<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                  FORM 10-QSB


(Mark One)

 X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
---                                                                           
    ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998.
                                               -------------- 

___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________.

COMMISSION FILE NUMBER: 0-21145


                             COVALENT GROUP, INC.
                (Name of small business issuer in its charter)


          NEVADA                                       56-1668867

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

              ONE GLENHARDIE CORPORATE CENTER, 1275 DRUMMERS LANE
                           WAYNE, PENNSYLVANIA 19087
                   (address of principal executive offices)


Issuer's telephone number: 610-975-9533

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.  Yes  X  No ___
                                                               ---   

State the number of shares outstanding of each of the issuer's classes of common
equity as of April 30, 1998.

Common Stock, Par Value $.001                            11,743,209
-----------------------------                            ----------
     (Class)                                             Outstanding

Transitional Small Business Disclosure Format (check one): Yes ___  No  X
                                                                       ---

                                       1
<PAGE>
 
FORM 10-QSB


                             COVALENT GROUP, INC.

                                        
                                     INDEX

<TABLE> 
<CAPTION> 
                                                                            Page
                                                                            ----
<S>                                                                         <C> 
PART I.   Financial Information 

  Item 1. Consolidated Financial Statements

     Balance Sheet - March 31, 1998 (Unaudited)                               3
 
     Statements of Operations - Three Months Ended
     March 31, 1998 and 1997 (Unaudited)                                      5
 
     Statements of Cash Flows - Three Months
     Ended March 31, 1998 and 1997 (Unaudited)                                6
 
     Notes to Consolidated Financial Statements
     (Unaudited)                                                              7
 
  Item 2. Management's Discussion and Analysis of
          Financial Condition and Results of Operations                       9
 
PART II.  Other Information                                                  12
 
Signature Page                                                               13
</TABLE>

                                       2
<PAGE>
 
PART I.  FINANCIAL INFORMATION
  ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS


                             COVALENT GROUP, INC.
                                AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEET
                                MARCH 31, 1998
                                  (Unaudited)

<TABLE> 
<S>                                                         <C>   
ASSETS
 
 
CURRENT ASSETS
   Cash and cash equivalents                                     $1,589,005  
   Accounts receivable                                            1,119,690  
   Prepaid expenses and other                                       254,729  
   Costs and estimated earnings in excess of                                 
     related billings on uncompleted contracts                    1,561,470  
                                                            ---------------  
          TOTAL CURRENT ASSETS                                    4,524,894  
                                                            ---------------  
                                                                             
PROPERTY AND EQUIPMENT                                                       
   Equipment                                                        826,477  
   Furniture and fixtures                                           197,148  
   Leasehold improvements                                            59,441  
                                                            ---------------  
                                                                  1,083,066  
     Less - Accumulated depreciation                               (434,160) 
                                                            ---------------  
          NET PROPERTY AND EQUIPMENT                                648,906  
                                                            ---------------  
                                                                             
                                                                             
DEFERRED INCOME TAXES                                               307,438  
                                                            ---------------
OTHER ASSETS                                                        265,450  
                                                            ---------------  
                                                                             
TOTAL ASSETS                                                     $5,746,688  
                                                            ===============  
</TABLE> 
 
                See accompanying notes to financial statements

                                       3
<PAGE>
 
                             COVALENT GROUP, INC.
                                AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEET
                                MARCH 31, 1998
                                  (Unaudited)
 
<TABLE>                                                 
<S>                                                  <C>  
LIABILITIES AND STOCKHOLDERS' EQUITY

                     
CURRENT LIABILITIES                                                           
Accounts payable                                          $ 1,658,599         
Accrued expenses                                               63,446         
Billings in excess of related costs and                                       
    estimated earnings on uncompleted contracts               314,337         
                                                     ----------------          
              TOTAL CURRENT LIABILITIES                     2,036,382         
                                                     ----------------          
                                                                              
                                                                              
STOCKHOLDERS' EQUITY                                                          
Common stock, $.001 par value                                                 
    25,000,000 shares, authorized                                             
    11,755,709 shares issued                                   11,756         
Additional paid-in-capital                                  9,265,508         
Accumulated deficit                                        (5,516,642)        
                                                     ----------------
                                                            3,760,622         
LESS:                                                                         
    Treasury stock at cost, 12,500 shares                     (50,316)        
                                                     ----------------          
              TOTAL STOCKHOLDERS' EQUITY                    3,710,306         
                                                     ----------------
                                                                              
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $ 5,746,688         
                                                     ================         
</TABLE> 

 
                See accompanying notes to financial statements

                                       4
<PAGE>
 
                             COVALENT GROUP, INC.
                                AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
 
<TABLE> 
<CAPTION> 
                                                                                          Three Months Ended
                                                                                              March 31,
                                                                                              ---------
                                                                                     1998                     1997
                                                                                     ----                     ----
<S>                                                                           <C>                      <C>
REVENUES                                                                           $ 2,239,607              $ 3,045,718
 
OPERATING EXPENSES
  Direct                                                                             1,854,226                2,312,772
  Selling, general and administrative                                                  817,722                  751,117
                                                                              ----------------         ----------------
 
TOTAL OPERATING EXPENSES                                                             2,671,948                3,063,889
                                                                              ----------------         ----------------
 
LOSS FROM OPERATIONS                                                                  (432,341)                 (18,171)
 
INTEREST INCOME                                                                         29,961                   13,445
                                                                              ----------------         ----------------
 
LOSS FROM OPERATIONS BEFORE INCOME                                                    (402,380)                  (4,726)
TAX BENEFIT
 
INCOME TAX BENEFIT                                                                    (136,694)                (103,508)
                                                                              ----------------         ----------------
 
NET INCOME (LOSS)                                                                  $  (265,686)             $    98,782
                                                                              ================         ================
 
NET INCOME (LOSS) PER COMMON SHARE
  Net Income (Loss) - Basic                                                        $      (.02)             $       .01
  Net Income (Loss) - Diluted                                                      $      (.02)             $       .01
 
WEIGHTED AVERAGE COMMON AND COMMON
  EQUIVALENT SHARES OUTSTANDING
   Basic                                                                            11,743,209               11,602,715
   Diluted                                                                          11,743,209               12,246,893
 
</TABLE> 
 
 
                See accompanying notes to financial statements.

                                       5
<PAGE>
 
                             COVALENT GROUP, INC.
                                AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE> 
<CAPTION> 
                                                                              Three Months Ended                      
                                                                                    March 31,                         
                                                                                    ---------                         
                                                                          1998                    1997                             
                                                                          ----                    ----                             
<S>                                                                <C>                       <C>                      
OPERATING ACTIVITIES:                                                                                                 
                                                                                                                      
Net income (loss)                                                       $ (265,686)                 98,782                  
Adjustments to reconcile net income (loss) to                                                                               
   net cash (used in) provided by operating activities                                                                      
     Amortization and depreciation                                          61,719                  35,406                  
     Deferred income taxes                                                (136,823)               (103,508)                 
     Changes In assets and liabilities                                                                                      
     (Increase) decrease in -                                                                                               
     Accounts receivable                                                 1,015,533                 (75,361)                 
     Prepaid expenses and other                                            (83,795)               (163,386)                 
     Costs and estimated earnings in excess                                                                                 
     of related billings on uncompleted contracts                         (153,537)               (191,805)                 
     Other assets                                                          (16,239)                    319                  
     Increase (decrease) in -                                                                                               
     Accounts payable                                                     (144,458)              1,070,535                  
     Accrued expenses                                                      (34,973)                  7,057                  
     Billings in excess of related costs and                                                                                
      estimated earnings on uncompleted contracts                         (424,776)               (316,091)                 
                                                                   ---------------           -------------            
                                                                                                                      
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                       (183,035)                361,948            
                                                                   ---------------           -------------            
                                                                                                                      
INVESTING ACTIVITIES:                                                                                                 
                                                                                                                      
Purchases of property and equipment                                        (22,490)                (78,668)            
                                                                   ---------------           -------------            
                                                                                                                      
NET CASH USED IN INVESTING ACTIVITIES                                      (22,490)                (78,668)            
                                                                   ---------------           -------------            
                                                                                                                      
                                                                                                                      
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                      (205,525)                283,280            
                                                                                                                      
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                           1,794,530                 922,010            
                                                                   ---------------           -------------            
                                                                                                                      
CASH AND CASH EQUIVALENTS, END OF PERIOD                                $1,589,005              $1,205,290            
                                                                   ===============           =============             
</TABLE>


                See accompanying notes to financial statements

                                       6
<PAGE>
 
FORM 10-QSB

                             Covalent Group, Inc.
                                And Subsidiary
                  Notes To Consolidated Financial Statements
                                  (Unaudited)


1.   DESCRIPTION OF BUSINESS
     -----------------------

     Covalent Group, Inc. (the "Company"), is a contractual research
     organization, providing clinical research and development services to
     pharmaceutical, biotechnology, medical services and managed care
     organizations.  The Company initiates, designs and monitors clinical
     trials, manages and analyzes clinical data and offers other related
     services and products.

2.   SUMMARY OF 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 period.  Actual results could differ from those estimates.

     Principles of Consolidation
     ---------------------------

     The consolidated financial statements include the accounts of the Company
     and its wholly owned subsidiary.  Intercompany transactions and balances
     have been eliminated in consolidation.

     Basis of Presentation
     ---------------------

     The financial statements for the three months ended March 31, 1998 and 1997
     have been prepared without audit and, in the opinion of management, reflect
     all adjustments necessary (consisting only of normal recurring adjustments)
     to present fairly the Company's financial position at March 31, 1998 and
     the results of its operations and its cash flows for the interim periods
     presented.  Such financial statements do not include all of the information
     and footnotes required by generally accepted accounting principles for
     complete financial statements.  For further information, refer to the
     financial statements and footnotes thereto included in the Company's annual
     report on Form 10-KSB for the year ended December 31, 1997.

     Operating results for the three months ended March 31, 1998 may not
     necessarily be indicative of the results for the year ending December 31,
     1998.

                                       7
<PAGE>
 
     Revenue Recognition
     -------------------

     Fixed price contract revenue is recognized based on the status of the work
     completed under the contract as of a given time using the percentage of
     completion method.  Revenue from other contracts is recognized as services
     are provided.  Revenue related to contract modifications is recognized when
     realization is assured and the amounts are reasonably determinable.
     Adjustments to contract cost estimates are made in the periods in which the
     facts which require the revisions become known.  When the revised estimate
     indicates a loss, such loss is provided for currently in its entirety.
     Costs and estimated earnings in excess of related billings on uncompleted
     contracts represent revenue recognized in excess of amounts billed.
     Billings in excess of related costs and estimated earnings on uncompleted
     contracts represent amounts billed in excess of revenue recognized.

     Reclassifications
     -----------------

     Certain prior year balances have been reclassified to conform to the
     current year presentation.

     Net Income (Loss) Per Common and Common Equivalent Share
     --------------------------------------------------------

     The Company adopted Statement of Financial Accounting Standards No. 128
     "Earnings Per Share" (SFAS No. 128) as of December 31, 1997.  In accordance
     with SFAS No. 128, prior period earnings per share amount have been
     restated to conform with SFAS No. 128.  SFAS No. 128 requires basic
     earnings per share which is computed by dividing reported earnings
     available to common shareholders by the weighted average shares outstanding
     and diluted earnings per share which reflects the dilutive effect of common
     stock equivalents such as stock options and warrants, unless the inclusion
     of these items would be anti dilutive.


     The weighted average common and common equivalent shares outstanding for
     purposes of calculating net income (loss) per common share are computed as
     follows:

 
<TABLE> 
<CAPTION> 
                                                                 Three Months Ended                         
                                                                      March 31,                            
                                                                      ---------                             
                                                                1998               1997                 
                                                                ----               ----       
     <S>                                                     <C>                <C> 
     Weighted average common shares                                                                        
      outstanding used for basic net income                                       
      (loss) per common share                                 11,743,209         11,602,715                                       
                                                                                                           
     Dilutive effect of common stock                                                                       
      options and warrants outstanding                                 -            644,178               
                                                             -----------        -----------            

     Weighted average common and                                                                           
      common equivalent shares                                                         
      outstanding used for diluted net 
      income (loss) per common share                          11,743,209         12,246,893               
                                                             ===========        ===========
</TABLE> 


     New Accounting Pronouncements
     -----------------------------

     In June 1997, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 130 " Reporting Comprehensive Income"
     (SFAS No. 130).  

                                       8
<PAGE>
 
     SFAS No. 130 is effective for fiscal years beginning after December 15,
     1997. SFAS No. 130 establishes standards for the reporting and display of
     comprehensive income in a set of financial statements. Comprehensive income
     is defined as the change in net assets of a business enterprise during a
     period from transactions generated from non-owner sources. It includes all
     changes in equity during a period except those resulting from investments
     by owners and distributions to owners. The Company adopted SFAS No. 130 as
     of March 31, 1998 and the adoption had no impact on the Company's financial
     statements.

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

When used in this Report on form 10-QSB and in other public statements, both
oral and written, by Covalent Group, Inc. (the "Company") and Company Officers,
the words "estimate," "project," "intend," "believe," "anticipate" and similar
expressions are intended to identify forward-looking statements regarding events
and financial trends that may affect the Company's future operating results and
financial position.  Such statements are subject to risks and uncertainties that
could cause the Company's actual results and financial position to differ
materially.  Such factors include, among others: (i) the Company's success in
attracting new business; (ii) the size, duration and timing of clinical trials;
(iii) the termination, delay or cancellation of clinical trials; (iv) the
intense competition in the industry in which the Company competes; (v) the
Company's ability to obtain financing on satisfactory terms; (vi) the
sensitivity of the Company's business to general economic conditions; and (vii)
other economic, competitive, governmental and technological factors affecting
the Company's operations, markets, products, services and prices.  The Company
undertakes no obligation to publicly release the result of any revision of these
forward-looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events.

The Information set forth and discussed below for the three months ended March
31, 1998 and 1997 is derived from the Consolidated Financial Statements included
elsewhere herein.  The financial information set forth and discussed below is
unaudited but, in the opinion of management, reflects all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
such information.  The results of operations of the Company for a particular
quarter may not be indicative of results expected during the other quarters or
for the entire year.

GENERAL
-------

The Company, through its wholly owned subsidiary Covalent Research Alliance
Corp., is a research management organization that designs, coordinates and
monitors clinical trials in drug development for some of the world's leading
pharmaceutical firms.  in addition, using advanced technologies, the Company
works extensively in managed care, medical outcomes research and health
management programs that focus on compliance and provider/patient behavior
modification.  Revenue is derived principally from the identification,
placement, monitoring and management of clinical development studies in the
traditional pharmaceutical, as well as managed care environment.

The Company's quarterly results can fluctuate as a result of a number of
factors, including the Company's success in attracting new business, the size
and duration of the clinical trials, the timing of client decisions to conduct
new clinical trials or possible cancellation or delays of ongoing trials, and
other factors, many of which are beyond the company's control.  Clinical
research service contracts generally have terms ranging from several months to
several years.  A portion of the 

                                       9
<PAGE>
 
contract fee is generally payable upon execution of the contract, with the
balance payable in installments over the life of the contract. Revenue and
related cost of revenue are recognized as specific contract terms are fulfilled
under the percentage of completion method.

Contracts generally may be terminated by clients with or without cause.
Clinical trials may be terminated or delayed for several reasons, including
unexpected results or adverse patient reactions to the drug, inadequate patient
enrollment or investigator recruitment, manufacturing problems resulting in
shortages of the drug or decisions by the client to de-emphasize or terminate a
particular trial or development efforts on a particular drug.  Depending on the
size of the trial in question, a client's decision to terminate or delay a trial
in which the Company participates could have a materially adverse effect on the
Company's backlog, future revenue and profitability.

The Company's backlog, which consists of anticipated revenues from signed
contracts, is in excess of $8 million at March 31, 1998.  The Company believes
that its backlog as of any date is not necessarily a meaningful predictor of
future results.

Three Months Ended March 31, 1998 Compared To Three Months Ended March 31, 1997.
--------------------------------------------------------------------------------

Revenues for the three months ended March 31, 1998 decreased 26% to $2,240,000
as compared to $3,046,000 for the three month period ended March 31, 1997.  The
decrease of $806,000 is directly related to one less major clinical study being
conducted in the most recent quarter as compared to the same quarter last year.

Direct expenses include compensation and other expenses directly related to
conducting clinical studies.  These costs decreased by $459,000 from $2,313,000
to $1,854,000 for the three months ended March 31, 1997 and 1998, respectively.
The decrease in expenses results from fewer fees being paid to investigator
sites.  Direct expenses as a percentage of total revenues were 83% for the three
months ended March 31, 1998 as compared to 76% for the same period last year.
The increase in relative percent is due to the fixed cost component of personnel
necessary to support an expected greater number of clinical studies.

Selling, general and administrative expenses include all administrative and
business development personnel, and all other support expenses not directly
related to specific contracts.  Also included are expenses associated with the
development of an interactive voice recognition system ("IVR") the platform
development of which was essentially completed in January 1998.  Selling,
general and administrative expenses for the three months ended March 31, 1998
amounted to $818,000 as compared to $751,000 for the same period last year.
Included in selling, general and administrative expenses for the three months
ended March 31, 1997 and 1998 are IVR development and system maintenance
expenses of $166,000 and $115,000, respectively.  The increase in the level of
expenses, excluding IVR related expenses for both periods, is due to costs
associated with building the necessary support infrastructure for the overall
business.  As a percentage of revenues, selling, general and administrative
expenses increased from 25% to 37% for the three months ended March 31, 1997 and
1998 respectively.  The increase in expenses as a percentage of revenues results
from the decrease in clinical trial revenues.

Interest income increased $17,000 from $13,000 for the three months ended March
31, 1997 to $30,000 for the three months ended March 31, 1998.

                                       10
<PAGE>
 
Income tax benefit for the three months ended March 31, 1998 amounted to
$137,000 or 34% of the operating loss for the period.  Management expects the
tax benefit to be fully utilized.

In 1996 the Company sold all of the stock of a subsidiary, Future Medical
Technologies, Inc. ("FMT").  In the three months ended March 31, 1997 the
Company reached agreement with the purchaser to treat the sale of FMT as an
asset sale under Internal Revenue Code Section 338 (h)(10).  Accordingly, the
loss on the sale is deductible for tax purposes against future income, and, as a
result, the Company recorded a deferred tax asset of $94,000.  Management
anticipates the loss on disposal to be fully utilized.

Liquidity and Capital Resources
-------------------------------

The Company's contracts usually require a portion of the contract amount to be
paid at the time the contract is initiated.  Additional payments are generally
made upon completion of negotiated performance requirements throughout the life
of the contract.  Cash receipts do not necessarily correspond to costs incurred
and revenue recognized (revenue recognition is based on the percentage of
completion accounting method).  The Company typically receives a low volume of
large-dollar receipts.  As a result, the number of days outstanding in accounts
receivable will fluctuate due to the timing and size of cash receipts.  Accounts
receivable and costs and estimated earnings in excess of related billings on
uncompleted contracts were $2,681,000 at March 31, 1998 and $3,543,000 at
December 31, 1997.  The decrease relates directly to the reduction in revenues
and the timing of payments by clients.
 
     The Company's cash and cash equivalents balance at March 31, 1998 was
$1,589,000 as compared to $1,795,000 at December 31, 1997.  The decrease in cash
was primarily due to normal operations.

     The Company has a line of credit with a commercial bank providing a maximum
credit facility of $1 million which bears interest at a rate not to exceed 1%
point above the bank's prime rate.  Borrowings outstanding under the credit line
are secured by substantially all of the assets of the Company.  No borrowings
were outstanding under the credit line at March 31, 1998.
 
     The Company's principal cash needs on both a short and long-term basis are
for the funding of its operations, and capital expenditure requirements.  The
Company expects to continue expanding its operations through internal growth,
expansion of its existing services, and the development of new services for
clinical research and the healthcare industry.  The Company expects such
activities to be funded from existing cash and cash equivalents and cash flow
from operations.

                                       11
<PAGE>
 
FORM 10-QSB

                             COVALENT GROUP, INC.

PART II. OTHER INFORMATION

     ITEM 1.   Legal Proceedings
 
               None.
 
     ITEM 2.   Changes in Securities
 
               None.
 
     ITEM 3.   Defaults Upon Senior Securities
 
               None.
 
     ITEM 4.   Submission of Matters to a Vote of Security Holders
 
               None.
 
     ITEM 5.   Other Information
 
               None.
 
     ITEM 6.   Exhibits and Reports on Form 8-K
 
               (a) Exhibits
 
                   27 Financial Data Schedule (in electronic format only)
 
               (b) Reports on Form 8-K
 
                   On January 8, 1998 the Company filed Form 8-K reporting
                   stockholder ratification to appoint the firm of Arthur
                   Andersen LLP as its independent auditors beginning January 1,
                   1998 to make an examination of the accounts of the Company
                   for the year ended December 31, 1997. The Company had no
                   disagreements with its previous independent auditors, Baratz
                   & Associates, P.A. on any matter of accounting principles or
                   practices, financial statement disclosure or auditing scope
                   or procedure.

                                       12
<PAGE>
 
                                  SIGNATURES
                                        
     In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                                   COVALENT GROUP, INC.


Dated: May 14, 1998                 By: /s/Bruce LaMont
       ------------                     -----------------------------
                                        Bruce LaMont, President           
                                        and Chief Executive Officer        
 

Dated: May 14, 1998                 By: /s/William K. Robinson
       ------------                     -----------------------------
                                        William K. Robinson, Chief
                                        Financial Officer

                                       13