<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 SEPTEMBER 30, 2001.

____ 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 September 30, 2001.

Common Stock, Par Value $.001                                       12,497,709
-----------------------------                                       ----------
         (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

          Consolidated Balance Sheet - September 30, 2001 (Unaudited) and
           December 31, 2000 (Unaudited)                                                    3

          Consolidated Statements of Operations - Three Months and Nine Months Ended
           September 30, 2001 (Unaudited) and 2000 (Unaudited)                              4

          Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2001
           (Unaudited) and 2000 (Unaudited)                                                 5

          Notes to Consolidated Financial Statements (Unaudited)                            6

     Item 2. Management's Discussion and Analysis of
             Financial Condition and Results of Operations                                 10

PART II. Other Information                                                                 15


Signature Page                                                                             16
</TABLE>

                                       2
<PAGE>

PART 1 FINANCIAL INFORMATION
       ITEM 1.
                          Consolidated Balance Sheets
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                     September 30, 2001            December 31, 2000
                                                                   ----------------------       ------------------------
<S>                                                                      <C>                           <C>
Assets
Current Assets
       Cash and cash equivalents                                           $    154,677                  $    86,977
       Restricted cash                                                          275,170                      612,522
       Accounts receivable                                                    5,078,514                    1,652,487
       Prepaid expenses and other                                               402,569                      297,013
       Costs and estimated earnings in excess of
         related billings on uncompleted contracts                            8,253,051                    5,549,457
                                                                           ------------                -------------
            Total Current Assets                                             14,163,981                    8,198,456
                                                                           ------------                -------------
Property and Equipment, Net                                                   1,033,370                      999,070

Deferred Income Taxes                                                            78,854                       78,961

Other Assets                                                                     31,007                       34,073
                                                                           ------------                -------------
Total Assets                                                               $ 15,307,212                  $ 9,310,560
                                                                           ============                =============
Liabilities and Stockholders' Equity
Current Liabilities
       Accounts payable                                                    $    954,830                  $   452,643
       Accrued expenses                                                         348,384                      442,001
       Short term debt                                                        1,600,000
       Income tax payable                                                       580,683                      720,260
       Obligations under capital leases                                          45,522                       34,723
       Billings in excess of related costs and
         estimated earnings on uncompleted contracts                            699,101                      531,641
       Customer advances                                                      2,789,098                      813,974
                                                                           ------------                -------------
            Total Current Liabilities                                         7,017,618                    2,995,242
                                                                           ------------                -------------
Long Term Liabilities
       Obligations under capital leases                                          52,357                       75,286
                                                                           ------------                -------------
            Total Long Term Liabilities                                          52,357                       75,286
                                                                           ------------                -------------
Total Liabilities                                                             7,069,975                    3,070,528
                                                                           ------------                -------------
Stockholders' Equity
       Common stock,  $.001 par value 25,000,000 shares
          authorized, 12,497,709 and 12,213,309
          shares issued respectively                                             12,498                       12,213
       Additional paid-in capital                                            10,514,568                    9,915,656
       Accumulated deficit                                                   (2,232,496)                  (3,636,926)
       Accumulated other comprehensive income (loss)                             (7,017)                        (595)
                                                                           ------------                -------------
          Less:                                                               8,287,553                    6,290,348
            Treasury stock, at cost, 12,500 shares                              (50,316)                     (50,316)
                                                                           ------------                -------------
            Total Stockholders' Equity                                        8,237,237                    6,240,032
                                                                           ------------                -------------
Total Liabilities and Stockholders' Equity                                 $ 15,307,212                  $ 9,310,560
                                                                           ============                =============
</TABLE>

       See accompanying notes to the consolidated financial statements.

                                       3
<PAGE>

                             Covalent Group, Inc.
                     Consolidated Statements Of Operations
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                  Three Months Ended September 30        Nine Months Ended September 30
                                                    2001         2000 (Restated)          2001         2000 (Restated)
                                             ------------------------------------- -------------------------------------
<S>                                          <C>                   <C>                <C>                 <C>
Revenues                                         $ 4,564,275        $ 3,175,902       $ 13,081,106        $ 9,960,405

Operating Expenses
    Direct                                         2,757,538          1,581,156          7,002,166          5,361,393
    Selling, general and administrative            1,045,415            882,477          3,228,960          2,392,974
    Depreciation and amortization                    135,679             88,725            370,362            285,149
                                             ------------------------------------- -------------------------------------

Total Operating Expenses                           3,938,632          2,552,358         10,601,488          8,039,516
                                             ------------------------------------- -------------------------------------
Income from Operations                               625,643            623,544          2,479,618          1,920,889

Net Interest (Expense) Income                        (24,993)             1,290            (65,931)            20,015
                                             ------------------------------------- -------------------------------------
Income before Income Taxes                           600,650            624,834          2,413,687          1,940,904

Income Tax Provision                                 251,340            215,170          1,009,257            684,100
                                             ------------------------------------- -------------------------------------
Net Income                                       $   349,310        $   409,664       $  1,404,430        $ 1,256,804
                                             ===================================== =====================================
Net Income per Common Share

Basic:                                           $      0.03        $      0.03       $       0.11        $      0.10
Diluted:                                         $      0.03        $      0.03       $       0.11        $      0.10

Weighted Average Common and Common Equivalent Shares Outstanding
Basic                                             12,483,235         12,179,954         12,498,335         12,157,742
Diluted                                           13,097,087         12,633,207         13,029,023         12,851,947
</TABLE>

       See accompanying notes to the consolidated financial statements.

                                       4
<PAGE>

                             Covalent Group, Inc.

                     Consolidated Statements of Cash Flows

                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                         Nine months Ended September 30,
                                                                                       2001                      2000 (Restated)
                                                                              -----------------------       ------------------------
<S>                                                                           <C>                           <C>
Operating Activities:

Net income                                                                      $          1,404,430          $           1,256,804
       Adjustments to reconcile net income to
       net cash provided by operating activities
       Depreciation and amortization                                                         370,362                        285,149
       Changes in assets and liabilities
       (Increase) decrease in -
       Restricted cash                                                                       337,352                       (384,098)
       Accounts receivable                                                                (3,426,027)                     1,014,184
       Prepaid expenses and other                                                           (105,556)                      (123,196)
       Costs and estimated earnings in excess
         of related billings on uncompleted contracts                                     (2,703,594)                    (2,361,820)
       Other assets                                                                            3,066                        (13,887)
       Deferred income taxes                                                                     107                              -
       Increase (decrease) in -
       Accounts payable                                                                      502,187                        475,192
       Accrued expenses                                                                      (93,617)                      (549,082)
       Income taxes payable                                                                 (139,577)                        31,358
       Billings in excess of related costs and
         estimated earnings on uncompleted contracts                                         167,460                        118,871
       Customer advances                                                                   1,975,124                        788,625
                                                                              -----------------------       ------------------------
Net Cash (Used In)/Provided by Operating Activities                                       (1,708,283)                       538,100
                                                                              -----------------------       ------------------------
Investing Activities:

Purchases of property and equipment                                                         (387,346)                       (47,121)
                                                                              -----------------------       ------------------------
Net Cash (Used In)/Provided by Operating Activities                                         (387,346)                       (47,121)
                                                                              -----------------------       ------------------------
Financing Activities:
Principal repayments of obligations under capital leases                                     (29,446)                             -
Borrowings under short term debt                                                           1,600,000                              -
Proceeds from exercise of stock options                                                      599,197                        461,663
                                                                              -----------------------       ------------------------
Net Cash Provided By Financing Activities                                                  2,169,751                        461,663
                                                                              -----------------------       ------------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents                                  (6,422)                             -

Net Increase In Cash and Cash Equivalents                                                     67,700                        952,642

Cash and Cash Equivalents, Beginning of Period                                                86,977                        558,528
                                                                              -----------------------       ------------------------
Cash and Cash Equivalents, End of Period                                        $            154,677          $           1,511,170
                                                                              =======================       ========================
</TABLE>

       See accompanying notes to the consolidated financial statements.

                                       5
<PAGE>

FORM 10-QSB

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


1.   DESCRIPTION OF BUSINESS

     In this discussion, the terms, "Company", "we", "us", and "our", refer to
     Covalent Group, Inc. and subsidiary, except where it is made clear
     otherwise.

     We are a contractual research organization, providing clinical research and
     development services to pharmaceutical, biotechnology, medical service and
     managed care organizations. We initiate, design and monitor clinical
     trials, manage and analyze clinical data and offer other related services
     and products.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Consolidation
     -------------

     The consolidated financial statements for 2001 and 2000 include our
     accounts and the accounts of our wholly owned subsidiary. Intercompany
     transactions and balances have been eliminated in consolidation.

     Use of Estimates
     ----------------

     The preparation of consolidated financial statements in conformity with
     accounting principles generally accepted in the United States of America
     ("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.

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

     The financial statements for the three and nine months ended September 30,
     2001 and 2000 have been prepared without audit and, in the opinion of
     management, reflect all adjustments necessary (consisting only of normal
     recurring adjustments) to present fairly our financial position at
     September 30, 2001 and December 31, 2000 and the results of our operations
     and our 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 our annual report on Form 10-KSB, for the year ended
     December 31, 2000.

     Operating results for the nine months ended September 30, 2001 may not
     necessarily be indicative of the results for the year ending December 31,
     2001.

                                       6
<PAGE>

     Revenue Recognition
     -------------------

     Revenues are earned by performing services primarily under fixed-price
     contracts. Revenues from contracts are recognized using the percentage of
     completion method, measured principally by the total costs incurred as a
     percentage of estimated total costs for each contract. The estimated total
     costs of contracts are reviewed and revised periodically throughout the
     lives of the contracts with adjustments to revenues resulting from such
     revisions being recorded on a cumulative basis in the period in which the
     revisions are made. Hence, the effect of the changes on future periods of
     contract performance is recognized as if the revised estimates had been the
     original estimates. Because of the inherent uncertainties in estimating
     costs, it is at least reasonably possible that the estimates used will
     change in the near term and could result in a material change. 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.

     Restricted Cash
     ---------------

     We received an advance payment from one of our customers as part of a long
     term contract, which includes a separate restricted cash account to be
     utilized for payment of investigator fees. As of September 30, 2001, this
     restricted cash amount was $275,170. This amount was also included in
     customer advances.

     Net Income Per Common and Common Equivalent Share
     -------------------------------------------------

     Basic net income per common share was computed by dividing net income by
     the weighted average number of shares of common stock outstanding during
     the period. Diluted net income per common share reflects the potential
     dilution from the exercise of outstanding stock options and warrants into
     common stock.

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

<TABLE>
<CAPTION>
                                                           Three Months Ended                 Nine Months Ended
                                                              September 30,                     September 30,
                                                           2001             2000             2001             2000
                                                       ------------      -----------      -----------     ------------
<S>                                                    <C>               <C>              <C>             <C>
Net income used for basic and diluted
net income per common share                            $    349,310      $   409,664      $ 1,404,430     $  1,256,804
                                                       ============      ===========      ===========     ============
Weighted average common shares outstanding
used for basic net income per common share               12,483,235       12,179,954       12,498,335       12,157,742

Dilutive effect of common stock
options and warrants outstanding                            613,841          453,253          530,688          694,205
                                                       ------------      -----------      -----------     ------------
Weighted average common and common
equivalent shares outstanding used for
diluted net income per common share                      13,097,076       12,633,207       13,029,023       12,851,947
                                                       ============      ===========      ===========     ============
</TABLE>

                                       7
<PAGE>

     Comprehensive Income
     --------------------

     A reconciliation of comprehensive income in accordance with Statement of
     Financial Accounting Standards No. 130 "Reporting Comprehensive Income" is
     as follows:

<TABLE>
<CAPTION>
                                                    Three Months Ended             Nine Months Ended
                                                        September 30,                 September 30,
                                                    2001           2000           2001             2000
                                                 ---------       --------      ----------      -----------
     <S>                                         <C>             <C>           <C>             <C>
     Net Income                                  $ 349,310       $409,664      $1,404,430      $ 1,256,804

     Foreign currency translation
      adjustment                                    (9,446)             -          (6,422)               -
                                                 ---------       --------      ----------      -----------
                                                 ---------       --------      ----------      -----------
     Comprehensive Income                        $ 339,864       $409,664      $1,398,008      $ 1,256,804
                                                 =========       ========      ==========      ===========
</TABLE>

     New Accounting Pronouncement
     ----------------------------

     In June 1998, the Financial Accounting Standards Board (the "FASB") issued
     SFAS No. 133, "Accounting for Derivative Investments and Hedging
     Activities." This statement establishes the accounting and reporting
     standards for derivatives and hedging activity. Upon the adoption of SFAS
     No. 133, all derivatives are required to be recognized in the statement of
     financial positions as either assets or liabilities and measured at fair
     value. In July 1999, and June 2000, the FASB issued SFAS No. 137 and SFAS
     No. 138 which deferred the effective date for implementation of SFAS No.
     133 to fiscal years beginning after June 15, 2000 and which addressed a
     limited number of issues causing implementation difficulties for entities
     that apply SFAS No. 133, respectively. Adoption of this statement on
     January 1, 2001 did not have a material effect on our financial statements.

     In June 2001, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standard (SFAS) No. 141, Business Combinations and
     SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires
     that all business combinations initiated after June 30, 2001 be accounted
     for under the purchase method and addresses the initial recognition and
     measurement of goodwill and other intangible assets acquired in a business
     combination. SFAS No. 142 addresses the initial recognition and measurement
     of intangible assets acquired outside of a business combination and the
     accounting for goodwill and other intangible assets subsequent to their
     acquisition. SFAS No. 142 provides that intangible assets with finite
     useful lives be amortized and that goodwill and intangible assets with
     indefinite lives will not be amortized, but will rather be tested at least
     annually for impairment. Adoption of SFAS No. 141 did not have a material
     impact on our financial statements. Adoption of SFAS No. 142 is not
     expected to have a material impact on our financial statements.

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
     "Accounting for Asset Retirement Obligations." This Statement addresses
     financial accounting and reporting for obligations associated with the
     retirement of tangible long-lived assets and the associated asset
     retirement costs. This Statement requires that the fair value of a
     liability for an asset retirement obligation be recognized in the period in
     which it is incurred if a reasonable estimate of fair value can be made.
     SFAS No. 143 is effective for financial statements issued for fiscal years
     beginning after June 15, 2002. Adoption of SFAS No. 143

                                       8
<PAGE>

     is not expected to have a material impact on our financial statements.

     In August 2001, the Financial Accounting Standards Board issued SFAS No.
     144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This
     Statement addresses the financial accounting and reporting for the
     impairment or disposal of long-lived assets. This Statement superceded FASB
     Statement No. 121, "Accounting for the Impairment of Long-Lived Assets."
     This Statement established a single accounting model, based on the
     framework established in SFAS No. 121, and resolved some of the
     implementation issues related to Statement 121. SFAS No. 144 is to be
     effective for financial statements issued for fiscal years beginning after
     December 15, 2001, and interim periods within those fiscal years. Adoption
     of SFAS No. 144 is not expected to have a material impact on our financial
     statements.


     Change in Accounting Principle
     ------------------------------

     In the quarter ended December 31, 2000, we performed an extensive review of
     our contracts for purposes of evaluating the impact of SAB 101 on our
     consolidated financial statements. Due to the magnitude of the adjustments,
     we determined that disclosure of pro forma net income as a result of the
     above discussion was necessary. Proforma net income as a result of our
     change in accounting for revenue recognition under SAB 101 is disclosed
     below:

<TABLE>
<CAPTION>
                                                                    Three Months Ended         Nine Months Ended
                                                                       September 30,              September 30,
                                                                           2000                       2000
                                                                    -------------------        ------------------
             <S>                                                     <C>                       <C>
             Net income as reported                                   $   409,664                 $ 1,256,804

             Adjustments for current year net income:
             Total pretax adjustment -
                  Change in accounting principle                          (13,661)                    229,887
                  Tax effect                                                5,738                     (96,553)
                  Net adjustment                                      $    (7,923)                $   133,334
                                                                    -------------------        -----------------
             Net income as adjusted                                   $   401,741                 $ 1,390,138

             Basic weighted average common and
                 common equivalent shares outstanding                  12,179,954                  12,157,742

             Basic earnings per share as reported                     $      0.03                 $      0.10
             Per share amount of the adjustment                       $         -                 $      0.01
             Pro forma earnings per common share                      $      0.03                 $      0.11
</TABLE>

     Restatement
     -----------

     In the quarter ended December 31 , 2000, we reviewed our relationship with
     Speedtrials.com. Speedtrials.com is an internet venture with which we were
     collaborating to develop a web-based clinical research application. As
     disclosed in our December 31, 2000 Form 10-KSB, we reversed $680,000 of
     previously recorded revenues. This amount is comprised of, $30,000,
     $325,000 and $325,000 which were recorded in the quarters ended March 31,
     2000, June 30, 2000 and September 30, 2000 respectively. The restated
     September 30, 2000 amounts are reconciled to previously recorded revenues
     below:

                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                Three Months Ended    Nine Months Ended
                                                    September 30,         September 30,
                                                        2000                   2000
                                                ------------------    -----------------
          <S>                                   <C>                   <C>
          Revenues as previously reported       $        3,500,902    $      10,640,405

          Adjustments to reverse revenues       $         (325,000)   $        (680,000)
                                                ------------------    -----------------

          Revenues as restated                  $        3,175,902    $       9,960,405
                                                ------------------    -----------------
</TABLE>

     As a result of the above restatement, net income for the quarter ended
     September 30, 2000 decreased by $188,500 from $598,164 to $409,664 and for
     the nine months ended September 30, 2000 decreased by $394,400 from
     $1,651,204 to $1,256,804.

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

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

3.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     We had previously reported a collaboration with Speedtrials.com, Inc. to
     develop web-based clinical research management applications. During the
     second quarter of 2001, we terminated our relationship with
     Speedtrials.com, Inc. In connection with the termination, we had no further
     obligations in connection with that relationship except for approximately
     $45,000 which we paid to the outside technology company which provided
     services in connection with the project. As a result, in the second
     quarter, we released an accrual for approximately $205,000 which we
     previously recorded relating to this project. In addition, we incurred
     additional professional fees in connection with the termination of the
     project. Richard Propper, a greater than 5% shareholder of the Company,
     holds a greater than 10% equity interest in Speedtrials.com, Inc.

4.   LINE OF CREDIT

     In 1997, we obtained a demand line of credit facility with a bank. Maximum
     borrowings under the facility were the lessor of $1,000,000 or 75% of
     eligible accounts receivable, as defined, and bear interest at the bank's
     prime rate plus 1.0%. On March 30, 2001, the credit facility was extended
     through May 31, 2001 and increased to a maximum borrowing of $1,500,000 at
     the same terms. On April 10, 2001, the credit facility was modified and
     increased to the lesser of $2,500,000 or 75% of eligible accounts
     receivable, as defined and bears interest at the bank's prime rate plus
     1.0%, expiring on June 30, 2002. On September 26, 2001, the credit facility
     was consolidated and modified to incorporate two financial covenants which
     includes, a tangible net worth of $6,500,000 and a total liabilities to
     tangible net worth ratio not more than 1.0 to 1.0. On September 30, 2001
     our borrowings totaled $1,600,000 leaving $900,000 available under the line
     of credit.

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

     Forward Looking Statements
     --------------------------

                                       10
<PAGE>

     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
     our future operating results and financial position. Such statements are
     subject to risks and uncertainties that could cause our actual results and
     financial position to differ materially. Such factors include, among
     others: (i) our 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
     we compete; (v) our ability to obtain financing on satisfactory terms; (vi)
     the sensitivity of our business to general economic conditions; (vii) other
     economic, competitive, governmental and technological factors affecting our
     operations, markets, products, services and prices and (viii) concentration
     of our clients. We undertake 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. These and other factors that could cause the forward-
     looking statements to be materially different are described in greater
     detail in our Annual Report on Form 10-KSB in the section entitled "Risk
     Factors".

     General
     -------

     The information set forth and discussed below for the three and nine months
     ended September 30, 2001, and 2000 is derived from the 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 adjustments) necessary for
     a fair presentation of such information. The results of our operations for
     a particular quarter may not be indicative of results expected during the
     other quarters or for the entire year.

     Our quarterly results can fluctuate as a result of a number of factors,
     including our success in attracting new business, the size and duration of
     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 our control. Clinical research service
     contracts generally have terms ranging from several months to several
     years. A portion of the contract fee is generally payable upon execution of
     the contract, with the balance payable in installments over the life of the
     contract.

     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 we participate could have a
     materially adverse effect on our backlog, future revenue and profitability.

     Our backlog, which consists of anticipated revenues from signed contracts,
     is $29 million at September 30, 2001. We believe that our backlog as of any
     date is not necessarily a meaningful predictor of future results.

                                       11
<PAGE>

     Three Months Ended September 30, 2001 Compared To Three Months Ended
     --------------------------------------------------------------------
     September 30, 2000
     ------------------

     Revenues for the three months ended September 30, 2001 increased 44% to
     $4,564,000 as compared to $3,176,000 for the three month period ended
     September 30, 2000. The increase of $1,388,000 results from the increase in
     the number of clinical development projects in process during 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 expenses increased by $1,177,000 from
     $1,581,000 to $2,758,000 for the three months ended September 30, 2000 and
     2001, respectively. The increase in expenses resulted principally from the
     increase in the number of clinical development projects. Direct expenses as
     a percentage of revenues were 60% for the three months ended September 30,
     2001 as compared to 50% for the same period last year. The increase in
     relative percent is due to an increase in our assessment of estimated costs
     towards completion of an ongoing contract, the adverse impact on our
     workflow processes during the weeks following September 11, 2001, and
     infrastructure investments for start-up of six new clinical research trials
     including expansion of our European operational capabilities.

     Had revenues been recognized on the cost-based percentage of completion
     method in 2000, revenues and direct expenses for the three months ended
     September 30, 2000 would have been $3,482,000 and $1,587,000, respectively.

     Selling, general and administrative expenses include all administrative and
     business development personnel and all other support expenses not directly
     related to specific contracts. Selling, general and administrative expenses
     for the three months ended September 30, 2001 amounted to $1,045,000 or 23%
     of revenues, as compared to $882,000 or 28% of revenues for the same period
     last year. The increase of $163,000 reflects increased consulting and
     professional service fees as well as expenses associated with the growth of
     our infrastructure and training of our clinical operations staff.

     Depreciation and amortization expense increased from $89,000 for the three
     months ended September 30, 2000 to $136,000 for the three months ended
     September 30, 2001 due to an increase in property and equipment.

     Net interest (expense) income decreased $26,000 from net income of $1,000
     for the three months ended September 30, 2000, to net expense of ($25,000)
     for the three months ended September 30, 2001 because of an increase in
     capital leases and interest expense from short term debt.

     The effective income tax rate for the three months ended September 30, 2001
     and 2000 was 42% and 34% respectively. At September 30, 2000 the effective
     income tax rate was lower due to a net operating loss carry forward from
     prior years and the effect of the Speedtrials.com restatement.

     Nine Months ended September 30, 2001 Compared to Nine Months Ended
     ------------------------------------------------------------------
     September 30, 2000
     ------------------

                                       12
<PAGE>

     Revenues for the nine months ended September 30, 2001 increased 31% to
     $13,081,000 as compared to $9,960,000 for the nine month period ended
     September 30, 2000. The increase of $3,121,000 results from the increase in
     the number of clinical development projects in process during the most
     recent nine months as compared to the same period last year.

     Direct expenses include compensation and other expenses directly related to
     conducting clinical studies. These expenses increased by $1,641,000 from
     $5,361,000 to $7,002,000 for the nine months ended September 30, 2000 and
     2001 respectively. The increase in expenses results principally from the
     increase in the number of clinical development projects. Direct expenses as
     a percentage of revenues were 54% for the nine months ended September 30,
     2001 as compared to 54% for the same period last year. Although direct
     expenses as a percentage of revenues were constant, the performance is
     subject to an increase in our assessment of estimated costs towards
     completion of an ongoing contract, the adverse impact on our workflow
     processes during the weeks following September 11, 2001, and infrastructure
     investments for start-up of six new clinical research trials including
     expansion of our European operational capabilities.

     Had revenues been recognized on the cost-based percentage of completion
     method in 2000, revenues and direct expenses for the nine months ended
     September 30, 2000 would have been $10,442,000 and $4,944,000,
     respectively.

     Selling, general and administrative expenses include all administrative and
     business development personnel, and all other support expenses. Selling,
     general and administrative expenses for the nine months ended September 30,
     2001 amounted to $3,229,000 or 25% of revenues, as compared to $2,393,000
     or 24% of revenues for the same period last year. The net increase of
     $836,000 reflects increased consulting and professional service fees as
     well as expenses associated with the growth of the infrastructure and
     training of our clinical operations staff.

     Depreciation and amortization increased from $285,000 for the nine months
     ended September 30, 2000 to $370,000 for the nine months ended 2001 due to
     an increase in property and equipment.

     Interest (expense) income decreased from $20,000 for the nine months ended
     September 30, 2000 to $(66,000) for the nine months ended September 30,
     2001 due to an increase in capital leases and interest expense from short
     term debt.

     The effective income tax rate for the three months ended September 30, 2001
     and 2000 was 42% and 35% respectively. At September 30, 2000 the effective
     income tax rate was lower due to a net operating loss carry forward from
     prior years and the effect of the Speedtrials.com restatement.


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

     Our 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

                                       13
<PAGE>

     based on the percentage of completion accounting method). We typically
     receive 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. Compared to December 31, 2000, accounts
     receivable increased $3,426,000 to $5,079,000 at September 30, 2001
     primarily due to the timing of billings and progress payments for clinical
     trials. We have recently instituted new billing and accounts receivable
     management procedures that we anticipate will result in an improvement in
     the accounts receivable balance during the fourth quarter as outstanding
     amounts are collected more rapidly. Costs and estimated earnings in excess
     of related billings on uncompleted contracts increased $2,704,000 to
     $8,253,000 at September 30, 2001. This increase was mainly attributable to
     two clinical trials which represent 79% of revenues which have been
     recognized in excess of progress billings made to date on those contracts.
     As a result of the increase in receivables and costs and estimated earnings
     in excess of related billings on uncompleted contracts, we borrowed
     $1,600,000 which was outstanding at September 30, 2001.

     Our cash and cash equivalents balance at September 30, 2001 was $155,000 as
     compared to $87,000 at December 31, 2000. The net increase in cash was
     primarily due to operating results for the nine months ended September 31,
     2001 and the proceeds from borrowings under our line of credit.

     We purchased $387,000 of equipment in the nine months ended September 30,
     2001. We anticipate capital expenditures of $50,000 during the remainder of
     2001 for computer equipment.

     We have a line of credit with a commercial bank providing a maximum credit
     facility of the lessor of $2,500,000 or 75% of eligible accounts receivable
     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 our assets. Borrowings outstanding under the credit
     line at September 30, 2001 and December 31, 2000 were $1,600,000 and $0,
     respectively. We anticipate that collections of accounts receivables in the
     fourth quarter will permit the reduction of borrowings outstanding under
     the line of credit.


     Our principal cash needs on both a short and long-term basis are for the
     funding of our operations, and capital expenditure requirements. We expect
     to continue expanding our operations through internal growth, expansion of
     our existing services, and the development of new service products for
     clinical research and the healthcare industry. We expect such activities to
     be funded from existing cash and cash equivalents, cash flow from
     operations and our line of credit.

     Management believes that our operations and financial results are not
     materially affected by inflation.

                                       14
<PAGE>

                             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

                  None.

                                       15
<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: 11/14/01                    By: /s/ Kenneth M. Borow, M.D.
       ---------                       ----------------------------------
                                            Kenneth M. Borow, M.D.
                                            Chief Executive Officer

 Dated: 11/14/01                    By: /s/ Joseph A. Delikat
       ---------                       ----------------------------------
                                            Joseph A. Delikat
                                            Principal Accounting Officer

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