cash acquired in CSI
recapitalization...... -- 299,173 299,173 -- -- 299,173
Advances from joint
venture and ZMAX prior
to the CSI
recapitalization...... -- 950,000 950,000 -- -- 950,000
-------- ------------ ------------ -------- ----------- ------------
Net cash provided by
(used in) financing
activities........... -- 6,602,660 6,602,660 -- (129,576) 6,473,084
Net increase
(decrease) in cash... -- 4,842,169 4,842,169 -- (1,110,753) 3,731,416
-------- ------------ ------------ -------- ----------- ------------
Cash, beginning of
period................. -- -- -- -- 4,842,169 --
-------- ------------ ------------ -------- ----------- ------------
Cash, end of period..... $ -- $ 4,842,169 $ 4,842,169 $ -- $ 3,731,416 $ 3,731,416
======== ============ ============ ======== =========== ============
Supplemental cash flow
information:
Cash paid for--
Interest............... -- 26,599 -- 200,067
Taxes.................. -- -- -- --
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1996

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

Basis of Presentation

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

For financial reporting purposes, the acquisition has been treated as a
recapitalization of CSI with CSI as the acquirer (a reverse acquisition). The
historical financial statements prior to November 6, 1996 are those of CSI.
The accompanying consolidated financial statements include all of the accounts
of CSI and the accounts of ZMAX for the period from the acquisition on
November 6, 1996, through December 31, 1996. All significant intercompany
amounts have been eliminated.

ZMAX and its subsidiary, CSI (together the "Company"), are considered
development stage companies as defined by Statement of Financial Accounting
Standards ("SFAS") No. 7, "Accounting and Reporting by Development Stage
Enterprises." All losses since inception are considered development stage
activities and are presented on the basis described above.

Organization of ZMAX

ZMAX was incorporated as a Nevada corporation on April 24, 1986, under the
name of Pandora, Inc. ("Pandora"), for the purpose of creating a vehicle to
obtain capital to seek out, investigate and acquire interests in products,
properties and businesses which, in the opinion of management, may have
potential for profit. Until May 4, 1992, Pandora transacted no business other
than the investigation of various business opportunities. On May 4, 1992,
Pandora amended its Articles of Incorporation to change the name of the
Company to Oryx Gold Corporation ("Oryx") in connection with a reorganization
in which Oryx acquired 100% ownership of American Oil and Gas Corporation
("American Oil"). American Oil was organized on November 22, 1991, as a Nevada
corporation, and conducted no business other than the acquisition of an
interest in certain unpatented placer mining claims in Nevada. Oryx intended
to develop the mining claims and other acquired interests and, on August 16,
1995, changed its name to Mediterranean Oil Corporation ("Mediterranean") to
more accurately reflect the nature of its business. The Company did not
subsequently pursue this business. American Oil's corporate status has been
suspended by the Secretary of State of Nevada as of December 1, 1995, and this
subsidiary has been abandoned. On August 9, 1996, Mediterranean changed its
name to ZMAX Corporation.

Nature of Operations

Prior to the CSI transaction, ZMAX's activities consisted of efforts to
establish a new business and raise capital. The operations of CSI consisted of
activities to obtain financing, to acquire and develop its proprietary Year
2000 software re-engineering tools and methodologies, and to market its
services to potential customers. Since the acquisition of CSI, the Company has
been focused on the software re-engineering market. The Company has not yet
generated any revenues and has no assurance of future revenues. Even if
marketing efforts are successful, substantial time will pass before
significant revenues will be realized and, during this period, the Company may
require additional funds that may not be available to it.

F-7
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company has limited experience in providing its Year 2000 or
"millennium" services. The Company has not completed a large-scale millennium
conversion project either alone or together with a strategic partner. There
can be no assurance that the Company will be successful in completing large-
scale conversions, that the Company will not experience delays or failures in
providing its millennium services, or that its millennium services will be
effective. The failure of the Company's Year 2000 methodology to function
properly or the existence of significant errors or bugs following completion
of millennium conversions could necessitate significant expenditures by the
Company to remedy the problem. The consequences of failures, errors or bugs
could materially and adversely affect the Company's business, operating
results and financial condition.

The Company's operations are subject to certain risks and uncertainties,
including among others, rapidly changing technology, uncertain and undeveloped
markets for millennium services, current and potential competitors with
greater financial, technological, production and marketing resources, the need
to develop additional products and services, limited protection of proprietary
information, the risk of third party claims of infringement, potential
contract liability related to the Company's access to key aspects of customers
computer systems, dependence upon strategic alliances, the need for additional
technical personnel, dependence on key management personnel, management of
growth, uncertainty of future profitability and possible fluctuations in
financial results. In addition, there are risks associated with the market
activity in ZMAX stock. The potential volatility of the stock price is
demonstrated by the quoted market price compared to the prices in the CSI
recapitalization transactions. The limited public information on the Company
and its security holders and the limitations on the ability to enforce
securities laws against non-U.S. persons also creates risk.

2. EXCHANGE OFFER AND PROPOSED MERGER

Exchange Offer

In connection with the offer anticipated by this prospectus, the Company
will offer (the "Exchange Offer") to exchange $5,500,000 of outstanding
Convertible Exchangeable Subordinated Debentures (the "Debentures") under the
terms and conditions included in this prospectus. Each Debenture holder will
receive 220 shares of common stock and a warrant to purchase 220 shares of
common stock (the "Warrant Shares") per $1,000 principal amount of Debentures
exchanged (see Note 7). Any accrued but unpaid interest from June 1, 1997 (the
most recent interest payment date) to the date of the exchange will be waived
by the Debenture holder. Following

F-8
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the Exchange Offer, the Company intends to redeem any Debentures still
outstanding at 100% of the principal amount pursuant to the terms of the
Debentures, plus any interest accrued thereon to the date of redemption.

Because the securities to be issued pursuant to the terms of the Exchange
Offer include securities in excess of the securities issuable pursuant to the
original conversion terms of the Debentures (see Note 7), the Company will
recognize as expense, at the time of the exchange, the fair value of the
securities issued upon the exchange of the Debentures in excess of the fair
value of the securities issuable pursuant to the original conversion terms of
the Debentures. The amount of the expense will equal the fair value of the
incremental number of shares of common stock issued in the exchange in excess
of the number of shares issuable upon conversion of the Debentures in
accordance with their terms plus the fair value of the warrants issued in the
exchange.

Proposed Merger (the "Merger")

ZMAX proposes to merge with and into New ZMAX Corporation, a Delaware
corporation ("New ZMAX"), pursuant to an Agreement and Plan of Merger between
ZMAX and New ZMAX (the "Merger Agreement"). At the time the Merger becomes
effective (the "Effective Time"), each outstanding share of Common Stock,
$0.001 par value, of ZMAX ("Old ZMAX Common Stock") will be converted into the
right to receive, and will be exchangeable for one share of Common Stock,
$0.001 par value, of New ZMAX ("New ZMAX Common Stock"). At the Effective Time
of the Merger, ZMAX will be merged with and into New ZMAX and ZMAX will cease
to exist as a corporation. New ZMAX will be the surviving corporation in the
Merger, and CSI will thereby become a wholly owned subsidiary of New ZMAX.
Stockholders who oppose the proposed Merger will have the right to receive
payment for the value of their shares under Nevada law. In addition, if
beneficial owners of more than 5% of the issued and outstanding shares of ZMAX
Common Stock exercise their dissenters' rights, the Company may abandon the
Merger.

The exchange of at least 90% of the Debentures for ZMAX Common Stock and the
exercise of Warrants for at least 80% of the Warrant Shares are conditions to
the consummation of the Merger. Approval of the Merger also requires the
affirmative vote of the holders of a majority of the outstanding shares of
ZMAX Common Stock entitled to vote.

The authorized capital stock of the ZMAX consists of 95,000,000 shares of
Old ZMAX Common Stock and 10,000,000 shares of preferred stock, of which
5,000,000 shares have been designated as Series A Preferred Shares. Upon
completion of the Merger, the authorized capital stock of New ZMAX will
consist of 50,000,000 shares of Common Stock and 10,000,000 shares of
Preferred Stock. The authorized shares have been retroactively adjusted to
give effect to this event. This action is subject to the consummation of the
Merger.

3. SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates

F-9
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

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

Income Taxes

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

Long-Lived Assets

The Company reviews its long-lived assets, including property and equipment,
identifiable intangibles, and goodwill whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows will be less
than the carrying amount of the assets.

Software Development Costs

SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," requires the capitalization of certain computer
software development costs incurred after technological feasibility is
established. Amounts that could have been capitalized under this statement
were immaterial and have not been capitalized.

Net Loss Per Share

Net loss per share for the period from December 13, 1995 (date of inception)
to December 31, 1995 and for the year ended December 31, 1996 and the three
months ended March 31, 1996 and 1997 is based upon the weighted-average number
of common equivalent shares outstanding during the period. The effects of
outstanding options and convertible debt on net loss per share are not
included because such effects would be anti-dilutive. Outstanding shares
subject to cancellation agreements (see Note 9) are also not included. Fully
diluted earnings per share are not presented because the difference between
these amounts and amounts presented is not material.

Interim Financial Information

The unaudited financial statements as of March 31, 1997, and for the three
months ended March 31, 1996 and 1997, presented herein have been prepared by
the Company without audit, pursuant to the rules and resolutions of the
Securities and Exchange Commission. The financial statements reflect all
adjustments (consisting of normal recurring adjustments) which, in the opinion
of management are necessary to present fairly the financial position, results
of operations and cash flows of the Company as of March 31, 1996 and 1997, and
for the three months then ended. The results of operations for the three
months ended March 31, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997.

F-10
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. CSI RECAPITALIZATION AND ACQUISITION OF JOINT VENTURE INTEREST:

In connection with the recapitalization of CSI, ZMAX issued 2,800,000 shares
of common stock at $0.30 per share (see Note 9), $2,100,000 of convertible
notes (see Note 7) and $5,500,000 of convertible exchangeable subordinated
debentures (see Note 7).

Fiserv Century Services Joint Venture

On April 17, 1996, CSI formed the Fiserv Century Services Joint Venture (the
"JV") with Fiserv Federal Systems, Inc., ("Fiserv"). CSI and Fiserv each owned
a 50% interest in the JV. The JV was engaged in the business of marketing Year
2000 computer consulting services using computer software exclusively licensed
to CSI.

As funding for the JV, Fiserv agreed to provide a credit facility of up to
$5 million with interest payable monthly on the outstanding balance at a rate
of the prime rate plus 2%. A security interest in the JV's assets was granted
to Fiserv as security for payment of the obligations. All funds advanced to
the JV were provided under this agreement. In addition, the JV agreed to
provide monthly advances to CSI in the amount of $40,000 with a limit of
$720,000. No stated interest was due on those advances pursuant to the
agreement. During the period from April 1996 to August 1996, Fiserv provided a
total of $695,000 in funding to the JV, $560,000 of which the JV advanced to
CSI under the terms of the agreements described above.

As part of the CSI recapitalization, Fiserv agreed to sell its interest in
the JV to ZMAX. Effective September 1, 1996, NewDominion Capital Group, Inc.
("NewDominion") acquired Fiserv's interest in the JV. At this time, all
employees and operations of the JV were transferred to CSI. NewDominion's
intent was to serve as an intermediary in order to assign the joint venture
interest to ZMAX concurrent with the recapitalization of CSI. Fiserv's
interest was assigned to NewDominion for cash consideration of $310,000 and a
promissory note of $385,000. NewDominion granted a security interest to Fiserv
of its rights and interest in the JV as security for the $385,000 note. In
addition to the above consideration, Fiserv was pledged 3% of the outstanding
shares of the anticipated successor entity to the JV.

On September 20, 1996, NewDominion assigned its interest in the JV to ZMAX.
As consideration for the assignment, ZMAX assumed all liabilities, interests,
and obligations of NewDominion related to the JV including the $310,000
payable to Fiserv and the $385,000 promissory note. As the successor entity
(as described above), ZMAX assumed the obligation to issue a 3% ownership
interest in ZMAX to Fiserv.

This transaction has been, accounted for as a purchase by ZMAX. ZMAX
acquired the 50% interest in the JV for repayment of the amounts advanced by
Fiserv to the JV totaling $695,000 ($310,000 in cash and $385,000 note
payable) and 234,365 shares of ZMAX common stock with a fair value of
$1,373,379 based upon the quoted market price of ZMAX common stock. The
234,365 shares of common stock were not issued until April 1997 and have been
reflected as issuable as of December 31, 1996. The fair value of these shares
is included in stockholders' equity in the accompanying financial statements
as of December 31, 1996.

The purchase price has been allocated to assets and liabilities based on
their estimated fair values at the date of acquisition on a preliminary basis
as follows.

<TABLE>
<S> <C>
Goodwill.......................................................... 2,590,263
Deferred income tax liability..................................... (521,884)
---------
2,068,379
</TABLE>

As of September 1, 1996, all operations, some of which had previously been
performed by the JV, were carried out by CSI. After the CSI transaction, ZMAX
transferred all of its interest in the JV to CSI as of January 1, 1997, and,
CSI as the sole remaining venture partner, terminated the JV.

F-11
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CSI

On July 16, 1996, PRCC, Inc. ("PRCC") entered into an agreement with CSI to
acquire all of the outstanding stock of CSI. On September 20, 1996, PRCC
assigned its rights under the July 16, 1996 agreement with CSI to ZMAX in
return for $20,000 in cash and the right to purchase 350,000 shares of ZMAX
common stock for $0.30 per share. The $20,000 and fair value, based upon the
quoted market price of the ZMAX common stock, of these shares has been charged
to expense as a cost of the CSI transaction and is included in other expenses
in the accompanying financial statements for the year ended December 31, 1996.
These shares were not issued until April 1997 and have been reflected as
issuable as of December 31, 1996. The fair value of these shares is included
in stockholders' equity in the accompanying financial statements as of
December 31, 1996. Similarly, the subscription proceeds were not received
until May 1997, and have been reflected as stock subscriptions receivable as
of December 31, 1996.

Concurrent with this assignment, on September 20, 1996, ZMAX made an offer
to purchase all of the outstanding shares of CSI stock. The offer was accepted
by the stockholders of CSI and the agreement was announced to the public on
September 26, 1996. The September 20, 1996, agreement also provided that ZMAX
would advance amounts to CSI to fund their operations, CSI would enter into
employment agreements with certain executives who were the former stockholders
of CSI that provide for compensation at specified levels, and the former
stockholders of CSI were provided with certain anti-dilution protection with
respect to their future ownership interest in ZMAX provided that certain
performance criteria were met. These performance criteria were not
subsequently met and the former CSI stockholders are not entitled to the anti-
dilution protection prescribed in the agreement.

During the period from September 20, 1996 to November 6, 1996, ZMAX advanced
a total of $390,000 to CSI under two promissory notes totaling $200,000 and
under a line of credit agreement totaling $190,000. The stockholders of CSI
assigned a security interest in their CSI stock to ZMAX as consideration for
these advances.

On November 6, 1996, the Stock Purchase Agreement between CSI and ZMAX was
executed and the transaction was consummated. In return for all of the
outstanding stock of CSI, ZMAX issued 3,200,000 shares of common stock. At
closing, the former stockholders of CSI received 400,000 shares of ZMAX stock.
The remaining 2,800,000 shares (the "Escrowed Stock") were placed in escrow
subject to quarterly release based upon the cash flow (as defined) of CSI.
Under the terms of the Stock Purchase Agreement one share of Earn Out Stock
will be released for every $1.25 of cash flow generated. The stockholders are
entitled to vote the shares of the Escrowed Stock as well as to receive their
respective pro rata share of any distributions or dividends. The Escrowed
Stock is subject to forfeiture under certain conditions (see Note 12).

This transaction has been accounted for as a recapitalization of CSI with
CSI as the acquirer (a reverse acquisition). The fair value of the Earn Out
Stock will be recognized as compensation expense in the period in which the
shares are earned and released from escrow.

In connection with the transaction described above, the Company incurred
$54,678 of direct costs that have been charged to expense. The Company also
agreed to issue 320,000 shares of the Company's common stock to a consultant
for services related to the CSI transaction and related financing. The fair
value, based upon the quoted market price of the ZMAX common stock, of 160,000
of these shares has been charged to expense as a cost of the transaction and
is included in other expenses in the accompanying financial statements for the
year ended December 31, 1996. The fair market value of the other 160,000
shares has been recognized as a deferred financing cost in the accompanying
financial statements for the year ended December 31, 1996 (See Note 7). The
shares granted to the investment advisor were not issued until April 1997, and
are reflected as issuable as of December 31, 1996. The fair value of these
shares is included in stockholders' equity in the accompanying financial
statements as of December 31, 1996.

F-12
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. PROPERTY, PLANT, AND EQUIPMENT:

Property, plant, and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Furniture and fixtures............................ $17,989 $ 80,772
Equipment......................................... 3,155 94,280
Leasehold Improvements............................ -- 18,250
Less--Accumulated depreciation.................... (273) (6,394)
------- --------
Property and equipment, net of accumulated
depreciation..................................... $20,871 $186,908
======= ========
</TABLE>

6. INTANGIBLE ASSETS:

Intangible assets consist of purchased software rights and goodwill acquired
as a result of ZMAX's purchase of Fiserv's interest in the JV. The software
rights and other intangibles are being amortized over their estimated useful
lives of five years. Accumulated amortization totaled $193,261 and $341,870
(unaudited) as of December 31, 1996 and March 31, 1997, respectively.

During 1996, CSI purchased the rights to three software tools for a total of
$1,010,000. The remaining obligation is due in $150,000 installments in April
1997, October 1997, and April 1998 (see Note 7) while this obligation called
for fixed payments, it did not bear interest. Accordingly, interest has been
imputed at 10% on this obligation.

Two of the licenses provide for the exclusive rights to use and modify the
software for a term of 20 years. The third license, for the Change of Century
Analysis and Conversion Tool ("COCACT"), provides for the exclusive rights to
use the software in North America for a term of ten years (the "North American
COCACT License").

On April 30, 1997, the Company entered into an agreement to purchase all
right, title and interest to COCACT (the "COCACT Purchase Agreement").
Conditions of the purchase included a software development and enhancement
project to bring COCACT to the required level of performance as specified in
the agreement. The purchase price for the COCACT software is $1,100,000, of
which $250,000 was paid in May 1997, plus 150,000 shares of common stock of
the Company issuable upon completion and testing of the COCACT enhancements.
The remaining installments of $283,333 each are due in September 1997, January
1998, and May 1998. The balance of the purchase price will be payable
contingent upon the completion of the software development and enhancement
project by September 30, 1997. Under the terms of the COCACT Purchase
Agreement, the Company may terminate the agreement if, among other things, the
enhancement project is not satisfactorily completed. Upon termination and
recision of the software sale, the Company has the right to return the
software and treat the $250,000 payment made in May 1997 as prepayment of the
license fees payable under the North American COCACT License.

As of April 30, 1997, $300,000 under the original North American COCACT
License remained unpaid, due in installments of $150,000 each in October 1997
and April 1998. Under the terms of the COCACT Purchase Agreement, ZMAX has the
right to terminate and cancel the North American COCACT License including the
obligation to pay any remaining license fees. In the event that ZMAX exercises
its right to cancel the COCACT Purchase Agreement, termination of the North
American COCACT License would be automatically rescinded, whereupon ZMAX's
right and obligations under the North American COCACT License would be
reinstated retroactively.

F-13
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. DEBT AND DEFERRED FINANCING COSTS:

The following details the Company's debt obligations:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Promissory note payable to Fiserv, interest
payable annually at the prime rate plus 1% (9.5%
at December 31, 1996), due August 1998.......... $ 385,000 $ 385,000
Amounts due for the purchase of software rights,
interest imputed at 10%, due in installments of
$150,000 in April 1997, October 1997, and April
1998............................................ 408,487 278,911
Convertible notes, interest payable monthly at
8%, due in January and March 1997............... 1,508,592 2,100,000
Convertible exchangeable subordinated debentures,
interest payable semi-annually, at 8%, due in
December 1999................................... 5,500,000 5,500,000
----------- ----------
Total.......................................... 7,802,079 8,263,911
Less--Current portion............................ (1,774,222) (2,236,054)
----------- ----------
$ 6,027,857 $6,027,857
=========== ==========
</TABLE>

The following represents the future minimum maturities of the Company's
debt:

<TABLE>
<S> <C>
1997.............................................................. $2,365,630
1998.............................................................. 527,857
1999.............................................................. 5,500,000
----------
Total........................................................... $8,393,487
==========
</TABLE>

Promissory Note Payable

In September 1996, the Company assumed a $385,000 promissory note payable to
Fiserv as consideration for the purchase of a 50% interest in the JV. In May
1997, the $385,000 note payable and the related accrued interest of $20,776 as
of March 31, 1997, were settled by the Company by issuing 32,077 shares of
common stock.

Convertible Notes

In connection with the CSI recapitalization, from September 1996 to October
1996, the Company issued a total of $1,980,000 in convertible notes (the
"Notes"). After the date of the CSI transaction, the Company issued an
additional $120,000 in Notes. The Notes are convertible, at the option of the
holder, into a total of 1,600,000 shares of the Company's common stock. Of the
total, $600,000 of the Notes are convertible at a rate of one share per $1.00
of principal. The remaining $1,500,000 are convertible at a rate of one share
per $1.50 of principal. Principal of $1,350,000 is due on January 20, 1997,
and $750,000 due on March 20, 1997 after which the Notes were convertible. In
1997, all of the holders exercised their conversion rights and in March 1997,
the Board of Directors approved the conversion and in April 1997, the Notes
were converted into 1,600,000 shares of common stock.

On the respective dates of issuance of the Notes, the conversion price of
the Notes was less than the quoted market price of the common stock.
Accordingly, because the intrinsic value of this beneficial conversion feature

F-14
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

exceeds the amount of the proceeds of the Notes, the entire $2,100,000 in
proceeds have been allocated to additional paid-in capital to recognize this
beneficial conversion feature. The discount on the Notes resulting from the
allocation of proceeds to the beneficial conversion feature is reflected as a
charge to interest expense and is being recognized over the period until the
Notes become convertible. A total of $1,508,592 in interest expense has been
recognized for the year ended December 31, 1996 related to the discount
resulting from the beneficial conversion feature.

Convertible Exchangeable Subordinated Debentures

On December 6, 1996, the Company issued $5,500,000 in convertible
exchangeable subordinated debentures (the "Debentures"). Prior to the maturity
date or redemption by the Company, a holder may convert the entire principal
balance of their Debenture into common stock. Upon conversion, the holder will
receive one share of stock for each $5.00 of principal amount of the
Debenture. The Company may redeem or prepay the Debentures provided that the
Company has offered to exchange the Debentures for the Company's common stock
and a warrant to purchase additional common stock and the Company has filed an
effective registration statement pursuant to the Securities Act of 1933, as
amended, pertaining to the exchange offer.

If the exchange offer is made on or before the six month anniversary of the
Debentures, each $5.00 of principal will be exchanged for one share of common
stock plus a warrant to purchase one share of common stock. If the exchange
offer is made after the six month anniversary of the debentures, each $5.00 of
principal will be exchanged for one and one-tenth (1.1) share of stock plus an
equivalent number of warrants.

Upon exchange, the holder will receive common stock plus, for each share of
common stock received, one warrant to purchase an additional share of ZMAX
common stock at $7.00 per share if exercised prior to the first anniversary of
the date of issuance of the warrant or at $8.00 per share if exercised prior
to the second anniversary of the date of issuance of the warrant. The warrants
expire on the second anniversary of the date of issuance.

On the date of issuance of the Debentures, the conversion price of the
Debentures was less than the quoted market price of the Company's common
stock. Accordingly, because the intrinsic value of this beneficial conversion
feature exceeds the amount of the proceeds of the Debentures, the entire
$5,500,000 in proceeds have been allocated to additional paid-in capital to
recognize this beneficial conversion feature. The discount resulting from the
allocation of proceeds to the beneficial conversion feature is reflected as a
charge to interest expense and has been recognized in December 1996 as the
Debentures are immediately convertible by the holders. A total of $5,500,000
in interest expense has been recognized for the year ended December 31, 1996
related to the discount resulting from the beneficial conversion feature.

Deferred Financing Costs

Deferred financing costs, which were incurred in connection with the
issuance of the Notes and the Debentures, are charged to expense as additional
interest expense over the life of the debt, using the interest method.
Amortization of the deferred financing costs totaled $185,767 for the year
ended December 31, 1996.

F-15
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8. INCOME TAXES:

No provision for income taxes has been recorded as a result of the operating
losses incurred by the Company. The components of the provision for income
taxes consist of the following.

<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 13, 1995
(DATE OF INCEPTION) DECEMBER 31
TO DECEMBER 31, 1995. 1996
--------------------- -----------
<S> <C> <C>
Income tax benefit:
Current--
Federal................................ $ -- $ --
State.................................. -- --
===== =========
Deferred--
Federal................................ -- (468,323)
State.................................. -- (87,810)
Valuation Allowance.................... -- 538,737
===== =========
$ -- $ (17,396)
===== =========
</TABLE>

The benefit for income taxes results in effective rates which differ from
the Federal statutory rate as follows.

<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 13, 1995
(DATE OF INCEPTION) TO DECEMBER 31,
DECEMBER 31, 1995. 1996
---------------------- ------------
<S> <C> <C>
Statutory Federal income tax rate...... -- % (35.0)%
Effect of graduated rates.............. -- 1.0
Effect of basis differences
attributable to purchase accounting... -- (0.2)
Net operating losses for which no tax
benefit is currently available........ -- 1.0
Other increases in valuation
allowance............................. -- 3.2
Nondeductible expenses................. -- 29.8
--- -----
-- % (0.2)%
=== =====
</TABLE>

The components of the net deferred tax assets (liabilities) were as follows
as of December 31, 1995 and 1996 (in thousands).
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
---- ----------
<S> <C> <C>
Deferred tax assets:
Organization and start-up costs.......................... $-- $ 700,618
Net operating loss carryforwards......................... -- $ 566,350
Other.................................................... -- 114,000
---- ----------
Total deferred tax assets.............................. $-- $1,380,968
==== ==========
Deferred tax liabilities:
Basis differences attributable to purchase accounting.... -- (504,488)
Depreciation and amortization............................ -- (6,775)
---- ----------
Total deferred tax liabilities......................... -- (511,263)
Net deferred tax asset................................... -- 869,705
Less: Valuation allowance................................ -- (1,374,193)
---- ----------
$-- $ (504,488)
==== ==========
</TABLE>

F-16
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company has determined that its deferred tax assets did not satisfy the
recognition criteria set forth in SFAS No. 109, and, accordingly, established
a valuation allowance for 100 percent of the deferred tax assets.

As of December 31, 1996, the Company had net operating losses of
approximately $1,400,000 available for carryforward to offset future taxable
income. These carryforwards expire in years 2001 through 2011. Under the
provisions of the Tax Reform Act of 1986, when there has been a change in an
entity's ownership of 50 percent or greater, utilization of net operating loss
carryforwards may be limited. As a result of ZMAX's equity transactions
occurring through December 31, 1992 and the equity transactions in 1996
including the CSI acquisition, the Company's net operating losses will be
subject to such limitations and may not be available to offset future income
for taxes purposes.

9. COMMON STOCK AND PREFERRED STOCK:

Reverse Stock Split

Effective July 23, 1996, ZMAX effected a 1 for 80 reverse stock split. All
share amounts and per share amounts have been retroactively restated to
reflect this event.

OffShore Placement

In September 1996, ZMAX sold 2,800,000 shares at $.30 per share to offshore
investors (the "OffShore Placement"). The proceeds were used to repay existing
debt of ZMAX (see Note 11 for a discussion of related party transactions).

Stock Subject to Cancellation

By an agreement dated April 27, 1992, ZMAX acquired all of the outstanding
common stock of American Oil for 625,000 common shares of ZMAX's stock,
5,000,000 preferred shares of ZMAX's stock and sold an additional 88,266
common shares of the Company's stock for $7,062 in cash. The preferred shares
were never issued and American Oil has not undertaken any business or any
financial transaction other than the acquisition of certain mining rights and
American Oil's corporate status has been suspended by the State of Nevada and
this subsidiary has been abandoned by the Company.

In September 1995, ZMAX entered into stock cancellation agreements with
certain stockholders that provided for the cancellation of the aforementioned
shares of the Company's stock. As of December 31, 1996, these shares had not
been cancelled. In March 1997, 296,007 of these shares were cancelled. An
additional 479,801 shares are subject to cancellation but were not cancelled
as of March 31, 1997.

Due to a lack of documentation and proper signature guarantees, 167,301 of
the shares remain outstanding and have been reported as lost by the
stockholder. Assuming the stockholder will provide necessary documentation,
these lost certificates may be cancelled of record upon the Company's
agreement to indemnify the transfer agent and the reservation of an equal
number of shares against the possible presentation of a lost certificate by a
bona fide holder. In the event of presentation of a lost certificate for
transfer, the shares would be transferred to the presenting bona fide holder
from the shares reserved for this purpose. In such event, the Company may
pursue indemnification remedies against the former stockholder under a lost
stock indemnity agreement signed by the former stockholder in October 1996.

F-17
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The remaining 312,500 shares subject to cancellation have been lost by
another stockholder. The Company has been unable to cancel these shares of
record due to the lack of proper documentation. The Company's attempts to
locate the stockholder to correct document deficiencies have been unsuccessful
and the Company has currently decided to abandon its efforts to do so. The
Company is currently considering obtaining a court order to cancel these
shares of record.

Reserved Shares

The Company has reserved 1,820,000 shares of Common Stock for issuance under
its stock incentive and option plans and executive bonus program (see Notes 10
and 12).

Preferred Stock

As of December 31, 1995 and 1996, there were no shares of Preferred Stock
issued and outstanding. If issued, holders of Series A Preferred Stock would
be entitled to convert each share of Series A Preferred Stock into fair shares
of Common Stock at the option of the holder. In all other respects, the voting
powers, preferences, limitations, restrictions and relative rights of the
Series A Preferred Stock are the same as those of the Common Stock.

10. STOCK OPTIONS AND STOCK-BASED COMPENSATION:

In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 is
effective for awards granted in 1996 and 1995. SFAS No. 123 defines a "fair
value based method" of accounting for stock-based compensation. Under the fair
value based method, compensation cost is measured at the grant date based on
the fair value of the award and is recognized over the service period. Prior
to issuance of SFAS No. 123, stock-based compensation was accounted for under
the "intrinsic value method" as defined by APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Under the intrinsic value method, compensation is
the excess, if any, of the market price of the stock at grant date or other
measurement date over the amount an employee must pay to acquire the stock.

SFAS No. 123 allows an entity to continue to use the intrinsic value method.
However, entities electing the accounting in Opinion No. 25 must make pro
forma disclosures as if the fair value based method of accounting had been
applied. The Company applies APB Opinion No. 25 and the related
interpretations in accounting for its stock-based compensation.

Under the provisions of SFAS No. 123, transactions with other than employees
in which services are the consideration received for the issuance of equity
securities shall be accounted for based upon the fair value of the
consideration. The only options granted in 1996 were granted to a consultant
and were accounted for at fair value. Accordingly, no pro forma disclosures
are required for the year ended December 31, 1996.

ZMAX Options

Prior to the CSI recapitalization, ZMAX granted options to certain of its
officers and directors, some of which remain outstanding as of December 31,
1996. In September 1994, the Company granted 6,565 options to its officers and
directors. The options were contingent upon service to ZMAX as a director,
officer, employee or consultant to the Company. As a result of the termination
of service by these individuals, these options were canceled in 1996. In June
1995, the Company granted 14,940 additional options to officers and directors.
Such

F-18
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

options were to survive the appointment of these individuals and expire in
September 1997. None of these individuals remain in service with the Company
and in 1996, 7,814 of these options were canceled. An additional 1,876 were
canceled in May 1997.

Non-Employee Options

In September 1996, ZMAX granted 200,000 options to a consultant at exercise
prices ranging from $5.00 to $15.00 under the terms of a one-year consulting
agreement. Under the terms of the agreement, the options vested ratably over
the term of the agreement. The Company has recorded approximately $300,000 of
compensation expense related to these options for the year ended December 31,
1996 based upon the fair value of the options on the date of grant and the
vesting period. In May 1997, the consulting agreement was amended such that
the consultant's options were canceled and the consultant was granted 60,000
shares of the Company's common stock for services performed from September
1996 to May 1997. The difference between the fair value of the shares to be
issued and the cumulative compensation expense recorded as of the date the
agreement was amended will be charged to expense in May 1997.

The following is a summary of ZMAX options granted prior to the CSI
recapitalization.

<TABLE>
<CAPTION>
NUMBER OPTION PRICE WEIGHTED AVERAGE
OF SHARES RANGE EXERCISE PRICE
--------- ------------ ----------------
<S> <C> <C> <C>
Outstanding, December 31, 1993: -- $ -- $ --
Granted........................... 6,565 40.00 40.00
------- ----------- ------
Outstanding, December 31, 1994: 6,565 40.00 40.00
Granted........................... 15,940 40.00 40.00
------- ----------- ------
Outstanding December 31, 1995....... 22,505 40.00 40.00
Granted........................... 200,000 $5.00-15.00 9.82
Canceled.......................... (14,379) 40.00 40.00
------- ----------- ------
Outstanding, December 31, 1996...... 208,126 $5.00-40.00 11.00
======= =========== ======
Exercisable, December 31, 1996...... 63,682 $5.00-15.00 13.67
</TABLE>

1997 Stock Incentive Plan

In May 1997, the Board of Directors adopted the 1997 Stock Incentive Plan
(the "Incentive Plan"), subject to the approval of the stockholders. The
purpose of this plan is to provide additional compensation to employees,
officers, directors and consultants of the Company or an affiliate. Under the
terms of the Incentive Plan, 1,700,000 shares of common stock have been
reserved for issuance as incentive awards under the plan. The number of shares
of common stock associated with any forfeited stock incentive will be added
back to the number of shares that can be issued under the Incentive Plan.
Awards under the Incentive Plan and their terms will be determined by a
committee (the "Committee") selected by the Board of Directors. The Incentive
Plan permits the Committee to make awards of a variety of equity-based
incentives (collectively, "Stock Incentives").

The Incentive Plan allows for the grant of incentive stock options and non-
qualified stock options. The exercise price of the options will be established
by the Committee. The exercise price of an incentive stock option may not be
less than the fair market value of the Common Stock on the date of the grant
(or less than 110% of

F-19
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the fair market value if the participant controls more than 10% of the voting
power of the Company or a subsidiary). Non-qualified stock options may be made
exercisable at a price equal to, less than or more than the fair market value
of the Common Stock on the date that the option is awarded. The term of an
option will be specified in the applicable stock incentive agreement.

In addition to stock options, the Incentive Plan also makes provisions for
other Stock Incentives, including stock appreciation rights, stock awards,
phantom shares, performance unit appreciation rights and dividend equivalent
rights. These Stock Incentives will be subject to the terms prescribed by the
Committee in accordance with the provisions of the Incentive Plan. The Stock
Incentives are generally not transferable or assignable during a holder's
lifetime.

In April 1997, the Company granted 1,200,000 non-qualified stock options
under the Incentive Plan to certain officers and employees. These options have
an exercise price of $14.31, expire ten years after the date of grant, and
will become fully vested after seven years, vesting may be accelerated
provided that certain revenue targets are achieved.

1997 Directors Formula Stock Option Plan

In May 1997, the Board of Directors adopted the 1997 Directors Formula Stock
Option Plan (the "Director Plan"). The Board of Directors has reserved 120,000
shares of Common Stock for issuance pursuant to awards which may be made under
the Director Plan. The number of shares of Common Stock associated with any
forfeited options are added back to the number of shares that can be issued
under the Director Plan.

The awards under the Director Plan are determined by the express terms of
the Director Plan. The Director Plan will be administered by a committee (the
"Committee"), the members of which are appointed by the Board of Directors.
The Committee will consist of at least one or more members of the Board of
Directors who will not receive a grant of an option under the Director Plan
and who are not currently eligible to receive a grant of an option under the
Director Plan. The Committee will have the authority in its sole discretion to
interpret the Director Plan and to make all other determinations and to take
all other actions it deems necessary or advisable for the implementation and
administration of the Director Plan.

Generally, only nonemployee directors of the Company who do not perform
services for the Company are eligible to participate in the Director Plan. The
Director Plan provides for option grants upon a nonemployee director's initial
appointment after May 20, 1997 to the Board of Directors to purchase 12,000
shares of Common Stock. The nonemployee director will vest immediately in
8,000 shares of Common Stock and will vest in an additional 2,000 shares after
the completion of the first year of continued service and an additional 2,000
shares after the completion of the second year of continued service. Each
option granted pursuant to the Director Plan will be evidenced by an agreement
and will be subject to additional terms as set forth in the agreement. Options
become exercisable when vested and expire 10 years after the date of grant,
subject to such shorter period provided in the agreement.

On May 20, 1997, 36,000 stock options were issued under the terms of the
Director Plan to three eligible directors. The exercise price of these options
is $14.06. The vesting schedule and exercise period is in accordance with the
terms described above.

F-20
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. RELATED PARTY TRANSACTIONS:

In connection with the recapitalization of CSI, a consultant to the Company
and/or his affiliate was issued 320,000 shares of the Company's stock for
services related to the CSI transaction and related financing. This individual
and/or his affiliate received approximately $563,000 in 1996 from ZMAX prior
to the CSI acquisition as satisfaction for amounts owed to this individual by
ZMAX prior to December 31, 1995. Proceeds from the Offshore Placement were
used to satisfy this obligation. This individual has been a consultant to ZMAX
since 1994. The Company continues to retain this individual as a consultant at
$10,000 per month. In connection with the recapitalization of CSI, $280,000 of
consulting fees owed to this individual were satisfied in 1996 by issuing
$280,000 of convertible notes. In addition to incurring $120,000 in consulting
fees during 1996, ZMAX reimbursed approximately $155,000 to this individual
for expenses incurred on behalf of ZMAX.

In connection with the assignment of NewDominion's interest in the JV to the
Company, the Company retained an affiliate of NewDominion as a consultant and
a director. The Company incurred approximately $28,000 in consulting expenses
in 1996 for services rendered.

The Company has engaged an affiliate of an officer/director to provide
accounting services to the Company under a consulting agreement with a monthly
fee of approximately $3,500. In 1996, the Company incurred approximately
$12,000 in consulting expenses for services rendered.

12. COMMITMENTS AND CONTINGENCIES:

Leases

The Company is party to a sub-lease commencing in 1996 for a four-year term
for space at its Germantown, Maryland headquarters. The remaining payments due
as a result of these obligations are as follows:

<TABLE>
<S> <C>
1997................................................................ $132,916
1998................................................................ 154,203
1999................................................................ 163,254
2000................................................................ 135,755
--------
Total............................................................. $586,128
========
</TABLE>

Employment and Consulting Agreements

CSI has entered into employment agreements with two executives who were the
former stockholders of CSI. The agreements provided for a base salary plus a
bonus based upon CSI's cash flow (as defined in the agreement). The term of
the agreements began in November 1996 and extend for a period of three years.

One of the former stockholders of CSI resigned from the Company in April
1997. Pursuant to the terms of his employment agreement with CSI and his
separation agreement with CSI, he is collecting severance from the Company in
the amount of $100,000 per year through November 1999. This individual will
still be entitled to receive his pro rata share of the Escrowed Stock as it is
released from escrow provided that he does not violate the non-compete, non-
solicitation, or proprietary information restrictions contained in his
employment agreement.

F-21
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The other former stockholder of CSI remains an officer and director of the
Company. In May 1997, his employment agreement was amended effective January
1, 1997. Under the terms of this agreement this employee will receive a base
salary plus bonus of up to 100% of his base salary, if the Company reaches
certain specified levels of revenue and profitability. If the bonus is earned
in 1997 it will be payable in 25% cash and 75% common stock. The number of
shares to be issued will be based upon the fair market value of the Company's
common stock at the end of the fiscal year. For fiscal years 1998 and 1999,
the Compensation Committee of the Company will set new performance criteria
and establish the percentage of the bonus to be paid in cash or options for
that year.

In the event that the employment agreement is terminated by the death or
permanent disability (as defined in the agreement) of the executive or by the
Company without cause (as defined in the agreement), severance payments at an
annual rate of $100,000 for the remaining term of the agreement will be due to
the executive or the executive's estate. The executive is subject to certain
noncompete and nonsolicitation provisions for a period of two years after
termination of the agreement.

In order to ensure that CSI had adequate funds to pay the compensation of
the executives under the original employment agreements, the Company placed
$200,000 in escrow. Each month beginning in December 1996, $16,667 will be
released from escrow to the operating account of CSI. Accordingly, as of
December 31, 1996, $184,016 represents restricted cash and is included in the
cash balance.

In June 1997, the Company entered into a three year employment agreement
with its Senior Vice-President--Technology. Under the terms of this agreement
this employee will receive an annual base salary plus a bonus. For fiscal
years 1997, 1998 and 1999 the employee is eligible to receive a bonus of up to
100% of his base salary, if the Company reaches certain specified levels of
financial performance. If the bonus is earned in 1997 it will be payable in
50% cash and 50% stock. For fiscal years 1998 and 1999, the Compensation
Committee of the Company will set new performance criteria and establish the
percentage of the bonus to be paid in cash or options for that year.

In April 1997, the Company entered into a three year consulting agreement
with the Chairman of the Board of Directors. Under the terms of this agreement
the consultant will be compensated at $20,000 per month. This agreement can be
terminated by the Company at any time; however, if the consultant is
terminated without cause, the Company is required to continue to pay the
consultant for the shorter of one year or the remaining term of the agreement.
The agreement also contains noncompete and nonsolicitation provisions
extending from the commencement of the agreement until two years after the
termination of the agreement.

Stockholders' Agreement

The former stockholders of CSI entered into a stockholders' agreement with
the Company. Under this agreement, the stockholders may not sell, pledge,
encumber, give, bequeath, or otherwise transfer or dispose of the stock
without complying with the terms of the agreements or obtaining the prior
written consent of the Company. A stockholder who receives a qualified offer
(as defined in the agreement) must notify the Company of the offer and the
Company has an option to elect to purchase the stock under the terms contained
in the qualified offer. The stockholders are not required to comply with the
provisions described above in order to effect a sale or disposition of their
stock made in compliance with Securities and Exchange Commission Rule 144.

The stockholders have also entered into employment agreements with CSI as
described above. If the employment of either of the stockholders is terminated
for cause (as defined) or if following the termination of the employment
agreement, the stockholder is determined to have breached any covenants or
restrictions in the

F-22
<PAGE>

ZMAX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

employment agreements, the stockholder will offer to sell all of his stock to
the Company. The Company will have an option to elect to purchase the stock at
its then current value price (as defined). If the employment of either of the
stockholders is terminated for a reason other than for cause, excluding
expiration of the employment agreement by its terms, or if the employee
becomes permanently disabled, the stockholder will offer its stock for sale to
the corporation at a price designated by the offering stockholder and the
corporation will have an option to elect to purchase the stock at the offer
price or, if the offering stockholder does not designate a price, the then
current value price (as defined).

In the event that a stockholder dies, the Company will have the option to
purchase and the stockholder's estate will be required to sell all of the
stock at the current value price (as defined). Any Escrowed Stock subsequently
received by a stockholder's estate will be subject to this provision at the
time of earn out.

Under the terms of the stockholders' agreements, the stock may only be
offered for sale, sold or transferred pursuant to an effective registration
under the Securities Act of 1933 or an exemption therefrom. The term of this
restriction is for three years from the date of the agreement, November 6,
1996. The restrictions apply to any additional shares of stock acquired after
the execution of the stockholders' agreement.

Litigation

On April 17, 1997, Alan L. Levine and Canadian American Petroleum
Corporation filed suit in the Third Judicial District Court of Sale Lake
County, Utah against Zmax Corporation, f/k/a Mediterranean Oil Corporation,
f/k/a Oryx Gold Corporation, f/k/a Pandora, Inc. and John Does. The lawsuit
consists of three claims for relief against all of the defendants: civil
conspiracy; wrongful use of civil proceedings; and abuse of process. The
lawsuit seeks unspecified consequential and punitive damages arising from the
alleged delay in the issuance of shares of Common Stock of Pandora, Inc. The
plaintiffs allege that they currently own approximately 64,000 shares of
stock. The lawsuit is currently in the investigative stage. Given the
preliminary stage of this proceeding, the Company has not been able to assess
the relative materiality, or lack, thereof, of the plaintiff's claims. The
Company intends to vigorously defend itself against this action.

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

F-23
<PAGE>

AUDITORS' REPORT

To the Shareholders,
Mediterranean Oil Corporation
(formerly Oryx Gold Corporation)

We have audited the balance sheets of Mediterranean Oil Corporation (formerly
Oryx Gold Corporation) as at December 31, 1994 and 1995 and the statements of
operations, stockholders' equity and cash flows for the years ended December
31, 1993, 1994 and 1995. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.

In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1994 and
1995 and the results of its operations and cash flows for the years ended
December 31, 1993, 1994 and 1995 in accordance with generally accepted
accounting principles in the United States.

The financial statements as at December 31, 1991 and for the period from
inception, April 24, 1986 to December 31, 1991 were audited by other auditors
who expressed an opinion without reservation on those statements in their
report dated March 12, 1992.

Amisano Hanson
Chartered Accountants

Vancouver, B.C.
March 28, 1996, except as to Note 8 which is as of October 15, 1996

Comments by Auditors for U.S. Readers on Canada - U.S. Reporting Conflict

In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there is
substantial doubt about a company's ability to continue as a going concern.
The accompanying financial statements have been prepared on the basis of
accounting principles applicable to a going concern which assumes the
realization of assets and discharge of liabilities in the normal course of
business. As discussed in Note 1 to the accompanying financial statements and
in respect of the company's substantial losses from operations, substantial
doubt about the company's ability to continue as a going concern exists. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Our report to the shareholders dated March 28, 1996 is expressed in
accordance with Canadian reporting standards which do not permit a reference
to such uncertainty in the auditors' report when the uncertainty is adequately
disclosed in the financial statements.

Amisano Hanson
Chartered Accountants

Vancouver, B.C.
March 28, 1996, except as to Note 8 which is as of October 15, 1996

F-24
<PAGE>

MEDITERRANEAN OIL CORPORATION
(FORMERLY ORYX GOLD CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 6,
--------------------- -----------
1994 1995 1996
ASSETS --------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
(NOTE 9)
Cash assets:
Cash...................................... $ -- $ -- $ 299,173
--------- ---------- -----------
Total current assets.................... -- -- 299,173
--------- ---------- -----------
Advances to CSI........................... -- -- 390,000
Intangibles assets........................ -- -- 2,590,263
--------- ---------- -----------
Total Assets............................ $ -- $ -- $3,279,436
--------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable--Note 5.................. $ 101,013 $ 508,160 $ 187,209
Loans payable--Notes 4 and 8.............. 509,889 911,860 --
Note payable.............................. -- -- 385,000
--------- ---------- -----------
Total current liabilities............... 610,902 1,420,020 572,209
--------- ---------- -----------
Deferred income taxes..................... -- -- 521,884
--------- ---------- -----------
Total liabilities....................... 610,902 1,420,020 1,094,093
--------- ---------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock $0.001 par value, 10,000,000
shares authorized, none issued and out-
standing................................... -- -- --
Common stock $0.001 par value,
Authorized:
95,000,000 shares;
1,000,079 (1994 - 962,500) shares issued
and
outstanding and 3,800,079 shares issued
and outstanding
as of November 6, 1996 (unaudited, Note
9)..................................... 962 1,000 3,800
Additional paid-in capital.................. 158,050 308,012 3,125,212
Issuable common stock....................... -- -- 1,373,379
Deficit accumulated during the development
stage...................................... (769,914) (1,729,032) (2,317,048)
--------- ---------- -----------
Total stockholders' equity (deficiency)... (610,902) (1,420,020) 2,185,343
--------- ---------- -----------
Total liabilities and stockholders' equity
(deficiency)............................. $ -- $ -- $3,279,436
--------- ---------- -----------
</TABLE>

F-25
<PAGE>

MEDITERRANEAN OIL CORPORATION
(FORMERLY ORYX GOLD CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
APRIL 24, APRIL 24,
1986 PERIOD 1986
(DATE OF FROM (DATE OF
INCEPTION) JANUARY 1, INCEPTION)
YEAR ENDED DECEMBER 31, TO 1996 TO TO
------------------------------- DECEMBER NOVEMBER 6, NOVEMBER 6,
1993 1994 1995 31, 1995 1996 1996
--------- --------- --------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 9) (NOTE 9)
<S> <C> <C> <C> <C> <C> <C>
Expenses
General and administra-
tive--Note 7........... $ 57,141 $ 139,026 $ 950,141 $ 1,316,051 $ 583,404 $ 1,899,455
Amortization............ -- -- -- 350 -- 350
Resource property
costs.................. 167,328 -- -- 276,844 -- 276,844
Advances written-off.... 3,670 300 8,977 47,287 -- 47,287
Investment written-off--
Note 3................. -- -- -- 50,000 -- 50,000
Finders fee............. -- -- -- 38,500 -- 38,500
Interest expense (net of
interest income)....... -- -- -- -- 4,612 4,612
--------- --------- --------- ----------- --------- -----------
Net loss................ $(228,139) $(139,326) $(959,118) $(1,729,032) $(588,016) $(2,317,048)
--------- --------- --------- ----------- --------- -----------
Net loss per share...... $ (0.24) $ (0.14) $ (0.99) $ (0.44)
--------- --------- --------- ---------
Weighted average shares
outstanding............ 962,500 962,500 971,875 1,344,416
--------- --------- --------- ---------
</TABLE>

F-26
<PAGE>

MEDITERRANEAN OIL CORPORATION (FORMERLY ORYX GOLD CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL ISSUABLE DURING THE
----------------- PAID-IN COMMON DEVELOPMENT
SHARES AMOUNT CAPITAL STOCK STAGE TOTAL
--------- ------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
April 24, 1986 (Date of
Inception)............. -- -- -- -- -- --
Issuance of shares for
cash and services,
May 5, 1986, for
$.0018 per share...... 17,000 $ 17 $ 2,483 $ -- $ -- $ 2,500
Issuance of shares for
legal services on
May 5, 1986 for $.0000
per share............. 1,750 2 (2) -- -- --
Public offering-500,000
shares at $.1000 per
share................. 6,250 6 49,994 -- -- 50,000
Cost of public
offering.............. -- -- (11,000) -- -- (11,000)
Net loss, 1986......... -- -- -- -- -- --
--------- ------ ---------- ---------- ----------- ----------
Balance, December 31,
1986................... 25,000 25 41,475 -- -- 41,500
Issuance of shares to
insiders for cash and
services performed on
June 4, 1987 for
$.0000 per share...... 145,238 145 (145) -- -- --
Issuance of shares for
services performed on
July 20, 1987 for
$.0000 per share...... 8,929 9 (9) -- -- --
Capital contributed by
shareholders.......... -- -- 3,461 -- -- 3,461
Net loss, 1987......... -- -- -- -- (43,829) (43,829)
--------- ------ ---------- ---------- ----------- ----------
Balance, December 31,
1987................... 179,167 179 44,782 -- (43,829) 1,132
Capital contributed by
shareholders.......... -- -- 27,883 -- -- 27,883
Net loss, 1988......... -- -- -- -- (28,776) (28,776)
--------- ------ ---------- ---------- ----------- ----------
Balance, December 31,
1988................... 179,167 179 72,665 -- (72,605) 239
Capital contributed by
shareholders.......... -- -- 5,442 -- -- 5,442
Net loss, 1989......... -- -- -- -- (5,512) (5,512)
--------- ------ ---------- ---------- ----------- ----------
Balance, December 31,
1989................... 179,167 179 78,107 -- (78,117) 169
Capital contributed by
shareholders.......... -- -- 17,811 -- -- 17,811
Net loss, 1990......... -- -- -- -- (17,881) (17,881)
--------- ------ ---------- ---------- ----------- ----------
Balance, December 31,
1990................... 179,167 179 95,918 -- (95,998) 99
Capital contributed by
shareholders.......... 50,000 50 3,803 -- -- 3,853
Shares contributed back
to Company and
cancelled............. (4,933) (5) 5 -- -- --
Net loss, 1991......... -- -- -- -- (3,923) (3,923)
--------- ------ ---------- ---------- ----------- ----------
Balance, December 31,
1991................... 224,234 224 99,726 -- (99,921) 29
Shares issued to
acquire American Oil
and Gas Corporation... 625,000 625 49,375 -- -- 50,000
Sale of shares for
cash.................. 88,266 88 6,974 -- -- 7,062
Sale of shares for
cash.................. 25,000 25 1,975 -- -- 2,000
Net loss, 1992......... -- -- -- -- (302,528) (302,528)
--------- ------ ---------- ---------- ----------- ----------
Balance, December 31,
1992................... 962,500 962 158,050 -- (402,449) (243,437)
Net loss, 1993......... -- -- -- -- (228,139) (228,139)
--------- ------ ---------- ---------- ----------- ----------
Balance, December 31,
1993................... 962,500 962 158,050 -- (630,588) (471,576)
Net loss, 1994......... -- -- -- -- (139,326) (139,326)
--------- ------ ---------- ---------- ----------- ----------
Balance, December 31,
1994................... 962,500 962 158,050 -- (769,914) (610,902)
Sale of shares for
cash.................. 37,579 38 149,962 -- -- 150,000
Net loss, 1995......... -- -- -- -- (959,118) (959,118)
--------- ------ ---------- ---------- ----------- ----------
Balance, December 31,
1995................... 1,000,079 1,000 308,012 -- (1,729,032) (1,420,020)
Sale of shares for cash
(unaudited, Note 9)... 2,800,000 2,800 837,200 -- -- 840,000
Allocation of proceeds
of Notes to beneficial
conversion feature
(unaudited, Note 9)... -- -- 1,980,000 -- -- 1,980,000
Acquisition of joint
venture interest
(unaudited,
Note 9)............... -- -- -- 1,373,379 -- 1,373,379
Net loss, November 6,
1996 (unaudited, Note
9).................... -- -- -- -- (588,016) (588,016)
--------- ------ ---------- ---------- ----------- ----------
Balance, November 6,
1996 (unaudited, Note
9)..................... 3,800,079 $3,800 $3,125,212 $1,373,379 $(2,317,048) $2,185,343
--------- ------ ---------- ---------- ----------- ----------
</TABLE>

F-27
<PAGE>

MEDITERRANEAN OIL CORPORATION
(FORMERLY ORYX GOLD CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
APRIL 24, APRIL 24,
1986 1986
(DATE OF PERIOD FROM (DATE OF
INCEPTION) JANUARY 1, INCEPTION)
YEAR ENDED DECEMBER 31, TO 1996 TO TO
------------------------------- DECEMBER NOVEMBER 6, NOVEMBER 6,
1993 1994 1995 31, 1995 1996 1996
--------- --------- --------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 9) (NOTE 9)
<S> <C> <C> <C> <C> <C> <C>
Cash flow from operating
activities:
Net loss.................... $(228,139) $(139,326) $(959,118) $(1,729,032) $(588,016) $(2,317,048)
Adjustments to reconcile
loss to net
Cash used in operations
Amortization of organization
costs...................... -- -- -- 350 -- 350
Investment written-off...... -- -- -- 50,000 -- 50,000
Change in non-cash items re-
lated to operations:
Accounts payable 2,569 98,444 407,147 508,160 159,049 667,209
--------- --------- --------- ----------- --------- -----------
Net cash used in operating
activities.................. (225,570) (40,882) (551,971) (1,170,522) (428,967) (1,599,489)
--------- --------- --------- ----------- --------- -----------
Cash flows used in investing
activities
Advances to CSI............. -- -- -- -- (390,000) (390,000)
Purchase of joint venture
interest................... -- -- -- -- (310,000) (310,000)
Increase in investment...... -- -- -- (50,000) -- (50,000)
--------- --------- --------- ----------- --------- -----------
Net cash used in
investingactivities......... -- -- -- (50,000) (700,000) (750,000)
Cash flows from financing ac-
tivities:
Loan payable................ 216,989 40,671 401,971 911,860 (911,860) --
Increase in additional paid
in capital proceeds from
sale of common stock....... -- -- 147,000 201,645 -- 201,645
--public offering.......... -- -- 3,000 53,000 -- 53,000
--insiders................. -- -- -- 15,017 -- 15,017
Proceeds from issuance of
convertible notes.......... -- -- -- -- 1,500,000 1,500,000
Sale of common stock........ -- -- -- 50,000 840,000 890,000
Cost of public offering..... -- -- -- (11,000) -- (11,000)
--------- --------- --------- ----------- --------- -----------
Net cash provided by
financing activities........ 216,989 40,671 551,971 1,220,522 1,428,140 2,648,662
--------- --------- --------- ----------- --------- -----------
Net (decrease) increase in
cash........................ (8,581) (211) -- -- 299,173 299,173
Cash, beginning of year...... 8,792 211 -- -- -- --
--------- --------- --------- ----------- --------- -----------
Cash, end of year............ $ 211 $ -- $ -- $ -- $ 299,173 $ 299,173
--------- --------- --------- ----------- --------- -----------
Supplemental Cash Flows
Information
Cash paid for:
Interest................... $ -- $ -- $ -- $ -- $ -- $ --
Taxes...................... $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>

F-28
<PAGE>

MEDITERRANEAN OIL CORPORATION
(FORMERLY ORYX GOLD CORPORATION) (A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 1993, 1994 AND 1995
(STATED IN U.S. DOLLARS)

1. NATURE AND CONTINUANCE OF OPERATIONS

Line of Business

The company currently is in the process of reviewing new business
opportunities.

These financial statements have been prepared on a going concern basis. The
company has a working capital deficiency of $1,420,020 as at December 31,
1995. The company's ability to continue as a going concern is dependent on the
ability of the company to generate profitable operations in the future and/or
to obtain the necessary financing to meet its obligations and repay its
liabilities arising from normal business operations when they come due.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The company was incorporated on April 24, 1986 under the laws of the state
of Nevada, U.S.A. under the name Pandora, Inc. On May 4, 1992, the company
changed its name to Oryx Gold Corporation. On November 2, 1995, the company
changed its name to Mediterranean Oil Corporation.

Development Stage Company

The company is a development stage company as defined in Statement of
Financial Accounting Standards No. 7. The company is devoting substantially
all of its present efforts to establish a new business and none of its planned
principal operations have commenced. All losses accumulated since inception
have been considered as part of the company's development stage activities.

Income Taxes

The company used the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards, No. 109 "Accounting
for Income Taxes."

Net Loss Per Share

Net loss per share is based on the weighted average number of common shares
outstanding during each period.

3. INVESTMENT

By an agreement dated April 27, 1992 the company acquired 100% of the shares
of American Oil and Gas Corporation (AOG) for 625,000 common shares of the
company, 5,000,000 preferred shares of the company for $5,000 and an
additional 88,266 common shares of the company for $7,061. Since April 2, 1992
the

F-29
<PAGE>

MEDITERRANEAN OIL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

preferred shares were never issued and AOG has not undertaken any business or
any financial transactions and is a delinquent corporation. In addition, on
July 21, 1995 the company agreed to cancel the aforementioned shares (625,000
common shares) in return for the assignment of the mining claims originally
held by AOG (At December 31, 1995 these shares had not been cancelled).
Consequently the investment in AOG was written-off.

4. LOANS PAYABLE (SEE NOTE 8)

Loans payable are unsecured, non-interest bearing and have no specific terms
for repayment.

5. RELATED PARTY TRANSACTIONS

<TABLE>
<CAPTION>
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
During the year ended December 31, 1995 the company
incurred the following expenses to Directors and
Officers of the company:
Consulting........................................... $ -- $20,000 $ 47,416
Legal................................................ -- 33,297 152,998
Office............................................... -- -- 1,500
Salary............................................... -- -- 30,000
Directors' fees...................................... -- -- 33,677
------- ------- --------
$ -- $53,297 $265,591
------- ------- --------
</TABLE>

As at December 31, 1994 and 1995, accounts payable includes $30,955 and
$247,196, respectively, payable to Directors and Officers of the company.

6. INCOME TAXES

No provision for income taxes has been provided in 1993, 1994 and 1995 due
to the net loss. At December 31, 1995 the company has net operating loss
carryforwards, which expire commencing in the year 2004 totalling
approximately $1,700,000, the benefits of which have not been recorded.

Under the provisions of the Tax Reform Act of 1986, when there has been a
change in an entity's ownership of fifty percent or greater, utilization of
net operating loss carryforwards may be limited. As a result of equity
transactions occurring through December 31, 1992, the Company will be subject
to such limitation. The annual limitations have not been determined.

7. STOCK OPTIONS

As at December 31, 1995, the following Directors' stock options were
outstanding:

<TABLE>
<CAPTION>
EXERCISE
QUANTITY PRICE PER SHARE EXPIRY DATE
-------- --------------- ------------------
<S> <C> <C>
22,500 $40.00 September 27, 1997
</TABLE>

8. SUBSEQUENT EVENTS

(i) Subsequent to December 31, 1995, the company completed the consolidation
of its outstanding common shares on a basis of 1 new share for 80 old
shares. Upon completion of the consolidation, the company completed a
private placement and issued 2,800,000 post-consolidated shares at $0.30
per share for $840,000. These funds were used as a payment on the Loans
payable. All share and per share information in the financial statements
has been retroactively restated to reflect this reverse split.

(ii) The company has indicated its intention to cancel approximately 775,000
restricted post-consolidated common shares at $0.001 par value (Note 3).

(iii) The company changed its name to ZMAX Corporation on August 9, 1996.

The company issued the following convertible notes payable:

. $480,000 note payable, interest at 8% per annum, convertible into 480,000
post-consolidated common shares at $1.00 per share

F-30
<PAGE>

MEDITERRANEAN OIL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

. $1,500,000 note payable, interest at 8% per annum convertible into
1,000,000 post-consolidated common shares at $1.50 per share

. The company will pay a 10% commission for the $1,500,000 funding
($90,000 paid subsequent to December 31, 1995)

Upon the receipt of a further $120,000, the company intends to issue
a further $120,000 note payable, interest at 8% per annum,
convertible into 120,000 post-consolidated common shares at $1.00 per
share.

(iv) By an offer to purchase agreement dated September 20, 1996, the company
acquired the right to purchase 100% of a private corporation involved in
software technology.

Consideration for this right consists of:

. $20,000 cash ($5,000 paid)

. An option to purchase a further 350,000 post-consolidated free
trading shares of the company at $0.30 per share. The option will
expire after 35 months and may be exercisable at the rate of 10,000
shares per month, commencing 60 days after the closing date.

By an offer to purchase agreement dated September 19, 1996, the
company will purchase 100% of the private corporation mentioned
above.

Consideration for this acquisition will be:

. 3,200,000 post consolidated common shares of the company. 2,800,000
of these post-consolidated shares will be earn-out shares, such that
for each share to be released, the private corporation must generate
$1.25 of cash flow. The balance of 400,000 post-consolidated common
shares will be exempt from registration.

The company will place at least $500,000 in trust no later than
September 20, 1996 and an additional $500,000 by October 15, 1996.
$310,000 (paid) will be released directly to a party to the agreement
and at least $50,000 (paid) will be advanced to the private
corporation on or before September 19, 1996. The company will also
provide additional operating funds of up to $4,000,000 to the private
corporation.

(v) Subsequent to December 31, 1995, the company made the following
additional payments:

. $150,000 to the private corporation;

. $641,240 to pay down accounts payable; and

. $71,860 to pay off the remaining loans payable.

(vi) The company cancelled 6,250 pre-consolidated directors' stock options
as a result of directors' resignations and reserved a total of 6,250 post-
consolidated common shares for share purchase options for directors,
officers, employees and consultants of the company under terms and
conditions to be established by the Board of Directors.

9. UNAUDITED INTERIM FINANCIAL STATEMENTS

The unaudited financial statements as of November 6, 1996, and for the
period from January 1, 1996 to November 6, 1996, presented herein have been
prepared by the Company without audit, pursuant to the rules and resolutions
of the Securities and Exchange Commission. The financial statements reflect
all adjustments (consisting of normal recurring adjustments) which, in the
opinion of management are necessary to present fairly the financial position,
results of operations and cash flows of the Company as of November 6, 1996 and
for the period from January 1, 1996 to November 6, 1996. The results of
operations for the period from January 1, 1996 to November 6, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996.

Fiserv Century Services Joint Venture

In April 1996, Fiserv Federal Systems, Inc., ("Fiserv") and Century
Services, Inc. ("CSI") formed the Fiserv Century Services Joint Venture (the
"JV"), a joint venture engaged in the business of marketing Year 2000 computer

F-31
<PAGE>

MEDITERRANEAN OIL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

consulting services using computer software exclusively licensed to CSI. CSI
and Fiserv each owned a 50% interest in the JV. Effective September 1, 1996,
NewDominion Capital Group, Inc. ("NewDominion") acquired Fiserv's interest in
the JV. NewDominion's intent was to serve as an intermediary in order to
assign the joint venture interest to the Company. Fiserv's interest was
assigned to NewDominion for cash consideration of $310,000 and a promissory
note of $385,000. Fiserv was also pledged 3% of the outstanding shares of the
anticipated sucessor entity.

On September 20, 1996, NewDominion assigned its interest in the JV to the
Company. As consideration for the assignment, the Company assumed all
liabilities, interests, and obligations of NewDominion related to the JV
including the $310,000 payable to Fiserv and the $385,000 promissory note. As
the successor entity, the Company assumed the obligation to issue a 3%
ownership interest to Fiserv.

This transaction has been accounted for as a purchase. The Company acquired
the 50% interest in the JV for repayment of the amounts advanced by Fiserv to
the JV totaling $695,000 ($310,000 in cash and $385,000 note payable) and
234,365 shares of common stock with a fair value of $1,373,379 based upon the
quoted market price of the common stock. The 234,365 shares of common stock
had not been issued as of November 6, 1996 and have been reflected as issuable
for November 6, 1996. The fair value of these shares is included in
stockholders' equity in the accompanying financial statements as of November
6, 1996.

The purchase price has been allocated to assets and liabilities based on
their estimated fair values at the date of acquisition on a preliminary basis
as follow:

<TABLE>
<S> <C> <C> <C>
Intangible assets.................................... $2,590,263
Deferred income tax liability........................ (521,884)
----------
$2,069,379
</TABLE>

CSI Transaction

Concurrent with this assignment, on September 20, 1996, the Company made an
offer to purchase all of the outstanding shares of CSI stock. The offer was
accepted by the stockholders of CSI and the agreement was announced to the
public on September 26, 1996. The September 20, 1996, agreement also provided
that the Company would advance amounts to CSI to fund their operations, CSI
would enter into employment agreements with certain executives who were the
former stockholders of CSI that provide for compensation at specified levels,
and the former stockholders of CSI were provided with certain anti-dilution
protection with respect to their future ownership interest provided that
certain performance criteria were met. These performance criteria were not
subsequently met and the former CSI stockholders are not entitled to the anti-
dilution protection prescribed in the agreement.

During the period from September 20, 1996 to November 6, 1996, the Company
advanced a total of $390,000 to CSI under two promissory notes totaling
$200,000 and under a line of credit agreement totaling $190,000. The
stockholders of CSI assigned a security interest in their CSI stock to the
Company as consideration for these advances.

On November 6, 1996, the Stock Purchase Agreement was executed and the
transaction was consummated. In return for all of the outstanding stock of
CSI, the Company issued 3,200,000 shares of common stock. At closing, the
former stockholders of CSI received 400,000 shares of common stock. The
remaining 2,800,000 shares (the "Escrowed Stock") were placed in escrow
subject to quarterly release based upon the cash flow (as defined) of CSI.

This transaction has been accounted for as a recapitalization of CSI with
CSI as the acquirer (a reverse acquisition). Accordingly, the accompanying
unaudited interim financial statements are presented as of November 6, 1996
just before the CSI transaction.

F-32
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of Fiserv Century Services Joint Venture:

We have audited the accompanying balance sheet of Fiserv Century Services
Joint Venture (a company in the development stage) as of November 6, 1996, and
the related statements of operations, partnership deficit and cash flows for
the period from inception (April 17, 1996) to November 6, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fiserv Century Services Joint
Venture as of November 6, 1996, and the results of its operations and its cash
flows for the period from inception (April 17, 1996) to November 6, 1996, in
conformity with generally accepted accounting principles.

Arthur Andersen LLP
Washington, D.C. June 17, 1997

F-33
<PAGE>

FISERV CENTURY SERVICES JOINT VENTURE
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEET AS OF NOVEMBER 6, 1996

<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents.......................................... $ --
Advances to CSI.................................................... 560,000
--------
Total assets............................................. $560,000
========
LIABILITIES AND PARTNERSHIP DEFICIT
LIABILITIES:
Advances from Fiserv under credit agreement...................... $695,000
--------
Total liabilities........................................ 695,000
PARTNERSHIP DEFICIT:
Partnership deficit accumulated during the development stage..... (135,000)
--------
Total liabilities and partnership deficit................ $560,000
========
</TABLE>

The accompanying notes are an integral part of this balance sheet.

F-34
<PAGE>

FISERV CENTURY SERVICES JOINT VENTURE
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF OPERATIONS FOR THE PERIOD FROM INCEPTION (APRIL 17, 1996) TO
NOVEMBER 6, 1996

<TABLE>
<CAPTION>
<S> <C>
Operating expenses................................................... $113,384
---------
Loss from operations....................................... 113,384
Interest expense..................................................... 21,616
---------
Net loss before provision for income taxes................. (135,000)
Provision for income taxes........................................... --
---------
Net loss............................................................. $(135,000)
=========
</TABLE>

The accompanying notes are an integral part of this statement.

F-35
<PAGE>

FISERV CENTURY SERVICES JOINT VENTURE
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF PARTNERSHIP DEFICIT FOR THE PERIOD FROM INCEPTION (APRIL 17, 1996)
TO NOVEMBER 6, 1996

<TABLE>
<CAPTION>
PARTNERSHIP DEFICIT
ACCUMULATED
DURING THE
DEVELOPMENT STAGE TOTAL
------------------- ---------
<S> <C> <C>
INCEPTION, April 17, 1996....................... $ -- $ --
Net loss...................................... (135,000) (135,000)
--------- ---------
BALANCE, November 6, 1996....................... $(135,000) $(135,000)
========= =========
</TABLE>

The accompanying notes are an integral part of this statement.

F-36
<PAGE>

FISERV CENTURY SERVICES JOINT VENTURE
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF CASH FLOWS FOR THE PERIOD FROM INCEPTION (APRIL 17, 1996) TO
NOVEMBER 6, 1996

<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss...................................................... $ (135,000)
Advances to CSI............................................... (560,000)
----------
Net cash used in operating activities................. (695,000)
Cash flows from financing activities:
Proceeds from credit agreement................................ 695,000
----------
Net cash provided by financing activities............. 695,000
----------
Net change in cash.................................... --
----------
Cash, beginning of period....................................... --
----------
Cash, end of period............................................. $ --
==========
</TABLE>

The accompanying notes are an integral part of this statement.

F-37
<PAGE>

FISERV CENTURY SERVICES JOINT VENTURE (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS AS OF NOVEMBER 6, 1996

1. JOINT VENTURE FORMATION AND SUBSEQUENT SALE OF JOINT VENTURE INTERESTS
ORGANIZATION

On April 17, 1996, Fiserv Federal Systems, Inc. ("Fiserv") and Century
Services, Inc. ("CSI"), entered into a Joint Venture Agreement (the "JV
Agreement") to create Fiserv Century Services Joint Venture (the "Company" or
"JV"). The JV was formed, pursuant to the partnership laws of the State of
Texas, for the purpose of marketing Year 2000 computer consulting services
using certain computer software, licensed exclusively to CSI. Under the terms
of the JV Agreement, Fiserv and CSI each held a 50% interest in the JV. No
initial or subsequent capital contributions were made by the either venture
partner.

TRANSFER OF JOINT VENTURE INTEREST TO ZMAX

Effective September 1, 1996, NewDominion Capital Group, Inc. ("NewDominion")
acquired Fiserv's interest in the JV. NewDominion's intent was to serve as an
intermediary in order to assign the joint venture interest to ZMAX Corporation
("ZMAX"). Fiserv's interest was assigned to NewDominion for cash consideration
of $310,000 and a promissory note of $385,000. NewDominion granted a security
interest to Fiserv of its rights and interest in the JV as security for the
$385,000 note. In addition to the above consideration, Fiserv was pledged 3%
of the outstanding shares of the anticipated successor entity to the JV.

On September 20, 1996, NewDominion assigned its interest in the JV to ZMAX. As
consideration for the assignment, ZMAX assumed all liabilities, interests, and
obligations of NewDominion related to the JV including the $310,000 payable to
Fiserv and the $385,000 promissory note. As the successor entity (as described
above), ZMAX assumed the obligation to issue a 3% ownership interest in ZMAX
to Fiserv.

ZMAX/CSI TRANSACTION AND SUBSEQUENT TERMINATION OF THE JOINT VENTURE

In anticipation of a transaction between ZMAX and CSI, all employees and
operations of the JV were transferred to CSI effective September 1, 1996. No
activities were carried out by the JV subsequent to this date. On November 6,
1996, the stockholders of CSI exchanged all of the outstanding shares of CSI
stock for 3,200,000 shares of ZMAX common stock with CSI becoming a wholly
owned subsidiary of ZMAX. As a result of the CSI transaction, ZMAX acquired
the remaining 50% interest in the JV. Effective January 1, 1997, ZMAX
transferred all of its interest in the JV to CSI and, CSI as the sole
remaining venture partner, terminated the JV.

2. SIGNIFICANT ACCOUNTING POLICIES:

USE OF ESTIMATES

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

F-38
<PAGE>

FISERV CENTURY SERVICES JOINT VENTURE (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

INCOME TAXES

No provision has been made for federal or state income taxes since each
partner records their share of the JV's taxable income or loss on their tax
returns.

3. CREDIT AND SECURITY AGREEMENT

On April 17, 1996, the JV entered into a Credit and Security Agreement (the
"Credit Agreement") with Fiserv under which Fiserv agreed to make advances to
the JV under a credit line not to exceed $5,000,000. Under the terms of the
Credit Agreement, the advances accrue interest at the prime rate plus two
percent (10.25% as of November 6, 1996) and payments of the interest are due
monthly. The principal amounts are due as stated under the terms of each
individual advance. In return for this Credit Agreement, the JV granted to
Fiserv a security interest in all of the JV's right, title and interest in and
to the assets of the JV. Fiserv advanced a total of $695,000 to the JV.

4. ADVANCES TO CSI

On April 17, 1996, the JV entered into a Credit and Security Agreement with
CSI (the "CSI Working Cash Agreement"), and the CSI stockholders. Under the
terms of the CSI Working Cash Agreement, the JV agreed to make monthly
advances to CSI to provide working capital up to a maximum of $720,000.
Advances made to CSI were guaranteed by the CSI stockholders. No interest was
due on the principal amount of each advance. CSI was advanced $560,000 under
the terms of the CSI Working Cash Agreement. In return for the CSI Working
Cash Agreement, CSI granted the JV a security interest in its share of the JV
cash flow (as defined in the agreement) and the stockholders of CSI granted
the JV a security interest in the common stock of CSI.

F-39
<PAGE>

ANNEX A

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger ("Merger Agreement") is made as of June
10, 1997, between ZMAX Corporation, a Nevada corporation ("Old ZMAX"), and New
ZMAX Corporation, a Delaware corporation ("New ZMAX"), collectively referred
to as the "Constituent Corporations", each with principal executive offices at
20251 Century Boulevard, Germantown, Maryland 20874.

A. Old ZMAX is a corporation duly organized and existing under the laws the
State of Nevada, with authorized capital stock of ninety-five million
(95,000,000) shares of Common Stock, $0.001 par value ("Old ZMAX Common
Stock") and ten million (10,000,000) shares of Preferred Stock, $0.001 par
value.

B. New ZMAX is a corporation duly organized and existing under the laws of
the State of Delaware, with authorized capital stock of fifty million
(50,000,000) shares of Common Stock, $0.001 par value ("New ZMAX Common
Stock"), and ten million (10,000,000) shares of Preferred Stock, $0.001 par
value.

C. The directors of the Constituent Corporations deem it advisable and to
the advantage of each Constituent Corporation that Old ZMAX merge into New
ZMAX on the terms and conditions provided herein ("the Merger").

Now, Therefore, the Constituent Corporations hereby adopt the plan of
reorganization encompassed by this Merger Agreement and agree that Old ZMAX
will merge into New ZMAX pursuant to the terms of this Merger Agreement.

1. Effective Time of Merger. Old ZMAX will be merged with and into New ZMAX,
which will be the surviving corporation effective at the earlier of the date
when this Merger Agreement is filed as part of the required Articles of Merger
with the Secretary of State of the State of Nevada or the date when a
Certificate of Ownership and Merger is filed with the Secretary of State of
the State of Delaware (the "Effective Time").

2. Succession; Rights and Liabilities of New ZMAX. At the Effective Time,
New ZMAX will succeed to all of the rights, privileges, powers, immunities and
franchises and all of the property, real, personal and mixed, of Old ZMAX,
without the necessity for any separate transfer. Thereafter, New ZMAX will be
responsible and liable for all liabilities and obligations of Old ZMAX, and
neither the rights of creditors nor any liens on the property of Old ZMAX will
be impaired by the Merger.

3. Common Stock and Preferred Stock of Old ZMAX and New ZMAX. At the
Effective Time, by virtue of the Merger and without any further action on the
part of the Constituent Corporations or their stockholders, (i) each share of
Old ZMAX Common Stock issued and outstanding immediately prior to the
Effective Time will be converted into and represent one fully paid and
nonassessable share of New ZMAX Common Stock, and (ii) each share of New ZMAX
Common Stock issued or outstanding immediately prior to the Effective Time
will be cancelled.

4. Exchange of Certificates. (a) After the Effective Time, each holder of an
outstanding certificate that immediately before the Effective Time represented
shares of Old ZMAX Common Stock to be exchanged for New ZMAX Common Stock
("Old ZMAX Certificate") will cease to have any right as a stockholder of Old
ZMAX. At that time, such holder's sole right will be to receive in exchange
for such holder's Old ZMAX Certificates, on surrender thereof to New ZMAX,
which will act as the exchange agent for Old ZMAX Certificates ("Exchange
Agent"), a certificate or certificates representing the number of whole shares
of New ZMAX that such holder is entitled to receive pursuant to the Merger.

(b) Notwithstanding any other provision of this Merger Agreement, until
holders or transferees have surrendered Old ZMAX Certificates to the
Exchange Agent, no dividends will be paid with respect to any shares of Old
ZMAX Common Stock represented by Old ZMAX Certificates. Such dividends, if
any, will be paid on surrender of Old ZMAX Certificates. Without regard to
when such Old ZMAX Certificates are surrendered for exchange as provided
herein, no interest will be paid on any dividends.

A-1
<PAGE>

(c) As the Effective Time, New ZMAX will make available to the Exchange
Agent a sufficient number of certificates representing shares of New ZMAX
Common Stock required to effect the exchange discussed in 4(a) above.

5. Dissenting Stockholders. Notwithstanding the foregoing, any holder of Old
ZMAX Common Stock who dissents from the Merger and exercises appraisal rights
in accordance with the provisions of the Nevada law, and who perfects such
appraisal rights, will be entitled to receive only the value of such shares in
cash as determined pursuant to the applicable provisions of the Nevada Law.

6. Options and Warrants. On the Effective Time, New ZMAX will assume and
continue the stock options of Old ZMAX and any successor plan(s). The
outstanding and unexercised portions of all options to buy Old ZMAX Common
Stock will become options for the same number of shares of New ZMAX Common
Stock with no other changes in the terms and conditions of such options,
including exercise prices. The outstanding and unexercised portions of all
warrants to buy Old ZMAX Common Stock will become warrants for the same number
and type of shares of New ZMAX Common Stock with no other changes in the terms
and conditions of such warrants.

7. Acts, Plans, Policies, Etc. All corporate acts, plans, policies,
agreements, arrangements, approvals and authorizations of Old ZMAX, its
stockholders, Board of Directors and committees thereof, officers and agents
that were valid and effective immediately prior to the Effective Time, will be
taken for all purposes as the acts, plans, policies, agreements, arrangements,
approvals and authorizations of New ZMAX, and will be as effective and binding
thereon as the same were with respect to New ZMAX.

8. Certificate of Incorporation and Bylaws. The Certificate of Incorporation
of New ZMAX, as in effect immediately prior to the Effective Time, will be
amended and restated as of the Effective Time to read substantially as set
forth in Exhibit A to this Agreeemnt and, as so amended, will be the
Certificate of Incorporation of New ZMAX until thereafter amended as provided
by law. The Bylaws of New ZMAX, as in effect immediately prior to the
Effective Time, will be amended and restated as of the Effective Time to read
substantially as set forth in Exhibit B to this Agreement and, as so amended,
will be the Bylaws of New ZMAX until thereafter amended as provided by law.

9. Directors and Officers. At the Effective Time, the Board of Directors of
New ZMAX will consist of the members of the Board of Directors of Old ZMAX
immediately before the Merger and will continue to hold office as directors of
New ZMAX in such class and for such term as is described in the Proxy
Statement/Prospectus relating to the Merger. The individuals serving as
executive officers of Old ZMAX immediately before the Merger will serve as
executive officers of New ZMAX after the Effective Time.

10. Further Assurances. From time to time, and when required by New ZMAX or
its successors or assigns, the directors and officers of Old ZMAX will cause
execution and delivery on behalf of Old ZMAX of such deeds and other
instruments, and will take such actions or cause the taking of such actions),
as are necessary to vest, perfect or record in New ZMAX the title to and
possession of all the property, intents, assets, rights, privileges,
immunities, powers, franchises and authority of Old ZMAX, and otherwise to
carry out the purposes of this Merger Agreement.

11. Accounting. The Merger will be accounted for in accordance with
generally accepted accounting principles. As of the Effective Time, the assets
and liabilities of Old ZMAX will be taken up on the books of New ZMAX at the
amount at which each is carried on the books of Old ZMAX immediately before
the Effective Time.

12. Covenants and Agreements. From the date of this Merger Agreement until
the Effective Time or until abandonment or deferral of the Merger, each of the
Constituent Corporations will exercise all reasonable efforts to obtain
requisite consents and approvals to the Merger and to comply with all
instruments or agreements to which either corporation is a party or by which
either may be bound. The Board of Directors of Old ZMAX will cause all
necessary steps to be taken to (i) apply for listing of the shares of New ZMAX
Common Stock to be issued in the Merger on the Nasdaq SmallCap Market; (ii)
file with the Securities and Exchange Commission all

A-2
<PAGE>

documents required to complete the Merger; and (iii) present this Merger
Agreement for adoption or rejection by a vote of the holders of Old ZMAX
Common Stock at a meeting of the Stockholders called, at least in part, for
this purpose and recommend approval and adoption of this Merger Agreement by
the stockholders.

13. Amendment. This Merger Agreement may be amended at any time and in any
manner desired by the Boards of Directors of Old ZMAX and New ZMAX to clarify
the intention of the parties or effect or facilitate the purpose and intent of
this Merger Agreement; provided that none of the principal terms of this
Merger Agreement may be amended without the approval of the stockholders of
Old ZMAX.

14. Conditions. Unless waived by each of the parties hereto, the respective
obligation of each party to effect the Merger will be subject to the
fulfillment at or before the Effective Time of the following conditions:

(a) Old ZMAX will have obtained the approval of the holders of the
requisite number of shares of Old ZMAX Common Stock of this Merger
Agreement and the transactions contemplated hereby;

(b) A registration statement on an appropriate form pertaining to, inter
alia, the shares of New ZMAX Common Stock to be issued in the Merger will
have become effective in accordance with the provisions of the Securities
Act of 1933, as amended, and no stop order suspending such effectiveness
will have been issued and remain in effect;

(c) No preliminary or permanent injunction or other order or decree by
any federal or state court or regulatory body that prevents the
consummation of the Merger will have been issued and remain in effect (each
party agreeing to use its best efforts to have any such injunction, order
or decree lifted);

(d) The consummation of the transactions contemplated by the Merger
Agreement will not violate any statute, law, rule, ordinance, regulation,
judgment, decree, order, injunction, writ, permit or license of any court
or governmental authority applicable to Old ZMAX or New ZMAX or any of
their respective properties or assets, excluding such violations that would
not, in the aggregate, have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of Old ZMAX and New ZMAX on a consolidates basis;

(e) The holders of at least 90% of the outstanding aggregate principal
amount of Old ZMAX 8% Convertible Exchangeable Debentures due 1999 (the
"Debentures") will have exchanged the Debentures for shares of Old ZMAX
Common Stock (the "Exchange") and Warrants that will be issued in the
Exchange will have been exercised for at least 968,000 shares of Old ZMAX
Common Stock and the exercise price therefor received by Old ZMAX; and

(f) The holders of less than 5% of the issued and outstanding shares of
Old ZMAX Common Stock will have submitted claims seeking to perfect
appraisal rights in accordance with the Nevada General Corporation Law.

15. Abandonment. At any time before the Effective Time and notwithstanding
the approval of this Merger Agreement by the stockholders of Old ZMAX, the
Board of Directors of Old ZMAX may terminate this Merger Agreement, abandon
the Merger, or defer consummation of the Merger for a reasonable period, if it
finds that such action would be in the best interest of the two corporations.

16. Governing Law. This Merger Agreement will be governed by and construed
in accordance with the laws of the State of Delaware.

[SIGNATURES ON FOLLOWING PAGE]

A-3
<PAGE>

In Witness Whereof, each corporate party hereto has caused this Agreement and
Plan of Merger to be duly executed as of the date first-above written.

ZMAX Corporation, a Nevada New ZMAX Corporation, a Delaware
Corporation Corporation

By: /s/ Michael C. Higgins By: /s/ Michael C. Higgins
---------------------------------- ----------------------------------
Michael C. Higgins, President Michael C. Higgins, President

A-4
<PAGE>

ANNEX B

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

ZMAX CORPORATION (ORIGINALLY INCORPORATED AS NEW ZMAX CORPORATION)

PURSUANT TO (S) 245 AND (S) 103 OF THE GENERAL CORPORATION LAW OF THE STATE OF
DELAWARE

The undersigned, in order to amend and restate the Certificate of
Incorporation of New ZMAX Corporation in accordance with the General
Corporation Law of the State of Delaware, does hereby certify:

ARTICLE I. NAME

The name of the Corporation is ZMAX Corporation (the "Corporation"). The
Corporation filed an original Certificate of Incorporation of New ZMAX
Corporation with the Secretary of State of Delaware on May 30, 1997.

ARTICLE II. REGISTERED OFFICE

The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, in the City of Wilmington, County of New Castle, 19805.
The name of its registered agent at such address is Corporation Service
Company.

ARTICLE III. PURPOSE

The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware.

ARTICLE IV. CAPITAL STOCK

The aggregate number of shares of stock that the Corporation shall have
authority to issue is sixty million (60,000,000), of which ten million
(10,000,000) shares, with a par value of $0.001 per share, are designated as
Preferred Stock, and fifty million (50,000,000), with a par value of $0.001
per share, are designated as Common Stock.

(a) Provisions Relating to the Common Stock.

(1) Each holder of Common Stock is entitled to one vote for each share of
Common Stock standing in such holder's name on the records of the
Corporation on each matter submitted to a vote of the stockholders, except
as otherwise required by law.

(2) The holders of the Common Stock shall have no preemptive rights to
subscribe for any shares of any class of stock of the Corporation whether
now or hereafter authorized.

(b) Provisions Relating to the Preferred Stock. The authority of the Board
with respect to each series shall include, but not be limited to,
determination of the following:

(1) The number of shares constituting that series and the distinctive
designation of that series;

(2) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and if so, from which date(s), and the relative rights
of priority, if any, of payment of dividends on shares of that series;

(3) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;

(4) Whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall
determine;

B-1
<PAGE>

(5) Whether or not the shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including the date or date
upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;

(6) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;

(7) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the corporation, and
the relative rights of priority, if any, of payment of shares of that
series;

(8) Any other relative rights, preferences and limitations of that
series.

Dividends on outstanding shares of Preferred Stock shall be paid or declared
and set apart for payment before any dividends shall be paid or declared and
set apart for payment on the Common Stock with respect to the same dividend
period. If upon any voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the assets available for distribution to
holders of shares of Preferred Stock of all series shall be insufficient to
pay such holders the full preferential amount to which they are entitled, then
such assets shall be distributed ratably among the shares of all series of
Preferred Stock in accordance with the respective preferential amounts
(including unpaid cumulative dividends, if any) payable with respect thereto.

ARTICLE V. BOARD OF DIRECTORS

(a) Number. The number of directors constituting the entire Board shall be
as fixed from time to time by vote of a majority of the entire Board,
provided, however, that the number of directors shall not be reduced so as to
shorten the term of any director at the time in office, and provided further,
that the number of directors constituting the entire Board shall be seven
until otherwise fixed by a majority of the entire Board.

(b) Election. The election of directors need not be by written ballot.

(c) Classified Board. The Board of Directors shall be divided into three
classes, as nearly equal in numbers as the then total number of directors
constituting the entire Board permits with the term of office of one class
expiring each year. At the first annual meeting of the stockholders, directors
of the first class will be elected to hold office for a term expiring at the
next succeeding annual meeting, directors of the second class will be elected
to hold office for a term expiring at the second succeeding annual meeting,
and directors of the third class will be elected to hold office for a term
expiring at the third succeeding annual meeting.

ARTICLE VI. BYLAWS

The Board of Directors is authorized to adopt, amend, or repeal bylaws for
the Corporation by a majority of the directors present at a meeting lawfully
convened.

ARTICLE VII. LIABILITY

To the full extent permitted by the General Corporation Law of the State of
Delaware or any of the applicable laws presently or hereafter in effect, no
director or officer of the Corporation will be personally liable to the
Corporation or its stockholders for or with respect to any acts or omissions
in the performance of his or her duties as a director or officer of the
Corporation. Any amendment or repeal of this Article VIII will not adversely
affect any right or protection of a director or officer of the Corporation
existing immediately prior to such amendment or repeal.

B-2
<PAGE>

ARTICLE VIII. INDEMNIFICATION

(a) Right to Indemnification. Any person who was or is a party, or is
threatened to be made a party, to any threatened, pending, or completed
proceeding, whether civil, criminal, administrative, or investigative (whether
or not by or in the right of the Corporation) by reason of the fact that he is
or was a director of the Corporation (or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another entity is
entitled to be indemnified by the Corporation) (the "Indemnitee") against
judgments, fines, penalties, excise taxes, amounts paid in settlement and
costs charges and expenses (including attorneys' fees and disbursements) that
he or she actually and reasonably incurs in connection with such proceeding to
the fullest extent permitted by the General Corporation Law of the State of
Delaware.

(b) Inurement. The right to indemnification shall inure whether or not the
claim asserted is based on matters that predate the adoption of this Article
VIII, will continue as to an Indemnitee who has ceased to hold the position by
virtue if which he or she was entitled to indemnification, and will inure to
the benefit of his or her heirs and personal representatives.

(c) Non-exclusivity of Rights. The right to indemnification and to the
advancement of expenses conferred by this Article IX are not exclusive of any
other rights that an Indemnitee may have or acquire under any statute, bylaw,
agreement, vote of stockholders or disinterested directors, this Certificate
of Incorporation or otherwise.

(d) Advancement of Expenses. The Corporation will, from time to time,
reimburse or advance to any Indemnitee the funds necessary for payment of
expenses, including attorneys' fees and disbursements, incurred in connection
with defending any proceeding for which he or she is indemnified by the
Corporation, in advance of the final disposition of such proceeding; provided
that, if then required by the Delaware General Corporation Law, the expenses
incurred by or on behalf of an Indemnitee may be paid in advance of the final
disposition of a proceedings only upon receipt by the Corporation of an
undertaking by or on behalf of such director or officer to repay any such
amount so advanced if it is ultimately determined by a final and unappealable
judicial decision that the Indemnitee is not entitled to be indemnified for
such expenses.

(e) Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any potential Indemnitee under this Article IX against any
loss, whether or not the Corporation would have the power to indemnify such
person against such loss under the General Corporation Law of the State of
Delaware.

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ARTICLE IX. PROHIBITION OF ACTION BY WRITTEN CONSENT OF STOCKHOLDERS

Except as the Board of Directors may otherwise provide with respect to the
rights of Preferred Stockholders, any action that is required or permitted to
be taken by the stockholders of the Corporation at any annual or special
meeting of stockholders may be effected without a meeting only by the
unanimous written consent of stockholders.

This Amended and Restated Certificate of Incorporation has been duly adopted
by the Board of Directors and the stockholders of the Corporation in
accordance with the General Corporation Law of the State of Delaware.

In Witness Whereof, I have signed this Amended and Restated Certificate of
Incorporation of ZMAX Corporation this day of , 1997.

________________________________________________
Michael C. Higgins, President

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ANNEX C

AMENDED AND RESTATED BYLAWS
OF
NEW ZMAX CORPORATION

ARTICLE I

Stockholders

Section 1.1. Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors on such date, and at such time and place,
either within or without the State of Delaware, as the Board of Directors may
from time to time designate within four months after the end of the fiscal
year of the Corporation. Any other proper business may be transacted at an
annual meeting. If the annual meeting is not held on the date designated, it
may be held as soon thereafter as convenient and shall be called the annual
meeting.

Section 1.2. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by the General Corporation
Law of the State of Delaware, may be called by the President or the Board of
Directors. The President will call a special meeting of the stockholders at
the request of the holders of not less than twenty-five percent (25%) of all
the outstanding shares of the Corporation entitled to vote at the meeting.

Section 1.3. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting
will be given that states the place, date and hour of the meeting and, in the
case of a special meeting, the purpose(s) for which the meeting is called.
Unless otherwise provided by law, the Certificate of Incorporation or these
Bylaws, the written notice of any meeting will be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, such notice will be deemed to be
given when deposited in the United States mail, postage prepaid, directed to
the stockholder at his or her address as it appears in the records of the
Corporation.

Section 1.4. Waiver of Notice. A stockholder may waive notice of any
meeting; provided that a stockholder's attendance at meeting shall constitute
waiver of notice of such meeting, except when the stockholder attends a
meeting for the express purpose of objecting to the transaction of any
business to be transacted at the meeting, and not for the purpose of objecting
to the purpose of the meeting.

Section 1.5. Adjournments. Any meeting of stockholders, annual or special,
may adjourn from time to time to reconvene at the same or some other place,
and notice need not be given of any such adjourned meeting if the time and
place are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business that might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, pursuant to Section 1.3, notice of the adjourned meeting
will be given to each stockholder of record entitled to vote at the meeting.

Section 1.6. Record Date.

(a) Determination of Record Date. For purposes of determining the number and
identity of stockholders for any purpose, the Board of Directors may fix a
date in advance as the record date for any such determination of stockholders,
provided that the record date may not precede the date of the resolution
fixing the record date. The record date may not be more than sixty days prior
to the date that the particular action requiring the determination of
stockholders is to occur. If to determine the stockholders entitled to notice
of, or to vote at, a meeting of stockholders, the record date may not be fewer
than ten days prior to the meeting. The record date for determining
stockholders for any other purpose shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of, or to vote at,
a meeting of stockholders will apply to any adjournment of the meeting;
provided that the Board of Directors may fix a new record date for the
adjourned meeting.

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(b) Failure to Fix Record Date. If the stock transfer books are not closed
and no record date is fixed for the determination of stockholders entitled to
notice or to vote, or to receive payment of a dividend, the date on which the
notice is mailed or the Board of Directors resolution declaring the dividend
is adopted, as the case may be, will be the record date for such determination
of stockholders.

Section 1.7. List of Stockholders Entitled to Vote. At least ten days before
each meeting of stockholders, the officer or agent charged with overseeing the
stock transfer books of the Corporation will compile a complete list of the
stockholders entitled to vote at such meeting, or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each. Such list will be kept on file at the Corporation's principal
office for the ten days before the meeting and will be subject to the
inspection of any stockholder during that ten-day period during normal
business hours for any purpose related to the meeting and during the meeting.

Section 1.8. Quorum. Except as otherwise provided by law, the Certificate of
Incorporation, or these Bylaws, a majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, will
constitute a quorum at a meeting of stockholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further
notice. If a quorum is present or represented at such adjourned meeting, any
business may be transacted that might have been transacted at the meeting as
originally notified. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.

Section 1.9. Voting.

(a) One Vote Per Share. Unless otherwise provided by the Certificate of
Incorporation or these Bylaws, each outstanding share entitled to vote will be
entitled to one vote on each matter submitted to a vote at a meeting of
stockholders.

(b) Required Vote. Unless the General Corporation Law of the State of
Delaware imposes a super-majority requirement with respect to a particular
matter brought before the stockholders, a majority vote of those shares
present and voting at a duly organized meeting will suffice to defeat or enact
any proposal; provided that with respect to votes to elect directors, a
plurality of the votes cast will be sufficient to elect.

(c) Shares Held By Other Than the Record Owner. Shares held by an
administrator, executor, guardian or conservator may be voted by him or her,
in person or by proxy, without the transfer of such shares into his or her
name. Shares held in the name of a trustee may be voted by him or her, in
person or by proxy, only if the shares are transferred into the trustee's
name. Shares held in the name of, by or under the control of a receiver may be
voted by the receiver without transferring the shares into the receiver's name
if authority to do so is evidenced in an order from the court that appointed
the receiver. A stockholder whose shares are pledged shall be entitled to vote
his or her shares until the shares are transferred into the name of the
pledgee, and thereafter, the pledgee will be entitled to vote the shares so
transferred. Shares belonging to the Corporation or held by it in a fiduciary
capacity may not be voted, directly or indirectly, at any meeting, and will
not be counted in determining the total number of outstanding shares at any
given time.

Section 1.10. Proxies.

(a) General. At all meetings of stockholders, a stockholder may vote by
proxy. Proxies must be written, signed by the stockholder or by his or her
duly authorized attorney-in-fact, and filed with the Secretary of the
Corporation before or at the time of a meeting where a proxy is granted. No
proxy is valid after six months from the date of its execution, unless
otherwise provided in the proxy or coupled with an interest.

(b) Irrevocable Proxies. A proxy may be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power.

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(c) Revocation of a Proxy. A stockholder may revoke any proxy that is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy of by delivering a proxy in
accordance with applicable law bearing a later date to the Secretary of the
Corporation.

ARTICLE II

Board of Directors

Section 2.1. Number; Qualifications. The Board of Directors shall consist of
not less than three (3) or more than fifteen (15) members with the specific
number to be set from time to time by the affirmative vote of a majority of
the members of the Board of Directors. A director will hold office until the
next annual meeting of stockholders and until his or her successor is elected
and qualified. Directors need not be stockholders of the corporation.

Section 2.2. Election; Resignation; Vacancies. The Board of Directors will
initially consist of the persons named as director by the incorporator, and
each director so elected will hold office until the first annual meeting of
stockholders and until his or her successor is elected and qualified. At the
first annual meeting of stockholders, the stockholders will elect directors to
serve in all three classes of the Board of Directors as provided by the
Certificate of Incorporation. Thereafter, one class of directors will be
elected each year at either an annual or special meeting of the stockholders
to hold office for the period of time designated for that class. If there is
only one nominee for any directorship, it will be in order to move that the
Secretary cast the elective ballot to elect the nominee. A director may resign
at any time on written notice to the Corporation. Any vacancy occurring in the
Board of Directors, whether by reason of death, resignation, removal, or an
increase in the number of directors, may be filled by the affirmative vote of
the majority of the remaining directors, though less than a quorum of the
Board of Directors, or by election at an annual meeting or at a special
meeting of the stockholders called for that purpose. A director elected to
fill a vacancy will be elected for the unexpired term of his predecessor in
office.

Section 2.3. Regular Meetings. A regular meeting of the Board of Directors
for the election of officers and the transaction of any other business that
may properly come before the meeting shall be held immediately after, and at
the same place as, each annual meeting of stockholders, if a quorum of
directors is then present or as soon thereafter as may be convenient. Regular
meetings of the Board of Directors may be held at such places within or
without the State of Delaware and at such times as the Board of Directors may
from time to time determine. The Board of Directors may provide, by
resolution, the day, time and place for the holding of additional regular
meetings without other notice than such resolution.

Section 2.4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the President or any director. The
person(s) authorized to call special meetings of the Board of Directors may
fix any place, within or without the State of Delaware, to hold a special
meeting of the Board of Directors. Notice of a special meeting must be given
to each director by the person(s) calling the meeting at least two days before
the meeting.

Section 2.5. Waiver of Notice. A director may waive notice of any meeting. A
director's attendance at meeting shall constitute waiver of notice of such
meeting; provided that, when a director attends a meeting for the express
purpose of objecting to the transaction of any business to be transacted at
the meeting, and not for the purpose of objecting to the purpose of the
meeting, the director will not be deemed to have waived notice of such
meeting.

Section 2.6. Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of telephone conference, or similar
communications equipment that permits all persons participating in the meeting
to hear each other, and participation in ameeting pursuant to this By-law will
constitute presence at such meeting.

Section 2.7. Quorum; Voted Required for Action. At all meetings of the Board
of Directors, a majority of the whole Board of Directors will constitute a
quorum for the transaction of business. Unless required by the

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General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these Bylaws, the vote of a majority of the directors present
at a meeting at which a quorum is present will be the act of the Board of
Directors. If less than a majority is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice. Once a quorum has been established at a duly organized meeting, the
Board of Directors may continue to transact corporate business until
adjournment, notwithstanding the withdrawal of enough members to leave less
than a quorum.

Section 2.8. Payment of Expenses. By resolution of the Board of Directors,
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors. Directors may be paid also either a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. Such payment will not preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.

Section 2.9. Dissent to Corporate Action. A director who is present at a
meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless he or she
(i) enters his or her dissent in the minutes of the meeting, (ii) files
written dissent to such action with the Secretary of the meeting before
adjournment, or (iii) expresses such dissent by written notice to the
Secretary of the Corporation within one (1) day after the adjournment of the
meeting. The right to dissent shall not apply to a director who voted in favor
of such action.

Section 2.10. Action by Written Consent. Any action required or permitted to
be taken at a meeting of the Board of Directors may be taken without a meeting
if all members of the Board of Directors sign a written consent with respect
to such action. Such consent shall be filed with the minutes of proceedings of
the Board of Directors.

ARTICLE III

Committees

Section 3.1. Committees. The Board of Directors may, be resolution passed by
a majority of the whole Board of Directors, designate one or more committees,
each to consist of one or more of the directors. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of the committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another member
of the Board of Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent permitted by the
General Corporation Law of the State of Delaware and to the extent provided in
the resolution of the Board of Directors, will have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers that may require it.

Section 3.2. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such
rules, each committee will conduct its business in the same manner as the
Board of Directors conducts its business pursuant to Article II of these
Bylaws.

ARTICLE IV

Officers

Section 4.1. Officers. The officers of the Corporation are President, Vice
President, Secretary, and Treasurer. Other officers and assistant officers may
be authorized and elected or appointed by the Board of Directors. An
individual is permitted to hold more than one office.

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Section 4.2. Election. The officers of the Corporation will be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of the stockholders. If the election
of officers is not held at such meeting, it will be held as soon thereafter as
convenient. Each officer will hold office until his or her successor is duly
elected and qualified, or until his or her death, resignation or removal.

Section 4.3. Removal. Any officer, elected or appointed, may be removed by
the Board of Directors, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.

Section 4.4. Vacancy. A vacancy in any office for any reason may be filled
by majority vote of the Board of Directors, and any officer so elected will
serve for the unexpired portion of the term of such office.

Section 4.5. President. The President presides at all meetings of the Board
of Directors and of the stockholders and has general charge and control over
the affairs of the Corporation subject to the Board of Directors. The
President signs or countersigns all certificates, contracts and other
instruments of the Corporation as authorized by the Board of Directors and
performs such other duties incident to the office or required by the Board of
Directors.

Section 4.6. Vice President. The Vice President exercises the functions of
the President in the President's absence, and has such powers and duties as
may be assigned to him or her from time to time by the Board of Directors.

Section 4.7. Secretary. The Secretary issues all required notices for
meetings of the Board of Directors and of the stockholders, keeps a record of
the minutes of the proceedings of the meetings of the Board of Directors and
of the stockholders, has charge of the Corporate Seal and the corporate books,
and makes such reports and performs such other duties as are incident to the
office or required by the Board of Directors.

Section 4.8. Treasurer. The Treasurer has custody of all monies and
securities of the Corporation, keeps regular books of account, disburses the
funds of the Corporation, renders account to the Board of Directors of all
transactions made on behalf of the Corporation and of the financial condition
of the Corporation from time to time as the Board requires, and performs all
duties incident to the office or properly required by the Board of Directors.

Section 4.9. Salaries. The salaries of all officers will be fixed by the
Board of Directors, and may be changed from time to time by a majority vote of
the Board of Directors.

ARTICLE V

Certificate of Shares

Section 5.1. Certificates. Certificates representing shares of the
Corporation will be in the form determined by the Board of Directors, and will
be signed by the Chairman of the Corporation or any officer, certifying the
number of shares owned by him or her in the Corporation. Any of or all the
signatures on the certificate may be a facsimile. If any officer, transfer
agent or registrar who has signed, or whose facsimile signature has been
placed upon, a certificate ceases to hold that position before the certificate
is issued, it may be issued by the Corporation with the same effect as if the
officer, transfer agent or registrar continued to hold that position at the
date of issue.

Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. If a certificate is lost, stolen or destroyed, a new one may be
issued on such terms and indemnity to the Corporation as the Board of
Directors may prescribe.

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ARTICLE VI

Indemnification of Directors and Officers

Section 6.1. Directors

(a) Right to Indemnification; Insurance. Every person who was or is a party
to, or is threatened to be made a party to, or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she, or a person of whom he is the legal
representative, is or was a director, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, or as its representative in another enterprise (an "Indemnitee"),
will be indemnified and held harmless by the Corporation to the fullest extent
legally permissible under the laws of the State of Delaware against all
judgments, fines, penalties, excise taxes, amounts paid in settlement and
costs, charges and expenses (including attorneys' fees and disbursements)
actually and reasonably incurred or suffered by him or her in connection
therewith, subject to the standards of conduct, the procedures, and other
applicable provisions of the General Corporation Law of the State of Delaware.
Such right of indemnification is a contract right which may be enforced in any
manner desired by such person. The corporation may purchase and maintain
insurance on behalf of an Indemnitee against any liability arising out of such
status, whether or not the corporation would have the power to indemnify such
person.

(b) Inurement. The right to indemnification shall inure whether or not the
claim asserted is based on matters that predate the adoption of this Article
VIII, will continue as to an Indemnitee who has ceased to hold the position by
virtue of which he or she was entitled to indemnification, and will inure to
the benefit of his or her heirs and personal representatives.

(c) Non-exclusivity of Rights. The right to indemnification and to the
advancement of expenses conferred by this Section 6.1 are not exclusive of any
other rights that an Indemnitee may have or acquire under any statute, bylaw,
agreement, vote of stockholders or disinterested directors, this Certificate
of Incorporation or otherwise.

(d) Advancement of Expenses. The Corporation will, from time to time,
reimburse or advance to any Indemnitee the funds necessary for payment of
expenses, including attorneys' fees and disbursements, incurred in connection
with defending any proceeding for which he or she is indemnified by the
Corporation, in advance of the final disposition of such proceeding; provided
that, if then required by the General Corporation Law of the State of
Delaware, the expenses incurred by or on behalf of an Indemnitee may be paid
in advance of the final disposition of a proceedings only upon receipt by the
Corporation of an undertaking by or on behalf of such Indemnitee to repay any
such amount so advanced if it is ultimately determined by a final and
unappealable judicial decision that the Indemnitee is not entitled to be
indemnified for such expenses.

Section 6.2. Officers, Employees and Agents. The Board of Directors may, on
behalf of the Corporation, grant indemnification to any officer, employee,
agent or other individual to such extent and in such manner as the Board of
Directors in its sole discretion may from time to time and at any time
determine, in accordance with the General Corporation Law of the State of
Delaware.

ARTICLE VII

General Provisions

Section 7.1. Fiscal Year. The fiscal year of the Corporation will be fixed
by of the Board of Directors.

Section 7.2. Amendments. These Bylaws may be amended or repealed or new
Bylaws may be adopted (i) at any regular or special meeting of stockholders at
which a quorum is present or represented, by the vote of the holders of shares
entitled to vote in the election of any directors, provided notice of the
proposed alteration, amendment or repeal is contained in the notice of such
meeting; or (ii) by affirmative vote of a majority of the Board of Directors
at any regular or special meeting.

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Section 7.3. Books and Records; Examination. Any records maintained by the
corporation in the regular course of its business, including its stock ledger,
books of account, and minute books, may be kept on, or be in any form of
information storage, provided that the records can be converted into clearly
legible form within a reasonable time. The books and records of the
Corporation may be kept outside of the State of Delaware. Except as may
otherwise be provided by the General Corporation Law of the State of Delaware,
the Board of Directors will have the power to determine from time to time
whether and to what extent and at what times and places and under what
conditions any of the accounts, records and books of the Corporation are to be
open to the inspection of any stockholder.

Section 7.4. Dividends. Subject to the provisions, if any, of the General
Corporation Law of Delaware and the Certificate of Incorporation, dividends on
the capital shares of the Corporation may be declared by the Board of
Directors at any regular or special meeting. Dividends may be paid in cash, in
property or in shares of the capital stock. Before payment of any dividend,
the Board of Directors may set aside out of any funds of the Corporation
available for dividends such reserves for any purpose that the directors will
think conducive to the interests of the Corporation.

Section 7.5. Seal. The Corporation may or may not have a corporate seal, as
may from time to time be determined by resolution of the Board of Directors.
If a corporate seal is adopted, it will have inscribed thereon the name of the
corporation and the words "Corporate Seal" and "Delaware". The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
manner reproduced or by causing the word [SEAL], in brackets, to appear where
the seal is required to be impressed or affixed.

Section 7.6. Checks. All checks or demands for money and notes of the
Corporation will be signed by one or more officers of the Corporation as the
Board of Directors may from time to time designate.

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ANNEX D

NEVADA REVISED STATUTES

CHAPTER 92A

MERGERS AND EXCHANGES OF INTEREST

(ADDED BY CH. 586, L. '95, EFF. 10-1-95)
RIGHTS OF DISSENTING OWNERS

92A.300 Definitions.--As used in NRS 92A.300 to 92A.500, inclusive, unless
the context otherwise requires, the words and terms defined in NRS 92A.305 to
92A.335, inclusive, have the meanings ascribed to them in those sections.

92A.305 "Beneficial Stockholder" Defined.--"Beneficial stockholder" means a
person who is a beneficial owner of shares held in a voting trust or by a
nominee as the stockholder of record.

92A.310 "Corporate Action" Defined.--"Corporate action" means the action of
a domestic corporation.

92A.315 "Dissenter" Defined.--"Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and
who exercises that right when and in the manner required by NRS 92A.410 to
92A.480, inclusive.

92A.320 "Fair Value" Defined.--"Fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effectuation of
the corporate action to which he objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would be
inequitable.

92A.325 "Stockholder" Defined.--"Stockholder" means a stockholder of record
or a beneficial stockholder of a domestic corporation.

92A.330 "Stockholder of Record" Defined.--"Stockholder of record" means the
person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.

92A.335 "Subject Corporation" Defined.--"Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective
or the surviving or acquiring entity of that issuer after the corporate action
becomes effective.

92A.340 Computation of Interest.--Interest payable pursuant to NRS 92A.300
to 92A.500, inclusive, must be computed from the effective date of the action
until the date of payment, at the average rate currently paid by the entity on
its principal bank loans or, if it has no bank loans, at a rate that is fair
and equitable under all of the circumstances.

92A.350 Rights of Dissenting Partner of Domestic Limited Partnership.--A
partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with
any merger or exchange in which the domestic limited partnership is a
constituent entity.

92A.360 Rights of Dissenting Member of Domestic Limited-Liability Company.--
The articles of organization or operating agreement of a domestic limited-
liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.

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92A.370 Rights of Dissenting Member of Domestic Nonprofit Corporation.--1.
Except as otherwise provided in subsection 2 and unless otherwise provided in
the articles or bylaws, any member of any constituent domestic nonprofit
corporation who voted against the merger may, without prior notice, but within
30 days after the effective date of the merger, resign from membership and is
thereby excused from all contractual obligations to the constituent or
surviving corporations which did not occur before his resignation and is
thereby entitled to those rights, if any, which would have existed if there
had been no merger and the membership had been terminated or the member had
been expelled.

2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of
NRS to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1.

92A.380 Rights of Stockholder to Dissent from Certain Corporate Actions and
to Obtain Payment for Shares.--1. Except as otherwise provided in NRS 92A.370
to 92A.390, a stockholder is entitled to dissent from, and obtain payment of
the fair value of his shares in the event of any of the following corporate
actions:

(a) Consummation of a plan of merger to which the domestic corporation is
a party:

(1) If approval by the stockholders is required for the merger by NRS
92A.120 to 92A.160, inclusive, or the articles of incorporation and he
is entitled to vote on the merger; or

(2) If the domestic corporation is a subsidiary and is merged with
its parent under NRS 92A.180.

(b) Consummation of a plan of exchange to which the domestic corporation
is a party as the corporation whose subject owner's interests will be
acquired, if he is entitled to vote on the plan.

(c) Any corporate action taken pursuant to a vote of the stockholders to
the event that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are
entitled to dissent and obtain payment for their shares.

2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to
him or the domestic corporation.

92A.390 Limitations on Right of Dissent: Stockholders of Certain Classes or
Series; Action of Stockholders Not Required for Plan of Merger.--1. There is
no right of dissent with respect to a plan of merger or exchange in favor of
stockholders of any class or series which, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or exchange is to be acted on, were either
listed on a national securities exchange, included in the national market
system by the National Association of Securities Dealers, Inc., or held by at
least 2,000 stockholders of record, unless:

(a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or

(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:

(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:

(I) The surviving or acquiring entity; or

(II) Any other entity which, at the effective date of the plan of
merger or exchange, were either listed on a national securities
exchange, included in the national market system by the National
Association of Securities Dealers, Inc., or held of record by a
least 2,000 holders of owner's interests of record; or

(2) A combination of cash and owner's interests of the kind described
in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).

D-2
<PAGE>

2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130.

92A.400 Limitations on Right of Dissent: Assertion as to Portions Only to
Shares Registered to Stockholder; Assertion by Beneficial Stockholder.--1. A
stockholder may assert dissenter's rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the subject corporation in
writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection
are determined as if the shares as to which he dissents and his other shares
were registered in the names of different stockholders.

2. A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:

(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and

(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has the power to direct the vote.

92A. 410 Notification of Stockholders Regarding Right of Dessent.--1. If a
proposed corporate action creating dissenters' rights is submitted to a vote
at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.

2. If the corporate action creating dissenters' rights is taken without a
vote of the stockholders, the domestic corporation shall notify in writing all
stockholders entitled to assert dissenters' rights that the action was taken
and send them the dissenter's notice described in NRS 92A.430.

92A.420 Prerequisites to Demand for Payment of Shares.--1. If a proposed
corporate action creating dissenters' rights is submitted to a vote at a
stockholders' meeting, a stockholder who wishes to assert dissenter's rights:

(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and

(b) Must not vote his shares in favor of the proposed action.

2. A stockholder who does not satisfy the requirements of subsection 1 is
not entitled to payment for his shares under this chapter.

92A.430 Dissenter's Notice: Delivery to Stockholders Entitled to Assert
Rights; Contents.--1. If a proposed corporate action creating dissenters'
rights is authorized at a stockholders' meeting, the subject corporation shall
deliver a written dissenter's notice to all stockholders who satisfied the
requirements to assert those rights.

2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:

(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;

(b) Inform the holders of shares not represented by certificates to what
extent the transfer of the shares will be restricted after the demand for
payment is received;

(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's
rights certify whether or not he acquired beneficial ownership of the
shares before that date;

D-3
<PAGE>

(d) Set a date by which the subject corporation must receive the demand
for payment, which may not be less than 30 nor more than 60 days after the
date the notice is delivered; and

(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.

92A.440 Demand for Payment and Deposit of Certificates; Retention of Rights
of Stockholder.--1. A stockholder to whom a dissenter's notice is sent must:

(a) Demand payment;

(b) Certify whether he acquired beneficial ownership of the shares before
the date required to be set forth in the dissenter's notice for this
certification; and

2. The stockholder who demands payment and deposits his certificates, if
any, retains all other rights of a stockholder until those rights are canceled
or modified by the taking of the proposed corporate action.

3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter.

92A.450 Uncertified Shares: Authority to Restrict Transfer After Demand for
Payment; Retention of Rights of Stockholder.--1. The subject corporation may
restrict the transfer of shares not represented by a certificate from the date
the demand for their payment is received.

2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.

92A.460 Payment for Shares: General Requirements.--1. Except as otherwise
provided in NRS 92A.470, within 30 days after receipt of a demand for payment,
the subject corporation shall pay each dissenter who complied with NRS 92A.440
the amount the subject corporation estimates to be the fair value of his
shares, plus accrued interest. The obligation of the subject corporation under
this subsection may be enforced by the district court:

(a) Of the county where the corporation's registered office is located;
or

(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.

2. The payment must be accompanied by:

(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement
of income for that year, a statement of changes in the stockholders' equity
for that year and the latest available interim financial statements, if
any;

(b) A statement of the subject corporation's estimate of the fair value
of the shares;

(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and

(e) A copy of NRS 92A.300 to 92A.500, inclusive.

92A.470 Payment for Shares: Shares Acquired on or After Date of Dissenter's
Notice.--1. A subject corporation may elect to withhold payment from a
dissenter unless he was the beneficial owner of the shares before the date set
forth in the dissenter's notice as the date of the first announcement to the
news media or to the stockholders of the terms of the proposed action.

2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares,
plus accrued interest, and shall offer to pay this amount to each dissenter
who agrees to accept it in full satisfaction of his demand. The subject
corporation shall send with its offer a statement of its estimate of the fair
value of the shares, an explanation of how the interest was calculated, and a
statement of the dissenters' right to demand payment pursuant to NRS 92A.480.

D-4
<PAGE>

92A.480 Dissenter's Estimate of Fair Value: Notification of Subject
Corporation; Demand for Payment of Estimate.--1. A dissenter may notify the
subject corporation in writing of his own estimate of the fair value of his
shares and the amount of interest due, and demand payment of his estimate,
less any payment pursuant to NRS 92A.460, or reject the offer pursuant to NRS
92A.470 and demand payment of the fair value of his shares and interest due,
if he believes that the amount paid pursuant to NRS 92A.460 or offered
pursuant to NRS 92A.47 is less than the fair value of his shares or that the
interest is incorrectly calculated.

2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.

92A.490 Legal Proceeding to Determione Fair Value: Duties of Subject
Corporation; Powers of Court; Rights of Dissenter.--1. If a demand for payment
remains unsettled, the subject corporation shall commence a proceeding within
60 days after receiving the demand and petition the court to determine the
fair value of the shares and accrued interest. If the subject corporation does
not commence the proceeding within the 60-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.

2. A subject corporation shall commence the proceeding in the district court
of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it
shall commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.

3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy
of the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.

4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.

5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:

(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject
corporation; or

(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment
pursuant to NRS 92A.470.

92A.500 Legal Proceeding to Determine Fair Value: Assessment of Costs and
Fees.--1. The court in a proceeding to determine fair value shall determine
all of the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable,
to the extent the court finds the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment.

2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:

(a) Against the subject corporation and in favor of all dissenters if the
court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or

(b) Against either the subject corporation or a dissenter in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith
with respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.

D-5
<PAGE>

3. If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.

4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess
costs against all or some of the dissenters who are parties to the proceeding,
in amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.

5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.

D-6
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Set forth below is a description of certain provisions of the Old ZMAX
Articles of Incorporation, Old ZMAX Bylaws and Nevada Law, as well as the New
ZMAX Certificate of Incorporation, New ZMAX Bylaws and Delaware Law, as such
provisions relate to the indemnification of the directors and officers of Old
and New ZMAX. These descriptions are intended only as a summary and are
qualified in their entirety by reference to the complete documents.

Elimination of Liability in Certain Circumstances

OLD ZMAX. Article XI of the Old ZMAX Articles of Incorporation provides that
no director or officer of Old ZMAX is personally liable to Old ZMAX or its
stockholders with respect to any acts or omissions that occur in the
performance of his or her duties as a director or officer of Old ZMAX, except
liability for acts or omissions involving (i) intentional misconduct, fraud or
a violation of law, or (ii) payment of distributions in violation of Section
78.300 of the Nevada Law, which imposes liability on directors for prohibited
distributions to stockholders. The Old ZMAX Articles of Incorporation further
provide that, if the Nevada Law is amended to extend further protection to
officers or directors, then the stockholders may approve further limitations
on liability in the Articles of Incorporation to the full extent of the Nevada
Law. The Company is not permitted under the Nevada Law to limit the liability
of directors for (i) any breach of the director's duty of loyalty to such
corporation or its stockholders, or (ii) any transaction from which the
director derived an improper personal benefit.

NEW ZMAX. As of the Effective Time, the New ZMAX Certificate of
Incorporation will provide that, to the full extent permitted by Delaware Law
or any other applicable laws, no director of New ZMAX shall be personally
liable to New ZMAX or its stockholders with respect to any acts or omissions
in the performance of his or her duties as a director of Old ZMAX. The
Delaware Law provides that a corporation may limit or eliminate a director's
personal liability for monetary damages to the corporation or its
stockholders, except for liability for (i) any breach of the director's duty
of loyalty to such corporation or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) paying a dividend or approving a stock repurchase in violation
of Section 174 of the Delaware Law or (iv) any transaction from which the
director derived an improper personal benefit.

Indemnification and Insurance

OLD ZMAX. Section 78.751 of the Nevada Law permits corporations to indemnify
directors, officers, employees and agents (including individuals acting in
that capacity for another corporation at the request of the indemnifying
corporation) for expenses incurred in connection with any proceeding, as long
as the individual acted "in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful." An adverse result against an
indemnitee does not necessarily determine that indemnification is not
available. Indemnification is permitted even though the individual no longer
serves in the appropriate capacity, as long as he or she was serving in that
capacity when the conduct occurred. To the extent that an individual is
successful in defending against a claim subject to indemnification, the
corporation must indemnify him or her for the expense of the defense. A
corporation may advance expenses of pursuing a proceeding giving rise to a
right of indemnification, if the individual agrees to repay such expenses if
indemnification ultimately is denied.

The determination to pay a claim for indemnification must be made by either
(i) the stockholders, (ii) majority vote of the board of directors of a quorum
consisting of directors who were not a party to the proceeding; (iii) by legal
opinion, if ordered by a majority as described in (ii) above; or (iv) by legal
opinion, if a majority described in (ii) cannot be obtained.

II-1
<PAGE>

The Old ZMAX Articles of Incorporation provision on indemnification closely
follows the Nevada Law. Article XII of the Old ZMAX Articles of Incorporation
provides that the Company will indemnify its directors, officers, employees
and agents (as well as persons serving at the Corporation's request as an
director, officer, employee or agent of another entity) if they are made a
party (or threatened with being made a party) to any proceeding because of
their status as a director, officer, employee or agent. This indemnification
applies whether the alleged basis for such proceeding is action taken in an
official capacity or an unofficial capacity. Article XII specifically provides
that these individuals are indemnified to the fullest extent permitted by the
Nevada Law against all expense, liability and loss, including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement, that are reasonably incurred in connection with the proceeding.
Further, under the Old ZMAX Articles of Incorporation, an indemnitee remains
indemnified for acts taken while serving as a director, office, employee or
agent even though the indemnitee no long serves in that capacity. If the
proceeding is initiated by the indemnitee against the Corporation, Article XII
provides for indemnification only if the Board of Directors authorized the
proceeding.

Indemnitees are entitled to advancement of expenses to defend proceedings
where they are subject to indemnification. Article XII further provides that,
if the Nevada Law requires, indemnified directors and officers must, as a
condition of receiving an advancement of expenses, agree to repay the advanced
expenses if ultimately it is found that the indemnitee is not entitled to
indemnification for such expenses.

If the Corporation does not pay claims for indemnification within 60 days,
the indemnitee may sue the Corporation to recover the unpaid amount of the
claim. If the claim is for advancement of expenses, the indemnitee may sue the
Corporation is the claim remains unpaid for 20 days, and if the indemnitee is
successful in a suit for a claim of advancement of expenses, the indemnitee is
entitled to the cost of prosecuting the action to recover expenses. In any
suit against the Corporation for indemnification, except a suit for
advancement of expenses, the Corporation may raise the defense that the
indemnitee's conduct did not meet the standard of the Nevada Law. The
Corporation has the burden of proof in any suit brought to enforce rights of
indemnification against the Corporation, including suits for advancement of
expenses.

NEW ZMAX. Similar to the Nevada Law, the Delaware Law permits corporations
to indemnify directors and officers as well as other employees and individuals
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement in connection with specified actions, suits or proceedings,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) if they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best interest
of the corporation, and with respect to any criminal action or proceeding, had
no reasonable cause to believe their conduct was unlawful. However, different
from the Nevada Law, Delaware corporations may not indemnify against any
claim, issue or matter as to which the indemnified person is adjudged liable
to the corporation, unless, and only to the extent that, the Delaware Court of
Chancery (or the court in which such action or suit was brought) determines
upon application that, despite the adjudication of liability, but in view of
all the circumstances of the case, the indemnified person is fairly and
reasonably entitled to indemnity for such expenses, which the Delaware Court
of Chancery or such other court deems proper.

As of the Effective Time, the New ZMAX Certificate of Incorporation will
indemnify the directors, officer, employees, agents of New ZMAX to the fullest
extent permitted by the Delaware Law, or any other applicable law. Similar to
the Old ZMAX Articles of Incorporation, the New ZMAX Certificate of
Incorporation will provide indemnification for the same range of costs and
expenses, will permit advancement of expenses, and will permit indemnitees the
same rights to sue to recover indemnified amounts.

II-2
<PAGE>

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

The following exhibits are filed as part of this Registration Statement.

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1* Stock Purchase Agreement among ZMAX Corporation, Michael C. Higgins
and Michael S. Cannon, dated November 6, 1996 (acquisition of
Century Services, Inc. operating subsidiary by ZMAX Corporation).
The exhibits to the Stock Purchase Agreement not otherwise filed
herewith have been omitted, and the Co-Registrants will furnish such
exhibits and schedules to the Commission supplementally on request.
2.2 Agreement and Plan of Merger between ZMAX Corporation and New ZMAX
Corporation, dated June 10, 1997 (included as Annex A to the Proxy
Statement/Prospectus that is a part of this Registration Statement).
3.1* Complete Copy of Articles of Incorporation of ZMAX Corporation, as
amended
3.2* Complete Copy of Bylaws of ZMAX Corporation, as amended
3.3* Certificate of Incorporation of New ZMAX Corporation, filed with the
Secretary of State of Delaware on May 30, 1997
3.4* By-laws of New ZMAX Corporation, adopted by the Board of Directors
on June 10, 1997
3.5 Form of Amended and Restated Certificate of Incorporation of New
ZMAX Corporation to be filed as part of the Certificate of Merger
with the Secretary of State of Delaware to effectuate the Merger
(included as Annex B to the Proxy Statement/Prospectus that is a
part of this Registration Statement)
3.6 Form of Amended and Restated By-laws of New ZMAX Corporation, to be
filed as part of the Certificate of Merger with the Secretary of
State of Delaware to effectuate the Merger (included as Annex C to
the Proxy Statement/Prospectus that is a part of this Registration
Statement)
4.1* Form of ZMAX Corporation 8% Convertible Exchangeable Subordinated
Debentures
4.2* Form of Warrant to Purchase Common Stock of ZMAX Corporation
5.1** Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding the
validity of the New ZMAX securities registered hereby
5.2** Opinion of Erwin, Thompson & Hascheff regarding the validity of the
Old ZMAX securities registered hereby
8.1** Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding tax
matters
10.1* ZMAX Corporation 1997 Stock Incentive Plan
10.2* Form of ZMAX Corporation 1997 Nonqualified Stock Option Award (form
of grant and vesting schedule)
10.3* ZMAX Corporation 1997 Directors Formula Stock Option Plan
10.4* Form of ZMAX Corporation Directors Formula Stock Option Award (form
of grant and vesting schedule)
10.5* Employment Agreement between Century Services, Inc. and Michael C.
Higgins, dated November 6, 1996
10.6* First Amendment to the Employment Agreement between Century
Services, Inc. and Michael C. Higgins, dated May 21, 1997
10.7* Employment Agreement between Century Services, Inc. and Joseph Yeh,
dated June 18, 1997
10.8* Separation Agreement between Century Services, Inc. and Michael S.
Cannon, dated April 22, 1997
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.9* Consulting Agreement among ZMAX Corporation, MBY, Inc. and Michel
Berty, dated April 1, 1997
10.10* Consulting Agreement among ZMAX Corporation, Wareham Management Ltd.
and G.W. Norman Wareham, dated May 30, 1997
10.11* Consulting Agreement between ZMAX Corporation and Shafiq Nazerali,
dated May 30, 1997
10.12* Earn Out Stock Escrow Agreement among ZMAX Corporation, Michael C.
Higgins, Michael S. Cannon and Powell, Goldstein, Frazer & Murphy,
dated November 6, 1996
10.13* ZMAX Corporation Stockholders Agreement among Michael C. Higgins,
Michael S. Cannon and ZMAX Corporation, dated November 6, 1996
10.14* Stock Pledge and Security Agreement from Michael C. Higgins in favor
of ZMAX Corporation, dated November 6, 1996
10.15* Letter Agreement among ZMAX Corporation, IMS International, Inc.,
Wan Hsien Information International Corporation, Ltd., Multi-
Dimension International, and Institute for Information Industry
Regarding the Purchase by ZMAX Corporation of the "COCACT" Software
Program, dated April 30, 1997
10.16* Letter Agreement between ZMAX Corporation and Institute for
Information Industry Regarding the Purchase by ZMAX Corporation of
the "COCACT" Software Program, dated April 30, 1997
10.17** Letter Agreement between ZMAX Corporation and Wan Hsien Information
International Corporation Ltd. Regarding the Purchase by ZMAX
Corporation of the "COCACT" Software Program, dated April 30, 1997
10.18* Conversion Agreement between Fiserv Federal Systems, Inc. and ZMAX
Corporation, dated April 28, 1997
10.19* Agreement between ZMAX Corporation and Investor Communications
Company, LLC, dated as of May 20, 1997
10.20* Investor Relations Consulting Agreement between ZMAX Corporation and
Investor Communications Company, LLC, dated as of May 20, 1997
11.1* Statement regarding computation of earnings per share
21.1* Subsidiaries of ZMAX Corporation
23.1* Consent of Arthur Andersen LLP
23.2* Consent of Amisano Hanson, Chartered Accountants
23.3** Consent of Powell, Goldstein, Frazer & Murphy LLP (included in
Exhibits 5.1 and 8.1)
23.4** Consent of Erwin, Thompson & Hascheff (included in Exhibit 5.2)
23.5* Consent of Edward Yourdon to be named as nominee for election to Old
ZMAX Board of Directors
24.1* Powers of Attorney (included on signature pages of initial filing)
27.1 Financial Data Schedule
99.1* Proxy Card for the ZMAX Corporation 1997 Annual Meeting of the
Stockholders
99.2** Letter of Transmittal for Exchange Offer
</TABLE>
- --------

*Previously filed

**To be filed by amendment.

(b) None.

(c) The three transactions that will effect the reincorporation merger
contemplated by this Registration Statement will not result in net proceeds to
either Old ZMAX or New ZMAX.

II-4
<PAGE>

ITEM 22. UNDERTAKINGS.

Insofar as indemnification of liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Co-Registrants pursuant to the foregoing provisions, or otherwise, the Co-
Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by either Co-
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Co-Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Co-Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

The undersigned Co-Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
merger involved therein, that was not the subject of or included in the
Registration Statement when it became effective.

[SIGNATURES APPEAR ON FOLLOWING PAGES]

II-5
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, EACH CO-
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF WASHINGTON, D.C., ON AUGUST 8, 1997.

ZMAX Corporation

/s/ Michael C. Higgins
By: _________________________________
MICHAEL C. HIGGINS, PRESIDENT

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
on the signature pages to this Registration Statement constitutes and appoints
Michael C. Higgins and Michel Berty, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned and in his name, place, and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, will all exhibits hereto and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents and each of them, full power and
authority to do so and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or either of them or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.

ZMAX CORPORATION

SIGNATURE TITLE DATE

/s/ Michael C. Higgins
- ------------------------------------- President and August 8, 1997
MICHAEL C. HIGGINS Director (Principal
Executive Officer)

Chairman of the
* Board of Directors August 8, 1997
- -------------------------------------
MICHEL BERTY

* Chief Financial August 8, 1997
- ------------------------------------- Officer and
G.W. NORMAN WAREHAM Director (Principal
Financial and
Accounting Officer)

Director
* August 8, 1997
- -------------------------------------
STEVE L. KOMAR

II-6
<PAGE>

SIGNATURE TITLE DATE

Director
* August 8, 1997
- -------------------------------------
TED FINE

Director
* August 8, 1997
- -------------------------------------
ROBERT H. MILLER

*By: /s/ Michael C. Higgins
-------------------------------
Michael C. Higgins
Attorney-in-fact
Date: August 8, 1997

II-7

<PAGE>

New ZMAX Corporation

By: /s/ Michael C. Higgins
-----------------------------
MICHAEL C. HIGGINS, PRESIDENT

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.

NEW ZMAX CORPORATION

SIGNATURE TITLE DATE

* Vice President, August 8, 1997
- ------------------------------------- Treasurer,
MICHEL BERTY Secretary and
Director (Principal
Financial and
Accounting Officer)

/s/ Michael C. Higgins President and August 8, 1997
- ------------------------------------- Director (Principal
MICHAEL C. HIGGINS Executive Officer)

*By: /s/ Michael C. Higgins
-------------------------------
Michael C. Higgins
Attorney-in-fact
Date: August 8, 1997

II-8

<PAGE>
<ARTICLE> 5
<CIK> 0001034760
<NAME> ZMAX CORPORATION

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