SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-K

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

For the fiscal year ended March 31, 1998
                                                            OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
EXCHANGE ACT OF 1934 for the transition period from to

Commission file number 0-25372

                             COTELLIGENT GROUP, INC.
             (Exact name of registrant as specified in its charter)

           Delaware                                   94-3173918
(State or other jurisdiction of                    (I.R.S. Employer
 incorporation or organization)                   Identification No.)

                        101 California Street, Suite 2050
                         San Francisco, California 94111
               (Address of principal executive offices) (Zip Code)

                                 (415) 439-6400
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b)of the Act:

                          Common Stock, $.01 par value
                                (Title of class)

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. YES__X__ NO_____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of  registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated by reference in Part III of this Form 10-K. [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant was approximately  $284,006,000 based on the closing price of $20.125
of the  registrant's  Common Stock as reported on the New York Stock Exchange on
June 23, 1998.

The number of shares of the registrant  Common Stock  outstanding as of June 23,
1998 was 14,112,100

                       DOCUMENTS INCORPORATED BY REFERENCE

There is incorporated by reference  portions of the registrant's Proxy Statement
for the 1998  Annual  Meeting  of  Stockholders,  expected  to be filed with the
Securities  and  Exchange  Commission  within  120  days  after  the  end of the
registrant's fiscal year, in Part III, Items 10, 11, 12 and 13 of this report.



<PAGE>

<TABLE>


                             COTELLIGENT GROUP, INC.
                                TABLE OF CONTENTS
                                    FORM 10-K

<CAPTION>

                                                                                                            PAGE

<S>                                                                                                         <C>
Part 1

     Item 1       Business...............................................................................      3
     Item 2       Properties.............................................................................     15
     Item 3       Legal Proceedings......................................................................     15
     Item 4       Submission of Matters to a Vote of Security Holders....................................     15
Part II
     Item 5       Market for Registrant's Common Equity and Related Stockholder Matters..................     16
     Item 6       Selected Financial Data................................................................     17
     Item 7       Management's Discussion and Analysis of Financial Condition and
                      Results of Operations..............................................................     19
     Item 8       Financial Statements and Supplementary Data............................................     24
     Item 9       Changes in and Disagreements With Accountants on Accounting and
                      Financial Disclosure...............................................................     45
Part III
     Item 10      Directors and Executive Officers of the Registrant.....................................     47
     Item 11      Executive Compensation.................................................................     47
     Item 12      Security Ownership of Certain Beneficial Owners and Management.........................     47
     Item 13      Certain Relationships and Related Transactions.........................................     47

Part IV
     Item 14      Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................     48
Signatures        .......................................................................................     50


</TABLE>





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<PAGE>




                                     PART 1

Item 1.  Business

     Cotelligent  Group,  Inc.  ("Cotelligent"  or the "Company",  including all
subsidiaries  unless otherwise noted) is a software  professional  services firm
providing information  technology ("IT") consulting services,  including project
management,  staff  augmentation,  alliance  services,  network  services and IT
education to  businesses  with complex IT  operations.  The Company  operates 28
offices  in major  metropolitan  areas  across the United  States.  The  Company
provides its clients with IT professionals  who are proficient in a wide variety
of hardware and software platforms. Cotelligent's IT professionals are primarily
billed on a time and materials basis and offer clients specialized  expertise in
implementation services including applications design, programming,  development
and maintenance,  client/server design and development, systems software design,
systems   engineering,   systems  integration,   intranet/internet   design  and
development and network design and management  services.  At March 31, 1998, the
Company had  approximately  2,800  employees,  including  a  technical  staff of
approximately  2,300 IT professionals,  providing  services to approximately 800
clients across a broad spectrum of commercial  industries  throughout the United
States,  including   telecommunications,   technology  and  financial  services.
Included  among the  Company's  active  clients  are AT&T Corp.,  AT&T  Wireless
Services,  Bell  Communications  Research,  Cargill  Financial  Services  Corp.,
Frito-Lay,   Inc.,  JC  Penney,  Inc.,  Liberty  Mutual  Insurance  Co.,  Lucent
Technologies  Inc.,  MCI  Communications   Corporation,   Mercantile  Bankshares
Corporation,  Microsoft  Corporation,  Monsanto  Company,  Office  Depot,  Inc.,
Pacific Bell and U S West, Inc.

     The IT consulting  services  industry is expected to  experience  continued
growth over the next several  years.  According  to Dataquest a market  research
firm, estimated  United States spending for IT professional services (excluding
training  and  education)  will be  approximately  $68  billion  in 1998  and is
projected to grow at a compound  annual  growth rate of 14% through  2000.  This
increased demand for IT consulting services is largely fueled by: (i) increasing
pressure on businesses to generate timely,  accurate business information;  (ii)
the    proliferation   of   more   powerful   and   less   expensive    computer
hardware/software;  (iii) the trend away from centralized  mainframes and custom
applications  to  personal  computer-driven  systems  employing a broad range of
complex  software  applications;  and (iv) the emergence of the Year 2000 issue,
which has caused  companies to seek out and  implement  more advanced IT systems
and solutions. As a result, businesses have invested, and are likely to continue
to invest,  significant amounts of capital to build, support and update their IT
infrastructures.  Concurrent  with  the  increase  in  IT-related  expenditures,
competition has pressured corporations to reduce or eliminate costs unrelated to
core operational  competencies.  As such, businesses are increasing their use of
IT consulting  services companies such as Cotelligent to help them appropriately
manage,  staff and solve a wide array of IT  consulting  and support  needs.  By
contracting with Cotelligent,  clients can outsource projects and access skilled
IT  professionals  on an "as-needed"  basis,  converting their fixed labor costs
into variable costs and reducing their costs of permanent employees.

     The Company's goal is to be a leading nationwide  provider of IT consulting
services, including project management,  staff augmentation,  alliance services,
network  services and IT education to businesses with complex IT operations.  To
accomplish this goal, the Company has implemented a business strategy consisting
of two distinct components. First, the Company has adopted an operating strategy
for internal growth by: (i) creating an  infrastructure  to effectively  recruit
and  retain  qualified  IT  professionals;  (ii)  leveraging  its  local  client
relationships in a coordinated effort to provide services on a national scope to
its larger accounts;  (iii) operating with a decentralized  management structure
to foster an  environment  in which best  practices are shared on a Company-wide
basis,  allowing  successful  strategies to be implemented at various  operating
locations; (iv) leveraging the Cotelligent brand by transitioning from the local
names of the operating  locations to Cotelligent's  national  identity;  and (v)
pursuing strategic alliances with nationally  established  technology companies,
through which the Company will enhance its technical  support  capabilities  and
strengthen certain of its key business relationships.

     As the second part of its business strategy, the Company intends to broaden
the  geographic and technical  scope of its operations by acquiring  established
firms that offer complementary IT consulting services in new or existing regions
and that will expand the depth and breadth of services  provided to its clients.
The IT  consulting  industry  is  highly  fragmented.  According  to  INPUT,  an
international   research  firm,   approximately  3,500  IT  consulting  services
businesses  with annual  revenues in excess of $1 million  provide  services and
expertise  in the  United  States.  As a result  of this  fragmentation,  the IT
consulting services industry has recently experienced  consolidation as smaller,
regional  firms  have  become  less able to  effectively  compete  with  larger,
national IT  consulting  services  firms which often possess  greater  access to
capital and IT

                                       3
<PAGE>

professionals as well as the service  capabilities  required to serve large
companies  that are  consolidating  their vendor  lists.  To  capitalize on this
industry fragmentation and trend toward consolidation, the Company has developed
an  acquisition  strategy  to: (i)  purchase  local or  regional  IT  consulting
services firms with successful, proven operating models; (ii) allow the acquired
company to operate in a manner  consistent  with its historical  practice and as
dictated by local market conditions,  rather than converting the operations to a
standardized  national business model; and (iii) improve the acquired  company's
profitability by passing on the operating and financial benefits associated with
national firm status.  The Company  believes  that this approach  differentiates
Cotelligent  from other  potential  acquirers and is  attractive to  acquisition
candidates  who wish to preserve  their  corporate  culture.  The  Company  also
believes that this acquisition strategy will allow it to secure assignments from
clients  seeking to do business with national IT consulting  services  firms, as
well as regional businesses seeking local relationships.

     In February 1996, the Company acquired,  simultaneously with the closing of
its initial  public  offering  (the  "IPO"),  four  established  providers  (the
"Initially  Acquired  Companies")  of  IT  consulting  services  to  serve  as a
foundation  to execute  its growth  strategy.  Since the IPO,  the  Company  has
acquired  sixteen  additional  IT  consulting  services  firms (the  "Subsequent
Acquisitions")  which have strengthened the Company's operations by diversifying
its base of Fortune 1000 clients,  expanding its national  presence,  broadening
its  nationwide  resource  pool and client  base and  increasing  the  Company's
capabilities and expertise.

     The Company was  incorporated  in February 1993 under the laws of the State
of California as TSX, a California  corporation.  In November  1995, the Company
changed  its   jurisdiction  of  incorporation  to  Delaware  and  its  name  to
Cotelligent Group, Inc. Unless the context otherwise requires, references to the
"Company"  and to  "Cotelligent"  refer to TSX, a  California  corporation,  and
Cotelligent Group, Inc., a Delaware corporation.

     The Company's executive offices are located at 101 California Street, Suite
2050,  San  Francisco,  California  94111  and its  telephone  number  is  (415)
439-6400.



The IT Consulting Services Industry

     IT consulting services represent a significant and rapidly expanding market
opportunity.  According to  Dataquest,  a market  research  firm,  United States
spending for IT professional services (excluding training and education) will be
approximately  $68 billion in 1998 and is projected to grow at a compound annual
rate of 14% through 2000. The Company  believes that the following are the three
key industry drivers:

     Technological  Evolution.  Computer  hardware and software  technology  has
shifted from centralized  mainframes and custom  applications to  decentralized,
scalable  architectures  centered on low cost personal computers,  client/server
architectures, local and wide area networks, shared databases, intranet/internet
applications  and  generally  available  applications  software  packages.  As a
result, the rate of new technology introduction and spending by corporations has
accelerated  and the need for a larger  and more  skilled  technology  staff has
increased.

     Increase in Outsourcing Opportunities.  Recent economic factors have forced
large  organizations  to focus on core  competencies  and rely more  upon  third
parties  for a variety  of IT  consulting  services.  As a result,  IT  services
managers are charged with  developing  and  supporting  increasingly  complex IT
systems while  working under  budgetary  pressures  within their  organizations.
Faced with the challenges of adequately serving the needs of their customers and
employees, companies are increasingly turning to skilled and experienced outside
organizations to help them appropriately staff and manage their IT requirements.
This provides the following benefits:

     Access to  Specialized  Skills on an As-Needed  Basis.  "As-needed  access"
avoids both the need to  maintain a larger  permanent  staff and  implementation
delays involved with retraining staff as technologies  and applications  change.
Fixed labor costs are converted into variable costs by better matching  staffing
levels  to  actual  needs.  Moreover,  the  costs  of  recruiting,   hiring  and
terminating  permanent  employees  are reduced.  Management  is able to focus on
strategic business issues rather than on maintaining or implementing  changes in
the IT infrastructure.



                                       4
<PAGE>

     Trend Toward  Consolidation.  The IT consulting services industry is highly
fragmented  and  is   experiencing   consolidation.   According  to  INPUT,   an
international   research  firm,   approximately  3,500  IT  consulting  services
businesses  with annual  revenues in excess of $1 million  provide such services
and  expertise  in  the  United  States.  In  recent  years,  the  industry  has
experienced an increase in  consolidation  activity  driven by several  factors.
First, large buyers of IT consulting services are consolidating their vendors to
the few that can provide a full range of  services  nationwide.  Second,  higher
level professionals (such as network  administrators and software engineers) are
attracted to larger  firms that can offer a broad range of career  opportunities
nationwide.  Third,  larger  firms often  achieve  operational  efficiencies  by
providing  centralized support services to their operating  locations.  Finally,
larger  firms  have,  in many cases,  successfully  accessed  the public  equity
markets,  thereby  enabling  them to use  their  publicly  traded  stock to fund
acquisitions.


Services Offered Within the IT Consulting Services Industry

     Services offered within the IT consulting  services industry can be divided
into three  categories  based upon the  lifecycle of IT projects:  (i) strategic
planning   services   (pre-implementation   services);   (ii)   development  and
integration  services  (implementation  services);  and  (iii)  maintenance  and
support  services  (post-implementation   services).  The  Company  has  made  a
strategic decision to focus on providing development and integration services.

     Strategic Planning Services.  Pre-implementation services include strategic
planning and consulting,  requirements  definition  studies and systems planning
and design.  These services are provided on a project basis by a small number of
national and  international  professional  services  firms and normally  command
premium  billing  rates.  The  professional  staffs of these firms are generally
salaried  employees.  Barriers  to  entry in this  category  are high due to the
complexity of projects and level of expertise required.

     Development  and  Integration  Services.   Implementation  services,  which
represent the Company's primary business,  are conducted on a project management
or  staff   augmentation  basis  and  include  software   applications   design,
programming, development and maintenance,  client/server design and development,
systems   software   design,    systems   engineering,    systems   integration,
intranet/internet  design and  development  and  network  design and  management
services.  This  category  within the IT  consulting  services  market is highly
fragmented and is serviced by several thousand local and regional firms, as well
as several  national firms.  Historically,  the barriers to entry in this market
have been low.  However,  as  technology  has  become  more  sophisticated,  the
knowledge and expertise  required to enter this sector has  increased.  Firms in
this  market  category   utilize  salaried   employees,   hourly  employees  and
independent consultants in providing services.

     Maintenance  and Support  Services.  Post-implementation  services  include
facilities management, systems maintenance,  help-desk assistance and education.
These  services  are  provided on a project or staff  augmentation  basis.  This
market is also highly  fragmented  and has low barriers to entry.  Firms in this
category   utilize   salaried   employees,   hourly  employees  and  independent
consultants in executing their assignments.

     Service  providers in the IT consulting  services industry vary by category
and  geographic  area and include  local,  regional  and niche  firms,  national
providers of IT consulting services,  several of the "Big Six" accounting firms,
the professional  service groups of computer equipment companies and large-scale
system integrators.


Operating Strategy

     The Company's goal is to be a leading nationwide  provider of IT consulting
services,  including  project  management  staff  augmentation  and  outsourcing
services,  to businesses with complex IT operations.  Key elements for achieving
this objective include the following:

     Enhance  Client  Relationships.  The Company has  historically  focused its
client  marketing  efforts on companies  with  substantial  recurring  needs for
supplemental  applications  or software  development,  systems  integration  and
network design and management  services,  which tend to be large companies.  The
combined resources and geographic  dispersion of the operating locations enables
the  Company to  continue to focus its  marketing  efforts on clients  requiring
national service  capabilities.  To enhance these marketing efforts, the Company
is in the process of implementing a national business



                                       5
<PAGE>

development  team which will expand and coordinate the Company's  marketing
focus  towards more  effectively  serving  national  clients and will assist the
operating  locations in the bidding  process for projects  involving  nationwide
projects for its clients.  Further,  the Company believes that its commitment to
consistently  providing  high quality  services has enabled it to establish  and
maintain long-term  relationships with its clients. During the last three fiscal
years, on average  approximately 88% of the Company's revenues were derived from
clients to whom services or solutions  had been provided in the preceding  year.
In addition,  the Company  believes  that the access and  goodwill  derived from
these client relationships  provide it with significant  advantages in marketing
additional  services  and  solutions  to  such  clients,   both  regionally  and
nationally.

     Operate with  Decentralized  Management  Structure;  Share  Information and
Expertise.  The Company  fosters a  communications  environment  centered upon a
decentralized  management  structure.  The Company  believes  that this provides
quality client service, a motivating  environment for its professional staff and
the ability to give each  operating  location  direct access to the  substantial
collective resources of the entire Cotelligent enterprise.  The Company believes
that many of its national competitors which have acquired IT consulting services
firms  have  homogenized   their  operating  office  and  professional   service
operations,  potentially  adversely  affecting  the  continuity  and  quality of
service and the motivation of its employees.

     Recruit and Retain Qualified IT Professionals.  The Company's goal is to be
the  "employer  of choice" of the IT  professionals  in the  markets in which it
operates.  The Company's strategy of acquiring established and reputable service
providers  in local and regional  markets  stems from its belief that such firms
are  closest  to the pool of IT  professionals  servicing  the  clients  in such
markets.  These firms' strong  reputations  tend to attract and foster favorable
working  relationships  with  local  IT  professionals,   which  enhances  their
recruiting  capabilities  when new client  requirements  arise.  To recruit  and
retain qualified IT professionals, the Company offers its professionals training
programs,  the ability to participate  in the Company's  Employee Stock Purchase
Plan,  401(k) Plan and Section 125 Plan,  as well as benefits  packages that the
Company   believes  are  competitive   with  those  generally   offered  in  the
consultant's  region.  In addition,  the  Company's  broad client base gives the
Company's  IT  professionals  the  opportunity  to  work  on  a  wide  range  of
challenging  projects  and  assignments  across  the  Company's   geographically
dispersed network of operating locations.  Finally, the Company's  decentralized
management  structure  emphasizes  the importance of its operations to retaining
the culture and operating style that existed prior to acquisition by the Company
and offers its IT professionals the particular benefits and incentives viewed as
important within each of its regional operating areas.

     The Company's  operating  presidents and senior  management have day-to-day
responsibility  for  management  of  professional  services  and  operating  and
administrative  activities  at  the  local  and  regional  levels  in  a  manner
consistent  with their  historical  practice  and as  dictated  by local  market
conditions.   Executive  management,   acquisitions,   finance,  IT,  marketing,
planning,  legal and administrative  support are managed or provided  centrally.
The Company  believes  that this  approach  enables its  operating  locations to
maintain a high level of client service and contact, while allowing them to draw
upon the  collective  resources of the Company as a whole.  This also allows its
operating  locations  to integrate  new ideas and systems into their  respective
operations and facilitates the active sharing of knowledge, technical expertise,
best  practices,  client  relationships  and  other  resources.   Through  these
practices,  the Company is able to integrate and leverage new ideas resulting in
enhanced systems,  improved service offerings and opportunities for growth.  The
execution of a coordinated  Company-wide strategy across all operating locations
combined with the pursuit of a common goal,  has proven  effective in management
and client service activities.

     Management  also seeks to integrate its operating  locations over time. The
Company believes that the incorporation of best practices, combined with sharing
of information and expertise  through the Company's  centralized  systems,  will
lead the operating  locations to integrate  synergistically.  To foster  further
integration, the Company has established a "Presidents' Council," which consists
of Cotelligent's executive management and the presidents of each of the acquired
operations.  Through  tri-weekly  teleconferences  and quarterly  meetings,  the
Presidents'  Council  shares  best  practices,  discusses  business  trends  and
opportunities and reviews Company-wide financial and operating measures.

     Leverage the Cotelligent  Brand. The Company is engaged in an initiative to
transition the brand names of the local and regional  companies it has acquired,
and will acquire, to the Cotelligent brand. Prior to starting this process,  the
Company received the endorsement of the heads of each of its acquired operations
and has now engaged them in facilitating  this process.  In addition to changing
the names of all of the acquired operations to Cotelligent within the next 12 to
18 months,  the  Company has  retained  consultants  to assist in  building  the
Cotelligent  brand.  With  guidance  from the Company,  these  


                                       6
<PAGE>

consultants  have developed a "Migration  Plan" and an "Orientation  Plan."
The  Migration  Plan,  in a three  stage  process,  details  the steps that each
acquired  operation  will follow in  transitioning  from its former brand to the
Cotelligent  brand.  The Migration Plan also sets forth a specific  protocol for
the printing and  presentation of the Cotelligent  trademark and signature.  The
Orientation Plan provides guidance for educating Company employees,  clients and
the broader  market in presenting  the new,  combined  Cotelligent  entity.  The
Company  expects  this  process  to result in a  combined  culture  based on the
values,  philosophies,  environment and modes of business that have successfully
evolved at the local level over many years.  The Company  believes  this gradual
transition  will help to properly  plan for and  execute  broad  changes  with a
minimum amount of business disruptions.

     Pursue Strategic  Alliances.  The Company seeks to form strategic alliances
with  established  companies  where  opportunities  exist to jointly  market the
services and capabilities of both organizations.  The Company currently has such
alliances with Microsoft Corporation,  Lawson Software,  PeopleSoft,  Tandem and
others. Through its strategic alliance with Microsoft,  for example, the Company
and  Microsoft  jointly  provided  an office  automation  solution to one of the
Company's   clients.   With  the   Company  as  project   manager,   Microsoft's
state-of-the-art   technology   was   integrated   into  the  client's   desktop
configuration  as part of the Company's  assignment to re-engineer  the client's
technical  infrastructure.  Through  acquisitions,  the Company gained operating
locations that are Microsoft  solution  provider  program  partners,  and two of
which are Microsoft  authorized training centers. One of the Company's operating
locations, a PeopleSoft  implementation partner,  presents the Company with the
opportunity to become a nationwide  implementation  partner of a rapidly growing
enterprise-wide  software  company.  This operating  location's recent agreement
with  PeopleSoft to become part of its "Select"  program  further  enhances this
relationship   and  offers   Cotelligent   an  entrance   into   middle   market
opportunities.  The  Company  intends to  continue to  strengthen  its  business
relationships  with these and other  strategic  partners,  and expects that more
operating  locations  will  participate  in such  alliances  in the future in an
effort to enhance the  Company's  overall  technical  support  capabilities  and
software applications expertise.


Acquisition Strategy

     The Company seeks to acquire successful  companies that add to the range of
complementary   implementation  services  and  expertise  available  within  the
Company,  as well as diversify the Company's  existing  client base. The Company
believes that there are many independent  firms that are attractive  acquisition
candidates  due to:  (i)  the  highly  fragmented  nature  of the IT  consulting
services  industry;  (ii) the dynamic growth in spending on services  offered by
the IT  consulting  services  industry;  (iii) the need for  capital to fuel the
expansion of many  independent  firms;  (iv) the wide  geographic  scope and the
evolving  purchasing  and  outsourcing  patterns  of the  Company's  present and
potential clients;  and (v) the trend of large corporations with recurring needs
to reduce the number of  implementation  services  providers to the advantage of
those companies offering broad, national coverage.

     As part of its acquisition  strategy,  the Company  utilizes  primary entry
acquisition  and tuck-in  strategies  for expansion  into targeted  metropolitan
areas.  Primary entry  acquisitions are acquisitions  which create a significant
presence  for the  Company  in  geographic  markets  in  which  the  acquisition
candidate is located.  There may be more than one primary entry  acquisition  in
the larger metropolitan markets. The Company intends,  where possible, to make a
primary entry  acquisition in a targeted area by acquiring an established,  high
quality local company.  In most instances involving a primary entry acquisition,
the Company  expects to retain the  management,  sales and recruiting  personnel
while seeking to improve the acquired  company's  profitability  by centralizing
executive management,  acquisitions, finance, IT, marketing, planning, legal and
administrative  functions,  thereby  allowing newly acquired  businesses to draw
upon the  collective  resources  of the  Company as a whole.  In  contrast  to a
primary entry  acquisition,  a tuck-in  acquisition is one in which the acquired
company is immediately  integrated into one of Cotelligent's  existing operating
locations. The Company intends to make tuck-in acquisitions where feasible.

     The Company believes that its approach to its acquired companies  retaining
day-to-day  responsibility  for their operations,  its decentralized  management
philosophy,  the access to the increased  capital and human resources offered by
association  with a larger,  publicly  traded  company and the ability to become
part  of a more  geographically  diverse  company,  will  make  the  Company  an
attractive acquirer of additional businesses. The Company also intends to pursue
growth  opportunities  internationally,  thereby  enabling it to provide  better
service to its multinational clients.


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<PAGE>


     In connection with its acquisition strategy,  the Company has established a
profile  to  evaluate  the  compatibility  of an  acquisition  target  with  the
Company's  growth  and  business   strategies.   In  identifying  primary  entry
acquisition  candidates,  the Company seeks to locate  companies which: (i) have
experienced past success as providers of IT consulting services;  (ii) possess a
strong local or regional  presence;  (iii) provide their IT professionals with a
culture  that  will  be  compatible  with  the  Company's  culture;   (iv)  have
experienced and knowledgeable management that desire to remain in control of the
candidate's local operations yet will vigorously  promote  Cotelligent after the
consummation  of the  acquisition  by the  Company;  and (v) service a number of
national  clients.  The Company  believes that such an evaluation  will help the
Company locate attractive  acquisition  candidates whose addition to the Company
will be consistent with the Company's philosophy, national marketing efforts and
existing   infrastructure   for  sharing  best  practices  among  the  operating
locations.

     Since the IPO,  the Company has  acquired  sixteen IT  consulting  services
firms, which have strengthened the Company's operations by diversifying its base
of Fortune  1000  clients,  expanding  its  national  presence,  broadening  its
nationwide   resource  pool  and  client  base  and   increasing  the  Company's
capabilities and expertise.  Eight  acquisitions  were consummated in the fiscal
year ended March 31, 1997 and eight  acquisitions were consummated in the fiscal
year ending  March 31,  1998.  As  consideration  for future  acquisitions,  the
Company intends to use various combinations of Common Stock, cash and notes.


Services

     For the twelve months ended March 31, 1998,  the Company  provided  project
management,  staff  augmentation,  alliance  services,  network  services and IT
education   services.   Within  these   categories,   the  Company's   scope  of
implementation services include the following:
<TABLE>

<S>                                                  <C>                                   <C>    
Application Development                              Project Management                     Systems Administration
Business Analysis                                    Software Engineering                   Systems Integration
Computer programming                                 Software Quality Assurance             Systems programming
Database Administration                              Software Testing                       Telecommunication Analysis
Data Analysis                                        Client/Server System Design            Client/Server development
Systems Engineering                                  Network Design & Management            Intranet/Internet Design and Development
Hardware/Software Selection                          Systems Software Design                Creation/Execution of IT migration plans
Systems/Business process re-engineering

</TABLE>

     Project Management.  When hired on a project basis, the Company manages the
design,  development,  and  implementation  of a custom  software  solution or a
turnkey software system. The Company staffs these engagements with project teams
including project managers,  systems and business  analysts,  application system
programmers,  network service technicians and other IT professionals and assumes
responsibility  for  the  project  from  requirements  definition  to  end  user
training.  Project  management  engagements  typically  last  one to two  years.
Project   engagements  are  provided  in-house  as  well  as  being  outsourced.
Development  efforts may be assisted with  development  tools  provided  through
Cotelligent's   strategic   relationships  with  Microsoft  and  others.   These
engagements may be on a fixed fee basis.


     Staff Augmentation  Assignments.  IT staff augmentation assignments require
the Company to provide  highly skilled and trained IT  professionals  to augment
the internal IT personnel and end-user groups of major corporations. The Company
provides  its clients  with IT  professionals  who are  proficient  at providing
services  related to a wide variety of hardware and software  platforms  and who
are available to clients for either  short-term or long-term  support.  In these
cases, the client or prospective  client  circulates a job  specification to the
Company  describing the technical  qualifications  of the position to be filled.
Using the resources of its account management and recruitment organizations, the
Company works to match the specified  qualifications  with the technical talents
and  availability  of  employees  of the Company,  or  consultants  known to the
Company.  Staff augmentation work is performed under the direction of the client
for the duration of an assignment, which is typically three to nine months.



                                       8
<PAGE>
     Network  Services.  Network  services  include  the  design,   development,
installation,  management and security of networks. Typically, these engagements
involve the design or  installation  of local or  wide-area  networks as well as
internet connectivity.

     Alliance Services.  Alliance services involve working in partnership with a
variety of  hardware  and  software  vendors to provide  client  solutions.  For
example,  working with PeopleSoft,  Lawson, or Oracle applications,  Cotelligent
implements their enterprise  resource  planning  software to assist  Cotelligent
clients in managing information resources.

     IT Education  Services.  Cotelligent  believes that training  plays a major
role in the ability of an IT consulting  company to recruit and retain  talented
IT  professionals.  The Company is able to leverage the skills of certain of its
operating locations to provide training throughout the entire organization.  For
example,  certain operating locations are authorized  Microsoft training centers
at which Cotelligent  employees,  clients and IT professionals seeking to expand
their skills are instructed on Microsoft tools and applications. These locations
offer the full Microsoft  Official  Course  Curriculum.  Based on this training,
Cotelligent's  IT professionals  can become,  for example,  Microsoft  Certified
Systems Engineers or Microsoft Certified Solutions Developers.  In addition, the
Company  creates  training  programs to help  consultants  prepare for  official
certification of competency on Microsoft  applications  software systems.  These
services enhance the technical  skills of Cotelligent  internal staff as well as
provide knowledge-transfer capability to Cotelligent clients.

Recruiting

     Recruiting  skilled IT professionals is integral to the Company's  success.
The Company,  through its staff of  approximately  100 full time recruiters uses
traditional  recruiting  methods,  such as a  presence  at  local  and  regional
technical   colleges  and   newspaper  and   technical   periodical   classified
advertising.  The Company  also has  agreements  with  Westech  ExpoCorp and The
Lendman  Group which allow all of its  operating  locations  to  participate  in
specialized  national and regional job fair networks.  In addition,  the Company
employs less  traditional  methods,  including  the use of the Internet  through
skill-specific user groups, World Wide Web page  advertisements,  on-line skills
networks,  resume referral  services,  out-placement  agencies and the Company's
skills/resume  retrieval  networks.  To date,  the Company has also  recruited a
small  percentage of its IT  professionals  from such foreign  markets as India,
Europe and Australia. The Company anticipates that this international recruiting
capability would be enhanced if it successfully  acquired one or more U.S. based
companies that have an international presence.

     Each  applicant  is  interviewed  by the  Company's  recruiting  personnel.
Technical  applicants  are also required to complete a  questionnaire  regarding
skill levels, past professional experience, education and availability, and they
are also asked to provide technical references.  The Company has entered into an
agreement with a national  technical  testing company that allows each operating
location to test the technical  competence of candidates  prior to hiring.  Once
qualified,  the candidate's profile,  relevant skills and experience are scanned
into a database which can be searched  based on a number of different  criteria,
including specific skills and qualifications.  The Company regularly updates its
databases to reflect changes in employee skills, experience or availability.  To
place  employees  in client  organizations  more  efficiently,  the  Company  is
currently  implementing  a common  client  information  and  candidate  tracking
system.

     The Company maintains a database with over 150,000 IT professionals  with a
wide range of technical  skills.  On March 31, 1998,  the Company had a staff of
approximately  2,300 IT professionals  providing  services to approximately  800
clients across a broad spectrum of commercial  industries  throughout the United
States,  including the  telecommunications,  technology  and financial  services
industries.

Marketing, Sales and Account Management

     The Company focuses its marketing  efforts on businesses  with  substantial
recurring needs for applications or software development support,  which tend to
be large companies. As the Company has expanded its operations nationally, there
is an increasing focus on supporting  national accounts with multiple  operating
sites. The development  needs of such businesses can provide  opportunities  for
major  projects  that may  extend  for  multiple  years or  generate  additional
assignments.  The  

                                       9
<PAGE>
Company  has also  experienced  increased  opportunity  in rapidly  growing
mid-sized companies.  With the implementation of client/server  technology,  the
Company  believes  that there is a growing need among  mid-sized  companies  for
technical  assistance and applications support and intends to expand this aspect
of its business.

     The Company markets its services  through account  managers located in each
operating location. Approximately 100 employees are engaged in account marketing
and  management  full time.  Many of the  Company's  operating  locations use an
account  team  strategy in their  marketing  efforts.  These  account  teams are
comprised of both account managers and recruiters  working closely to coordinate
client  services  activities.  Assigning  a team  to key  accounts  creates  the
opportunity  to  service a client's  needs  more  quickly  and  efficiently  and
provides  more   marketing   opportunities   because   Company   personnel  know
specifically  who is  responsible  for the  service  activities.  They  are also
generally more aware of a client's technology staffing needs,  methodologies and
budgets.  Account managers work as members of the team,  focusing on identifying
and understanding a client's needs while recruiters on the team focus on finding
qualified IT professionals to meet the needs of the client.  Performance bonuses
and commissions  constitute a significant  portion of the total  compensation of
account managers and generally are based upon the  profitability of the business
generated.

     The Company is expanding  its marketing  efforts by centrally  coordinating
its  operating  locations  responses  to requests  for  proposals  from  current
national clients. The Company is pursuing new client accounts primarily in those
geographic  areas  presently  serviced by its operating  locations.  The Company
believes that the size,  scale and scope of its growing  operations  will create
opportunities  to more  effectively  compete  in vendor  list  selection,  large
project   engagements,    staff   augmentation   assignments   and   outsourcing
opportunities.

     The  Company  believes  that  its  decentralized  structure  puts it in the
advantageous  position of bidding on assignments  as either a national  services
provider or a regional services provider,  depending on the needs and desires of
a particular client. The Company believes it will be able to successfully secure
projects from clients seeking to only do business with national  providers of IT
consulting  services,  to whom the  Company  will  stress its size and  national
presence.  The Company will also secure  projects and  assignments  from clients
seeking  relationships  with local and regional  firms, to whom the Company will
highlight its established regional presence and localized management.


Clients

     As a result of the  Company's  broad client base, it does not rely upon any
one client for a significant  percentage of revenues.  The Company has no client
that accounted for more than 7% of the Company's  revenues for the twelve months
ended  March  31,  1998 and the  Company's  10  largest  clients  accounted  for
approximately 31% of revenues in the same period.

     During the twelve  months  ended March 31, 1998,  approximately  41 clients
each  provided the Company with more than $1 million in revenue.  The  following
table sets forth a selected list of such clients of the Company:

<TABLE>
<CAPTION>

Telecommunications                          Technology                                  Other


<S>                                         <C>                                         <C>
AT&T Corp.                                  Amdahl Corp.                                Medtronic, Inc.
Bell Communications Research                Hewlett-Packard Co.                         Monsanto Company
Lucent Technologies Inc.                    Microsoft Corporation                       Ortho Diagnostics Systems, Inc.
MCI Communications Corporation                                                          State of Georgia
U S West, Inc.                              Financial Services
Western Wireless Corp.                      Liberty Mutual Insurance Co.
                                            The Progressive Corporation
                                            Mercantile Bankshares
                                                Corporation

</TABLE>





                                       10
<PAGE>




Management Information System

     The Company believes in applying IT solutions to maximize  productivity and
aid in the  management  of its  own  business.  Consequently,  the  Company  has
installed  an  enterprise-wide  communications  network,  or  intranet,  and  is
implementing an integrated management information system ("MIS").

     Intranet.  Early in the  Company's  development,  management  realized  the
importance  of  bringing  the  operating  locations,  as well as newly  acquired
companies, into an enterprise-wide  communications network. In April 1996, under
the  supervision of the Information  Technology  Division  ("ITD"),  the Company
implemented an automated communications infrastructure,  or intranet, to provide
Cotelligent's  employees  with a way to easily  communicate.  This  intranet  is
Microsoft NT based and includes Microsoft Office 97, Exchange and related tools.
As new  companies are acquired they are  integrated  into the network,  which at
March 31, 1998  consists of  approximately  700 employee  workstations.  The ITD
responsibilities include the development, deployment, monitoring and maintenance
of the Company's communications network.

     Management  Information  System. In August 1996, the Company embarked on an
initiative to define  business  requirements,  evaluate  turnkey systems meeting
these requirements and implement an  enterprise-wide,  fully integrated MIS. The
application  systems  being  implemented  as  part of  this  initiative  include
finance,   accounting  and  management  reporting,   human  resource  management
reporting,  and  client and  candidate  tracking.  The  Company  selected  three
application  software  systems which are  compatible  with one another and which
reside on an Oracle  platform.  These new  systems  are in the  process of being
implemented.

     The Company  believes its  investment in this MIS should help it to improve
productivity  and enhance its  competitive  position.  As a  "backbone"  for all
administrative  and operating  information,  MIS offers management at all levels
on-line  access to  information  on a real time basis.  These systems should add
consistency to back office  business  practices  across the Company's  operating
locations,  thereby  providing  management  with more  direct  control  over the
conduct of the  Company's  operations.  In  addition,  the Company has begun the
process of building intranet applications to support internal practices. As with
its other MIS initiatives,  the Company is implementing  application systems and
tools  internally  that add value to its  operating  activities  and improve the
sharing of knowledge and information at all  organization  levels and across its
entire geographic network.


Competition

     The IT consulting  services  market is highly  competitive,  fragmented and
served by  numerous  firms,  many of which  serve  only their  respective  local
markets.  The market  includes  participants  in a variety  of market  segments,
including local, regional and national systems consulting and integration firms,
professional  service divisions of application  software firms, the professional
service groups of computer equipment companies,  management  information systems
outsourcing companies, certain "Big Six" accounting firms and general management
consulting  firms.  The  Company's  competitors,  which  may vary  depending  on
geographic  region and the nature of the  service(s)  being  provided,  may have
significantly greater financial,  technical and marketing resources and generate
greater  revenues than the Company.  Some of these same companies,  from time to
time, retain the services of the Company's operating locations to subcontract IT
professionals for their clients' requirements.

     The  Company  believes  that the  principal  competitive  factors in the IT
consulting   services   industry   include   quality  of  service,   reputation,
responsiveness  to client  needs,  the number and  availability  of qualified IT
professionals,  price, project management capability,  technical expertise, size
and scale of operation. The Company intends to remain competitive as a result of
its (i)  ability  to  locate,  place and  retain IT  professionals  with  strong
performance capabilities and experience,  (ii) capability on both a regional and
national  level,  including its ability to market itself and secure  assignments
from clients  seeking to do business with national IT consulting  services firms
as well as regional businesses seeking local relationships, and (iii) ability to
provide  effective  management of account  relationships  and rapidly respond to
clients' ongoing business needs.



                                       11
<PAGE>

     Intense  competition  also exists for viable  acquisition  candidates.  The
Company  believes that its  decentralized  management  philosophy  and operating
strategies will make it an attractive  acquirer of other IT consulting  services
companies. See "--Risk Factors--Competition."

Risk Factors

   Investment in the Company has a degree of risk.  Prospective investors should
consider the following risk factors.

         Dependence on Availability of Qualified IT Professionals

     The Company is  dependent  upon its ability to attract,  hire and retain IT
professionals  who  possess  the skills  and  experience  necessary  to meet the
service  requirements  of its clients.  The Company must  continually  identify,
screen and retain qualified IT professionals to keep pace with increasing client
demand for rapidly  evolving  technologies  and changing client needs.  Further,
many of the IT  professionals  provided  by the  Company to its  clients are not
committed to provide  their  services  exclusively  to the Company.  The Company
competes  with other  companies  in a variety of  industry  segments  seeking to
engage the services of such personnel.  Competition for individuals  with proven
technical  skills is intense.  The Company  competes for such  individuals  with
other  providers  of  technical  services,  systems  integrators,  providers  of
outsourcing  services,  computer  systems  consultants,  clients  and  temporary
staffing  companies.  In the past, the Company has  experienced  difficulties in
identifying  and retaining  qualified IT  professionals  and has therefore  been
unable in certain  instances to fill requests for services  from clients.  There
can be no assurance  that  qualified IT  professionals  will be available to the
Company in sufficient numbers.  An inability to locate,  retain and successfully
place qualified IT  professionals  to fill client requests could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations. See "--Recruiting."


         Integration of Operating Locations

     Prior  to  February  20,  1996,  the  date of the  IPO,  Cotelligent  was a
non-operating  entity and  generated no revenue.  Since the IPO, the Company has
acquired the Subsequent Acquisitions, eight of which were acquired in the fiscal
year ended  March 31,  1997 and eight of which have been  acquired in the fiscal
year ending March 31, 1998.  There can be no assurance  that the Company will be
able  to  successfully  integrate  its  operating  entities  on an  economic  or
operational basis or that the Company's management group will be able to oversee
the combined entity and effectively  implement the Company's  business strategy.
The combined historical  financial results of the Company cover periods when the
operating  entities and Cotelligent  were not under common control or management
and as such may not be indicative of the Company's future financial or operating
results.

     In  addition,  the  Company  intends to expand  its  business  through  the
acquisition  of additional IT consulting  services  businesses.  There can be no
assurance  that the  Company  will be able to  successfully  integrate  acquired
businesses, if any, into the Company's infrastructure without substantial costs,
delays or other  operational  or  financial  problems.  Further,  the  Company's
ability to manage  future  growth will depend  significantly  upon the Company's
ability to integrate its operating  entities and any future acquired  businesses
and develop Company-wide systems and operating  procedures.  An inability of the
Company  to  successfully  integrate  the  operating  entities  or any  acquired
businesses  would  have a material  adverse  effect on the  Company's  business,
financial  condition and results of operations.  See "--Operating  Strategy" and
"--Acquisition Strategy."


         Reliance on and Retention of Key Management

     The Company's  operations  are  dependent on the  continued  efforts of its
executive  officers and on the senior  management  of the  operating  locations.
While the Company has entered into  employment  agreements with certain of these
individuals,  there can be no assurance that any individual will continue in his
or her present capacity with the Company for any specified  period.  The Company
also expects that in order to pursue its  operating  strategy  successfully,  it
will be required to hire additional  management  personnel at regional levels to
implement  adequate  Company-wide  systems and controls at each of the operating
locations.  If the Company is unable to hire, train and integrate new management
personnel effectively,


                                       12
<PAGE>
or if such personnel are unable to achieve anticipated  performance levels,
the Company's  business,  financial condition and results of operations could be
adversely  affected.  Furthermore,  the Company  will likely be dependent on the
senior management of businesses,  if any, that may be acquired in the future. If
any of these people become unable to continue in their present roles,  or if the
Company is unable to attract and retain other skilled  employees,  the Company's
business or prospects could be adversely affected. The Company does not maintain
key man life insurance  covering any of its executive  officers or other members
of senior management.


         Pricing and Margin Pressure

     Many of the Company's larger clients purchase IT services  primarily from a
limited  number of  pre-approved  vendors.  In order to  remain on its  clients'
vendor lists and to develop new client  relationships,  the Company must satisfy
client  requirements  at  competitive  rates.  Although the Company  continually
attempts  to  lower  its  costs,   there  are  other  IT   consulting   services
organizations and temporary  placement agencies that provide the same or similar
services  at equal or  lower  costs.  Furthermore,  as  competition  intensifies
between IT  consulting  services  providers,  there may be increased  demand for
qualified IT  professionals  resulting in upward market pressure on compensation
rates. Additionally, certain of the Company's clients require that their vendors
reduce rates after services have  commenced.  There can be no assurance that the
Company  will be able to compete  effectively  on pricing or other  requirements
and,  as a result,  the  Company  could lose  clients  or be unable to  maintain
historical gross profit levels or to operate profitably. See "--Competition."


         Competition

     The IT consulting services industry is highly  competitive,  fragmented and
subject to rapid change.  There are numerous  companies engaged in the Company's
business, many of which have greater technical, financial or marketing resources
than the Company.  Competition in the IT consulting  services  industry includes
local,   regional  and  national  systems   consulting  and  integration  firms,
professional service divisions of applications  software firms, the professional
service  groups  of  computer  equipment   companies,   management   information
outsourcing companies, certain "Big Six" accounting firms and general management
consulting  firms.  The  Company  intends  to enter  new  markets  and offer new
services by acquiring  companies and expects that one or more of its competitors
will have a presence in each of such new  markets  and are or will be  providing
such new  services.  The  majority  of the  Company's  competitors  are  smaller
regional  firms  with a strong  presence  in  their  respective  local  markets.
Further,  many  of the  larger  companies  which  have  traditionally  made up a
substantial   portion  of  the  Company's  target  markets  have  recently  been
consolidating  their  vendor  lists to a  smaller  number of  preferred  service
providers.   To  the  extent  the  Company  is  unable  to  meet  the  necessary
requirements of such larger companies and become a preferred  service  provider,
its ability to attract and retain such clients will be adversely affected.  As a
result,  the Company may lose its existing clients or have difficulty  acquiring
new clients.  There can be no assurance that the Company will be able to compete
effectively against present and future competitors or that competitive pressures
will not have a material  adverse  effect on the Company's  business,  financial
condition  and results of  operations.  In  addition,  the Company  competes for
qualified IT professionals and viable  acquisition  candidates.  There can be no
assurance  that  the  Company  will be  successful  in  attracting,  hiring  and
retaining  such  personnel  or in  implementing  its  acquisition  program.  See
"--Dependence   on   Availability   of   Qualified   IT    Professionals"    and
"--Competition."


         Risks Related to Acquisitions

     The Company  intends to expand its  operations  through the  acquisition of
additional IT consulting services businesses. There can be no assurance that the
Company  will be able to  identify,  acquire  or  profitably  manage  additional
businesses,  if any, without  substantial costs,  delays or other operational or
financial  problems.  Acquisitions  may also involve a number of special  risks,
including  diversion of management's  attention,  failure to retain key acquired
personnel,  risks associated with unanticipated  events,  circumstances or legal
liabilities and amortization of acquired intangible assets, some or all of which
could  have a  material  adverse  effect on the  Company's  business,  financial
condition and results of operations.  Further,  if competition  for  acquisition
candidates  increases,  the purchase price of such target companies may increase
to the point that otherwise viable acquisitions become cost prohibitive.  Client
satisfaction  or  performance  problems at a single  acquired  firm could have a
material  adverse  effect  on the  reputation  of the  Company  as a  whole.  In
addition,  there can be no assurance  that 


                                       13
<PAGE>

acquired  businesses,   if  any,  will  achieve  anticipated  revenues  and
earnings.  The inability of the Company to implement and manage its  acquisition
strategy  successfully may have an adverse effect on the future prospects of the
Company. See "--Operating Strategy" and "--Acquisition Strategy."


         Need for Acquisition Financing

     The Company currently intends to finance future acquisitions by using cash,
notes  and/or  shares  of  its  Common  Stock  for  all  or  a  portion  of  the
consideration  to be paid.  If the Common  Stock does not  maintain a sufficient
value, or potential acquisition  candidates are unwilling to accept Common Stock
as part or all of the  consideration  for the  sale  of  their  businesses,  the
Company may be  required to use more of its cash  resources,  if  available,  to
execute its  acquisition  program.  If the Company does not have sufficient cash
resources,  its growth could be limited  unless it is able to obtain  additional
capital  through debt or equity  financing.  There can be no assurance  that the
Company will be able to obtain such  financing if and when it is needed or that,
if available,  it will be available on terms the Company deems acceptable.  As a
result,  the Company might be unable to  successfully  implement its acquisition
strategy,  which may have an  adverse  effect  on the  future  prospects  of the
Company.  The  Company  has a $40 million  syndicated  revolving  line of credit
facility (the "Credit  Line")  available  for working  capital and other general
corporate purposes,  which may include acquisitions.  There can be no assurance,
however,  that the Credit Line will be sufficient for the Company's  needs.  See
"--Operating  Strategy",  "--Acquisition  Strategy."  and "Item 7.  Management's
Discussion    and   Analysis   of   Financial    Condition    and   Results   of
Operations--Liquidity and Capital Resources".


         Absence of Long-Term Contracts; Client Concentration

     A significant  amount of the Company's  revenues are primarily derived from
services    provided    in    response    to   client    requests   or   on   an
assignment-by-assignment basis, and the Company's engagements,  generally billed
on a time and  materials or arranged fee basis,  are  terminable  at any time by
clients,  generally  without  penalty.  There can be no assurance  that existing
clients will continue to use the Company's  services at historical levels, if at
all. In  addition,  for the year ended March 31,  1998,  the  Company's  largest
client  accounted  for  approximately  7% of  the  Company's  revenues  and  the
Company's ten largest clients  accounted for  approximately 31% of the Company's
revenues.  There can be no assurance  that these clients will continue to engage
the Company for additional projects or do so at the same revenue levels. Loss of
a major client could have a material  adverse effect on the Company's  business,
financial condition and results of operations. See "--Clients."


         Year 2000 Conversion Efforts

     As the Year 2000 approaches, many date sensitive computer applications will
fail because they are unable to process data beyond  December 31, 1999 properly.
Businesses  have been  required to devote  significant  resources to  converting
their  information  systems over the next two years. In the event that Year 2000
conversions result in a significant increase in competition for IT professionals
or the Company's  clients devote  substantial  resources to such conversions and
decrease  their   expenditures  on  projects  worked  on  by  the  Company's  IT
professionals,  the  Company's  business,  financial  condition  and  results of
operations may be materially adversely affected.


         Possible Fluctuation of Results and Volatility of Stock Price

     The  Company's  revenues,  gross  margins  and  operating  margins  for any
particular  quarter are  generally  affected by business mix and billing  rates,
resource requirements,  marketing activities, retention rates and the timing and
size of client projects.  Results for any quarter are not necessarily indicative
of the results that the Company may achieve for any subsequent fiscal quarter or
for a full  fiscal  year and may cause the market  price of the Common  Stock to
fluctuate, perhaps substantially.  In addition, in recent years the stock market
in  general,  and the  shares  of high  growth  companies  in  particular,  have
experienced  extreme  price  fluctuations,  often for reasons  unrelated  to the
performance of a particular company's business.  These broad market and industry
fluctuations may adversely affect the market price of the Common Stock.


                                       14
<PAGE>

         Project Risks

     The Company's IT professionals are often deployed in the workplace of other
businesses.  An attendant  risk of such  activity  includes  possible  claims of
discrimination  and  harassment,  employment of illegal aliens and other similar
claims. A failure to avoid these risks may result in negative  publicity for the
Company and the payment by the Company of money  damages or fines.  Although the
Company  historically  has not had any significant  problems in this area, there
can be no assurance  that the Company will not  experience  such problems in the
future.

     The Company is also exposed to liability  with respect to actions  taken by
its IT  professionals  while on  assignment,  such as damages caused by employee
errors,  misuse of  client-proprietary  information or theft of client property.
Due to the nature of the Company's  assignments and the potential liability with
respect thereto,  there can be no assurance that any insurance maintained by the
Company  will be adequate to cover any such  liability.  To the extent that such
insurance is not  sufficient  in amount or scope to cover a loss,  the Company's
business,  financial  condition  and results of  operations  could be materially
adversely affected.


Item 2.  Properties.

     The Company's  principal  executive offices and its operating  subsidiaries
are located in 37 facilities with an aggregate of  approximately  185,000 square
feet and are leased at aggregate current monthly rents of approximately $260,000
with no lease commitment extending past the year 2002. The Company believes that
its properties  are adequate for its needs.  Furthermore,  the Company  believes
that suitable additional or replacement space will be available when required on
terms the Company believes will be acceptable.

Item 3.  Legal Proceedings.

     The  Company is, from time to time,  a party to  litigation  arising in the
normal  course of its  business.  The  Company is not  presently  subject to any
material litigation.

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

     No matters were submitted to a vote of Security Holders.




                                       15
<PAGE>




                                    PART II


Item 5.  Market  for the  Registrant's  Common  Stock  and  Related  Stockholder
Matters.

         Price range of common stock

     Since February 20, 1998, the Common Stock has been listed on the NYSE under
the symbol "CGZ." From February 14, 1996 to February 19, 1998,  the Common Stock
was listed on the NASDAQ  under the symbol  "COTL."  Prior to February 14, 1996,
there was no public market for the Common Stock. The following table sets forth,
for the periods indicated, the high and low sales prices for the Common Stock as
reported on the NASDAQ  through  February 19, 1998 and includes the high and low
sales price information on the NYSE subsequent to such date:
<TABLE>
<CAPTION>

                                                                    High     Low
            <S>                                                     <C>      <C>
            1996 Fiscal Year
                 February 14, 1996 through March 31, 1996            $11.75   $  8.00

            1997 Fiscal Year
                 April 1, 1996 through June 30, 1996                 $21.50   $ 11.13
                 July 1, 1996 through September 30, 1996             $18.50   $ 11.75
                 October 1, 1996 through December 31, 1996           $25.25   $ 15.63
                 January 1, 1997 through March 31, 1997              $26.75   $  8.00

            1998 Fiscal Year
                 April 1, 1997 through June 30, 1997                 $14.38   $  7.25
                 July 1, 1997 through September 30, 1997             $20.63   $ 12.75
                 October 1, 1997 through December 31, 1997           $22.88   $ 17.13
                 January 1, 1998 through March 31, 1998              $29.63   $ 19.13

</TABLE>

     On June 23, 1998,  the last reported  sales price of the Common  Stock,  as
reported on the NYSE,  was $20.125 per share.  On June 23, 1998,  there were 116
stockholders of record of the Common Stock.




                                       16
<PAGE>





Item 6.  Selected Financial Data.


         The selected financial data with respect to Cotelligent's  consolidated
statements of operations for the years ended March 31, 1995, 1996, 1997 and 1998
and with respect to the  consolidated  balance sheets as of March 31, 1996, 1997
and 1998 have been derived from  Cotelligent's  financial  statements  that have
been audited by Arthur Andersen LLP. The selected financial data with respect to
Cotelligent's  consolidated statement of operations for the year ended March 31,
1994, 1995 and 1996 and  Cotelligent's  consolidated  balance sheets as of March
31, 1994 and 1995 have been derived from unaudited  financial  statements which,
in the opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such data. Pro forma
data for the year ended  March 31, 1998  reflect  adjustments  for  acquisitions
accounted for under the pooling-of-interests method. Additionally, the pro forma
results  are not  necessarily  indicative  of the  results  that would have been
achieved  if the  companies  had  operated  on a combined  basis for the periods
presented.

         The following  selected  financial  data should be read in  conjunction
with the financial statements,  related notes and other financial information of
the Company included  elsewhere herein.  See - "Item 7. Management's  Discussion
and Analysis of Financial Condition and Results of Operations."





                                       17
<PAGE>




                             Selected Financial Data
                           Cotelligent Group, Inc. (1)

                        (In thousands, except share data)
<TABLE>
<CAPTION>

                           ProForma  Pro Forma
                           1998(2)    1997(2)      1998      1997       1996       1995       1994
                           -------    -------
                          (Unaudited)(Unaudited)                                            (Unaudited)
<S>                       <C>        <C>          <C>        <C>        <C>        <C>        <C>
Statements of Operations
  Data:
  Revenues..............  $  244,683  $ 165,417    $ 244,683  $ 165,417  $ 66,433   $ 44,600   $ 34,446
  Cost of services           173,518    116,817      173,537    116,844    45,814     30,003     21,929
                          ----------  ---------    ---------  ---------  --------   --------   --------       
      Gross profit            71,165     48,600       71,146     48,573    20,619     14,597     12,517
  Selling, general and
    administrative
    expenses............      53,968     37,611       55,929     39,167    17,867     13,848     10,798
  Non-recurring
    transaction costs             --         --          855      1,969        --         --         --
                           ----------  ---------    ---------  ---------  -------     -------   -------
      Operating income        17,197     10,989       14,362      7,437     2,752        749      1,719

  Other income (expense),
    net.................        (708)        15         (708)       15        108        (95)        (92)
                           ----------  ---------    ---------  ---------  -------     -------   --------                        
  Income before provision
    for income taxes           16,489    11,004       13,654     7,452     2,860          654      1,627
  Provision for income
    taxes...............        6,760     4,512        7,223     3,742       248          115        218
                           ----------  ---------    ---------  ---------  -------     -------   --------                        
Net income..............  $     9,729   $ 6,492      $ 6,431    $3,710    $2,612       $  539    $ 1,409
                          ============-======================================================-==========

Earnings per share(3)
  Basic.................  $      0.85   $  0.57      $ 0.56     $ 0.33
                          ============-=================================
  Diluted...............  $      0.84   $  0.57      $ 0.55     $ 0.33
                          ============-=================================
Weighted average shares
  outstanding
  Basic..................  11,485,393  11,328,518 11,485,393 11,328,518
                          ===========-=================================
  Diluted...............   11,610,339  11,402,513 11,610,339 11,402,513
                          ===========-=================================

</TABLE>
<TABLE>
<CAPTION>

                                                                       March 31,
                                                  -------------------------------------------------
                                                    1998      1997       1996      1995       1994
                                                  --------  --------  ---------  ---------  -------
                                                                                (Unaudited)(Unaudited)
<S>                                               <C>       <C>       <C>        <C>        <C>
Balance Sheet Data:                                                              
  Working capital                                 $ 64,029   $ 15,471  $ 20,491   $ 2,091    $ 2,861
  Total assets..........                           118,559     45,167    39,472    10,545      7,157
  Long-term debt, less
    current portion                                    199        648       706       304        217
  Stockholders' equity                              90,339     23,137    21,462     2,265      3,246
</TABLE>


(1) On February 20, 1996,  Cotelligent acquired the Initially Acquired Companies
simultaneously with the IPO. Prior to that date, Cotelligent was a non-operating
entity.  The operating  results of the Initially  Acquired  Companies  have been
included since the date of acquisition. During fiscal 1997 and 1998, the Company
acquired ten businesses accounted for under the pooling-of-interests method (the
"Pooled Companies") and has restated its financial statements for all periods to
present  financial  data as if Cotelligent  and the Pooled  Companies had always
been members of the same operating  group.  In addition,  during fiscal 1997 and
1998,  the Company  acquired  six  businesses  accounted  for under the purchase
method  (the  "Purchased  Companies").  The  consolidated  financial  statements
include the  operating  results of the Purchased  Companies  subsequent to their
respective  acquisition  dates.  

(2) Pro forma  data  reflect  adjustments  for the  acquisitions  of the  Pooled
Companies  including  compensation  differentials to former owners and employees
($1,556  for the year ended  March 31,  1997 and $1,964 for the year ended March
31, 1998),  termination of  contributions  to retirement plans ($27 for the year
ended  March  31,  1997 and $19 for year  ended  March  31,  1998),  removal  of
non-recurring transaction costs associated with the Pooled Companies ($1,969 for
the year ended March 31, 1997 and $855 for the year ended March 31,  1998),  and
income taxes as if the  entities  were  combined and subject to a 41%  effective
federal and state  statutory rate  throughout the periods  presented.  Pro forma
results,  including the Purchased Companies as if they were acquired on April 1,
1996, as adjusted for interest expense on cash consideration and amortization of
goodwill are: Revenues $185,598 and $258,712,  Net Income $7,248 and $10,310 and
Diluted Earnings Per Share $0.61 and $0.86 for the year ended March 31, 1997 and
the year ended March 31, 1998, respectively. See Note 4 of Notes to Consolidated
Financial Statements. 

(3) Earnings per share for the years ended March 31, 1994, 1995 and 1996 has not
been presented because,  as discussed in footnote 1 above and Note 2 of Notes to
Consolidated  Financial Statements,  the issuance of shares of Common Stock sold
in the IPO and the inclusion of the results of the Initially  Acquired Companies
are not reflected in any period prior to February 20, 1996.




                                       18
<PAGE>





Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

     Cotelligent  was formed in  February  1993 to  acquire,  own and operate IT
consulting  services  businesses.   Cotelligent  acquired  four  companies  (the
"Initially Acquired Companies") simultaneously with its IPO. Prior to this date,
Cotelligent was a non-operating entity.

     During fiscal 1997 and 1998, the Company acquired ten businesses  accounted
for  under  the   pooling-of-interests   method,   (the   "Pooled   Companies").
Accordingly,  the Selected  Financial  Data of  Cotelligent  for the years ended
March 31, 1994,  1995, 1996, 1997 and 1998 have been restated in accordance with
generally  accepted  accounting  principles to present the financial  data as if
Cotelligent  and the  Pooled  Companies  had  always  been  members  of the same
operating group.

     In  addition,  during  fiscal  1997 and  1998,  the  Company  acquired  six
businesses accounted for under the purchase method (the "Purchased  Companies").
Accordingly,  the Selected Financial Data of Cotelligent  includes the operating
results of these acquisitions subsequent to their respective acquisition date.

         Pro forma data reflect adjustments for the Pooled Companies,  including
compensation  differentials  to former  owners  and  employees,  termination  of
contributions to retirement  plans,  removal of non-recurring  transaction costs
associated  with the Pooled  Companies  and income taxes as if the entities were
combined  and  subject to the  effective  federal and state  statutory  rates of
approximately 41% throughout the periods presented.

         The Company derives substantially all of its revenues from professional
service  activities.  The majority of these  activities are provided under "time
and  materials"  billing  arrangements,  and  revenues  are  recorded as work is
performed.  Revenues are directly related to the total number of hours billed to
clients and the  associated  hourly  billing  rates.  Hourly  billing  rates are
established   for  each  service   professional   and  are  a  function  of  the
professional's skills,  experience and the type of work performed. The Company's
principal  costs  are   professional   compensation   directly  related  to  the
performance  of services and related  expenses.  Gross profits  (revenues  after
professional  compensation  and related  expenses)  are  primarily a function of
hours billed to clients per professional employee or consultant,  hourly billing
rates of those employees or consultants and employee or consultant  compensation
relative to those  billing  rates.  Gross  profits can be adversely  impacted if
service activities cannot be billed, if the Company is not effective in managing
its service  activities,  if fixed-fee  engagements (which historically have not
constituted a significant  portion of total revenues) are not properly priced or
if there are high levels of unutilized  time (work  activities not chargeable to
clients  or  unrelated  to  client  services)  of  full-time   salaried  service
professional employees. Operating income (gross profit less selling, general and
administrative  expenses) can be adversely impacted by increased  administrative
staff  compensation  and expenses related to growing and expanding the Company's
business,  which may be  incurred  before  revenues  or  economies  of scale are
generated from such investment.

     As part of its  strategic  plan,  the Company  intends to acquire  other IT
consulting  services  businesses.  Should the Company be successful in acquiring
such businesses,  the period in which such  acquisition is consummated  could be
adversely  impacted by costs  associated  with such  acquisition.  In  addition,
periods  subsequent  to the  completion  of an  acquisition  could be  adversely
impacted  by  costs  and  activities   associated  with  the   assimilation  and
integration of the acquired company.

         As a  professional  services  organization,  the  Company  responds  to
service demands from its clients.  Accordingly,  the Company has limited control
over the  timing  and  circumstances  under  which its  services  are  provided.
Therefore,  the Company can experience  volatility in its operating results from
quarter to quarter.  The operating  results for any quarter are not  necessarily
indicative of the results for any future period.

         The  Company  has  conducted  a  comprehensive  review of its  internal
computer  systems to identify  the  systems  that could be affected by the "Year
2000"  issue  and has  concluded  that the Year 2000  problem  will not pose any
significant  operational issues for the Company. The Company does not expect the
expenditures  related to the Year 2000  issue to have a  material  effect on its
financial position or results of operations in any year.


                                       19
<PAGE>


Results of Operations

         The  following   tables  set  forth  the  percentage  of  net  revenues
represented  by items in the Company's  statement of operations  for the periods
presented.
<TABLE>
<CAPTION>

                                                                   Year Ended March 31,
                                                 ProForma        ProForma
Statement of Operations Data:                     1998 (1)        1997 (1)          1998         1997           1996         1995
                                                 ---------       ----------     ----------     ---------      --------    ---------
<S>                                                  <C>           <C>             <C>           <C>            <C>         <C>   
     Revenues................................        100.0%        100.0%          100.0%        100.0%         100.0%      100.0%
     Cost of services........................         70.9          70.6            70.9          70.6           69.0        67.3
                                                 ---------       ----------     ----------     ---------      --------    ---------
     Gross profit............................         29.1          29.4            29.1          29.4           31.0        32.7
     Selling, general and
     administrative expenses.................         22.1          22.7            22.9          23.7           26.9        31.0
   Non-recurring transaction
     costs...................................            -             -              .3           1.2              -           -
                                                 ---------       ----------     ----------     ---------      --------    ---------
     Operating income........................          7.0           6.7             5.9           4.5            4.1         1.7
   Other expense income (expense), 
          net................................           .3             -              .3             -            0.2        (0.2)
                                                 ---------       ----------     ----------     ---------      --------    ---------
   Income  before provision
     for income taxes......................            6.7              6.7          5.6           4.5            4.3         1.5
   Provision for income
     taxes..................................           2.8              2.7          3.0           2.3            0.4         0.3
                                                 ---------       ----------     ----------     ---------      --------    ---------
     Net income............................            3.9%             4.0%         2.6%          2.2%           3.9%        1.2%
                                                 ==========      ===========    ==========     =========      =========   =========
</TABLE>


Proforma data reflect  adjustments for the  acquisitions of the Pooled Companies
including compensation differentials to former owners and employees, termination
of contributions to retirement plans, removal of non-recurring transaction costs
associated  with the Pooled  Companies  and income taxes as if the entities were
combined  and  subject  to a 41%  effective  federal  and state  statutory  rate
throughout the periods presented.


Year Ended March 31, 1998 Compared to Year Ended March 31, 1997

     Revenues.  In fiscal 1998 revenues  increased  $79.3 million,  or 47.9%, to
$244.7 million from $165.4 million for 1997. The increase was primarily due to a
35.7%  increase in client  service hours to 3.8 million from 2.8 million  hours,
and a 9.2%  increase  in the average  billing  rate to $62.67 from $57.38 in the
comparable period of fiscal 1997. The increase in revenues was also attributable
to the inclusion of revenues of the companies acquired under the purchase method
of accounting during fiscal 1998 ("Fiscal Year 1998 Purchases").

     Gross Profit.  Gross profit  increased  $22.6 million,  or 46.5%,  to $71.1
million  during 1998 from $48.6 million  primarily as a result of an increase in
client service hours and the inclusion of the Fiscal Year 1998 Purchases.  Gross
profit as a percentage  of revenues  decreased  to 29.1% of revenues  from 29.4%
primarily  due to the  inclusion of the Fiscal Year 1998  Purchases  and certain
Pooled  Companies  with lower gross  margins  that  engaged new clients at lower
gross margins prior to acquisition by the Company.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative expenses increased $16.7 million, or 42.8%, to $55.9 million from
$39.2  million in fiscal 1997.  The increase was primarily due to staff added to
support growth, additional locations, installation of a company-wide network and
associated  costs to  maintain  these  systems as well as  incremental  costs of
Cotelligent's corporate activities. Selling, general and administrative expenses
decreased as a  percentage  of revenues to 22.9% of revenues in fiscal 1998 from
23.7% in fiscal 1997.

     On  a  pro  forma  basis,  selling,  general  and  administrative  expenses
increased  $16.4  million,  or 43.5%,  to $54.0  million in 1998 from 1997.  The
increase was  primarily  due to increased  staff from  Purchased  Companies  and
increased   compensation  to  existing  staff,   plus  staff  added  to  support
anticipated  growth,  additional  occupancy  costs  and an  increased  level  of
corporate  activities.  Pro forma selling,  general and administrative  expenses
decreased  as a  percentage  of  revenues  to 22.1% in 1998  from  22.7% in 1997
reflecting greater operating efficiencies and a larger revenue base. The Company
cannot be certain that such efficiencies can be sustained in the near term as it
integrates  the  acquired  entities,  expand  geographically  and acquire  other
companies.


                                       20
<PAGE>
     In fiscal 1998, selling, general and administrative expenses on a pro forma
basis were $54.0 million or 22.1% of pro forma revenues and historical  selling,
general and administrative  expenses were $55.9 million,  or 22.9% of historical
revenues.  The reduced  selling,  general and  administrative  expenses on a pro
forma basis  reflect a  reduction  in  executive  compensation  arrangements  in
connection with the Pooled Companies.



     Non-Recurring  Transaction Costs.  Non-recurring  transaction costs include
expenditures  associated with the acquisition of four Pooled Companies  acquired
during the period and are expensed as incurred on an historical cost basis.


     Interest Expense,  Net. Interest expense,  net of interest income increased
$0.5 million to $0.7 million in fiscal 1998 primarily due to a reduction in cash
balances to fund growth and acquisition activity.

     Provision for Income Taxes. Provision for income taxes was $7.2 million, or
an  effective  tax rate of 52.9% of pre-tax  income for fiscal 1998  compared to
income taxes of $3.7 million,  or an effective  rate of 50.2% of pre-tax  income
for 1997.  The  increase  in the  effective  tax rate is due to an  increase  in
federal rate from 34% to 35% and certain non-recurring  transaction costs, which
are non-deductible for tax purposes.

     On a pro forma basis the provision for income taxes was $4.5 million, or an
effective tax rate of 41.0% of pro forma pre-tax income.  The primary difference
between the Company's historical and pro forma effective tax rates is related to
the  termination  of certain  Pooled  Companies' S corporation  election and the
non-deductibility of certain non-recurring transaction costs.


Year Ended March 31, 1997 Compared to Year Ended March 31, 1996


     Revenues.  In 1997,  revenues  increased  $99.0 million or 149.0% to $165.4
million from $66.4  million in 1996.  The increase  was  primarily  due to $70.6
million  of  revenues  from the  full  year  impact  of the  Initially  Acquired
Companies  acquired  February 20, 1996, a 33.3% increase in client service hours
provided by the Pooled  Companies to 1.6 million hours from 1.2 million hours in
1996 and a 7.6% increase in the average billing rate of the Pooled  Companies to
$52.17 from $48.47.

     Gross  Profit.  Gross  profit  increased  $28.0  million or 135.6% to $48.6
million in 1997 from $20.6 million in 1996, as a result of $16.2 million for the
full year impact of the Initially Acquired Companies and an increase in hours of
service provided to clients.  Gross profit as a percentage of revenues decreased
to 29.4% of revenues in 1997 from 31.0% in 1996 principally due to lower average
gross margins achieved in new client engagements.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses increased $21.3 million,  or 119.2% to $39.2 million in
1997 from $17.9 million in 1996. The increase was primarily due to the full year
effect of additional selling,  general and administrative costs of $12.9 million
for the Initially Acquired Companies,  staff added to support growth, additional
locations,  installation  of a  company-wide  network  and  associated  costs to
maintain  these  systems  and  incremental  costs  of  Cotelligent's   corporate
activities.   Selling,  general  and  administrative  expenses  decreased  as  a
percentage of revenues to 23.7% in 1997 from 26.9% in 1996,  reflecting  greater
operating efficiencies and a larger revenue base. There can be no assurance that
such efficiencies  will be sustained in the future as the Company  undertakes to
integrate  the  acquired  entities,  expand  geographically  and  acquire  other
companies.

     Selling,  general  and  administrative  expenses  on a pro forma basis were
$37.6 million or 22.7% of pro forma  revenues  compared to  historical  selling,
general and  administrative  expenses of $39.2  million,  or 23.7% of historical
revenues for 1997. The reduced selling, general and administrative expenses on a
pro forma basis  reflect a reduction  in  executive  and  employee  compensation
arrangements in connection with the Pooled Companies.

     Non-recurring  Transaction Costs.  Non-recurring  transaction costs include
expenditures associated with the acquisition of the six Pooled Companies in 1997
and were expensed as incurred on an historical cost basis.


                                       21
<PAGE>

     Provision for Income Taxes. Provision for income taxes was $3.7 million, or
an  effective  tax rate of 50.2% of pre-tax  income for 1997  compared to income
taxes of $0.2 million,  or an effective rate of 8.6% of pre-tax income for 1996.
The  increase in the  effective  tax rate is due to the  termination  of certain
Pooled Companies respective S corporation elections and the non-deductibility of
certain non-recurring transaction costs.

     Provision  for income  taxes on a pro forma basis was $4.5  million,  or an
effective tax rate of 41.0% of pro forma pre-tax income.  The primary difference
between the Companies'  historical and pro forma  effective tax rates is related
to the termination of certain Pooled Companies' S corporation election,  and the
non-deductibility of certain non-recurring transaction costs.

Quarterly Operating Results 1998 through 1996

     The  Company's  results of  operations  may  fluctuate  significantly  from
quarter to quarter. Revenues are generated from services provided in response to
client  requests  or  events  that  occur  without  notice,  and  the  Company's
engagements,  generally  billed on a time and materials basis, are terminable at
any time by clients.  Revenues and operating margins for any particular  quarter
are generally affected by staffing mix, resource requirements and the timing and
size  of  engagements,  and  the  results  for any  particular  quarter  are not
necessarily  indicative  of results for any other period.  Quarterly  results of
operations  for the years ended March 31, 1996,  1997 and 1998,  are  summarized
below.  See "--Risk  Factors--Possible  Fluctuation of Results and Volatility of
Stock Price."

<TABLE>
<CAPTION>


                       Year Ended March 31, 1998            Year Ended March 31, 1997               Year Ended March 31, 1996
                   First     Second   Third   Fourth     First   Second   Third   Fourth        First   Second   Third   Fourth
                  Quarter   Quarter Quarter  Quarter    Quarter   Quarter Quarter  Quarter     Quarter   Quarter Quarter  Quarter
                  ----------------------------------    ------------------------------------   -----------------------------------
<S>                <C>      <C>     <C>      <C>        <C>      <C>       <C>       <C>       <C>       <C>      <C>      <C>    
Revenues           $54,304  $58,566 $63,111  $68,702    $36,103  $39,658   $42,534   $47,122   $14,409   $14,579  $14,059  $23,386
Gross profit        16,117   17,327  18,381   19,322     10,540   12,352    12,430    13,251     4,504     4,622    4,553    6,940
Operating income     3,155    3,455   2,767    4,985      1,651    2,047     2,417     1,322       575       688      630      859
Net income (loss)    1,810    2,030   (138)    2,729        415    1,489     1,587       219       465       949      533      665

</TABLE>


         The net  loss  for the  quarter  ended  December  31,  1997  was due to
non-recurring  transaction costs associated with acquiring  businesses under the
pooling-of-interests  method and an increase in the  provision  for income taxes
due to the  non-deductibility  of certain  non-recurring  transaction  costs and
taxes  related to the  termination  of certain  Pooled  Companies' S corporation
election.

Liquidity and Capital Resources

          The Company has  financed  its growth  principally  through cash flows
     from operations, periodic borrowing under its credit facilities and the use
     of the net  proceeds  from its IPO and the  Companies  recent     secondary
     public offering completed in March 1998. On September 12, 1997, the Company
     entered into a $40 million  revolving line of credit  facility (the "Credit
     Line").  Interest rate options include base borrowings at the lead lender's
     prime rate and term loans at LIBOR plus an applicable  margin.  The Company
     believes  the  existing  sources  of  liquidity  and funds  generated  from
     operations will provide  adequate cash to fund its  anticipated  cash needs
     for operations and acquisitions at least through the next year.


          The  Company's  primary  sources of liquidity are cash  balances,  the
     Credit  Line  and  the  collection  of its  accounts  receivable.  Accounts
     receivable have increased as the Company's  operations  have grown.  Billed
     receivables  were 57 and 59 days of  revenue  at  March  31,  1998 and 1997
     respectively.  Total  receivables  were 72 and days of revenue at March 31,
     1998 and 1997.  Should the  Company be unable to bill and  collect  for its
     services on a timely basis,  the Company could draw upon  available cash or
     existing credit facilities to finance its operations.


          Cash provided from operating activities was $3.4 million for 1998. The
     Company   supplemented  cash  provided  by  operations   periodically  with
     short-term  borrowings.  The average balance of such borrowings outstanding
     was approximately  $8.5 million during fiscal 1998 and  approximately  $5.9
     million  during  fiscal 1997.  At March 31, 1998 the Company had no balance
     outstanding under the Credit Line.

                                          

                                        22
<PAGE>
                                      


         At March 31,  1998,  the  Company  had $40.5  million  in cash and cash
equivalents  as compared to $2.9 million at March 31, 1997. The increase in cash
and cash  equivalents  is primarily  related to net proceeds  from the secondary
public offering offset by purchases of businesses and property and equipment. At
March 31, 1998, the Company had long-term  capital lease  obligations  and other
notes outstanding in the amount of $0.4 million. The current installments of the
long-term  capital lease  obligations and other notes were $0.2 million at March
31, 1998.

         On May 29, 1998 the Company  registered 4 million  shares of its common
stock to be used in connection with merger and acquisition activities.


Recently Issued Accounting Standards

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting  Comprehensive  Income. SFAS No. 130 established  standards to measure
all changes in equity that result from  transactions  and other economic  events
other than  transactions with owners.  Comprehensive  income is the total of net
income and all other  non-owner  changes in equity.  This statement is effective
for financial statements for periods beginning after December 15, 1997.

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures  About Segments of an Enterprise and Related  Information.  SFAS No.
131  introduces  a new model  for  segment  reporting,  called  the  "management
approach".  The management  approach is based on the manner in which  management
organizes segments within a company for making operating decisions and assessing
performance.  The  management  approach  replaces  the  notion of  industry  and
geographic  segments.  This statement is effective for financial  statements for
periods beginning after December 15, 1997.

     The Company does not believe that adoption of SFAS No. 130 and SFAS No. 131
will significantly alter its financial statement presentation.






                                       23
<PAGE>




Item 8.  Financial Statements and Supplementary Data



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Cotelligent Group, Inc.

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Cotelligent  Group,  Inc. (a Delaware  Corporation) and subsidiaries as of March
31,  1997  and 1998  and the  related  consolidated  statements  of  operations,
stockholders'  equity and cash flows for the years ended March 31, 1996 and 1997
and 1998.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Cotelligent  Group, Inc. and subsidiaries as of March 31, 1997 and 1998, and the
results of their operations,  and their cash flows for the years ended March 31,
1996, 1997 and 1998 in conformity with generally accepted accounting principles.

                                                    Arthur Andersen LLP

San Francisco, California
April 28, 1998








                                       24
<PAGE>




                             COTELLIGENT GROUP, INC.

                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                            March 31,               March 31,
                                                                               1998                   1997
                             ASSETS                                        -----------           -------------   
<S>                                                                        <C>                   <C>   
Current assets:
   Cash and cash equivalents......................................          $  40,528             $     2,904
    Accounts receivable, including unbilled accounts of $10,120
           and $5,595 and net of allowance for doubtful accounts
           of $2,123 and $632 respectively........................             48,982                  32,387
   Notes receivable from officers.................................                230                     225
   Prepaid expenses and other.....................................              2,292                   1,306
     Total current assets.........................................             92,032                  36,822
 Property and equipment, net......................................              7,568                   5,448
 Deferred tax assets..............................................                  -                      54
   Goodwill, net of accumulated amortization of $359 and $159$159,
           $38, respectively.......................................            18,106                   2,409
   Other assets....................................................               853                     434
       Total assets................................................         $ 118,559             $    45,167
                                                                        ==================     ===================

                LIABILITIES AND STOCKHOLDERS' EQUITY

 Current liabilities:
     Short-term debt and current maturities of long-term debt.....          $     192             $     4,409
     Accounts payable.............................................              4,344                   2,590
     Accrued compensation and related payroll liabilities.........             15,268                   9,990
     Income taxes payable.........................................              3,171                     491
     Deferred tax liabilities.....................................                503                     761
     Other accrued liabilities....................................              4,525                   3,110
       Total current liabilities..................................             28,003                  21,351
 Long-term debt...................................................                199                     648
   Deferred tax liabilities.......................................                  -                       -
   Other long-term liabilities....................................                 18                      31
       Total liabilities..........................................             28,220                  22,030

Stockholders' equity:
    Preferred Stock, $0.01 par value; 500,000 shares authorized,
       no shares issued or outstanding............................                  -                       -
    Common Stock, $0.01 par value; 100,000,000 shares
       authorized, 14,057,884 and 11,272,401 shares
       issued and outstanding, respectively.......................                141                     113
   Additional paid-in capital.....................................             80,335                  19,046
   Retained earnings..............................................              9,863                   3,978
     Total stockholders' equity...................................             90,339                  23,137
     Total liabilities and stockholders' equity...................          $ 118,559            $     45,167
                                                                        ==================     ===================
</TABLE>





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






                                       25
<PAGE>




                             COTELLIGENT GROUP, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (In thousands, except share data)
<TABLE>
<CAPTION>


                                                                                   Year Ended March 31,
                                                                      1998             1997            1996

<S>                                                                <C>              <C>              <C>     
Revenues.....................................................      $ 244,683        $ 165,417        $ 66,433
Cost of services.............................................        173,537          116,844          45,814
                                                                   ---------        ---------        --------   
     Gross profit............................................         71,146           48,573          20,619
Selling, general and administrative expenses.................         55,929           39,167          17,867
Non-recurring transaction costs..............................            855            1,969               -
                                                                   ---------        ---------        --------   
                                                                      14,362            7,437           2,752
Other income (expense):
   Interest expense.........................................            (725)            (571)           (340)
   Interest income..........................................              51              356              80
   Other....................................................             (34)             230             368
                                                                   ---------        ---------        --------   
     Total other income (expense)...........................            (708)              15             108

Income before income taxes..................................           13,654           7,452           2,860
   Provision for income taxes...............................            7,223           3,742             248
                                                                    ---------        ---------       --------   
   Net income...............................................        $   6,431        $  3,710        $  2,612
                                                                    =========        =========       ========
   Earnings per share
          Basic.............................................        $    0.56        $   0.33                                      
                                                                    =========        ========
          Diluted...........................................        $    0.55        $   0.33
                                                                    =========        ========
   Weighted average shares outstanding
       Basic................................................        11,485,393       11,328,518
                                                                    ==========       ==========
       Diluted..............................................        11,610,339       11,402,513
                                                                    ==========       ==========


</TABLE>














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




                                       26
<PAGE>




                             COTELLIGENT GROUP, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                        (In thousands, except share data)


<TABLE>
<CAPTION>

                                                                                       Additional
                                                                                         Paid-In         Retained         Total
                                                             Shares        Amount        Capital         Earnings         Equity
                                                          ------------- ------------- --------------   ------------   --------------

<S>                                                       <C>            <C>           <C>              <C>            <C>         
Balance at March 31, 1995                                 $   5,019,886  $        51   $       469      $    1,745     $      2,265
   Issuance of Common Stock prior to
          Offering.......................................       120,478            1           381               -              382
      Redemption of Common Stock prior to
          Offering.......................................       (74,140)          (1)         (119)              -             (120)
   Dividends of certain pooled companies
           prior to acquisition..........................             -            -             -          (1,536)          (1,536)
      Reclassification of Initially Acquired
          Companies' equity..............................             -            -         4,307               -            4,307
   Issuance of Common Stock, net of cost ................     5,595,305           56        16,903               -           16,959
   Distribution to founding stockholders.................             -            -        (3,492)              -           (3,492)
   Adjustments to conform year-ends of Pooled Companies:
            Capital contribution.........................             -            -           103               -              103
            Net income...................................             -            -             -             270              270
            Dividends....................................             -            -             -            (288)            (288)
   Net income............................................             -            -             -           2,612            2,612
  Balance at March 31, 1996..............................    10,661,529           107       18,552           2,803           21,462
      Issuance of Common Stock...........................       610,872             6          463               -              469
      Tax benefit on stock options exercised.............             -             -          295               -              295
   Dividends/distributions of certain Pooled
          Companies prior to acquisition.................             -             -         (423)         (2,246)          (2,669)
    Retained Earnings of immaterial Pooled                                                    
          Companies acquired in fiscal 1997..............             -             -            -            (187)            (187)
      Adjustments to conform year-ends of
          Pooled Companies:
            Capital Contribution........................              -             -          159               -              159
            Net income..................................              -             -            -             (12)             (12)
            Dividends...................................              -             -            -             (90)             (90)
      Net income........................................              -             -            -           3,710            3,710
  Balance at March 31, 1997.............................     11,272,401           113       19,046           3,978           23,137
      Issuance of Common Stock, net of costs............      2,785,483            28       60,961               -           60,989
      Tax benefit on stock options exercised............              -             -          328               -              328
      Dividends/distributions of certain
       Pooled Companies prior to acquisition............              -             -            -            (546)            (546)
      Net income........................................              -             -            -           6,431            6,431
  Balance at March 31, 1998.............................     14,057,884    $      141    $  80,335       $   9,863      $    90,339
                                                           ============= ============= ==============   ============   =============
</TABLE>




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




                                       27
<PAGE>




                                                  COTELLIGENT GROUP, INC.

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                      (In thousands)
<TABLE>
<CAPTION>

                                                                                                   Year Ended March 31,
                                                                                     ---------------------------------------------
                                                                                            1998          1997            1996
                                                                                     --------------- -------------- --------------
<S>                                                                                  <C>             <C>            <C> 
Cash flows from operating activities:
     Net income.................................................................      $       6,431    $     3,710   $     2,612
     Adjustments to reconcile net income to net cash provided by
          operating activities:
                    Depreciation and amortization...............................              2,085          1,146           310
                    Deferred income taxes, net..................................               (204)           297          (587)
                    (Gain)loss on disposal of property and equipment..........                   27              -          (325)
                    Provision for doubtful accounts.............................              1,408            472           195
                    Changes in current assets and liabilities:
                             Accounts receivable................................            (14,921)       (11,979)       (1,769)
                             Prepaid expenses and other current assets..........               (960)          (325)         (226)
                             Accounts payable and accrued expenses..............              7,413          6,023         1,333
                             Income taxes payable...............................              2,709           (297)          349
                    Changes in other assets.....................................               (560)          (276)          321
                    Changes in long-term liabilities............................                (13)          (911)            -
                                                                                       ------------      ---------      ---------
                             Net cash provided by (used in) operating activities            3,415           (2,140)        2,213
Cash flows from investing activities:
     Proceeds from sale of assets...............................................              174                -           374
     Purchase of businesses, net of cash of acquired companies..................           (9,674)          (2,915)            -
     Purchases of property and equipment........................................           (3,570)          (4,394)         (867)
     Cash and cash equivalents of Initially Acquired Companies at
            acquisition.........................................................                -                -           525
                                                                                       ------------      ---------      --------- 
                            Net cash provided by (used in) investing activities.          (12,819)          (7,309)           32
Cash flows from financing activities:
     Redemption of common stock.................................................                -                -          (120)
          Net proceeds on long-term debt........................................                -             (427)          471
          Principal payments on long-term debt..................................             (595)               -           (19)
          Payments on capital lease obligations.................................             (180)            (185)          (49)
     Distribution     to     Initially   Acquired  Companies' former
           stockholders.........................................................                -                -        (3,492)
     Dividends and distributions................................................             (546)          (2,672)       (1,536)
     Net borrowings (repayments) on short-term debt.............................           (4,086)             443        (1,140)
     Borrowings on loans with former related parties............................                -                -           848
     Repayments on loans with former related parties............................                -             (417)         (700)
     Net proceeds from issuance of common stock.................................           52,686              469        17,341
     Net change in cash due to conforming fiscal year end of                               
          Pooled Companies......................................................               -               201           539 
                                                                                       ----------        --------      --------- 
          Net cash provided by (used in) financing activities...................          47,279           (2,588)        12,143
                                                                                       ----------        --------      --------- 
     Net increase (decrease) in cash and cash equivalents.......................          37,624          (12,037)        14,388
     Cash and cash equivalents at beginning of period...........................           2,904             14,941         553
                                                                                       ----------        --------      ---------
     Cash and cash equivalents at end of period.................................        $ 40,528          $   2,904     $ 14.941
                                                                                        ========          =========     ========
</TABLE>





                                       28
<PAGE>




                             COTELLIGENT GROUP, INC.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                   Year Ended March 31,
                                                                                     ---------------------------------------------
                                                                                            1998          1997            1996
                                                                                     --------------- -------------- --------------

<S>                                                                                  <C>             <C>            <C>
Supplemental disclosures of cash flow information:
      Interest paid.............................................................       $      884     $       570      $     374
      Income taxes paid.........................................................            5,597           3,460            530
      Fair Market value of Common Stock issued to acquire business..............            7,464               -              -
Non-cash investing and financing transactions:
      Capital lease obligations incurred........................................                -             188            158
      Conversion of trade accounts receivable to note receivable................                -               -             53
      Net liabilities of immaterial Pooled Companies............................                -             187              -

</TABLE>






































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




                                       29
<PAGE>




                             COTELLIGENT GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)

Note 1 - Business Organization and Basis of Presentation

     Cotelligent  Group,  Inc.  ("Cotelligent"  or the  "Company") was formed in
February  1993  to  acquire,  own and  operate  software  professional  services
businesses  specializing in providing information  technology ("IT") consultants
on a contract basis and consulting and  outsourcing  services to businesses with
complex IT operations. On February 20, 1996, Cotelligent acquired four companies
simultaneously with its IPO (the "Initially Acquired Companies").  The aggregate
consideration  paid by Cotelligent in these  transactions was $3,492 in cash and
3,206,875  shares  of  Common  Stock  of  the  Company  and  the  assumption  of
approximately  $3,000  in  debt,  for  an  aggregate  value  of  $35,304.  These
acquisitions  were accounted for on a historical cost basis.  Prior to this date
Cotelligent was a non-operating  entity.  The operating results of the Initially
Acquired Companies have been included since the date of acquisition.

     During the year ended  March 31,  1998  ("fiscal  1998") and March 31, 1997
("fiscal 1997") the Company issued  4,976,826  shares of Common Stock to acquire
ten businesses accounted for under the pooling-of-interests  method (the "Pooled
Companies").  The  consolidated  financial  statements  have  been  restated  in
accordance  with  generally  accepted  accounting   principles  to  present  the
financial data as if Cotelligent  and these companies had always been members of
the same operating group.

         In  addition,  during  fiscal 1998 and 1997,  the Company  acquired six
businesses  accounted for under the purchase method (the "Purchased  Companies")
for aggregate consideration of $19,390 (362,998 shares of Common Stock issued at
fair market  value of $11,926 and $7,464 of cash).  The  consolidated  financial
statements include the operating results of these companies  subsequent to their
respective acquisition dates.

         All  of  the  businesses   acquired  since  the  IPO  have   operations
substantially the same as the Company.


Note 2 - Summary of Significant Accounting Policies

     Basis of Presentation

         The accompanying consolidated financial statements and related notes to
consolidated   financial   statements   include  the  accounts  and  results  of
Cotelligent  Group,  Inc., the Initially  Acquired  Companies from their date of
acquisition on February 20, 1996, the Purchased  Companies from their respective
acquisitions  dates and give  retroactive  effect to the  results  of the Pooled
Companies for all periods presented. All significant  intercompany  transactions
and accounts have been eliminated.

     Use of Estimates

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

     Cash and Cash Equivalents

         The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.




                                       30
<PAGE>





                             COTELLIGENT GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)

     Concentration of Credit Risk

         Financial   instruments  that   potentially   subject  the  Company  to
concentrations of credit risk consist principally of trade accounts  receivable.
Receivables arising from services provided to clients are not collateralized and
accordingly,  the Company performs ongoing credit  evaluations of its clients to
reduce the risk of loss.

     Property and Equipment

         Property  and  equipment  are stated at cost.  Depreciation,  including
amortization of capitalized  leases, is provided over the estimated useful lives
of the  respective  assets  (generally  ranging  from  three to ten  years) on a
straight-line or an accelerated basis. Leasehold improvements are amortized over
the shorter of the lease term or the  estimated  useful  life of the  respective
assets.

     Goodwill

     Goodwill  represents  the  excess of cost over fair  value of net  tangible
assets acquired through acquisitions. Such excess of cost over fair value of net
tangible assets  acquired is being  amortized on a straight-line  basis over the
period of 30 years. At each balance sheet date management  reviews the potential
impairment  of  goodwill  on  a   non-discounted   cash  flow  basis  to  assess
recoverability.

     Fair Value of Financial Instruments

     The Company's financial  instruments  consist of cash,  short-term accounts
receivables and accounts  payables for which current  carrying amounts are equal
to or approximate fair market value. Additionally, interest rates on outstanding
debt are at market  rates for debt with  similar  terms and average  maturities;
therefore, the carrying value of debt approximates its fair value.

     Revenue Recognition

         Revenue is recognized as services are performed.  Unbilled  receivables
represent revenue recognized on services performed which have not been billed.

     Income Taxes

     The Company accounts for income taxes using an asset and liability approach
requiring the  recognition  of deferred tax assets and  liabilities  for the tax
consequences of temporary  differences by applying  enacted  statutory tax rates
applicable  to future  years to  differences  between  the  financial  statement
carrying amounts and the tax bases of existing assets and liabilities.

     Certain  Pooled  Companies  elected to be treated as an S  corporation  for
federal and state income taxes prior to acquisition by the Company. Accordingly,
any tax liabilities of these Companies were the responsibility of the respective
stockholders.  These S  corporation  elections  terminated  upon the merger with
Cotelligent.


     Earnings Per Share

     The Company adopted Statement of Financial  Accounting  Standards  ("SFAS")
No. 128,  "Earnings per share" effective  December 16, 1997 and has restated all
earlier periods.  Basic earnings per share was calculated by dividing net income
by the weighted average number of shares of common stock outstanding  during the
period. Diluted earnings per




                                       31
<PAGE>




                             COTELLIGENT GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)

share  includes the impact of common  stock  options  outstanding.  Earnings per
share for the year  ended  March 31,  1996 has not been  presented  because  the
issuance  of shares of common  stock  sold in the IPO and the  inclusion  of the
results of the  Initially  Acquired  Companies  are not  reflected in any period
prior to February 20, 1996.

   Reclassifications

         Certain  amounts have been  reclassified in 1996 and 1997 to conform to
the March 31, 1998 presentation.

     Recent Accounting Pronouncements

     In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 established  standards to measure all changes in equity that result
from transactions and other economic events other than transactions with owners.
Comprehensive  income is the total of net income and all other non-owner changes
in equity.  This  statement is effective  for financial  statements  for periods
beginning after December 15, 1997.

     In June 1997, the FASB issued SFAS No. 131,  Disclosures  About Segments of
an Enterprise and Related  Information.  SFAS No. 131 introduces a new model for
segment reporting,  called the "management approach". The management approach is
based on the manner in which management  organizes segments within a company for
making operating  decisions and assessing  performance.  The management approach
replaces  the notion of industry  and  geographic  segments.  This  statement is
effective for financial  statements  for periods  beginning  after  December 15,
1997.

     The  Company has adopted  SFAS No. 130 and SFAS No. 131 and  believes  such
adoption will not significantly alter its financial statement presentation.


Note 3 - Business Combinations

     Pooling-of-Interests Method

     During fiscal 1998 and 1997, the Company issued  1,541,615 shares of common
stock to acquire four companies and 3,435,211  shares of common stock to acquire
six  companies,   respectively,   in   acquisitions   accounted  for  under  the
pooling-of-interests  method. Accordingly,  the Company's consolidated financial
statements  have been  restated for all  material  poolings in  accordance  with
generally accepted accounting principles for all periods presented.

              Commencing  on April 1,  1996,  the year ends of the  fiscal  1997
Pooled  Companies were changed to March 31, resulting in an increase to retained
earnings of $270 during fiscal 1996 as follows.

                                    Year Ended
                                  March 31, 1996
                               -------------------    
Revenues.................       $         11,823
Costs and expenses..                      11,553
                               ------------------- 
Net income..............        $            270
                               ===================



         Commencing  on April 1, 1997,  the year ends of the fiscal  1998 Pooled
Companies were changed to March 31, resulting in a decrease to retained earnings
of $12 during fiscal 1997 as follows.



                                       32
<PAGE>


                             COTELLIGENT GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)



                                     Year Ended
                                   March 31, 1997
                                ------------------
Revenues.................       $         8,624
Costs and expenses..                      8,636
                                ------------------
Net income..............        $           (12)
                                ==================



         The previously  reported  separate results of operations of Cotelligent
Group Inc. and the results of the Pooled  Companies  acquired in fiscal 1998 for
periods prior to the mergers are presented below.
<TABLE>
<CAPTION>


                                                                       Pooled
For the Year Ended March 31,                 Cotelligent              Companies                Combined
                                             -----------              ----------              ---------- 
<S>                                          <C>                      <C>                     <C>
1997
      Revenue.....................             $146,772                 $18,645                $165,417
      Net income..................                3,636                      74                   3,710
1996
      Revenue.....................               52,786                  13,647                  66,433
      Net income..................                2,518                      94                   2,612

</TABLE>


         During the year ended March 31, 1998,  businesses  acquired as poolings
recognized  revenues  of $23,222  and net income of $354 in the period  prior to
acquisition by the company.

     Purchase Method

     During fiscal 1998, Cotelligent acquired four companies (acquired on August
27,1997,  October 31, 1997,  November 6, 1997 and January 3, 1998) accounted for
under the purchase method for aggregate consideration of $19,390 (362,998 shares
issued at fair  market  value of $7,464 and $11,926 of cash).  The total  assets
related to these  acquisitions  were $4,153 and resulted in the  recognition  of
$15,739 of goodwill, which is being amortized over a 30 year period. The results
of these  acquisitions  have been included in the  Company's  results from their
respective acquisition dates.

     During fiscal 1997, Cotelligent acquired two companies (acquired on October
7, 1996 and November 27, 1996)  accounted  for under the purchase  method for an
aggregate   consideration   of  $2,928.   The  total  assets  related  to  these
acquisitions  were $112 and resulted in the  recognition  of $2,726 of goodwill,
which  is  being  amortized  over  a  30  year  period.  The  results  of  these
acquisitions  have been included in the Company's  results from their respective
acquisition dates.

     The allocation of the purchase price to the underlying net assets  acquired
is based upon preliminary  estimates of the fair value of the net assets,  which
may be  revised at a later  date.  It is  anticipated  that any  purchase  price
allocation  adjustments  will be made  within  one  year  from  the  date of the
acquisition.  Management  does not  believe  that the final  allocations  of the
purchase price will have a material effect on the Company's  financial  position
or results of operations.




                                       33
<PAGE>




                             COTELLIGENT GROUP, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)

Note 4 - Pro Forma Results (Unaudited)

         The pro forma consolidated statements of operations for the years ended
March  31,  1998 and 1997  give  effect  to the  acquisitions  of the  Initially
Acquired Companies and Purchased Companies as if these acquisitions were made on
April 1, 1996. The pro forma  consolidated  statement of operations also reflect
adjustments for the acquisitions of the Pooled Companies including  compensation
differentials  to  employees  and  former  owners of the Pooled  Companies,  the
planned  termination of  contributions  to retirement  plans, and adjustments to
reflect  income  taxes as if the  entities  were  combined  and  subject  to the
effective   federal  and  state  statutory   rates  for  the  combined   entity.
Additionally,   the  pro  forma   consolidated   financial   statements  reflect
adjustments  for interest  expense on cash  consideration  and  amortization  of
goodwill for the Purchased Companies.

<TABLE>
<CAPTION>


                                                                   Year Ended March 31,
                                                            --------------------------------
                                                                 1998              1997
                                                            --------------   ---------------
<S>                                                          <C>             <C>         
Revenues.............................................        $   258,712       $    185,595
Cost of services.....................................            183,231            131,344
                                                            --------------   ---------------  
     Gross profit....................................             75,481             54,251
Selling, general and administrative..................             56,833             41,316
                                                            --------------   ---------------  
Operating income.....................................             18,648             12,935
Other expense........................................              1,174                650
                                                            --------------   ---------------  
Income before provision for income taxes.............             17,474             12,285
Provision for income taxes...........................              7,164              5,037
                                                            --------------   ---------------  
Net income...........................................       $     10,310             $7,248
                                                            ==============   ===============

Earnings per share-
    Basic.............................................      $       0.88       $       0.62
                                                            ==============   ===============
    Diluted...........................................      $       0.86       $       0.60
                                                            ==============   ===============
Weighted average shares-
    Basic.............................................        11,748,939         11,748,939
                                                            ==============   ===============

    Diluted...........................................        11,980,515         11,980,515
                                                            ==============   ===============

</TABLE>



Note 5 - Allowance for Doubtful Accounts

Allowance for doubtful accounts activity is as follows.
<TABLE>

<S>                                                                                                           <C>                  
Balance, March 31, 1996....................................................................................... $        340
Charges to costs and expenses.................................................................................          472
Write-offs....................................................................................................         (180)
                                                                                                               -------------
Balance, March 31, 1997.......................................................................................          632
Balance of newly acquired companies' allowance for doubtful accounts at acquisition...........................          235
Charges to costs and expenses.................................................................................        1,408
Write-offs....................................................................................................         (152)
                                                                                                               -------------
Balance, March 31, 1998......................................................................................  $      2,123
</TABLE>




                                       34
<PAGE>

                                                                             

                             COTELLIGENT GROUP, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)

Note 6 - Property and Equipment

Property and equipment is comprised of the following.
<TABLE>
<CAPTION>

                                                                                           March 31,
                                                                                ------------------------------
                                                                                    1998             1997
                                                                                --------------   -------------
<S>                                                                              <C>               <C>     
Land and building........................................................        $     341         $    440
Computer and office equipment............................................            9,841            5,859
Furniture and fixtures...................................................            2,047            2,796
Leasehold improvements...................................................              630              366
                                                                                --------------   -------------
                                                                                    12,859            9,461
Less: Accumulated depreciation...........................................           (5,291)          (4,013)
                                                                                 $   7,568         $  5,448
                                                                                ==============  ==============

</TABLE>

     Depreciation  and  amortization  expense of property and  equipment for the
years ended March 31, 1998 and 1997 was $1,764 and $1,108, respectively.

Note 7 - Credit Facilities

     Cotelligent  maintains  a  syndicated  revolving  line of  credit  facility
("Credit Line") with three banks, which provides a borrowing capacity of amounts
derived from specific covenant ratios, up to $40,000. The Company generally pays
off the  outstanding  debt of acquired  companies.  The Credit Line requires the
Company to maintain  certain  financial  covenants  and restricts the payment of
dividends.  At  March  31,  1998,  the  Company  had  a  borrowing  capacity  of
approximately  $40,000  under  the  facility  and  was in  compliance  with  all
covenants. Debt consists of the following:

<TABLE>
<CAPTION>


                                                                                           March 31,
                                                                                ------------------------------
                                                                                    1998             1997
                                                                                --------------   -------------

<S>                                                                             <C>              <C> 
Bankline of credit  with  borrowings  derived  from  covenant  ratios,  had full
    capacity  $40,000,  secured by accounts  receivable  and other assets of the
    Company, interest at the bank's lending rate (approximately 8.0% at March
    31, 1998)...................................................................  $      -          $       -
Bank line of credit with borrowings up to 80% of the Company's eligible
   accounts receivable or $20,000, secured by the accounts receivable and
   other assets of the Company, interest at prime (8.5% at March 31, 1997)......         -              3,926
Various Pooled Companies' bank lines of credit, secured by various assets                                                  
    of the Pooled Companies, with interest rates up to prime plus 2.0%..........         -                160
Pooled Companies' other notes payable, including payables to related                                                       
   parties, with interest rates from 8.0% to 11.0%, secured by various
   assets of the Pooled Companies, with due dates through December 2000.........       259                659
Capital lease obligations.......................................................       132                312
Less: current maturities........................................................      (192)            (4,409)
                                                                                --------------   -------------
Total long-term debt............................................................ $     199           $    648
                                                                                ==============   ============

</TABLE>




                                       35
<PAGE>




                             COTELLIGENT GROUP, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)


Total maturities of long-term debt, at March 31, 1998 are as follows:
     1999..................................................      $        192
     2000..................................................               140
     2001..................................................                59
     2002..................................................                 -
     2003..................................................                 -
     Thereafter............................................                 -
                                                                 --------------
     Total.................................................       $       391
                                                                 ==============




Note 8 - Income Taxes

The income tax provision consists of the following:
<TABLE>
<CAPTION>

                                                                                                    March 31,
                                                                                ---------------------------------------------
                                                                                    1998             1997           1996
                                                                                --------------   -------------  -------------
<S>                                                                             <C>              <C>            <C>
Current:
       Federal......................................................            $   5,906         $    2,577      $     763
       State.........................................................               1,521                868            162
                                                                                --------------   -------------  -------------
                                                                                $   7,427              3,445            925
                                                                                --------------   -------------  -------------
Deferred:
       Federal......................................................                   26                268           (570)
       State.........................................................                (230)                29           (107)
                                                                                --------------   -------------  -------------
                                                                                     (204)               297           (677)
                                                                                --------------   -------------  -------------
           Total provision  for income taxes......................              $   7,223          $   3,742      $     248
                                                                                ==============   =============   ============
</TABLE>

     The tax benefits  associated with  nonqualified  stock options reduce taxes
currently  payable as shown  above by $328 for  fiscal  1998 and $295 for fiscal
1997. No tax benefits  associated with nonqualified  stock options were realized
in fiscal 1996. Such tax benefits are credited to capital when realized.

         Significant  components of deferred tax assets and  liabilities  are as
follows:
<TABLE>
<CAPTION>


                                                                                           March 31,
                                                                                ------------------------------
                                                                                    1998             1997
                                                                                --------------   -------------
<S>                                                                             <C>              <C>
Deferred Tax Assets:
    Allowance for doubtful accounts.......................................      $      512         $     159
    Accrued vacation......................................................             297               189
    Other.................................................................             138               148
                                                                                --------------   -------------
         Total Deferred Tax Assets........................................             947               496
                                                                                --------------   -------------
Deferred Tax Liabilities:
    Cash to accrual.......................................................          (1,267)           (1,164)
    Other.................................................................            (183)              (39)
                                                                                --------------   -------------
         Total Deferred Tax Liabilities...................................          (1,450)           (1,203)
                                                                                --------------   -------------
         Net Deferred Tax Liability.......................................      $     (503)         $   (707)
                                                                                ==============    ============

</TABLE>

                                       36
<PAGE>



                             COTELLIGENT GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)

     The  Company's  effective  income  tax rate  varied  from the U.S.  federal
statutory tax rate as follows:

<TABLE>
<CAPTION>

                                                                                                    March 31,
                                                                                ---------------------------------------------
                                                                                    1998             1997           1996
                                                                                --------------   -------------  -------------
<S>                                                                             <C>              <C>            <C>

U.S. federal statutory rate.............................................               35.0%           34.0%          34.0%
State income tax, net of federal benefit................................                6.2             7.9            1.0
Income of  S corporation................................................                1.5            (7.4)         (27.8)
Conversion to C corporation.............................................                6.9             8.9              -
Non-deductible acquisition  costs.......................................                2.2             7.6              -
Change in valuation allowance...........................................                  -            (1.7)           1.4
Other...................................................................                1.1             0.9              -
                                                                                --------------   -------------  -------------
     Effective tax rate.................................................               52.9%           50.2%           8.7%
                                                                                ==============    =============    ===========
</TABLE>


     Prior to the IPO, the Company had established a valuation allowance against
the tax assets associated with the net operating losses of previous years due to
the  uncertainty  of realization  through  future  income.  In 1997, the Company
reversed this  valuation  allowance as a result of  utilization of the operating
losses against taxable income.

     Certain  Pooled  Companies  elected to be treated as an S  corporation  for
federal  and  state  income  taxes  prior  to  their  merger  with  Cotelligent.
Accordingly,  any tax  liabilities  prior to acquisition by the Company were the
responsibility  of  the  former  stockholders.  These  S  corporation  elections
terminated as a result of the merger with  Cotelligent  and  accordingly the net
difference between book and tax basis of net assets was immediately  recognized.
This net deferred tax liability was  approximately  $947 and $670 in fiscal 1998
and 1997, respectively,  which will be paid on a pro rata basis over a four-year
period.




                                       37
<PAGE>




                             COTELLIGENT GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)

Note 9 - Lease Commitments

         Cotelligent  leases  various office space and certain  equipment  under
noncancelable lease agreements which expire at various dates.

          Future minimum rental payments under such leases at March 31, 1998 are
as follows.
<TABLE>
<CAPTION>

                                                           Capital Leases           Operating Leases
                                                       ----------------------   -------------------------

<S>                                                    <C>                       <C>                
1999.................................................  $            116          $             3,194
2000.................................................                36                        2,841
2001.................................................                 -                        2,025
2002.................................................                 -                          980
2003.................................................                 -                          560
Thereafter...........................................                 -                          398
                                                       ----------------------   -------------------------
Total minimum lease payments.........................               152          $             9,998
                                                                                =========================
Less:  Amounts representing interest.................               (20)
                                                       ----------------------  
Present value of net minimum lease payment...........   $           132 
                                                       ======================
</TABLE>

     Rental expense under these leases for the years ended March 31, 1998,  1997
and 1996 was $2,754, $1,620 and $783 respectively.


Note 10 - Employee Benefit Plans

     Long-Term Incentive Plan

     In  September  1995,  Cotelligent's  Board of  Directors  and  stockholders
approved the Cotelligent 1995 Long-Term Incentive Plan (the "Plan"). The purpose
of the Plan is to provide  directors,  officers,  key employees and  consultants
with  additional  incentives  by  increasing  their  ownership  interests in the
Company.

     Under the provisions of the Plan,  stock-based  awards are granted at terms
and prices determined by the Plan Committee as defined in the Plan. A summary of
option transactions is described in the table below. All options described below
are  non-qualified  and were granted with exercise  prices no less than the fair
market value of the underlying stock on the date of the grant.



                                       38
<PAGE>




                             COTELLIGENT GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)


<TABLE>
<CAPTION>

                                                                                           Weighted
                                                                      Option Price         Average
                                                     Number             Range per          Exercise       Expiration
                                                    of Shares             Share             Price            Date
                                                  -------------       -------------       -----------    ------------

<S>                                               <C>                 <C>                 <C>            <C>          
Outstanding at March 31, 1996............             476,702         $2.70 - 10.25         $6.73             2003
      Granted............................             852,113          8.88 - 24.88         18.08             2004
      Exercised..........................             (59,099)         2.70 - 9.00           3.08             2003
      Canceled...........................            (136,589)         2.70 - 24.25          6.66         2003 - 2004
                                                  -------------       -------------       -----------    ------------
Outstanding at March 31, 1997............           1,133,127          2.70 - 24.88         15.46         2003 - 2004
      Granted............................             449,525          7.25 - 29.00         17.75         2004 - 2005
      Exercised..........................             (62,210)         2.70 - 20.00          9.33         2003 - 2004
      Canceled...........................            (109,015)         8.88 - 24.88         16.08         2003 - 2004
                                                  -------------       -------------       -----------    ------------
Outstanding at March 31, 1998............           1,411,427          2.70 - 29.00         16.41         2003 - 2005

</TABLE>


         Exercisable  options  at March 31,  1996,  1997 and 1998  were  87,072,
249,040 and 554,114 at exercise  prices  between $2.70 and $24.88,  and weighted
average exercise prices of $6.89, $15,25 and $16.11 respectively.

     The Plan provides for  stock-based  awards in an aggregate  amount of up to
15% of the number of  Cotelligent's  outstanding  stock at the time of grant. Of
the non-qualified  options granted to date, a majority are generally exercisable
beginning  one year from the date of the grant in cumulative  yearly  amounts of
25% of the shares under option and generally expire seven years from the date of
the grant.

     The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based  Compensation,"
issued in October 1995,  and as permitted by the provisions of SFAS No. 123, the
Company  continues  to  apply  the  provisions  of APB  Opinion  25 and  related
interpretations  in  accounting  for its  employee  stock option  plans.  If the
Company had elected to  recognize  compensation  expense for options  granted in
1996,  1997 and 1998,  based on the fair value as described in SFAS No. 123, net
income and earnings  per share would have been reduced to the pro forma  amounts
indicated  below.  The fair value of these  options was estimated at the date of
grant using a  Black-Scholes  option  pricing  ("Black-Scholes")  model with the
following  weighted average  assumptions for 1996, 1997, and 1998  respectively:
(i) risk-free interest rates of 5.97%, 6.12% and 5.65%, (ii) a dividend yield of
0%,  (iii)  volatility  factors of the expected  market  price of the  Company's
common stock of 40%, and (iv) a weighted average expected life of 3.5 years, 4.2
years and 4.1 years.

         The  Black-Scholes  model was developed for use in estimating  the fair
value  of  traded  options  that  have no  vesting  restriction  and  are  fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions,  including  the expected  volatility  of the  Company's
Common Stock.  In management's  opinion,  the existing models do not necessarily
provide a  reliable  single  measure  of the fair  value of its  employee  stock
options  because the  Company's  employee  stock  options  have  characteristics
significantly  different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimated.




                                       39
<PAGE>




                             COTELLIGENT GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)

     For purposes of pro forma  disclosure,  the estimated fair value of options
is amortized to expense over the options'  vesting period.  Had compensation for
the Company's  stock-based  compensation  plan been determined based on the fair
value at the grant dates for awards under the Plan consistent with SFAS 123, the
Company's  net income and earnings per share would have been adjusted to the pro
forma amounts indicated below.

<TABLE>
<CAPTION>

                                        ----------------------------       -----------------------------      ---------------------
                                                     1998                                 1997                          1996
                                        ----------------------------       -----------------------------      ---------------------
                                              As           Pro                    As             Pro               As         Pro
                                           Reported       Forma                Reported         Forma           Reported    Forma  
                                        --------------  ------------       -----------------  ----------      -----------  --------
<S>                                         <C>            <C>                   <C>            <C>               <C>        <C>   
Net income                                  $6,431         $4,121                $3,710         $2,416            $2,612     $2,304
Diluted Earnings per share                    0.55           0.35                  0.33           0.21                 -          -
</TABLE>


         Earnings  per share  for the year  ended  March  31,  1996 has not been
presented  because  it is not  considered  to be  meaningful  as a result of the
acquisitions  of the  Initially  Acquired  Companies and the IPO as discussed in
Note 1.

     The weighted  average fair values of options granted during the years ended
March  31,  1998,  1997 and 1996 were  $8.01  and  $6.16  and  $4.03 per  share,
respectively.  The fair value of each option  grant is  estimated on the date of
grant using the Black Scholes option-pricing model.

     Employee Stock Purchase Plan

     During fiscal year 1997, the Company implemented an employee stock purchase
plan whereby  eligible  employees may purchase  shares of the  Company's  Common
Stock at a price equal to 85 % of the lower of the closing  market  price on the
first or last trading day of the Plan's  quarter.  A total of 300,000  shares of
Common Stock have been reserved for issuance under the plan. During fiscal 1998,
employees purchased 79,000 shares for aggregate proceeds to the Company of $754.
During fiscal 1997 employees purchased approximately 20,171 shares for aggregate
proceeds to the Company of $284.

     401(k) Plan

     During fiscal 1997,  the Company  initiated the  Cotelligent  Group,  Inc.,
401(k)  Retirement Saving Plan, (the "401(k) Plan") effective March 1, 1997, for
the benefit of all  employees  upon date of hire.  The  401(k)Plan  is funded by
employee  payroll  deductions.  In  addition,  the  Company  has the  option  to
contribute to the 401(k) Plan on the employee's behalf. The Company did not make
any contributions to the 401(k) Plan for the year ended March 31, 1997, or 1998.

     Subsidiary Plans

     Prior  to their  acquisition  certain  of the  Company's  subsidiaries  had
various defined  contribution  plans which allowed employees to participate upon
meeting specified service requirements  additionally,  these plans also provided
for discretionary  contributions by the respective  entities.  The subsidiaries'
contributions to these plans for the fiscal years ended March 31, 1998, 1997 and
1996 were, $27 and $47 and $70 respectively.






                                       40
<PAGE>




                             COTELLIGENT GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)

Note  11  - Stockholders' Equity

         Common Stock

     The Company has one class of $0.01 par value Common Stock with  100,000,000
authorized shares. The holders of Common Stock are entitled to one vote for each
share on all matters voted upon by  stockholders,  including the election of the
directors.  At March 31, 1997 and 1998,  there were  11,272,401  and  14,057,884
shares of Common Stock  outstanding,  respectively.  In March, 1998, the Company
completed a secondary  offering of its common stock whereby 2,312,040 new shares
were issued and net  proceeds  to the Company  were $52,359. In May,  1998,  the
Company registered 4 million shares of its common stock to be used in connection
with merger and acquisition activities.

         Preferred Stock

         The  Company  has one  class of $0.01 par value  Preferred  Stock  with
500,000 authorized shares. The Board of Directors has authority, without further
vote or action by  stockholders,  to issue the shares,  fix the number of shares
and change the number of shares  constituting any series,  and to provide for or
change the voting powers, designations, preferences and relative, participating,
optional or other special  rights,  qualifications,  limitations or restrictions
thereof,  including  dividend  rights (and whether  dividends  are  cumulative),
dividend  rates,  terms of redemption  (including  sinking fund  provisions),  a
redemption price or prices, conversion rights and liquidation preferences of the
shares  constituting  any class or series of the Preferred  Stock.  No Preferred
Stock was  outstanding  at March 31,  1997 and 1998.  The Company has no current
plans to issue any shares of Preferred Stock of any class or series.

         Anti-takeover Provisions

         The  Company  has a  stockholder  rights  plan in effect  (the  "Rights
Plan").  Under the terms of the Rights  Plan,  the  holders of the Common  Stock
received one preferred share purchase right (each, a "Right"), as a dividend for
each share of common  stock held as of the close of  business on  September  24,
1997.  Each Right  entitles  the holder to buy  1/10,000  of a share of Series A
Junior  Preferred Stock of the Company at an exercise price of $90.00.  Further,
each Right gives the holder the right to buy Common Stock of the Company  having
twice  the  value of the  exercise  price  of the  Rights  if a person  or group
acquires beneficial  ownership of 20% or more of the Common Stock or commences a
tender or exchange  offer that would result in such a person or group owning 20%
or more of the Common Stock. In addition,  the Board of Directors of the Company
is empowered to issue up to 500,000 shares of preferred  stock, and to determine
the price,  rights,  preferences  and  privileges  of such  shares,  without any
further  stockholder  action.  The  existence of the Rights Plan and this "blank
check"   preferred  stock  may  have  the  effect  of  delaying,   discouraging,
inhibiting,  preventing or rendering more difficult an attempt to obtain control
of the Company by means of a tender offer,  merger,  proxy contest or otherwise.
In addition,  this "blank check" preferred stock, any issuance thereof, may have
an  adverse  effect on the  market  price of the  Common  Stock.  The  Company's
Certificate  of  Incorporation  provides for a  "staggered"  Board of Directors,
which may also have the effect of  inhibiting a change of control of the Company
and may have an adverse effect on the market price of the common stock.





                                       41
<PAGE>




                             COTELLIGENT GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)

Note 12 - Earnings Per Share

     Earnings per share is as follows:
<TABLE>
<CAPTION>

                                                                      For the Year Ended March 31, 1998
                                                       --------------------------------------------------------   
                                                                                                    Per Share
                                                             Income            Shares                Amount
                                                       ----------------     ------------         --------------
<S>                                                    <C>                  <C>                  <C>
Basic earnings per share-
Net income available to common stockholders             $      6,431         11,485,393             $     0.56

Options issued to directors and employees.......                                124,946
                                                                             ------------
Diluted earnings per share-
Income available to common stockholders
    plus assumed conversions...................         $      6,431         11,610,339             $      0.55
                                                                            ============
</TABLE>
<TABLE>
<CAPTION>


                                                                      For the Year Ended March 31, 1997
                                                       --------------------------------------------------------   
                                                                                                    Per Share
                                                             Income            Shares                Amount
                                                       ----------------     ------------         --------------
<S>                                                    <C>                  <C>                  <C>
Basic earnings per share-
Net income available to common stockholders....         $       3,710        11,328,518             $      0.33

Options issued to directors and employees.......                                 73,995
                                                                             -----------
Diluted earnings per share-
Income available to common stockholders
    plus assumed conversions....................        $        3,710       11,402,513             $      0.33
                                                                            ============

</TABLE>


    Options  to  purchase  common  shares  of  700,000  were  excluded  from the
computation of diluted earnings per share for the years ended March 31, 1997 and
1998,  as the options'  exercise  price was greater than the market price of the
common shares for the respective periods.


Note 13 - Commitments and Contingencies

         Employment Agreements

         Certain  executive  officers and certain  principals  of the  Company's
subsidiaries  have entered into  employment  agreements  with the Company  which
contain provisions for compensation upon termination without cause or changes in
control.  Pursuant to such employment agreements,  each such officer is eligible
to earn bonus  compensation  payable out of a bonus pool determined by the Board
of Directors  or its  Compensation  Committee.  Bonuses  will be  determined  by
measuring,  among  other  objective  and  subjective  measures,  such  officer's
performance,  the  performance of the local operation for which such officer has
primary responsibility and the Company's' performance against targets.



                                       42
<PAGE>

                             COTELLIGENT GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)

     Legal Matters

   The  Company is  involved in various  legal  matters in the normal  course of
business.  In the opinion of  management,  these matters are not  anticipated to
have a  material  adverse  effect  on  the  financial  position  or  results  of
operations or cash flows of the Company.

   Additional Purchase Price under Acquisition Contracts.

     In connection with the agreements to acquire two of the Purchased Companies
during fiscal 1998, the Company agreed to additional  consideration based on the
financial  performance of the acquired  companies  subsequent to the acquisition
(the "earn-out").  Potential  earn-outs are payable in the fiscal years 1999 and
2000. Earn-out payments,  if made, will be recorded as additional purchase price
in the year the earn-out  period ends.  During the year ended March 31, 1998, no
additional purchase price has been accrued for any earn-out payments.




                                       43
<PAGE>




                             COTELLIGENT GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)

Note 14 - Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>

                                                                         Year Ended March 31, 1998
                                        ----------------------------------------------------------------------------------------
                                           First Quarter          Second Quarter         Third Quarter        Fourth Quarter
                                        --------------------  ---------------------  --------------------  ---------------------

<S>                                        <C>                    <C>                    <C>                   <C>          
Revenues............................       $       54,304         $       58,566         $      63,111         $      68,702
Gross profit........................               16,117                 17,327                18,381                19,322
Operating income....................                3,155                  3,455                 2,767                 4,985
Net income..........................                1,810                  2,030                  (138)                2,729
Earnings per share-
    Basic...........................       $         0.16         $         0.18         $       (0.01)        $        0.23
                                         ====================  ====================   ===================    ====================
    Diluted.........................       $         0.16         $         0.18         $       (0.01)        $        0.23
                                         ====================  ====================   ===================    ====================
Weighted average shares-
    Basic...........................           11,322,569             11,314,751            11,584,359            11,748,939
                                         ====================  ====================   ===================    ====================
    Diluted..........................          11,367,474             11,436,630            11,584,359            11,980,515    
                                         ====================  ====================   ===================    ====================
</TABLE>
<TABLE>
<CAPTION>


                                                                         Year Ended March 31, 1997
                                        ----------------------------------------------------------------------------------------
                                           First Quarter          Second Quarter         Third Quarter        Fourth Quarter
                                        --------------------  ---------------------  --------------------  ---------------------

<S>                                        <C>                  <C>                     <C>                    <C>          
Revenues............................       $      36,103        $         39,658        $        42,534        $      47,122
Gross profit........................              10,540                  12,352                 12,430               13,251
Operating income....................               1,651                   2,047                  2,417                1,322
Net income..........................                 415                   1,489                  1,587                  219
Earnings per share-
    Basic..........................        $        0.04        $           0.13        $          0.14        $        0.02
                                         ====================  ====================   ===================    ====================
    Diluted........................        $        0.04        $           0.13        $          0.14        $        0.02
                                         ====================  ====================   ===================    ====================
Weighted average shares-
    Basic..........................           11,211,131              11,229,131             11,229,131           11,342,977
                                         ====================  ====================   ===================    ====================
    Diluted........................           11,365,573              11,364,115             11,393,769           11,486,595
                                         ====================  ====================   ===================    ====================
</TABLE>
<TABLE>
<CAPTION>

                                                                         Year Ended March 31, 1996
                                        ----------------------------------------------------------------------------------------
                                           First Quarter          Second Quarter         Third Quarter        Fourth Quarter
                                        --------------------  ---------------------  --------------------  ---------------------


<S>                                         <C>                   <C>                   <C>                    <C>         
Revenues..........................          $       14,409        $       14,579        $       14,059         $     23,386
Gross profit......................                   4,504                 4,622                 4,553                6,940
Operating income..................                     575                   688                   630                  859
Net income........................                     465                   949                   533                  665

</TABLE>

         Earnings  per share  for the year  ended  March  31,  1996 has not been
presented  because,  as  discussed  in Note 2, the  issuance of shares of common
stock sold in the IPO and the inclusion of the results of the Initially Acquired
Companies are not reflected in any period prior to February 20, 1996.




                                       44
<PAGE>




     Item 9. Changes in and  Disagreement  With  Accountants  on Accounting  and
Financial Disclosure.

     A. (i) Cotelligent Group, Inc.'s (the "Company") former accountants,  Price
Waterhouse  LLP,  were  dismissed on January 9, 1998 and were replaced by Arthur
Andersen LLP.

     (ii) Price Waterhouse LLP's reports on the Company's  financial  statements
for the fiscal years ended March 31, 1997 and March 31, 1996 have not  contained
an adverse opinion or a disclaimer of opinion, nor been qualified or modified as
to uncertainty, audit scope, or accounting principles.

     (iii) At a meeting of the  Company's  Board of  Directors  on December  23,
1997, the Board  authorized the Audit Committee and the Chairman of the Board to
review the relationship with Price Waterhouse LLP and engage in discussions with
additional accounting firms to determine whether a new accounting firm should be
engaged by the Company.

     (iv) The Audit  Committee of the Board of Directors and the Chairman of the
Board,  approved Arthur Andersen LLP as the Company's  accountants on January 9,
1998.

     (v)  During the  fiscal  years  ended  March 31,  1997 and 1996,  and up to
January  9,  1998,  there  were  no  disagreements  with  the  Company's  former
accountants  on any matter of  accounting  principles  or  practices,  financial
statement disclosure or auditing scope or procedure.

     (vi) None of the events set forth  below  have  occurred  during the fiscal
years ended March 31, 1997 or 1996 or in the  interim  period  ended  January 9,
1998:

     (A) The Company's  former  accountants  having advised the Company that the
internal  controls  necessary  for the  Company  to develop  reliable  financial
statements do not exist;

     (B) The  Company's  former  accountants  having  advised the  Company  that
information  has come to their attention that has led it to no longer be able to
rely on  management's  representations,  or that  has  made it  unwilling  to be
associated  with the financial  statements  prepared by management;  (C) (1) The
Company's  former  accountants  having advised the Company of the need to expand
significantly  the scope of its  audit,  or that  information  has come to their
attention  during the fiscal  years  ended March 31, 1997 and March 31, 1996 and
the interim period ending January 9, 1998, that if further investigated may: (i)
materially  impact the fairness or  reliability of either:  a previously  issued
audit report on the underlying financial statements; or the financial statements
issued or to be issued covering the fiscal  period(s)  subsequent to the date of
the most  recent  financial  statements  covered by an audit  report  (including
information  that may prevent it from rendering an  unqualified  audit report on
those  financial  statements),  or  (ii)  cause  it to be  unwilling  to rely on
management's  representations  or be  associated  with the  Company's  financial
statements, and

     (C) (2) Due to the Company's former accountants dismissal, or for any other
reason,  the  accountants  did not so expand the scope of their audit or conduct
such further investigation; or

     (D) (1) The Company's  former  accountants  having advised the Company that
information has come to their attention that it has concluded materially impacts
the fairness or reliability of either:  (i) a previously  issued audit report or
the underlying financial statements,  or (ii) the financial statements issued or
to be issued  covering the fiscal  period(s)  subsequent to the date of the most
recent financial  statements  covered by an audit report (including  information
that, unless resolved to their satisfaction,  would prevent it from rendering an
unqualified audit report on those financial statements), and



                                       45
<PAGE>


     (D) (2) Due to the Company's former accountants dismissal, or for any other
reason,  the issue has not been resolved to the accountants'  satisfaction prior
to its dismissal.

     B. (i)  Arthur  Andersen  LLP were  engaged  as the  Company's  independent
accountants as of January 9, 1998.

     (ii) The Company has not,  during its two most recent fiscal years,  or any
subsequent  interim  period  prior to their  appointment  on  January  9,  1998,
consulted  with Arthur  Andersen LLP  regarding  any of the matters set forth in
Item 304(a)(2)(i) or (ii) of Regulation S-K.









                                       46
<PAGE>






                                    PART III



Item 10. Directors and Executive Officers of the Registrant.

         The information called for by Item 10 with respect to identification of
directors  and  executive  officers  of the  Company is  incorporated  herein by
reference to the material under the captions  "Election of Directors" and "Other
Executive  Officers of the  Registrant" in the Company's Proxy Statement for its
1998 Annual Meeting of stockholders  which will be filed with the Securities and
Exchange  Commission  within 120 days after the end of the Company's fiscal year
(the "Proxy Statement").



Item 11. Executive Compensation.

         The  information  called  for by  Item  11 with  respect  to  executive
compensation  is  incorporated  herein by reference  to the  material  under the
caption "Executive Compensation" in the Proxy Statement.



Item 12. Security Ownership of Certain Beneficial Owners and Management.

         The  information  called  for by  Item  12  with  respect  to  security
ownership of certain  beneficial owner and management is incorporated  herein by
reference  to the  material  under the caption  "Security  Ownership  of Certain
Beneficial Owners and Management" in the Proxy Statement.



Item 13. Certain Relationships and Related Transactions.

         The   information   called  for  by  Item  13  with   respect   certain
relationships  and related  transactions is incorporated  herein by reference to
the material under the caption "Certain Transactions" in the Proxy Statement.








                                       47
<PAGE>







                                     PART IV


Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

         (a) The following documents are filed as a part of the Annual Report on
Form 10-K:

             1.  Financial  Statements  required  by  Item 14 are  included  and
indexed in Part II, Item 8.

             2. Financial Data Schedule is included in Part IV of this report.

                Schedule II is omitted  because the  information  is included in
the Notes to Consolidated Financial Statements.

                     3. EXHIBITS

             Exhibit 11.1 is omitted  because the information is included in the
             Notes to Consolidated Financial Statements. The following is a list
             of all Exhibits filed as part of this report.



EXHIBIT NO.                      DESCRIPTION



     3.1  Certificate  of  Incorporation  of  Cotelligent  (Exhibit  3.1  of the
          Registration  Statement  on Form S-1  (File  No.  33-80267)  effective
          February 16, 1996, is hereby incorporated by reference)

     3.2  By-laws of Cotelligent  (Exhibit 3.2 of the Registration  Statement on
          Form S-1 (File No.  33-80267)  effective  February 16, 1996, is hereby
          incorporated by reference)

     4.1  Form  of   certificate   evidencing   ownership  of  Common  Stock  of
          Cotelligent  (Exhibit  4.1 of the  Registration  Statement on Form S-1
          (File  No.   33-80267)   effective   February  16,  1996,   is  hereby
          incorporated by reference)

     10.1 Employment Agreement between Cotelligent and James R. Lavelle (Exhibit
          10.1 of the Registration  Statement on Form S-4 (File No. 333-6086) is
          hereby incorporated by reference)*

     10.2 Employment Agreement between Cotelligent and Michael L. Evans (Exhibit
          10.2 of the Registration  Statement on Form S-4 (File No. 333-6086) is
          hereby incorporated by reference)*

     10.3 Employment   Agreement  between  Cotelligent  and  Daniel  E.  Jackson
          (Exhibit  10.4 of the  Registration  Statement  on Form S-4  (File No.
          333-6086) is hereby incorporated by reference)*

     10.4 Employment  Agreement  between  Cotelligent  and Herbert D. Montgomery
          (Exhibit 99 of the Registration  Statement on Form 8-K (Filed February
          2, 1998) is hereby incorporated by reference)*

     10.5 Employment Agreement between BFR, Cotelligent and Jeffrey J. Bernardis
          (contained in Exhibit 2.1) (Exhibit 10.5 of the Registration Statement
          on Form S-4 (File No. 333-6086) is hereby incorporated by reference)*

     10.6 Employment  Agreement between CAI, Cotelligent and John E. Chamberlain
          (contained in Exhibit 2.2) (Exhibit 10.6 of the Registration Statement
          on Form S-4 (File No. 333-6086) is hereby incorporated by reference)*

     10.7 Employment Agreement between ISI, Cotelligent and Susan E. Trice**

     10.8 Cotelligent  1995  Long-Term  Incentive  Plan  (Exhibit  10.9  of  the
          Registration  Statement  on Form S-1  (File  No.  33-6086)  is  hereby
          incorporated by reference)*



                                       48
<PAGE>


     10.9 Lease  Agreement  between BFR Properties  and BFR Co., Inc.  effective
          April 1, 1995, at 7 Clyde Road included with  Company's  annual report
          filed  on Form  10-K on  June  28,  1997  is  hereby  incorporated  by
          reference.

     10.10Lease  Agreement  between BFR Properties  and BFR Co., Inc.  effective
          April 1, 1995, at 31 Clyde Road.

     10.11Sublease   Agreement  between  San  Francisco   Satellite  Center  and
          Cotelligent Group, Inc. effective March 1, 1996.

     10.12Business  Loan  Agreement  between  Cotelligent  Group,  Inc. and Bank
          Boston,  Agreement and  effective  September 12, 1997 (Exhibit 99.1 of
          Form  8-K  filed  on  October  28,  1997  is  hereby  incorporated  by
          reference.

     21.1 Subsidiaries of the registrant **

     23.1 Consent of Arthur Andersen LLP **

     24.1 Power of Attorney**

     27.1 Financial Data Schedule **

     * Management  contracts and compensatory plans or arrangements  required to
be filed as Exhibits to this Form 10-K.

     ** Filed herewith.

     (b)  The following  reports on Form 8-K were filed by the registrant during
          the last quarter ended March 31, 1998.

     (1)  Report of the change in Certifying Accountants as filed on January 16,
          1998.

     (2)  Report  of the  election  of  Herbert  D.  Montgomery  by the Board of
          Directors to serve as Senior Vice President,  Chief Financial  Officer
          and Treasurer of the Company as filed on February 2, 1998.


     (3)  Report of Independent Accountants and the related financial statements
          of Cotelligent Group, Inc. as at December 31, 1997, March 31, 1996 and
          1997,  including the results of operations  and cash flows for each of
          the three  years in the  period  ended  March 31,  1997,  and the nine
          months ended December 31, 1997 as filed on March 2, 1998.

     (4)  Report of  revenues  and net income of the Company for the month ended
          January 31, 1998 as filed on March 11, 1998.




                                       49
<PAGE>




                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf  by the  undersigned,  thereunto  duly  authorized,  in the  city  of San
Francisco, state of California on the 24th day of June, 1997.

                                             COTELLIGENT GROUP, INC.

                                             By:       /s/ James R. Lavelle
                                                       -----------------------
                                                       James R. Lavelle
                                                       Chief Executive Officer


                                                     POWER OF ATTORNEY

              Pursuant to the  requirements  of the  Securities  Exchange Act of
     1934, this report has been signed below by the following  persons on behalf
     of the registrant and in the  capacities and on the dates  indicated.  Each
     person whose  signature  appears below hereby  authorizes  and  constitutes
     James R.  Lavelle,  Michael L.  Evans,  Daniel E.  Jackson,  and Herbert D.
     Montgomery,  and each of them singly, his true and lawful attorneys-in-fact
     with full power of substitution and resubstitution for him and in his name,
     place and stead,  in any and all  capacities  (including  his capacity as a
     director  and/or officer of Cotelligent  Group,  Inc.) to sign and file any
     and all  amendments  to this report with all  exhibits  thereto,  and other
     documents  in  connection   therewith  with  the  Securities  and  Exchange
     Commission,   and  he  hereby   ratifies  and  confirm  as  all  that  said
     attorneys-in-fact or any of them, or this or his substitutes,  may lawfully
     do or cause to be done by virtue hereof.


<TABLE>
<CAPTION>

             Signature                                         Capacity                             Date
             ---------                                      -------------                           ----


<S>                                          <C>                                               <C>
/s/ James R. Lavelle
------------------------------------
        James R. Lavelle                     Chairman of the Board of Directors                June 25, 1998
                                                and Chief Executive Officer

 /s/ Edward E. Faber
------------------------------------
        Edward E. Faber                      Vice Chairman of the Board of Directors           June 25 , 1998

/s/ Michael L. Evans
------------------------------------
        Michael L. Evans                    President and Chief Operating Officer and          June 25 , 1998
                                                Director
                              
/s/Herbert D. Montgomery
------------------------------------
        Herbert D. Montgomery               Senior Vice President, Chief Financial Officer     June 25 , 1998
                                            and Treasurer (Principal Financial Officer)
/s/ Curtis J. Parker
------------------------------------
        Curtis J. Parker                    Vice President, Chief Accounting Officer           June 25 , 1998
                                            (Principal Accounting Officer)
/s/ Daniel M. Beals
------------------------------------
        Daniel M. Beals                     Director                                           June 25 , 1998

/s/ Jeffrey J. Bernardis
------------------------------------
        Jeffrey J. Bernardis                Director                                           June 25 , 1998


</TABLE>

                                       50
<PAGE>

<TABLE>
<CAPTION>


            Signature                                         Capacity                               Date
            ---------                                      -------------                             ----
<S>                                          <C>                                               <C>
/s/ John E. Chamberlain
------------------------------------
        John E. Chamberlain                  Director                                           June 25, 1998


------------------------------------
        Anthony M. Frank                     Director                                           June   , 1998

/s/ B. Tom Green
------------------------------------
        B. Tom Green                         Director                                           June 25, 1998

/s/ Harvey L. Poppel
------------------------------------
        Harvey L. Poppel                     Director                                           June 25, 1998

/s/ Susan E. Trice
------------------------------------
        Susan E. Trice                       Director                                           June 25, 1998
</TABLE>






                                       51
<PAGE>






                                  EXHIBIT INDEX

EXHIBIT NO.      DESCRIPTION

     3.1  Certificate  of  Incorporation  of  Cotelligent  (Exhibit  3.1  of the
          Registration  Statement  on Form S-1  (File  No.  33-80267)  effective
          February 16, 1996, is hereby incorporated by reference)


     3.2  By-laws of Cotelligent  (Exhibit 3.2 of the Registration  Statement on
          Form S-1 (File No.  33-80267)  effective  February 16, 1996, is hereby
          incorporated by reference)

     4.1  Form  of   certificate   evidencing   ownership  of  Common  Stock  of
          Cotelligent  (Exhibit  4.1 of the  Registration  Statement on Form S-1
          (File  No.   33-80267)   effective   February  16,  1996,   is  hereby
          incorporated by reference)

     10.1 Employment Agreement between Cotelligent and James R. Lavelle (Exhibit
          10.1 of the Registration  Statement on Form S-4 (File No. 333-6086) is
          hereby incorporated by reference)*

     10.2 Employment Agreement between Cotelligent and Michael L. Evans (Exhibit
          10.2 of the Registration  Statement on Form S-4 (File No. 333-6086) is
          hereby incorporated by reference)*

     10.3 Employment   Agreement  between  Cotelligent  and  Daniel  E.  Jackson
          (Exhibit  10.4 of the  Registration  Statement  on Form S-4  (File No.
          333-6086) is hereby incorporated by reference)*

     10.4 Employment  Agreement  between  Cotelligent  and Herbert D. Montgomery
          (Exhibit 99 of the Registration  Statement on Form 8-K (Filed February
          2, 1998) is hereby incorporated by reference)*

     10.5 Employment Agreement between BFR, Cotelligent and Jeffrey J. Bernardis
          (contained in Exhibit 2.1) (Exhibit 10.5 of the Registration Statement
          on Form S-4 (File No. 333-6086) is hereby incorporated by reference)*

     10.6 Employment  Agreement between CAI, Cotelligent and John E. Chamberlain
          (contained in Exhibit 2.2) (Exhibit 10.6 of the Registration Statement
          on Form S-4 (File No. 333-6086) is hereby incorporated by reference)*

     10.7 Employment  Agreement  between ISI,  Cotelligent and Susan E. Trice is
          filed herewith.

     10.8 Cotelligent  1995  Long-Term  Incentive  Plan  (Exhibit  10.9  of  the
          Registration  Statement  on Form S-1  (File  No.  33-6086)  is  hereby
          incorporated by reference)*

     10.9 Lease  Agreement  between BFR Properties  and BFR Co., Inc.  effective
          April 1, 1995, at 7 Clyde Road included with  Company's  annual report
          filed  on Form  10-K on  June  28,  1997  is  hereby  incorporated  by
          reference.

     10.10Lease  Agreement  between BFR Properties  and BFR Co., Inc.  effective
          April 1, 1995, at 31 Clyde Road.

     10.11Sublease   Agreement  between  San  Francisco   Satellite  Center  and
          Cotelligent Group, Inc. effective March 1, 1996.

     10.12Business  Loan  Agreement  between  Cotelligent  Group,  Inc. and Bank
          Boston,  Agreement and  effective  September 12, 1997 (Exhibit 99.1 of
          Form  8-K  filed  on  October  28,  1997  is  hereby  incorporated  by
          reference.

     21.1 Subsidiaries of the registrant **

     23.2 Consent of Arthur Andersen LLP **

     24.1 Power of Attorney**



                                       52
<PAGE>

     27.2 Financial Data Schedule **

     *    Management  contracts and compensatory plans or arrangements  required
          to be filed as Exhibits to this Form 10-K.

     **   Filed herewith.

     (b)  The following  reports on Form 8-K were filed by the registrant during
          the last quarter ended March 31, 1998.

     (1)  Report of the change in Certifying Accountants as filed on January 16,
          1998.

     (2)  Report  of the  election  of  Herbert  D.  Montgomery  by the Board of
          Directors to serve as Senior Vice President,  Chief Financial  Officer
          and Treasurer of the Company as filed on February 2, 1998.


     (3)  Report of Independent Accountants and the related financial statements
          of Cotelligent Group, Inc. as at December 31, 1997, March 31, 1996 and
          1997,  including the results of operations  and cash flows for each of
          the three  years in the  period  ended  March 31,  1997,  and the nine
          months ended December 31, 1997 as filed on March 2, 1998.

     (4)  Report of  revenues  and net income of the Company for the month ended
          January 31, 1998 as filed on March 11, 1998.





                                       53
<PAGE>