<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 JUNE 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 June 30, 2001.

Common Stock, Par Value $.001                                12,494,609
-----------------------------                                ----------
         (Class)                                             Outstanding

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

                                       1
<PAGE>

     FORM 10-QSB


                              COVALENT GROUP, INC.


                                     INDEX



                                                                           Page
                                                                           ----
     PART I.  Financial Information

       Item 1.  Consolidated Financial Statements

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

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

          Consolidated Statements of Cash Flows - Six Months Ended
           June 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                                             13

       Item 2.  Changes in Securities                                       14

       Item 4.  Submission of Matters to a Vote of Security Holders         14

       Item 6.  Exhibits and Reports on Form 8-K                            15

     Signature Page                                                         16

                                       2
<PAGE>

PART 1.  FINANCIAL INFORMATION
  ITEM 1.
                          Consolidated Balance Sheets
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                           June 30, 2001    December 31, 2000
                                                           -------------    -----------------
<S>                                                        <C>              <C>
Assets
Current Assets
  Cash and cash equivalents                                $   388,090         $    86,977
  Restricted cash                                              645,148             612,522
  Accounts receivable                                        4,740,962           1,652,487
  Prepaid expenses and other                                   388,414             297,013
  Costs and estimated earnings in excess of
   related billings on uncompleted contract                  7,738,228           5,549,457
                                                           -----------         -----------
      Total Current Assets                                  13,900,842           8,198,456
                                                           -----------         -----------
Property and Equipment, Net                                    993,929             999,070

Deferred Income Taxes                                           78,854              78,961

Other Assets                                                    31,005              34,073
                                                           -----------         -----------
Total Assets                                               $15,004,630         $ 9,310,560
                                                           ===========         ===========
Liabilities and Stockholders' Equity
Current Liabilities
  Accounts payable                                         $   490,405         $   452,643
  Accrued expenses                                             500,728             442,001
  Short term debt                                              800,000                   -
  Income tax payable                                           407,555             720,260
  Obligations under capital leases                              44,347              34,723
  Billings in excess of related costs and
   estimated earnings on uncompleted contracts               1,617,206             531,641
  Customer advances                                          3,190,773             813,974
                                                           -----------         -----------
      Total Current Liabilities                              7,051,014           2,995,242
                                                           -----------         -----------
Long Term Liabilities
  Obligations under capital leases                              64,187              75,286
                                                           -----------         -----------
      Total Long Term Liabilities                               64,187              75,286
                                                           -----------         -----------
Total Liabilities                                            7,115,201           3,070,528
                                                           -----------         -----------
Stockholders' Equity
  Common stock, $.001 par value 25,000,000 shares
    authorized, 12,494,609 and 12,213,309
    shares issued respectively                                  12,495              12,213
  Additional paid-in capital                                10,506,627           9,915,656
  Accumulated deficit                                       (2,581,806)         (3,636,926)
  Accumulated other comprehensive income (loss)                  2,429                (595)
                                                           -----------         -----------
    Less:                                                    7,939,745           6,290,348
       Treasury stock, at cost, 12,500 shares                  (50,316)            (50,316)
                                                           -----------         -----------
      Total Stockholders' Equity                             7,889,429           6,240,032
                                                           -----------         -----------
Total Liabilities and Stockholders' Equity                 $15,004,630         $ 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 June 30      Six Months Ended June 30
                                                         2001       2000 (Restated)     2001       2000 (Restated)
                                                     ------------------------------  -----------------------------
<S>                                                  <C>           <C>              <C>           <C>
Revenues                                             $ 4,761,702      $ 3,140,831    $ 8,516,831      $ 6,784,503
Operating Expenses
    Direct                                             2,319,972        1,815,816      4,244,628        3,780,237
    Selling, general and administrative                1,143,945          813,640      2,183,545        1,510,497
    Depreciation and amortization                        122,417          104,633        234,683          196,424
                                                     -----------      -----------    -----------      -----------
Total Operating Expenses                               3,586,334        2,734,089      6,662,856        5,487,158
                                                     -----------      -----------    -----------      -----------
Income from Operations                                 1,175,368          406,742      1,853,975        1,297,345

Net Interest (Expense) Income                            (44,971)           3,528        (40,938)          18,725
                                                     -----------      -----------    -----------      -----------
Income before Income Taxes                             1,130,397          410,270      1,813,037        1,316,070

Income Tax Provision                                     477,766          135,284        757,917          468,930
                                                     -----------      -----------    -----------      -----------
Net Income                                           $   652,631      $   274,986    $ 1,055,120      $   847,140
                                                     ===========      ===========    ===========      ===========
Net Income per Common Share

Basic:                                               $      0.05      $      0.02    $      0.09      $      0.07
Diluted:                                             $      0.05      $      0.02    $      0.08      $      0.06

Weighted Average Common and Common
  Equivalent Shares Outstanding
Basic                                                 12,388,345       12,168,512     12,354,787       12,146,945
Diluted                                               12,905,632       13,154,840     12,845,622       13,042,560

</TABLE>


        See accompanying notes to the consolidated financial statements.


                                       4
<PAGE>

                     Consolidated Statements of Cash Flows
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                  Six months Ended June 30,
                                                                    2001       2000 (Restated)
                                                                -----------   ----------------
<S>                                                             <C>           <C>
Operating Activities:

Net income                                                      $ 1,055,120      $   847,140
  Adjustments to reconcile net income to
  net cash provided by operating activities
  Depreciation and amortization                                     234,683          196,423
  Changes in assets and liabilities
  (Increase) decrease in -
  Restricted cash                                                   (32,626)         378,872
  Accounts receivable                                            (3,088,475)       1,856,939
  Prepaid expenses and other                                        (91,401)        (146,558)
  Costs and estimated earnings in excess
   of related billings on uncompleted contracts                  (2,188,771)      (3,500,327)
  Other assets                                                        3,066          (13,187)
  Deferred income taxes                                                 107
  Increase (decrease) in -
  Accounts payable                                                   37,762         (224,684)
  Accrued expenses                                                   58,727         (150,157)
  Income taxes payable                                             (312,705)         234,519
  Billings in excess of related costs and
   estimated earnings on uncompleted contracts                    1,085,565         (691,072)
  Customer advances                                               2,376,799          145,425
                                                                -----------      -----------
Net Cash Used In Operating Activities                              (862,149)      (1,066,667)
                                                                -----------      -----------
Investing Activities:

Purchases of property and equipment                                (212,224)         (30,301)
                                                                -----------      -----------
Net Cash Used In Investing Activities                              (212,224)         (30,301)
                                                                -----------      -----------
Financing Activities:
Principal repayments of obligations under capital leases            (18,791)
Borrowings under short term debt                                    800,000          225,000
Proceeds from exercise of stock options                             591,253          391,319
                                                                -----------      -----------
Net Cash Provided By Financing Activities                         1,372,462          616,319
                                                                -----------      -----------
Effect of Exchange Rate Changes on Cash and Cash Equivalents          3,024                -

Net Increase (Decrease) In Cash and Cash Equivalents                301,113         (480,649)

Cash and Cash Equivalents, Beginning of Year                         86,977          558,528
                                                                -----------      -----------
Cash and Cash Equivalents, End of Year                          $   388,090      $    77,879
                                                                ===========      ===========
</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
     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 six months ended June 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 June 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 six months ended June 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 on 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
     represents revenue recognized in excess of amounts billed.  Billings in
     excess of related costs and estimated earnings on uncompleted contracts
     represents 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 June 30, 2001, this
     restricted cash amount was $645,148.  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              Six Months Ended
                                                               June 30,                     June 30,
                                                         2001           2000             2001         2000
                                                     -----------    -----------      -----------  -----------
     <S>                                             <C>            <C>              <C>           <C>
     Net income used for basic and diluted
     net income per common share                     $   652,631    $   274,986      $ 1,055,120  $   847,140
                                                     ===========    ===========      ===========  ===========
     Weighted average common shares outstanding
     used for basic net income per common share       12,388,345     12,168,512       12,354,787   12,146,945

     Dilutive effect of common stock
     options and warrants outstanding                    517,287        986,328          490,835      895,615
                                                     -----------    -----------      -----------  -----------
     Weighted average common and common
     equivalent shares outstanding used for
     diluted net income per common share              12,905,632     13,154,840       12,845,622   13,042,560
                                                     -----------    -----------      -----------  -----------
</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            Six Months Ended
                                                 June 30,                    June 30,
                                            2001        2000             2001         2000
                                          --------    --------        ---------     --------
     <S>                                  <C>         <C>             <C>           <C>
     Net Income                           $652,631    $274,986        $1,055,120    $847,140

     Foreign currency transaction
      adjustment                            (5,350)          -            (3,023)          -
                                          --------    --------        ----------    --------

                                          --------    --------        ----------    --------
     Comprehensive Income                  647,281     274,986         1,052,097     847,140
                                          --------    --------        ----------    --------

</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 position 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 and No. 142 is not
     expected to have a material impact on our financial statements.

                                       8
<PAGE>

     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   Six Months Ended
                                                     June 30,            June 30,
                                                       2000               2000
                                               ------------------   ----------------
     <S>                                       <C>                  <C>
     Net income as reported                        $   274,986        $   847,140

     Adjustments for current year net income:
     Total pretax adjustment -
          Change in accounting principle               (72,641)           243,548
          Tax effect                                    30,509           (102,290)
                                                   -----------        -----------
          Net adjustment                           $   (42,132)       $   141,258

     Net income as adjusted                        $   232,854        $   988,398

     Basic weighted average common and
         common equivalent shares outstanding       12,168,512         12,146,945

     Basic earnings per share as reported          $      0.02        $      0.07
     Per share amount of the adjustment            $         -        $      0.01
     Pro forma earnings per common share           $      0.02        $      0.08
</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. Of this amount, $30,000 and $325,000 was
     recorded in the quarters ended March 31, 2000 and June 30, 2000
     respectively. The restated June 30, 2000 amounts are reconciled to
     previously recorded revenues below:

                                       Three Months Ended   Six Months Ended
                                             June 30,          June 30,
                                               2000              2000
                                       ------------------   ----------------
       Revenues as previously reported     $3,465,831         $7,139,503

       Adjustment to reverse revenues        (325,000)          (355,000)
                                           ----------         ----------
       Revenues as restated                $3,140,831         $6,784,503
                                           ----------         ----------


     As a result of the above restatement, net income for the quarter ended June
     30, 2000 decreased by $188,500 from $463,486 to $274,986 and for the six
     months ended June 30, 2000 decreased by $205,900 from $1,053,040 to
     $847,140.

                                       9
<PAGE>

     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
     quarter, 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 this 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.

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

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

     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".

                                       10
<PAGE>

     General
     -------

     The information set forth and discussed below for the three and six months
     ended June 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 $34 million at June 30, 2001.  We believe that our backlog as of any
     date is not necessarily a meaningful predictor of future results.

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

     Revenues for the three months ended June 30, 2001 increased 52% to
     $4,762,000 as compared to $3,141,000 for the three month period ended June
     30, 2000.  The increase of $1,621,000 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 $504,000 from
     $1,816,000 to $2,320,000 for the three months ended June 30, 2000 and 2001,
     respectively.  Direct expenses as a percentage of revenues were 49% for the
     three months ended June 30, 2001 as compared to 58% for the same period
     last year.  The decrease in relative percent is due to the different cost
     structures of the clinical studies being conducted, different types of
     services requested by our clients and efficiencies in our operational areas
     by maintaining support expenses and salaries relatively constant.

     Had revenues been recognized on the cost-based percentage of completion
     method in 2000, revenues and direct expenses for the three months ended
     June 30, 2000 would have been $3,056,000 and $1,479,000, respectively.

                                       11
<PAGE>

     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 June 30, 2001 amounted to $1,144,000 or
     24% of revenues, as compared to $814,000 or 26% of revenues for the same
     period last year.  The increase of $330,000 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.

     Net interest (expense) income decreased $49,000 from net income of $4,000
     for the three months ended June 30, 2000, to net expense of ($45,000) for
     the three months ended June 30, 2001 because of an increase in capital
     leases and line of credit interest expense.

     The effective income tax rate for the three months ended June 30, 2001 and
     2000 was 42% and 33% respectively.

     Six Months ended June 30, 2001 Compared to Six Months Ended June 30, 2000
     -------------------------------------------------------------------------

     Revenues for the six months ended June 30, 2001 increased 26% to $8,517,000
     as compared to $6,785,000 for the six month period ended June 30, 2000.
     The increase of $1,732,000 results from the increase in the number of
     clinical development projects in process during the most recent six 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 $465,000 from
     $3,780,000 to $4,245,000 for the six months ended June 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 50% for the six months ended June 30, 2001
     as compared to 56% for the same period last year.  The decrease in relative
     percent is due to the different cost structures of the clinical studies
     being conducted, different types of services requested by our clients and
     efficiencies in our operational areas by maintaining support expenses and
     salaries relatively constant.

     Had revenues been recognized on the cost-based percentage of completion
     method in 2000, revenues and direct expenses for the six months ended June
     30, 2000 would have been $6,961,000 and $3,358,000, 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 six months ended June 30, 2001
     amounted to $2,184,000 or 26% of revenues, as compared to $1,510,000 or 22%
     of revenues for the same period last year.  The net increase of $674,000
     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.

     We obtained signed contracts during the first half of 2001 which we expect
     to produce approximately $18,000,000 in revenues, in contrast to contracts
     signed during all of year 2000, which resulted in approximately $13,300,000
     in revenues.  We anticipate a significant increase in revenues in the
     second half versus the first half of 2001 as more costs are

                                       12
<PAGE>

     incurred toward completing these new contracts. Additional new contracts
     are anticipated to be signed over the next few months and should bring
     further growth to our backlog and future revenues.

     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 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 $3,089,000 to $4,741,000 at June 30, 2001 primarily due to the
     timing of billings and progress payments for clinical trials.  Costs and
     estimated earnings in excess of related billings on uncompleted contracts
     increased $2,189,000 to $7,738,000 at June 30, 2001.  This increase was
     attributable to ten clinical trials for which revenues 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 $800,000
     which was outstanding at June 30, 2001.

     Our cash and cash equivalents balance at June 30, 2001 was $388,000 as
     compared to $87,000 at December 31, 2000.  The net increase in cash was
     primarily due to operating results for the three months ended March 31,
     2001 and the proceeds from borrowings under our line of credit.

     We purchased $165,000 of equipment in the three months ended June 30, 2001.
     We anticipate capital expenditures of $100,000 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 June 30, 2001 and December 31, 2000 were $800,000 and $0,
     respectively.

     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.

                                       13
<PAGE>

                              COVALENT GROUP, INC.

PART II. OTHER INFORMATION

     ITEM 1.  Legal Proceedings

              None.

     ITEM 2.  Changes in Securities

              On August 6, 2001, the Board of Directors of the Company adopted
              amended and restated bylaws of the Company in order to adopt
              certain changes. The principal changes were to adopt procedures
              for nominations and other business to be properly brought at
              shareholder meetings and to amend provisions relating to
              indemnification of officers, directors and employees. A copy
              of the complete amended and restated Bylaws is filed as an exhibit
              to this Quarterly Report on Form 10-Q

     ITEM 3.  Defaults Upon Senior Securities

              None.

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

              On June 22, 2001, the Company held its Annual Meeting of
              Stockholders during which the stockholders:

              (1)  Elected five nominees to serve as directors with terms
                   continuing until the next Annual Meeting of Stockholders in
                   2002. The votes cast were as follows:

                                                    For     Withheld
                                                 ---------  --------
                       Kenneth M. Borow, M.D.    9,237,369    21,209
                       Anthony Cerami, Ph.D.     9,126,869   131,209
                       Donald Holdsworth         9,126,869   131,209
                       Joseph A. Delikat         9,237,369    21,209
                       Stephen Sallan, M.D.      9,127,369   131,209

              (2)  Ratified the appointment of the firm of Deloitte & Touche LLP
                   as independent auditors to examine the accounts of the
                   Company for the year ending December 31, 2001. The votes cast
                   were as follows:

                             For        Against       Abstain
                          ---------     -------       -------
                          9,229,134      12,421        17,024

     ITEM 5.  Other Information

              None.

                                       14
<PAGE>

     ITEM 6.  Exhibits and Reports on Form 8-K

               (a)  Exhibits

                  3.  Amended and Restated Bylaws of Covalent Group, Inc.,
                      Effective as of August 7, 2001.

                  10.1  Indemnification Agreement with David Weitz.
                  10.2  Indemnification Agreement with Catherine Spear.
                  10.3  Indemnification Agreement with James Cappola.
                  10.4  Indemnification Agreement with Carol Antinori.
                  10.5  Indemnification Agreement with Stephen E. Sallan, M.D.
                  10.6  Indemnification Agreement with Joseph A. Delikat.
                  10.7  Indemnification Agreement with Donald C. Holdsworth.
                  10.8  Indemnification Agreement with Anthony Cerami, Ph.D.
                  10.9  Indemnification Agreement with Kenneth M. Borow, M.D.

               (b)  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: 8/14/01                     By: /s/Kenneth M. Borow, M.D.
     ---------                        ------------------------------------
                                             Kenneth M. Borow, M.D.
                                             Chief Executive Officer

Dated: 8/14/01                     By: /s/Joseph A. Delikat
     ---------                        ------------------------------------
                                             Joseph A. Delikat
                                             Principal Accounting Officer

                                       16
<PAGE>

                                Exhibit Index
                                -------------

3. Amended and Restated Bylaws of Covalent Group, Inc., Effective as of August
    7, 2001.

10.1  Indemnification Agreement with David Weitz.
10.2  Indemnification Agreement with Catherine Spear.
10.3  Indemnification Agreement with James Cappola.
10.4  Indemnification Agreement with Carol Antinori.
10.5  Indemnification Agreement with Stephen E. Sallan, M.D.
10.6  Indemnification Agreement with Joseph A. Delikat.
10.7  Indemnification Agreement with Donald C. Holdsworth.
10.8  Indemnification Agreement with Anthony Cerami, Ph.D.
10.9  Indemnification Agreement with Kenneth M. Borow, M.D.



<PAGE>

                                Exhibit Index
                                -------------

3. Amended and Restated Bylaws of Covalent Group, Inc., Effective as of August
    7, 2001.

10.1  Indemnification Agreement with David Weitz.
10.2  Indemnification Agreement with Catherine Spear.
10.3  Indemnification Agreement with James Cappola.
10.4  Indemnification Agreement with Carol Antinori.
10.5  Indemnification Agreement with Stephen E. Sallan, M.D.
10.6  Indemnification Agreement with Joseph A. Delikat.
10.7  Indemnification Agreement with Donald C. Holdsworth.
10.8  Indemnification Agreement with Anthony Cerami, Ph.D.
10.9  Indemnification Agreement with Kenneth M. Borow, M.D.