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, 1997
                                       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:  None

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

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

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. [ ]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant was approximately  $108,547,334  based on the closing price of $14.00
of the  registrant's  Common Stock as reported on the NASDAQ  National Market on
June 24, 1997.

The number of shares of the registrant Common Stock outstanding as of 
June 24, 1997 was 9,758,428.

                       DOCUMENTS INCORPORATED BY REFERENCE

There is incorporated by reference  portions of the registrant's Proxy Statement
for the 1997  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
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Part 1

     Item 1       Business.......................................................................................   3
     Item 2       Properties.....................................................................................  11
     Item 3       Legal Proceedings..............................................................................  11
     Item 4       Submission of Matters to a Vote of Security Holders............................................  11
Part II
     Item 5       Market for Registrant's Common Equity and Related Stockholder Matters..........................  12
     Item 6       Selected Financial Data........................................................................  13
     Item 7       Management's Discussion and Analysis of Financial Condition and
                      Results of Operations......................................................................  15
     Item 8       Financial Statements and Supplementary Data....................................................  20
     Item 9       Changes in and Disagreements With Accountants on Accounting and
                      Financial Disclosure.......................................................................  40
Part III
     Item 10      Directors and Executive Officers of the Registrant.............................................  41
     Item 11      Executive Compensation.........................................................................  41
     Item 12      Security Ownership of Certain Beneficial Owners and Management.................................  41
     Item 13      Certain Relationships and Related Transactions.................................................  41

Part IV
     Item 14      Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................  42
Signatures      .................................................................................................  44




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                                        2
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                                     PART I

         Except for the historical  information  contained herein, the following
discussion   contains   forward-looking   statements   that   involve  risk  and
uncertainties.  The company's actual results could differ  materially from those
discussed herein.

Item 1.  Business.

         Cotelligent Group, Inc.  ("Cotelligent" or the "Company") is a software
professional services firm providing  information  technology ("IT") consultants
on a contract basis and consulting and  outsourcing  services to businesses with
complex IT operations.  The Company  operates  offices in 19 metropolitan  areas
including Boston, Cleveland, Dallas, Denver, Minneapolis, Los Angeles, New York,
Portland,  Pittsburgh,  San Francisco,  San Jose/Silicon Valley, Seattle and St.
Louis. The Company provides its clients with  highly-qualified  IT professionals
who are  proficient  in a wide  variety  of  hardware  and  software  platforms.
Cotelligent's technical consultants are primarily billed on a time and materials
basis  and  offer  clients   specialized   expertise  in  applications   design,
programming, development and maintenance,  client/server design and development,
systems   software   design,    systems    engineering   and   integration   and
intranet/internetworking.  At  March  31,  1997,  the  Company  had a  staff  of
approximately 2,000 people of which 1,650 were technical  consultants  providing
services to approximately 450 clients in a broad range of industries.

Risk Factors

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

      Absence of Combined Operating History

         On  February  20,  1996,   Cotelligent  acquired  four  companies  (the
"Founding  Companies")  simultaneously  with the initial public  offering of its
Common  Stock  (the   "Offering").   Prior  to  this  date   Cotelligent  was  a
non-operating  entity and generated no revenue.  During fiscal 1997, the Company
acquired  eight  businesses.  There can be no assurance that the Company will be
able to integrate the operating units on an economic or operational  basis.  The
Company's management group has been assembled only recently, and there can be no
assurance that the 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
units 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. An
inability of the Company to integrate the operating  units would have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

      Dependence on Availability of Qualified Technical Consultants

         The Company is dependent  upon its ability to attract,  hire and retain
technical  consultants  who possess the skills and experience  necessary to meet
the service requirements of its clients. The Company must continually  identify,
screen and retain qualified  technical  consultants to keep pace with increasing
client demand for rapidly  evolving  technologies  and changing client needs. In
addition,  because many of the technical  consultants provided by the Company to
its clients are not  committed  to provide  their  services  exclusively  to the
Company,  the Company must compete 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  personnel  agencies.  In  the  past,  the  Company  has
experienced  difficulties  in  identifying  and  retaining  qualified  technical
consultants and has therefore been unable in certain  instances to fill requests
for services from clients.  There can be no assurance that  qualified  technical
consultants will be available to the Company in sufficient numbers. An inability
to locate, retain and successfully place qualified technical consultants to fill
client requests could have a material adverse effect on the Company's  business,
financial condition and results of operations.

                                        3
<PAGE>


      Implementation of Business Strategy

         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  or  successfully  integrate  acquired  businesses,  if any, into the
Company  without  substantial  costs,  delays or other  operational or financial
problems.  Further,  the Company's ability to manage future growth, if any, will
depend significantly upon the Company's ability to integrate the operating units
and any  acquired  businesses  and develop  Company-wide  systems and  operating
procedures.  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.  The Company's  growth will  therefore be dependent on a
number of  factors,  including  the hiring and  training of  qualified  regional
management  personnel,  the  development  and recruitment of a base of qualified
technical  consultants  within  a  geographic  market,  the  integration  of new
personnel  into the  Company's  network  of  operating  units and the  Company's
ability to initiate,  develop and maintain  client  relationships.  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  impact on the  reputation  of the
Company  as a whole.  In  addition,  there  can be no  assurance  that  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.

   Competition

         The IT consulting services industry is highly  competitive,  fragmented
and subject to rapid change.  There are numerous other companies  engaged in the
Company's business, many of which have greater technical, financial or marketing
resources than the Company.  The market  includes  participants  in a variety of
market segments,  including 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. Certain competitors operate in several
of the Company's  markets,  and others may choose to enter the Company's markets
in the future.  In addition,  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  market  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  of these  factors,  the  Company  may lose  clients  or have  difficulty
acquiring new clients.  An inability to compete  successfully in its marketplace
would  have a  material  adverse  effect on the  Company's  business,  financial
condition  and results of  operations.  In  addition,  the Company  competes for
qualified technical consultants 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.

     Need for Acquisition Financing

         The Company currently  intends to finance future  acquisitions by using
cash 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  initiate  and
maintain 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  additional 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.  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.  The  Company  will  also need  additional  funds to
implement its acquisition and internal growth strategies.
                                        4
<PAGE>


The Company has a line of credit  facility  for use for  working  capital and 
other  general  corporate purposes,  which may include acquisitions.  There can
be no assurance,  however, that the line of credit will be sufficient for the 
Company's needs.


The IT Consulting Services Market

         The Company competes in the IT consulting services market, which can be
divided  into  three   categories:   (i)   pre-implementation   services;   (ii)
implementation services; and (iii)  post-implementation  services. The Company's
principal activities,  computer consulting and contract programming, fall within
the  implementation  services  segment of the market.  According  to  Dataquest,
global spending for the IT services  market in 1996 was $98.0 billion,  of which
United States 1996 spending was $36.7 billion.  INPUT, an international research
firm,  reports the United States market is expected to grow at a compound annual
rate of 17% per year through 2000.

     Pre-Implementation Services

         Pre-implementation  services include strategic planning and consulting,
requirements  definition studies and systems planning and design. These services
are  provided  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.

     Implementation Services

         These services,  which represent the Company's  primary business focus,
include  project  management,  software  applications  development,  systems and
network  implementation,  systems  integration and higher-level  supplemental IT
consulting services. This segment of the IT consulting services market is highly
fragmented and 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
segment utilize salaried employees, hourly employees and independent consultants
in providing services.

     Post-Implementation Services

         Services  in  this  category  include  facilities  management,  systems
maintenance,  help-desk  assistance  and education and training.  This market is
also  highly  fragmented  and has low  barriers  to entry.  Firms in this market
segment utilize salaried employees, hourly employees and independent consultants
in executing their assignments.

         The Company's focus market is highly  fragmented and without a dominant
service provider.  Service providers in the IT consulting services industry vary
by market  segment 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.


The IT Consulting Services Environment

         The  growth  of  the IT  industry  and  the  increasing  importance  of
generating  timely  business  information  has  transformed  the way  businesses
operate.   In  the  1960s  and  1970s,   businesses   utilized   mainframe   and
mini-computers  supported by customized  applications and centralized  computing
environments.  Given the proprietary nature of these systems and their attendant
customized  applications,  these  organizations were forced to build significant
infrastructure  to  support  and  enhance  information  services   capabilities,
resulting in large  expenditures of capital  resources and the need for a highly
trained, dedicated staff.

         In the mid-to-late  1980s,  computing  environments began to shift 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  and generally
available  applications  software  packages.  Such trends permitted  individuals
greater access to business data and an enhanced  ability to analyze and interact
with  information. Though highly 
                                        5
<PAGE>


beneficial to  end-users,  the  client/server migration  has proved  problematic
to  information  services  managers  due to increased operational challenges, 
including the integration of multiple hardware and software platforms,  
networking protocols,  databases and operating systems, as well  as the  
customization  of  off-the-shelf  applications  to  conform  to existing  
business rules and reporting  standards.  Despite this shift away from
the centralized  mainframe model,  businesses are often required to maintain and
support certain legacy mainframe systems for a variety of business functions.

         At the same time,  economic factors have forced large  organizations to
focus on core  competencies,  trim  workforces  in the IT services area 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 own
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:

   o      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.

   o      Reduces Costs.  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.

   o     Allows  Management to Focus on Core Business  Issues.  Management  is
         able to focus on strategic  business  issues rather than on maintaining
         or implementing changes in the IT infrastructure.

         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 $1.0 million provide such services and expertise in the United States.
In recent  years,  the industry  has  experienced  an increase in  consolidation
activity.  The  competitive  and growth  environment  of local and  regional  IT
consulting  services  firms has changed in a number of ways.  Smaller  privately
owned businesses are  experiencing  difficulty in locating  qualified  technical
consultants,  have limited access to capital and lack a national presence. These
limitations  have made it more  difficult for such firms to provide  services to
large  organizations,  many of which have been  decreasing the number of vendors
from which they  purchase  services.  The Company  believes that by acquiring IT
consulting  services  businesses in diverse geographic regions, it will create a
unified entity which has the national  presence,  capital,  human  resources and
name  recognition  required to serve larger  organizations  while  retaining the
local focus and management structures under which these firms have developed.


Business Strategy

         The Company's  objective is to be a leading  nationwide  provider of IT
consultants on a contract basis and consulting  and  outsourcing  services.  Key
elements for achieving this objective include the following:


         Operate with Decentralized Management Structure;  Share Information and
Expertise.  The Company  operates with a decentralized  management  structure to
provide quality client service and a motivating environment for its professional
staff.  The Company  believes  that many of its national  competitors  that have
acquired IT consulting  services firms have  homogenized  their operating office
and  professional  service  operations,  potentially  affecting  the  quality of
services,  focus and  creativity  provided to clients.  The Company  permits its
operating  units to manage the  professional  services and technical  aspects of
their  respective  businesses  in a  manner  consistent  with  their  historical
practices  and as  dictated  by local  market  conditions.  Finance,  marketing,
planning  and  administrative  support is managed or provided  on a  centralized
basis.  The Company  believes that this approach  enables its operating units 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.  In  addition,  the
Company fosters an environment,  structure and communications  infrastructure to
enable its operating units to continually share knowledge,  expertise, resources
and information.  The Company believes such activities allow its operating units
to integrate new ideas and systems into their respective  operations,  enhancing
opportunities  for growth through the utilization of strategies that have
                                        6
<PAGE>


proven effective  at other  operating  locations.  Towards  these ends,  the 
Company is currently implementing common and full-enterprise human resources, 
financial and project management systems across all operating units.

         Recruit and Retain Qualified Technical Consultants.  The Company's goal
is to be the  "employer  of choice" of the local  technical  consultants  in any
market in which it operates.  The Company  believes that IT consulting  services
companies that are closely tied to the local and regional  markets in which they
operate tend to foster good working relationships with the technical consultants
in such markets.  To recruit and retain  qualified  technical  consultants,  the
Company  offers  its  professionals  training  opportunities,   the  ability  to
participate  in the Company's  Employee Stock Purchase 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, which
includes companies in areas such as technology and telecommunications, gives the
Company's  technical  consultants  the  opportunity  to work in a  diversity  of
environments  on a wide range of challenging  projects.  Finally,  the Company's
decentralized  management  structure  allows the  operating  units to retain the
corporate culture and autonomous operating style present prior to acquisition by
the Company and allows local  management to offer its technical  consultants the
particular benefits and incentives viewed as important in its regional operating
area.

         Acquire  Companies  that  Provide  Complementary  Services  or Clients;
Expand  Geographically.  The Company seeks to acquire successful  companies that
add to the range of services and expertise  available within the Company as well
as  diversify  the  Company's  existing  client base.  In assessing  acquisition
candidates,   the  Company   evaluates  a  company's   technical   and  industry
applications expertise and the number of national clients serviced by the target
company.  The Company  believes  that such an  evaluation  will help the Company
locate attractive  acquisition candidates whose addition to the Company would be
consistent  with  the  Company's   national   marketing   efforts  and  existing
infrastructure  for sharing  "best  practices"  among the  operating  units.  In
addition to  continuing  to  implement  its growth  strategy  domestically,  the
Company  intends to pursue growth  opportunities  internationally.  See "Item 1.
Business -Acquisition Strategy."


         Focus  on  Clients   with   Recurring   Needs;   Maintain  and  Enhance
Relationships  with Existing Clients.  The Company has historically  focused its
client  marketing  efforts on companies  with  substantial  recurring  needs for
supplemental  applications or software  development  services,  which tend to be
large  companies.  The  combined  resources  and  geographic  dispersion  of the
operating  units enables the Company to continue to focus its marketing  efforts
on clients requiring national service  capabilities.  To enhance these marketing
efforts,  the Company intends to use a centralized  national strategic marketing
team which will expand and  coordinate  the  Company's  marketing  focus towards
national clients and will assist the acquired  businesses in the bidding process
for projects involving national accounts. Further, the Company believes that its
commitment to  consistently  providing  high quality  services has enabled it to
establish and maintain long-term  relationships with many of 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.


         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  and Lawson  Software.  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 the
acquisitions of ESP Software Services, Inc. and United Data Processing, Inc. the
Company gained additional  operating units that are Microsoft  solution provider
program partners,  and one of which is a Microsoft  authorized  training center.
The Company  intends to continue to strengthen  its business  relationship  with
Microsoft,  as well as its  other  strategic  partners,  and  expects  that more
operating units 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  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 need for capital of many independent
firms and (iii)  the wide  geographic  scope  and the  evolving  purchasing  and
outsourcing  patterns of the Company's present and potential
                                        7
<PAGE>

clients. As part of its strategic plan, the Company's  acquisition  program 
utilizes a primary entry acquisition  and  tuck-in  strategy  for  expansion  
into  each of its  targeted metropolitan  areas. A primary entry acquisition is
an acquisition which creates a  significant  presence for the Company in the 
geographic  market in which the acquisition candidate is located. 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 implementing the Company's business 
strategies, rather than converting the local operation to a standardized 
national business model.

         In contrast with a primary entry acquisition,  a tuck-in acquisition is
one in which the  candidate is located in a market in which the Company  already
has a presence.  A tuck-in  acquisition is also generally smaller in size than a
primary  entry  acquisition  and  the  target's  operations  will  generally  be
incorporated  into the operating units in the target's area. The Company intends
to make tuck-in acquisitions where feasible.

         The Company believes that the continued autonomy offered to acquisition
candidates as a result of the Company's decentralized management philosophy, the
access to the increased  capital offered by association with a larger,  publicly
traded company and the ability to affiliate with a more  geographically  diverse
company, will make the Company an attractive acquirer of additional businesses.

         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  technical  consultants
with a corporate culture which will be compatible with the Company's culture and
(iv) have experienced and  knowledgeable  management that has a desire to remain
in  control  of  the  candidate's  operations  after  the  consummation  of  the
acquisition by the Company.

         As consideration  for future  acquisitions,  the Company intends to use
various combinations of Common Stock, cash and notes.

Recent Acquisitions

         During the fiscal year ended March 31, 1997 the Company  acquired eight
IT consulting services companies. These acquisitions have expanded the Company's
national  presence,  broadened its nationwide  resource pool and client base and
increased  the  Company's  capabilities  and expertise by providing an increased
range and mix of IT consulting  services.  Certain information relating to these
acquisitions is summarized in the following table.
<TABLE>


ACQUIRED COMPANY                               ACQUISITION DATE                LOCATIONS
<S>                                            <C>                             <C> 

ESP Software Services, Inc.                    June 28, 1996                   Minneapolis, MN
Innova Solutions, Inc                          June 28, 1996                   Dallas, TX; St. Louis, MO
JasTech, Inc. and JasTech of Florida, Inc.     September 30, 1996              Cleveland, OH; Ft. Lauderdale, FL
Data Processing Professionals, Inc.            October 7, 1996                 St. Louis, MO
Pittsburgh Business Consultants, Inc.          November 27, 1996               Pittsburgh, PA; Denver, CO; Cedar
                                                                               Rapids, IA; San Diego, CA;
                                                                               Colorado Springs, CO
Consulting Services Division
   of Daleen Technologies                      November 27, 1997               Boca Raton, FL
TRC Computers, Inc.                            February 10, 1997               San Jose, CA; Los Angeles, CA
United Data Processing, Inc.                   February 10, 1997               Beaverton, OR



</TABLE>
                                        8
<PAGE>


Services

     IT Consultants

         The Company's primary business is to provide highly skilled and trained
IT consultants to augment the internal IT personnel and end-user groups of major
corporations.  These services  accounted for  approximately 85% of the Company's
revenues in 1997.  The Company  provides  its clients with  highly-qualified  IT
professionals  who are  proficient  in a wide  variety of hardware  and software
platforms  and who are  available to clients for either  short-term or long-term
support.  Specifically,  the  Company's  technical  consultants  provide  ad hoc
supplemental  IT support for positions  requiring  highly  specialized  computer
skills,  including  applications  programming  and  development,   client/server
development,  systems  software  architecture and design,  systems  engineering,
systems   integration   and   intranet/internetworking.   For  these   types  of
assignments,  the Company's  consultants  bill primarily on a time and materials
basis  and work  under  the  direction  of the  client  for the  duration  of an
engagement, which typically lasts three months to nine months.

     IT Consulting and Outsourcing Services

         In addition to its primary business of providing technical  consultants
to assist the internal staffs of its clients,  the Company also provides certain
IT  consulting  and   outsourcing   services.   These  services   accounted  for
approximately  15% of the  Company's  revenues  in  1997.  With  the  increasing
complexity of computer  applications,  many of the  Company's  clients find that
they are not able to manage their development projects without added assistance.
Among the services  the Company  provides  are project  management,  systems and
business process re-engineering,  relational database design and implementation,
hardware and software  selection,  creation of migration  plans,  development of
customized software  applications and systems  integration.  The Company has the
resources and  experience to plan and manage a project from  conception  through
completion,  as well as the  ability  to enter a project  midstream,  assess its
status, develop a plan and successfully complete the project.

         Additionally, the Company develops and implements software applications
using client/server  architectures and integrating  servers,  mini and mainframe
systems,  workstations,  terminals and  communication  gateways  into  complete,
flexible  networks.  The Company  specializes in integrating  local area network
environments into single heterogeneous networks and unifying enterprise networks
into wide area network  environments.  In addition,  the Company  offers  client
support programs for facilities  management,  permanent  placement and education
and training.

Technical Consultants and Recruitment

         Building and enhancing a database of skilled  technical  consultants is
integral to the  Company's  success.  The Company  uses  traditional  recruiting
methods, such as a presence at local and regional technical colleges,  newspaper
and technical  periodical  classified  advertising and participation in national
and  regional job fair  networks.  It also  employs  less  traditional  methods,
including the use of the Internet through skill-specific user groups, World Wide
Web page advertisements,  on-line and skills networks, resume referral services,
out-placement agencies and the Company's  skills/resume  retrieval networks. The
Company is also exploring the  possibility of recruiting  technical  consultants
from foreign markets and  anticipates  that if it is successful in acquiring one
or more United States  companies that have an international  presence,  it would
gain such international recruiting capability. The Company currently maintains a
staff of 65 full-time recruiters.

         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 are
also asked to provide  technical  references.  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 that it expects to be
operational by December  1997.  This system will give each operating unit access
to the Company's nationwide database.
                                        9
<PAGE>


          The  Company   maintains  a  database  with  over  100,000   technical
consultants  who have a wide  range of skills,  including  the  following  major
categories:

<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
</TABLE>


          At March 31,  1997,  the  Company had a staff of  approximately  2,000
people,  including approximately 1,650 technical consultants.  Of such technical
consultants, approximately 50% were salaried employees.

Marketing and Clients

          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  expands  its  operation
nationally,  there is an  increased  focus  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.  In addition the 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 an increasing need
among mid-sized companies for technical  assistance and applications support and
intends to expend this aspect of its business.

          The Company markets its services  through account  managers located in
each operating unit. Approximately 66 people are engaged in marketing full time.
Many of the  Company's  operating  units use an account  team  strategy in their
marketing  efforts.  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  and are  generally  more  aware  of a
client's technology staffing needs,  methodologies and budgets. Account managers
work  as  members  of  a  team,  allowing  them  to  focus  on  identifying  and
understanding  a client's  needs while  recruiters  on the team focus on finding
qualified  technical  consultants  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  coordinating  its
operating units'  responses to requests for proposals from current clients.  The
Company is pursuing  new client  accounts  primarily in those  geographic  areas
presently  serviced by its operating  units.  The Company believes that its size
will create  opportunities to more effectively compete in vendor list selection,
large contract programming assignments and project engagements.

          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  both (i)  clients  seeking  to only do  business  with  national
providers of IT  consulting  services,  to whom the Company will stress its size
and national  presence,  and (ii) clients seeking  relationships  with local and
regional  firms,  to whom the Company will  highlight its  established  regional
presence and localized management.

          As a result of the Company's  broad client base, it does not rely upon
any one  client  for  significant  revenue.  The  Company  has no  clients  that
accounted for more than 8% of revenue for the year ended March 31, 1997 and only
two clients accounted for between 3% and 8% in the same period.
                                       10          
<PAGE>

         During the year ended March 31,  1997,  approximately  27 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>

<S>                                     <C>                                <C>    
Telecommunications                      Technology                         Financial Services
AT&T.                                   Amdahl                             Liberty Mutual Insurance Co.
Bellcore                                Hewlett-Packard                    The Progressive Corporation
Lucent Technologies                     Microsoft                          Washington Mutual Savings Bank
MCI Telecommunications
Pacific Bell                            Consumer                           Other
US West   Communications                Frito-Lay                          Medtronic
Western Wireless                        Office Depot                       Monsanto
                                                                           Ortho Diagnostics Systems
</TABLE>

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.

         The Company believes that the principal  competitive  factors in the IT
consulting  services  industry  include  quality of service,  responsiveness  to
client needs,  the number and availability of qualified  technical  consultants,
price, project management capability,  technical expertise, size and reputation.
The  Company  intends to remain  competitive  as a result of its (i)  ability to
locate,   place  and  retain  technical   consultants  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 respond to clients'
ongoing business needs.

          Intense competition also exists for viable acquisition candidates. The
Company  believes that its  decentralized  management  philosophy  and operating
strategies will make it an attractive  acquiror of other IT consulting  services
companies.


Item 2.  Properties.


         The Company's  principal  executive offices and the headquarters of its
ten  subsidiaries  are  located  in  eleven  facilities  with  an  aggregate  of
approximately  85,000  square feet and are leased at aggregate  current  monthly
rents of approximately $112,000 with no lease commitment extending past the year
2001. The Company's remaining 14 offices aggregate  approximately  53,500 square
feet and are leased at aggregate current monthly rents of approximately  $80,500
for various terms,  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.

         None.
                                       11 
<PAGE>

                                     PART II


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

     The Company's  Common Stock has traded on the NASDAQ  National Market under
the symbol "COTL" since  February 14, 1996,  the date of the  Company's  initial
public offering.  On March 31, 1997, the last sale price of the Common Stock was
$9.25 per share,  as published in The Wall Street  Journal on April 1, 1997.  At
March 31, 1997,  there were 94  stockholders  of record of the Company's  Common
Stock.  The  following  table  sets  forth the range of high and low close  sale
prices for the Common Stock for the period from February 14, 1996, through March
31, 1997 and the period from April 1, 1996 through June 24, 1997.

<TABLE>


                                                                       High        Low
<S>                                                                   <C>       <C> 
1996 Fiscal Year
February 14, 1996 through March 31, 1996............................. $11.75     $  8.25
                                                                      ======     =======

1997 Fiscal Year
April 1, 1996 through June 30, 1996.................................. $20.50     $12.00
                                                                      ======     ======

July 1, 1996 through September 30, 1996.............................. $17.50     $12.25
                                                                      ======     ======

October 1, 1996 through December 31, 1996............................ $24.50     $16.00
                                                                      ======     ======

January 1, 1997 through March 31, 1997............................... $24.88     $ 9.25
                                                                      ======     ======

1998 Fiscal Year

April 1, 1997 through June 24, 1997.................................. $14.25     $ 7.25
                                                                      ======     ======

</TABLE>

     The Company did not pay dividends on its Common Stock during the year ended
March 31, 1997.  Further,  the Company  intends to retain all of its earnings to
finance the  expansion of its business  and for general  corporate  purposes and
does not anticipate paying any dividends on its Common Stock for the foreseeable
future.  In  addition,  the  Company's  line of credit  facility  prohibits  the
Company's ability to pay dividends without the consent of the lender.

                                       12
<PAGE>




Item 6.  Selected Financial Data.

         Cotelligent  was formed in February  1993 to  acquire,  own and operate
software   professional   services  businesses   specializing  in  providing  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  (the  "Founding  Companies")  simultaneously  with the
initial public offering of its Common Stock (the "Offering"). Prior to this date
Cotelligent was a non-operating  entity.  The operating  results of the Founding
Companies have been included since the date of acquisition.

         During fiscal 1997, the Company  acquired six 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, 1993, 1994,
1995,  1996 and 1997 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,  the Company  acquired two businesses
accounted for under the purchase  method.  Accordingly,  the selected  financial
data of  Cotelligent  for the year  ended  March  31,  1997  includes  these the
operating  results of acquisitions  subsequent to their  respective  acquisition
dates.

         The selected financial data with respect to Cotelligent's  consolidated
statements of operations for the years ended March 31, 1994, 1995, 1996 and 1997
and with respect to the  consolidated  balance sheets as of March 31, 1995, 1996
and 1997 have been derived from  Cotelligent's  financial  statements  that have
been audited by Price  Waterhouse LLP. The selected  financial data with respect
to Cotelligent's  consolidated  statement of operations for the year ended March
31, 1993 and with respect to  Cotelligent's  consolidated  balance  sheets as of
March 31, 1993 and 1994 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.

         The pro forma  statement of operations  has been derived from unaudited
financial  data and  reflects  adjustments  for the  acquisitions  of the Pooled
Companies,  including compensation differentials to employees and former owners,
the  planned  termination  of  contributions  to  retirement  plans,   one-time,
non-recurring  acquisition costs related to the Pooled Companies 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  throughout
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.


                                       13
<PAGE>

<TABLE>


                             SELECTED FINANCIAL DATA
                           Cotelligent Group, Inc. (1)
               (In Thousands, Except Share and Per Share Amounts)
<CAPTION>

                                                     Year Ended March 31,
                             --------------------------------------------------------------------
                                                                                      Pro Forma
                                1993         1994      1995       1996        1997     1997 (2)
                             ------------  --------- ---------- ---------  ---------- -----------
<S>                          <C>           <C>       <C>        <C>        <C>         <C>
     Statement of Operations
      Data:
      Revenues...............  $  22,747    $26,679   $ 33,264  $ 52,786    $146,772  $  146,772
      Cost of services.......     15,697     17,042     22,621    37,227     104,785     104,785
                             ------------  --------- ---------- ---------  ---------- -----------
        Gross profit.........      7,050      9,637     10,643    15,559      41,987      41,987
      Selling, general and
        administrative            
        expenses.............      6,060      8,204     10,451    12,962      32,730      31,775
      Non-recurring
       transaction cots.....          -          -          -         -        1,969          -
                             ------------  --------- ---------- ---------  ---------- -----------
        Operating income.....        990      1,433        192     2,597       7,288      10,212
      Other expense                  
       (income), net.........        112         74         92      (120)         18          18
                             ------------  --------- ---------- ---------  ---------- -----------
      Income  before
        provision for               
        for income taxes.....        878      1,359        100     2,717       7,270      10,194
      Provision (benefit)
        for income taxes.....         26        162        (77)      199       3,634       3,874
                              ------------  --------- ---------- --------  ---------- -----------        
        Net income             $     852    $ 1,197   $    177  $  2,518    $  3,636  $    6,320
                             ============  ========= ========== =========  ========== ===========

   Earnings per share (3)...                                              $     .37
                                                                           ==========
   Pro forma earnings per                                                          
      share (3)..............                                                         $      .64
                                                                                     ============

   Unaudited Pro Forma Data
   (4):
      Income before provision
        (benefit) for income       
           taxes.............  $    878     $ 1,359    $  100   $  2,717   $  7,270
      Provision (benefit)
         for income taxes....       353         577      (120)     1,098      3,009                       
                             ------------  --------- ---------- ---------  ---------
      Net income (loss)......  $    525     $   782    $  (20)  $  1,619   $  4,261                                             
                             ============  ========= ========== =========  =========                         


                                                    March 31,
                                -----------------------------------------------------
                                  1993        1994      1995      1996        1997
                                ---------    -------   --------  --------    --------
   Balance Sheet Data
      Working capital........  $    608     $1,606    $   821   $19,477   $  14,771
      Total assets...........  $  3,663     $4,684    $ 7,276   $36,448   $  40,697
      Long-term debt, less
       current portion.......  $    131     $   56    $   143   $   450   $     163
      Stockholders' equity...  $  1,237     $1,976    $   902   $20,182   $  22,264


<FN>
(1)  Prior to its  acquisition  of the Founding  Companies on February 20, 1996,
     Cotelligent was a non-operating entity.  Accordingly,  the above historical
     information  up  through  February  20,  1996  represents  the  results  of
     Cotelligent and the Pooled Companies.  The Founding Companies and purchased
     companies are included subsequent to their respective acquisition.

 (2) Pro forma  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 the effective
     federal and state statutory rates throughout the periods presented.

(3)  Weighted  average  shares  outstanding  used to determine earnings per
     share and pro forma earnings per share were 9,938,399 for March 31,1997.
     Earnings per share for the years ended March 31, 1993, 1994, 1995, and
     1996 has not been presented because it is not considered meaningful as a 
     result of the acquisitions and Offering discussed in Note 1 of the 
     accompanying financial statements. 

(4)  Certain of the Pooled  Companies were S Corporations  prior to their merger
     with Cotelligent.  The unaudited pro forma information is presented for the
     purpose  of  reflecting  a  provision  for  income  taxes as if the  Pooled
     Companies  had been  subject  to income  taxes for all  periods  presented,
     calculated  in  accordance  with FAS 109,  based on tax laws  that  were in
     effect during the respective periods.
</FN>
</TABLE>

                                       14
<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
software   professional   services  businesses   specializing  in  providing  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  (the  "Founding  Companies")  simultaneously  with the
initial  public  offering of its Common Stock ( the  "Offering").  Prior to this
date Cotelligent was a non-operating entity.

         During fiscal 1997, the Company  acquired six 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, 1993,
1994,  1995,  1996 and 1997 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,  the Company  acquired two businesses
accounted for under the purchase  method.  Accordingly,  the selected  financial
data of  Cotelligent  for the year ended March 31, 1997  includes the  operating
results of these acquisitions subsequent to the respective date acquired.

         Pro forma data reflect  adjustments for the Pooled  Companies and other
acquisitions  including:  (i)  compensation  differentials  to former owners and
employees;   (ii)  termination  of  contributions  to  retirement  plans;  (iii)
elimination of one-time,  non-recurring  acquisition costs related to the Pooled
Companies and other acquisitions;  and (iv) income taxes as if the entities were
combined  and  subject  to the  effective  federal  and  state  statutory  rates
throughout the periods discussed.

         The Company derives substantially all of its revenues from professional
service  activities.  The majority of these  activities are provided under "time
and  expense"  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 such rates 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 Margins  (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  service  professional
employees.   Operating   income  (gross   profit  less   selling,   general  and
administrative  expenses) can be adversely impacted by increased  administrative
staff  compensation,  expenses  related to growing and  expanding  the Company's
business,  which may be  incurred  before  revenues  or  economics  of scale are
generated from such investment.

         From time to time,  the  Company  has  opened new  operating  or branch
offices, and it may open new offices in the future.  Historically,  a new office
requires approximately 12 months to reach break-even profitability.  During such
period,  a new office may lose an average of $50,000 per month.  There can be no
assurance that any new office will ever become profitable.

         As part of its  strategic  plan,  the Company  intends to acquire other
software professional  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, financial 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  generally
experiences  a reduction  in Gross Profit in the first  calendar  quarter due to
employment related taxes.

                                       15
<PAGE>


Results of Operations

         Prior to its  acquisition  of the  Founding  Companies  on February 20,
1996,  Cotelligent was a non-operating  entity. The historical operating results
prior to February 20, 1996  represent  only the results of  Cotelligent  and the
results of the Pooled Companies. The operating results of the Founding Companies
are included from the date of acquisition on February 20, 1997.

         Accordingly,  the Company  believes the comparison of pro forma results
of  operations  for  1997 to pro  forma  results  of  operations  for 1996 to be
meaningful.  Pro forma data  reflects the inclusion of  Cotelligent,  the Pooled
Companies  and the  Founding  Companies  as if they had been members of the same
operating group for the entire periods  presented.  In addition,  pro forma data
includes  adjustments  for  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
statutory rates throughout the periods presented.

         The  following   tables  set  forth  the  percentage  of  net  revenues
represented  by items in the  Company's  historical  and pro forma  statement of
operations for the respective periods presented.

Pro Forma Statement of Operations Data:
<TABLE>

                                                    Year Ended March 31,
                                      ----------------------------------------------------
                                         1996         1996        1997           1997
                                      ------------ ----------- ------------  -------------
      <S>                             <C>          <C>         <C>           <C>
      Revenues........................ $ 106,101     100.0%     $146,772          100.0%
      Cost of services................    77,659      73.2       104,785           71.4
                                      ------------ ----------- ------------  -------------
        Gross profit..................    28,442      26.8        41,987           28.6
      Selling, general and
         administrative expenses......    21,210      20.0        31,775           21.6
                                      ------------ ----------- ------------  -------------
         Operating income.............     7,232       6.8        10,212            7.0
      Other expense, net..............       386        .4            18              -                                             
                                      ------------ ----------- ------------  -------------
      Income before provision
         for income taxes.............    6,846       6.4         10,194            7.0
      Provision for income taxes......    2,738       2.6          3,874            2.6                                    
                                      ------------ ----------- ------------  -------------
        Net income....................$   4,108       3.9%      $  6,320            4.3%
                                      ============ =========== ============  =============

</TABLE>


Historical Statement of Operations Data:
<TABLE>

                                                           Year Ended March 31,
                                                 --------------------------------------------
                                                    1995            1996            1997
                                                 ------------    -----------    -------------
     <S>                                         <C>             <C>            <C> 
     Revenues..................................     100.0%         100.0%          100.0%
     Cost of services..........................      68.0           70.5            71.4
                                                 ------------    -----------    -------------
              Gross profit.....................      32.0           29.5            28.6
     Selling, general and
        administrative expense.................      31.4           24.6            22.3
     Non-recurring transaction costs...........         -              -             1.3       
                                                 ------------    -----------    -------------
              Operating income.................       0.6            4.9             5.0
     Other expense, net........................       0.3           (0.2)              -      
                                               ------------    -----------    -------------
     Income before provision for
       income taxes............................       0.3            5.1             5.0
     Provision for income taxes................      (0.2)           0.4             2.5  
                                               ------------    -----------    -------------
     Net income...............................       0.5%            4.7%            2.5%  
                                               ============    ===========    =============
</TABLE>
                                        16
<PAGE>


Pro Forma Combined Results of Operations

   Pro Forma 1997 Compared to Historical 1997

         Revenues.   Revenues were $146.8 million for 1997 on both a pro forma
and historical basis.

         Gross Profit.   The Gross profit was 28.6% of revenues for 1997 on a 
pro forma and historical basis.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative expenses on a pro forma basis were $31.8 million, or 21.6% of pro
forma  revenues,  compared to  historical  selling,  general and  administrative
expenses of $32.7 million,  or 22.3% of historical revenues in 1997. The reduced
selling,  general and  administrative  expenses  on a pro forma basis  reflect a
reduction  in  executive   compensation   from  historical  levels  due  to  the
renegotiation  of executive  compensation  arrangements  in connection  with the
Pooled  Companies and other  acquisitions,  and  elimination of retirement  fund
contributions  since  the  Company  plans to make no such  contributions  in the
future.

         Non-recurring   transaction  costs.   Non-recurring  transaction  costs
include expenditures associated with the acquisition of the Pooled companies and
other  acquisitions  and are  expended  on a  historical  basis as a  result  of
accounting for the acquisitions as poolings-of-interests.

         Interest  expense,  net. Net interest  expense was $194,000,  on both
a historical and pro forma basis,  or .1% of revenues in 1997.

         Provision for Income  Taxes.  Provision for income taxes on a pro forma
basis were $3.9 million,  or an effective tax rate of 38.0% of pro forma pre-tax
income compared to a historical  provision for income taxes of $3.6 million,  or
an effective  rate of 50.0% of pre-tax  income in 1997.  The primary  difference
between the Companies  historical  and pro forma  effective tax rates related to
the  termination  of certain  Pooled  Companies S  corporation  election and the
non-deductibility of certain non-recurring transaction costs.

    Pro Forma 1997 Compared to Pro Forma 1996

         Revenues.  Pro forma revenues  increased  $40.7  million,  or 38.33% to
$146.8  million in 1997 from $106.1  million in 1996. The increase was primarily
due to a 25.0%  increase in total  client  service  hours to 2.5 million in 1997
from 2.0 million hours in 1996 and a 5.5% increase in the average hourly billing
rate to $56.77 in 1997  from  $53.79 in 1996.  The  increase  in  revenues  also
reflects an increase in permanent placement fee revenues of $0.8 million.

         Gross Profit.  Gross profit increased $13.5 million,  or 47.6% to $41.9
million in 1997 from $28.4  million in 1996, as a result of an increase in hours
of service  provided  to  clients.  Gross profit as a  percentage  of  revenues
increased to 28.6% in 1997 from 26.8% in 1996,  principally  due to increases in
billing rates to clients  exceeding the increased  cost of service rate,  and an
increase in higher value services to clients.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses increased $10.6 million, or 49.8% to $31.8 in 1997 from
$21.2 in 1996.  The increase was  primarily  due to  increased  compensation  to
existing  staff  and  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  increased  as a  percentage  of
revenues  to 21.6 % in 1997  from  20% in  1996,  principally  due to  increased
corporate activities and information technology infrastructure costs.

         Interest  expense,  net.  Interest  expense,  net of  interest  income,
decreased $235,000 to $194,000 in 1997, from $429,000 in 1996,  primarily due to
interest income on cash provided from the Offering.

         Provision  for Income Taxes.  The Company's  provision for income taxes
increased $1.1 million to $3.9 million. The increase in the provision for income
taxes was due to an increase in pre-tax  income of $3.3  million.  The effective
rate of tax  decreased  to 38% in 1997 from 40% in 1996  reflecting  a growth in
revenues in states with no state income taxes.

                                       17
<PAGE>


Historical Combined Results of Operations

         1997 Compared to 1996

         Revenues.  Revenues  increased  $94.0  million,  or  178.1%,  to $146.8
million in 1997 from $52.8  million in 1996.  The increase was  primarily due to
$70.6  million of revenues  from the full year impact of the Founding  Companies
acquired  February  20, 1996, a 36.1%  increase in total  client  service  hours
provided by the Pooled Companies to 1.3 million hours in 1997 from 955,000 hours
in 1996,  and an 8.3% increase in the average  hourly billing rate of the Pooled
Companies  to $49.95 in 1997 from $46.12 in 1996.  The  increase in revenue also
reflects an increase in permanent placement fee revenues of $0.8 million.

         Gross Profit. Gross profit increased $26.4 million, or 169.9%, to $42.0
million in 1997 from $15.6 million in 1996, as a result of $16.2 million for the
full year impact of the Founding  Companies  and an increase in hours of service
provided to clients of the Pooled  Companies.  Gross profit as a  percentage  of
revenues decreased to 28.6% in 1997 from 29.5% in 1996, principally due to lower
Profits generally inherent in the engagements of the Founding Companies.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses increased $19.7 million, or 152.5%, to $32.7 million in
1997 from $13.0  million in 1996.  The increase was  primarily  due to increased
compensation  to existing staff and staff added to support  anticipated  growth,
increased  occupancy  expenses and related  operating costs  associated with the
Pooled  Companies  growth,   incremental  costs  associated  with  Cotelligent's
corporate activities and the full year effect of additional selling, general and
administrative  costs of $12.9  million  for the  Founding  Companies.  Selling,
general and  administrative  expenses  decreased as a percentage  of revenues to
22.3% in 1997 from 24.6% in 1996, 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  undertakes  to  integrate  the  acquired
entities, expand geographically and acquire other companies.

         Non-recurring  transaction  costs.  Non-recurring  transaction costs of
$2.0 million were  incurred in 1997.  Non-recurring  transaction  costs  include
expenditures  associated with the acquisition of the Pooled  Companies and other
acquisitions. There were no similar transactions in 1996.

         Interest  Expense,  net.  Interest  expense,  net of  interest  income,
decreased  $52,000 to $194,000 in 1997, from $246,000 in 1996,  primarily due to
interest income on cash provided from the Offering.

         Provision  for Income Taxes.  The Company's  provision for income taxes
increased $3.4 million to $3.6 million in 1997, an effective  rate of 50.0%,  in
1997,  from  $199,000,  an effective  rate of 7.3%, in 1996. The increase in the
provision for income taxes was due to an increase in income before taxes to $7.3
million in 1997 from $2.7 million in 1996.  The high effective tax rate for 1997
is due to the  termination of S corporation  status of certain Pooled  Companies
and the non-deductibility of certain non-recurring transaction costs.

         1996 Compared to 1995

         Revenues.  Revenues increased $19.5 million, or 58.7%, to $52.8 million
in 1996 from $33.3  million in 1995.  The increase was  primarily due to a 28.4%
increase in total  client  service  hours  provided by the Pooled  Companies  to
955,000 in 1996 from  744,000 in 1995,  a 3.6%  increase in the average  billing
rate to $46.12 in 1996 from  $44.53  in 1995 and the  revenues  of the  Founding
Companies  which were  acquired on February 20,  1996.  The increase in hourly 
billing rate reflects  increased demand for employees and consultants with 
higher skill levels.

         Gross Profit.  Gross profit increased $5.0 million,  or 46.2%, to $15.6
million in 1996 from $10.6 million in 1995, primarily as a result of an increase
in  hours of  service  provided  to  clients  by the  Pooled  Companies  and the
acquisition  of the Founding  Companies on February 20, 1996.  Gross profit as a
percentage of revenues decreased from 32.0% in 1995 to 29.5% in 1996, reflecting
investments  in clients and  activities  pertaining  to the  development  of new
service  offerings  by the  Pooled  Companies  and the lower  margins  generally
inherent in the engagements of the Founding Companies.
                                       18
<PAGE>

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses  increased $2.5 million,  or 24.0%, to $13.0 million in
1996 from $10.5  million in 1995,  primarily  due to increased  compensation  to
existing staff and staff added to support growth,  increased  occupancy expenses
and  related  operating  costs  associated  with the  Company's  growth  and the
acquisition of the Founding Companies on February 20, 1996. Selling, general and
administration  expenses  decreased as a percentage of revenues to 24.6% in 1996
from  31.4% in 1995,  reflecting  greater  operating  efficiencies  and a larger
revenue base.

         Interest  Expense,  net.  Interest  expense,  net of interest income,
increased $142,000 to $246,000 in 1996 from $104,000 in 1995 as a result of 
increased  borrowings under the Company's  various bank revolving credit
facilities.  Such borrowings were used to support operating activities.

         Provision  for Income Taxes.  The Company's  provision for income taxes
increased  $276,000  to  $199,000,  an  effective  rate of 7.3%,  in 1996 from a
benefit of $77,000, an effective rate of (77.0)%.  The increase in the provision
for income taxes is due to an increase in income before taxes to $2.7 million in
1996  from  $0.1  million  in 1995.  The  effective  tax rate is lower  than the
statutory  tax  rates  due to S  corporation  elections  of some  of the  Pooled
Companies that were in place prior to their respective dates of acquisition.

         Quarterly Operating Results 1997 and 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-expense 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 last two years are summarized below.
<TABLE>

        --------------------------------------------------------------------------------------------------------------
                                        Year Ended March, 1996                     Year Ended March 31, 1997 
                              ------------------------------------------  --------------------------------------------
                                First     Second    Third      Fourth       First      Second     Third      Fourth
                               Quarter   Quarter   Quarter    Quarter      Quarter    Quarter    Quarter     Quarter
                              ------------------------------------------  --------------------------------------------
        <S>                    <C>        <C>      <C>        <C>         <C>        <C>        <C>        <C>
        Revenues               $11,194    $11,159  $10,555    $19,878     $31,963    $35,127    $37,806    $41,876
        Gross Profit             3,373      3,348    3,269      5,569       9,020     10,646     10,699     11,622
        Operating Income           540        628      595        834       1,510      1,887      2,299      1,592                  
        Net Income                 439        899      524        656         310      1,312      1,481        533                  
</TABLE>



Liquidity and Capital Resources

         The Company has financed its growth principally through cash flows from
operations, periodic  borrowings under its credit  facilities and the use of the
net proceeds from the Offering.

         The Company's  primary sources of liquidity are cash, credit facilities
and the collection of its accounts receivable. Accounts receivable have grown as
the Company's  operations have grown.  Billed receivables were 59 and 51 days of
revenue  at March 31,  1997 and 1996,  respectively.  The  Company's  ability to
reduce significantly the aging of its outstanding receivables is limited because
of a continuing  general trend by clients to slow their payment of invoices as a
means of managing cash. 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 used by operating  activities  was $2.0 million for the year ended
March  31,  1997.  The  Company  has   supplemented   cash  used  by  operations
periodically  with short-term  borrowings  under various credit  facilities with
banks. The average balance of such borrowings outstanding was approximately $5.9
million and approximately $6.1 million during 1997 and 1996, respectively.
                                       19
<PAGE>

         At March  31,  1997,  the  Company  had $2.2  million  in cash and cash
equivalents as compared to $14.6 million at March 31, 1996 reflecting the use of
net cash proceeds from the Offering to finance  acquisitions during the year. At
March  31,  1997,  the  Company  had  short-term  notes  payable  under its bank
revolving credit  facilities and current  installments of long-term  obligations
outstanding in the amount of $4.2 million  compared to $4.9 million at March 31,
1996. Long-term obligations,  consisting primarily of capital lease obligations,
totaled $422,000 at March 31, 1997 compared to $450,000 at March 31, 1996.

         Cotelligent  and each of the Founding  Companies  had separate  banking
relationships  through  May 31,  1996.  Effective  June 1, 1996,  the  Company's
separate  banking   relationships   were  consolidated  into  a  single  banking
relationship with a major bank. Operating units acquired during fiscal 1997 have
been  consolidated  into this  banking  relationship  within  several  months of
acquisition. The single relationship provides a more effective means of managing
operating  capital.  The  new  relationship  provides  a  credit  facility  (the
"Facility") in the amount of $20.0 million for the Company,  secured by accounts
receivable and other assets of the Company. As of March 31, 1997 the Company had
consolidated  all of its bank  borrowings into the Facility which bears interest
at the bank's prime rate  currently  at 8.50%.  The Company is not in default of
any credit  agreement and had  approximately  $14.8 million  available under the
Facility at March 31, 1997. The Company  intends to borrow from  time-to-time to
meet normal operating needs,  finance its receivables or to effect  acquisitions
in connection with its acquisition strategy.

         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.

Recently Issued Accounting Standard

         In February 1997, the Financial  Accounting  Standards Board issued
Statement of Financial  Accounting  Standards (SFAS) No. 128, Earnings Per
Share.  SFAS No. 128 establishes standards for computing and presenting
earnings  per share  (EPS) and applies to entities  with  publicly  held common
stock or potential  common  stock.  This  statement is effective  for  financial
statements issued for periods ending after December 15, 1997,  including interim
periods;   earlier  application  is  not  permitted.   This  statement  requires
restatement of all prior-periods EPS data presented.

          The Company has adopted the disclosure and provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," issued in October 1995, and as permitted by the provision of
SFAS No. 123, the Company continues to apply the provision of APB Opinion No. 25
and related interpretations in accounting for its employee stock option plans.

Item 7.A.  Quantitative and Qualitative Disclosures About Market Risk

         Not Applicable.

Item 8.  Financial Statements and Supplementary Data

         The remainder of this page is left intentionally blank.

                                       20
<PAGE>


                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors
  and Stockholders of
  Cotelligent Group, Inc.

         In our opinion,  the  accompanying  consolidated  balance sheet and the
related  consolidated  statements of operations,  of stockholders' equity and of
cash flows present fairly, in all material  respects,  the financial position of
Cotelligent  Group, Inc. and its subsidiaries at March 31, 1996 and 1997 and the
results of their  operations and their cash flows for each of the three years in
the  period  ended  March  31,  1997,  in  conformity  with  generally  accepted
accounting principles.  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 of these
statements  in accordance  with  generally  accepted  auditing  standards  which
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,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for the opinion expressed above.





PRICE WATERHOUSE LLP

Minneapolis, Minnesota
April 29, 1997



                                       21         
<PAGE>

<TABLE>

                             COTELLIGENT GROUP, INC.

                           CONSOLIDATED BALANCE SHEET
               (In Thousands, Except Share and Per Share Amounts)
<CAPTION>

                                                                    March 31,          March 31,
                             ASSETS                                    1996              1997
                                                                   -------------    ----------------
<S>                                                                <C>              <C>   
Current assets:
   Cash and cash equivalents..................................      $    14,600     $         2,244
    Accounts receivable, including unbilled accounts of $3,851
        and $5,535, net.......................................           18,666              29,153
   Notes receivable including $179 and $75
       from related parties...................................              315                  75
   Prepaid expenses and other current assets..................              770               1,280
                                                                   -------------    ----------------
     Total current assets.....................................           34,351              32,752
Property and equipment, net...................................            1,690               4,899
Deferred income taxes.........................................              247                  61
Goodwill, net of accumulated amortization of $0 and $38                       -               2,649
Other assets..................................................              160                 336
                                                                   -------------    ----------------
     Total assets.............................................      $    36,448     $        40,697
                                                                   =============    ================

              LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Short-term debt............................................     $      4,863             $ 4,087
   Accounts payable...........................................              771               2,149
   Accrued compensation and related payroll liabilities.......            5,324               8,667
   Due to related parties.....................................              417                   -
   Income taxes payable.......................................            1,243                 260
   Deferred income taxes......................................              560                 768
   Other accrued liabilities..................................            1,696               2,050
                                                                   -------------    ----------------
     Total current liabilities................................           14,874              17,981
Long-term debt................................................              450                 163
Other long-term liabilities...................................              942                 289
                                                                   -------------    ----------------
     Total liabilities........................................           16,266              18,433
                                                                   -------------    ----------------
Commitments and contingencies.................................

Stockholders' equity:
   Common stock, $0.01 par value; 100,000,000 shares
    1,630,971, 7,272,614 and 7,953,440 shares
    outstanding, respectively         
     authorized  9,119,914 and 9,730,786 shares
     outstanding, respectively................................               91                  97
   Additional paid-in capital.................................           18,430              18,765
   Retained earnings..........................................            1,661               3,402
                                                                   -------------    ----------------
     Total stockholders' equity...............................           20,182              22,264
                                                                   -------------    ----------------                                
      Total liabilities and stockholders' equity                         36,488              40,697
                                                                   =============    ================













<FN>
          The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>

                                       22
<PAGE>

<TABLE>

                             COTELLIGENT GROUP, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS
               (In Thousands, Except Share and Per Share Amounts)
<CAPTION>




                                                       For the Year Ended March 31,
                                           -----------------------------------------------------
                                               1995                1996               1997
                                           --------------     ---------------     --------------
<S>                                        <C>                <C>                 <C>   
Revenues...............................         $ 33,264           $  52,786           $146,772
Cost of services.......................           22,621              37,227            104,785
                                           --------------     --------------     ---------------
        Gross profit...................           10,643              15,559             41,987
Non-recurring transaction costs........                                                   1,969
Selling, general and administrative
  expenses.............................           10,451              12,962             32,730
                                           --------------     ---------------     --------------
Operating income.......................              192               2,597              7,288
Other (income) expense:
   Interest expense....................              119                 321                533
   Interest income.....................              (15)                (75)              (339)
   Other...............................              (12)               (366)              (176)
                                           --------------     ---------------     --------------
     Total other (income) expense......               92                (120)                18
                                           --------------     ---------------     --------------
Income before income taxes.............              100               2,717              7,270
Provision (benefit) for income taxes...              (77)                199              3,634
                                           ==============     ===============     ==============
Net income.............................      $       177          $    2,518             $3,636
                                           ==============     ===============     ==============
Earnings per share........................                                             $    .37
                                                                                  ==============
                                                             
Weighted average shares outstanding..                                                 9,938,399
                                                                                  ==============

























<FN>

                    The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>

                                       23
<PAGE>
<TABLE>


                             COTELLIGENT GROUP, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      (In Thousands, Except Share Amounts)
<CAPTION>

                                                                          Additional
                                                                            Paid In        Retained         Total                   
                                            -------------  ------------  --------------- ------------- -----------------
<S>                                         <C>            <C>           <C>             <C>           <C>   
Balance at March 31, 1994.................      3,321,390   $       33    $        91     $    1,852       $   1,976                
                                                                                 
   Dividends to certain pooled companies..                                                    (1,269)         (1,269)
   Stock redemption.......................                                                      (206)           (206)
   Issuance of common stock...............        156,881            2            222                            224
   Net income.............................                                                       177             177
                                            -------------  ------------- -------------- --------------- ---------------
Balance at March 31, 1995.................      3,478,271           35            313            554             902
   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 to certain pooled companies..                                                    (1,393)         (1,393)
   Reclassification of Founding
     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...............                                        137                            137
       Net income.........................                                                       270             270
       Dividends..........................                                                      (288)           (288)
   Net income.............................                                                     2,518           2,518
                                            -------------  ------------- -------------- --------------- ---------------
Balance at March 31, 1996.................      9,119,914           91         18,430          1,661          20,182                
   Dividends to certain pooled companies..                                                    (1,708)         (1,708)
   Retained Earnings of immaterial pooled 
          companies......................                                                       (241)           (241)
   Distribution to former stockholder.....                                       (423)                          (423)
   Issuance of common stock...............        610,872            6            608                            614
   Tax benefit on stock options exercised.                                        295                            295
   Net income.............................                                                     3,636           3,636
                                            ------------- --------------- --------------- ------------- ----------------
Balance at March 31, 1997   ..............      9,730,786   $       97    $    18,910     $    3,348     $    22,355                
                                            ============= =============== =============== ============= ================














<FN>
                   The  accompanying   notes  are  an  integral  part  of  these consolidated financial statements.
</FN>
</TABLE>
                                        24
<PAGE>

<TABLE>


                                            COTELLIGENT GROUP, INC.

                                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                                 (In Thousands)
<CAPTION>

                                                                                  Year Ending March 31,
                                                                          ---------------------------------------
                                                                            1995          1996          1997
                                                                          ----------    ----------    ----------
<S>                                                                       <C>           <C>           <C>   
Cash flows from operating activities:
          Net income (loss)..............................................$     177      $  2,518      $  3,636
          Adjustments to reconcile net income to net cash provided
                    by operating activities:      
                    Depreciation and amortization........................      221           308         1,041             
                    Deferred income taxes, net...........................        -          (539)          394                 
                    Loss (gain) on disposal of property and equipment ...       42          (325)           65
                    Provision for doubtful accounts......................        -           156           (80)
                    Changes in current assets and liabilities:
                             Accounts receivable.........................    2,680)        (2,743)     (11,002)
                             Prepaid expenses and other current assets...     (109)          (190)        (270)
                             Accounts payable and accrued expenses.......    2,458            128        5,711
                             Income taxes payable........................      (29)           307         (688)
                    Changes in other assets..............................        4             19         (176)
                    Changes in long term liabilities.....................        -              -         (653)
                                                                          ----------    ----------    ----------
                             Net cash provided by (used in) operating           
                               activities.                                      84           (361)      (2,002)
                                                                          ----------    ----------    ----------
Cash flows from investing activities:
           Proceeds on sale of assets....................................       53            374            5
           Purchase of businesses, net of cash of acquired companies.....        -              -       (2,915)
          Purchases of property and equipment............................     (420)          (652)      (4,094)
          Net repayments from (advances to) related parties..............      (25)           (63)           -
          Cash and cash equivalents of Founding Companies at acquisition.        -            525            -
                                                                          ----------    ----------    ----------
                             Net cash used in investing activities......      (392)           184       (7,004)
                                                                          ----------    ----------    ----------
Cash flows from financing activities:       
          Redemption of common stock.....................................     (206)          (120)           -                  
          Proceeds on long-term debt.....................................      168             64            -                      
          Principal Payments on long-term debt...........................      (47)           (19)        (390)               
          Payments on capital lease obligations..........................        -            (49)        (185)             
          Distribution to founding Companies former stockholders.........        -         (3,492)           -     
          Dividends......................................................   (1,269)        (1,303)      (2,131)
          Net borrowings (repayments) on short-term debt.................      996            371         (676)
          Net borrowings (repayments) on loans with related parties......       10            148         (417)
          Net proceeds from issuance of common stock.....................      224         18,378          469
          Net change in cash due to conforming fiscal year end of pooled        
                 companies...............................................        -            539            -
                                                                          ----------    ----------    ----------                 
                             Net cash provided by (used in) financing        
                               activities................................     (124)        14,517       (3,330)
                                                                          ----------    ----------    ----------
          Net increase (decrease) in cash and cash equivalents...........     (432)        14,340      (12,356)
          Cash and cash equivalents at beginning of period...............      692            260       14,600
                                                                          ----------    ----------    ----------
          Cash and cash equivalents at end of period..................... $    260      $  14,600     $  2,244
                                                                          ==========    ==========    ==========
Supplemental disclosures of cash flow information:
          Interest paid..................................................$     122     $      355     $    533
          Income taxes paid..............................................       14            338        3,353
Non-cash investing and financing transactions:
          Capital lease obligations incurred.............................       10            158          188
          Conversion of trade accounts receivable to note receivable.....        -             53            -
          Net Liabilities of immaterial pooled Companies.................        -              -          187
          Tax benefit on stock options exercised.........................        -              -          295



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

</FN>
</TABLE>
                                       25
<PAGE>

                             COTELLIGENT GROUP, INC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In Thousands, Except Share and Per Share Amounts)

Note 1 - Business Organization and Basis of Presentation

         Cotelligent  was formed in February  1993 to acquired,  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 BFR Co., Inc
("BFR"),  Chamberlain  Associates,  Inc.  ("CAI"),  Data Arts &  Sciences,  Inc.
("DASI"),  Financial  Data Systems,  Inc.  ("FDSI") (the  "Founding  Companies")
simultaneously  with the  initial  public  offering  of its  Common  Stock  (the
"Offering").   The  aggregate   consideration   paid  by  Cotelligent  in  these
transactions was $3,492 in cash, 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.

         During fiscal 1997,  the Company  issued  3,435,211  shares of Common 
Stock to acquire six  businesses  accounted for under  the-pooling-of-interests
method (the "Pooled  Companies").  The Pooled Companies includes ESP Software 
Services,  Inc. ("ESP"), Innova Solutions, Inc. ("ISI"), JasTech, Inc. ("JTI"), 
Pittsburgh Business Consultants,  Inc. ("PBC"), TRC Computers, Inc.("TRC") and 
United Data Processing,  Inc.  ("UDP").  Accordingly,  the financial  statements
for the years ended March 31, 1995, 1996 and 1997 have been restated in 
accordance with generally  accepted  accounting  principles to present the 
financial statements as if Cotelligent and the Pooled Companies had always been
members of the same operating group.

         In addition,  during fiscal 1997,  the Company  acquired two businesses
accounted for under the purchase  method for $2,915.  The  operating  results of
these  acquisitions  are included  subsequent  to their  respective  acquisition
dates.



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 Founding Companies from their date of acquisition
on February 20, 1996, companies acquired in business combinations  accounted for
under the  purchase  method  (the  Purchased  Companies)  from their  respective
acquisitions  dates and give  retroactive  effect  to the  results  of  business
combinations  accounted for under the  pooling-of  interests  method (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 reporting
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.

                                       26
<PAGE>
                             COTELLIGENT GROUP, INC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In Thousands, Except Share and Per Share Amounts)


     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.  Management periodically reviews the potential impairment of
goodwill on a non-discounted cash flow basis to assess recoverability.

     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.

     Revenue Recognition

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

     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.

     Income Taxes

         The Company  accounts for income taxes in accordance  with Statement of
Financial  Accounting  Standards  No. 109,  "Accounting  for Income Taxes" (SFAS
109). The asset and liability approach used in SFAS 109 requires 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.  See Note 7 for unaudited pro forma income tax  information  and 
further discussion.

     Earnings Per Share

         Net income per share is  calculated  by dividing net income by weighted
average shares  outstanding  during the year,  including  common stock  
equivalents,  if delutive.  Historical 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 Founding  Companies and the 
Offering as discussed in Note 1.


                                       27
<PAGE>
                             COTELLIGENT GROUP, INC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In Thousands, Except Share and Per Share Amounts)


     Reclassifications

         Certain  amounts have been  reclassified in 1995 and 1996 to conform to
the 1997 presentation.

     Recent Accounting Pronouncements

         The   Company   adopted   SFAS   123,   "Accounting   for   Stock-Based
Compensation",  during fiscal 1997.  SFAS 123  encourages,  but does not require
companies to record  compensation  cost for  stock-based  employee  compensation
plans at fair  value.  The  Company  has  chosen  to  continue  to  account  for
stock-based   compensation  using  the  intrinsic  value  method  prescribed  in
Accounting  Principles  Board  Opinion  No. 25 (APB 25),  "Accounting  for Stock
Issued to Employees," and related Interpretations.  Pro forma disclosures of net
income and net income per share, as if the fair value-based method of accounting
defined in SFAS 123 had been applied, are presented in Note 11.

         In February  1997,  the  Financial  Accounting  Standards  Board issued
Statement  of  Financial  Accounting  Standards  (SFAS) No. 128,  "Earnings  per
Share".  This  statement  establishes  standards for  comparing  and  presenting
earnings per share ("EPS").  SFAS 128 simplifies the standards for computing EPS
and makes the  presentation comparable to international EPS standards by 
replacing the presentation of primary EPS with a presentation ofbasic EPS. It
also requires dual  presentation of basic and dilutive EPS on the face of the 
income statement.  Basic EPS  excludes  dilution  and is computed  by  dividing
income available to common shareholders by the weighted average number of common
shares outstanding  for the period.  Diluted EPS reflects the  potential  
dilution that could  occur  if  securities  or other  contracts  to issue  
common  stock  were exercised  or  converted  into common  stock.  This  
Statement is required to be adopted by the Company during fiscal 1998.

Note 3 - Business Combinations

       Pooling-of-Interests Method

         During fiscal 1997, the Company issued 3,435,211 shares of common stock
to   acquire   6   companies   in   acquisitions   accounted   for   under   the
pooling-of-interests method, (the "Pooled Companies"). Accordingly the Company's
consolidated   financial  statements  have  been  restated  in  accordance  with
generally accepted accounting principles for all periods presented.

         The results of certain of the Pooled Companies were previously reported
on December 31 year ends prior to  acquisition  by the Company.  The accounts of
these Pooled  Companies for the years ended December 31, 1994 and 1995 have been
combined with the accounts of Cotelligent for the years ended March 31, 1995 and
1996,  respectively.  Commencing on April 1, 1996, the year ends of these Pooled
Companies  were  changed  to March 31,  resulting  in an  increase  to  retained
earnings of $270 during fiscal 1996.

          The following is a summary of the results  related to the  adjustments
to retained earnings for these Pooled Companies.
<TABLE>

                                                               For the
                                                             Year Ended
                                                           March 31, 1996
                                                         --------------------
                            <S>                             <C>

                             Revenues                         $ 11,823
                             Costs and expenses                 11,553
                                                         --------------------
                                  Net Income                  $    270
                                                         ====================


</TABLE>


                                       28
<PAGE>
                             COTELLIGENT GROUP, INC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In Thousands, Except Share and Per Share Amounts)


         The separate  results of operations of  Cotelligent  Group Inc. and the
Pooled Companies for periods prior to the mergers are presented below.

<TABLE>

                                                                                 Pooled
                   For the year ended March 31,              Cotelligent       Companies          Combined
                                                             -------------    -------------     -------------
                  <S>                                       <C>               <C>               <C> 
                   1996
                         Revenue                              $     8,265      $    44,521       $    52,786
                         Net income                                    88            2,403             2,491
                   1995
                         Revenue                                        -           33,264            33,264
                         Net income                                 (201)              378               177

</TABLE>


     Purchase Method

         During fiscal 1997,  Cotelligent  acquired two companies  accounted for
under the  purchase  method for an  aggregate  cost 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 date of the acquisition.

Note 4 - Pro Forma Results

         The pro forma consolidated statements of operations for the three years
ended March 31, 1997 give effect to the  acquisitions of the Founding  Companies
as if these acquisitions were made on April 1, 1994. Additionally, the pro forma
consolidated  statement of operations for the year ended March 31, 1997 reflects
adjustments for the acquisitions of the Pooled Companies  including  elimination
of the results of operations of a consulting  division  which was  discontinued,
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.
<TABLE>

                                                               For the Year Ended March 31,
<CAPTION>
                                                      ------------------------------------------------
                                                          1995               1996            1997
                                                      --------------     -------------    ------------
          <S>                                          <C>                <C>             <C>

          Revenues                                     $     83,293       $   106,101      $  146,772
          Cost of Service                                    61,109            77,957         104,785
                                                      --------------     -------------    ------------
                 Gross Profit                                22,184            28,144          41,987

          Selling, general and administrative                20,993            22,681          31,775
                                                      --------------     -------------    ------------

          Operating Income                                    1,191             5,463          10,212
          Other expense                                         271               588              18
                                                      --------------     -------------    ------------
          Income before provision for income                    920             4,875          10,194
          taxes

          Provision for income taxes                            350             2,064           3,874
          Loss from discontinued business                      (184)              557               -
                                                      ==============     =============    ============
          Net Income                                  $         386       $     3,368      $     6,320
                                                      ==============     =============    ============

</TABLE>


                                       29
<PAGE>
                             COTELLIGENT GROUP, INC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In Thousands, Except Share and Per Share Amounts)


Note 5 - Allowance for Doubtful Accounts
<TABLE>
<CAPTION>

Allowance for doubtful accounts activity is as follows.
<S>                                                                                          <C>

Balance, March 31, 1995...................................................................    $      60
Balance of Founding Companies allowance for doubtful accounts at acquisition..............           40
Charges to costs and expenses.............................................................          156
Write-offs................................................................................          (21)
                                                                                              ------------
Balance at March 31, 1996.................................................................          235
Charges to costs and expenses.............................................................           80
Write-offs................................................................................          (48)
                                                                                             -------------
Balance at March 31, 1997.................................................................    $     267
                                                                                             =============
</TABLE>

Note 6 - Property and Equipment

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

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

Computer and office equipment...........................     $    2,063      $   4,978
Furniture and fixtures..................................          1,427          2,675
Leasehold improvements..................................            326            366
                                                          --------------    -----------
                                                                  3,816          8,019
Less:  Accumulated depreciation.........................          2,126          3,120
                                                          ==============    ===========
                                                              $   1,690      $   4,899
                                                          ==============    ===========
</TABLE>

Depreciation  and  amortization  expense  for the years ended March 31, 1996 and
1997 was $308 and $1,003 respectively.

Note 7 - Credit Facilities

         Cotelligent  and each of the Founding  Companies  had separate  banking
relationships  through  May 31,  1996.  Effective  June 1, 1996,  the  Company's
separate  banking   relationships   were  consolidated  into  a  single  banking
relationship with a major bank. Operating units acquired during fiscal 1997 have
been  consolidated  into this  banking  relationship  within  several  months of
acquisition. This credit facility (the "Facility") provides for borrowings up to
80% of billable accounts receivable or $20.0 million for the Company,  secured 
by accounts receivable and other assets of the Company,  and bears  interest at
the bank's prime rate which was 8.50% at March 31,  1997.  The  Facility secured
by accounts receivable and other assets of Cotelligent contains covenants which,
among other things, requires  the  Company to maintain minimum net worth and 
working capital levels.The Company was in compliance with these  covenants at 
March 31, 1997.  Approximately $14.8  million was available under the Facility 
at March 31, 1997.

                                       30
<PAGE>
                             COTELLIGENT GROUP, INC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In Thousands, Except Share and Per Share Amounts)



Credit facilities consist of the following:

   Short-Term Debt
<TABLE>
<CAPTION>


                                                                                       March 31,
                                                                              ----------------------------
                                                                                 1996            1997
                                                                              -----------    -------------
<S>                                                                           <C>            <C>
Bank line of credit with borrowings up to 80% of the Company's eligible       $                   $3,926
   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).....
Bank line of  credit,  with  borrowings  up to 80% of  PBC's  eligible  accounts
  Receivable or $1,900, secured by accounts receivable and equipment of
  PBC, interest at prime plus 1.75%  (9.25% at March 31, 1996)................      883               -
Bank line of credit, with maximum borrowings of $1,250 secured by                                       
  FDSI's accounts receivable, property and equipment, and personally
  Guaranteed by several Cotelligent stockholders who are also officers of
  FDSI, due May 28, 1998. Interest at the prime rate plus 1.50% per annum
  (9.75% at March 31, 1996).................................................       1,097               -
Bank line of credit,  for  borrowings up to the lesser of $1,300 or 70% of the -
  DASI's eligible accounts receivable, secured by all assets of DASI, as well
  as the personal guarantees of two Cotelligent stockholders who are also
  officers of DASI, due May 31, 1996.  Interest at 1.25% above the bank's           
  base lending rate (9.5% at March 31, 1996)................................        809                -
Bank line of credit, for borrowings of up to $1,500 secured by all of                                  
  BFR's assets, due May 31, 1996.  Interest at bank's prime rate of 8.25%
  at March 31, 1996.........................................................        300                -
Bank line of credit, for borrowing up to $250, secured by accounts                                     
  Receivable and property and equipment and personally guaranteed by
  Stockholder who is an officer of ISI.  Interest at prime plus 2.0%
  (10.25%  at March 31, 1996)...................................................    195                -  
Bank line of credit, for borrowings up to $1,000 in combination with an                                
  Affiliated organization, personally guaranteed by ESP stockholder who is
  an officer of ESP, secured by accounts receivable and general tangible
  assets of combined companies.  Interest at bank's base rate plus 1.25%
  (9.5% at March 31, 1996)..................................................        824                -
Bank line of credit, with two separate banks for borrowing up to $900 and                          
  $300, secured by accounts receivable and fixed assets of JasTech.
  Interest at prime rate plus 1.25% (9.50% at March 31, 1996)..................     408                -
Related party loans, due on demand, interest rates from 8.0% to 12.5%.......         84              
Current portion of long-term debt...........................................        263              161
                                                                               -----------    -------------
Total short-term debt.......................................................    $ 4,863          $ 4,087
                                                                              ===========    =============


</TABLE>
                                       31
<PAGE>
                             COTELLIGENT GROUP, INC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In Thousands, Except Share and Per Share Amounts)

<TABLE>

<CAPTION>

         Long-Term Debt
                                                                                            March 31,
                                                                                  ----------------------------
                                                                                      1996          1997
                                                                                  -------------    -------- --
<S>                                                                               <C>              <C>
Note payable to bank,  monthly payments of $6, including  interest at the bank's
  prime rate plus 2.25% (10.50% at March 31,1996) per annum;  maturing March 30,
  1998 and  secured  by FDSI's  assets  and the  personal  guarantee  of several
  Cotelligent stockholders who are also officers of
  FDSI.......................................................................         $  131        $   -
Note payable to bank,  monthly payments of $2, including  interest at the bank's
  prime rate plus 2.25%  (10.50% at March 31, 1996) per annum;  maturing May 29,
  1998 and secured by FDSI's assets and the personal
  guarantees of several Cotelligent stockholders who are also officers of                  
  FDSI.......................................................................             56            -
Other notes payable..........................................................              0           11
Capital lease obligations....................................................            390          313
                                                                                  -------------    --------
                                                                                         713          324
Less:  Current maturities....................................................            263          161
                                                                                  -------------    --------
Total long-term debt.........................................................         $  450          163
                                                                                  =============    ========
</TABLE>

<TABLE>

Total maturities of long-term debt, at March 31, 1997 are as follows.

<S>                                                                             <C>

1998..........................................................................    $         161
1999..........................................................................              128
2000..........................................................................               34
2001..........................................................................                1
2002..........................................................................                -
Thereafter....................................................................                -
                                                                                ----------------
Total.........................................................................    $         324
                                                                                ================




</TABLE>

                                       32
<PAGE>
                             COTELLIGENT GROUP, INC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In Thousands, Except Share and Per Share Amounts)






Note 8 - Income Taxes

         Cotelligent  files a consolidated  federal income tax return for all of
its subsidiaries.

The provision (benefit) for income taxes is as follows.
                  
<TABLE>
<CAPTION>

                                                                     Year Ended March 31,
                                                              ----------------------------------
                                                                1995        1996         1997
                                                              ---------   ----------   -----------
<S>                                                           <C>         <C>          <C>
Current:
  Federal..................................................    $  64        $  742       $2,409
  State....................................................        2           134          962
                                                              ---------   ----------   ---------
                                                                  66           876        3,371
                                                              ---------   ----------   ---------
Deferred:
  Federal..................................................     (211)         (530)         343
  State....................................................      (12)         (107)          50
                                                              ---------   ----------   ---------
                                                                (223)         (637)         393

Valuation allowance........................................       80           (40)        (130)
                                                              ---------   ----------   ---------

Total provision (benefit) for income taxes.................   $  (77)       $  199       $3,634
                                                              =========   ==========   =========
</TABLE>


Deferred tax assets (liabilities) are comprised of the following.
<TABLE>
<CAPTION>
                                                                                              March 31,
                                                                                ----------------------------------------
                                                                                  1995           1996          1997
                                                                                ----------     ----------    -----------
<S>                                                                             <C>            <C>           <C>    

Allowance for doubtful accounts............................................       $  -         $    16             104
Accrued liabilities........................................................          165           406             380
Cash to accrual............................................................          -            (846)        (1,164)
Operating loss carry forward...............................................          147           317
                                                                                                                     -
Depreciation...............................................................          -             (19)
                                                                                                                  (27)
                                                                                ----------     ----------   ------------
     Deferred tax asset (liability)........................................          312          (126)          (707) 
                                                                                                                 
Valuation allowance........................................................         (147)         (187)            -
                                                                                ==========     ==========   ============
     Net deferred tax assets (liabilities).................................        $ 165        $ (313)          (707)
                                                                                ==========     ==========   ============
</TABLE>




                                       33
<PAGE>
                             COTELLIGENT GROUP, INC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In Thousands, Except Share and Per Share Amounts)



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

<TABLE>
<CAPTION>

                                                              Year Ended March 31,
                                                    -----------------------------------------
                                                       1995           1996            1997
                                                    -----------     ----------     -----------
<S>                                                 <C>             <C>            <C>
U.S. federal statutory rate.......................      34.0%          34.0%           34.0%
State income tax, net of federal benefit..........       -              -               7.9
Income of  S corporation..........................    (160.0)         (28.2)           (7.6)
Conversion to C corporation.......................     (34.0)            -              9.2
Non deductible acquisition  costs.................       -              7.8             -
Change in valuation allowance.....................      80.0            1.5            (1.8)
Other.............................................       -              -               0.5
                                                    ===========     ==========     ===========
     Effective tax rate...........................     (80.0)%          7.3%           50.0%
                                                    ===========     ==========     ===========

</TABLE>

         Prior to the  Acquisitions,  Cotelligent  Group, Inc. 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 was immediately recognized.  This net 
deferred  tax liability was approximately $700, the majority of which will be 
paid on a pro rata basis  over a four-year period.

         The following  unaudited pro forma income tax  information is presented
in accordance with Statement of Financial Accounting Standards No. 109 as if the
businesses acquired under the pooling-of-interests method had been C 
corporations subject to federal and state income taxes for all periods 
presented.
<TABLE>
<CAPTION>


                                                                        For the Year Ended
                                                                            March 31,
                                                             ---------------------------------------
                                                                1995          1996         1997
                                                             -----------  ------------  ------------
                     <S>                                     <C>          <C>           <C>
                     
                     Income  before provision for
                       income taxes........................   $   100      $   2,717    $    7,276
                     Provision (benefit) for income taxes..      (120)         1,098         3,009
                                                             ===========  ============  ============
                     Pro forma net income (loss)...........   $   (20)     $   1,619    $    4,269
                                                             ===========  ============  ============

</TABLE>

                                       34
<PAGE>
                             COTELLIGENT GROUP, INC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In Thousands, Except Share and Per Share Amounts)


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 as of March 31, 1997 under such leases are
as follows.
<TABLE>
<CAPTION>
                                                Capital       Operating
                                                Leases          Leases
                                             --------------  -------------
  <S>                                        <C>             <C>
  
  1998.....................................  $       170       $    1,514        
  1999.....................................          112            1,442
  2000.....................................           31            1,199
  2001.....................................            -              725
  2002.....................................            -              251
  Thereafter...............................            -                -
                                             --------------  =============
  Total minimum lease payments.............           313     $     5,131
                                                             =============
  Less:  Amounts representing interest.....           (27)
                                             ==============
  Present value of net minimum lease
  payments.................................  $         286
                                             ==============
<FN>

         Rental  expense under these leases was,  $489,  $640 and $1,477 for the
years ended March 31, 1995, 1996 and 1997.
</FN>
</TABLE>


Note 10 - Related Parties

         Prior to its acquisition by Cotelligent,  ESP was related to Electronic
Systems  personnel,  Inc. through common  ownership.  ESP shares office space as
well as various administrative resources with Electronic Systems Personnel, Inc.
Additionally,  certain  ESP  employees  are  hired  through  Electronic  Systems
Personnel, Inc. a placement firm. Below is a summary of significant transactions
and account balances for the two companies.

<TABLE>
<CAPTION>

                                                                               1996                1997
                                                                           --------------      --------------
           <S>                                                             <C>                 <C>

           Due to Electronic Systems Personnel, Inc.....................     $      6           $      -
           Administrative expense.......................................          164                 26
           Placement fee expense........................................          527                 20

</TABLE>

Note 11 - Employee Benefit Plans

                                       35
<PAGE>
                             COTELLIGENT GROUP, INC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In Thousands, Except Share and Per Share Amounts)

     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 on the date of the grant.
<TABLE>
<CAPTION>
                                                                                   Weighted
                                          Number of         Option Price           Average              Expiration
                                            Shares        Range per Share        Exercise Price           Date
                                         ------------     -----------------    -----------------     -----------------
<S>                                      <C>              <C>                  <C>                   <C>                
Outstanding at March 31, 1995                      -             -                    -                     -
      Granted                                479,102       $ 2.70 - 10.25                $ 6.74            2003
      Exercised                                    -             -                            -             -
      Canceled                                 2,400            9.00                       9.00            2003
                                         ------------     -----------------    -----------------     -----------------
Outstanding at March 31, 1996                476,702        2.70 - 10.25                   6.73            2003
Exercisable at March 31, 1996                 87,072        2.70 - 10.00                   6.89            2003

      Granted                                850,713        8.88 - 24.88                  18.08            2004
      Exercised                               59,099        2.70 - 9.00                    3.08            2003
      Canceled                               136,064        2.70 - 24.25                   6.66        2003 - 2004
                                         ------------     -----------------    -----------------     -----------------
Outstanding at March 31, 1997              1,132,252        2.70 - 24.88                  15.46        2003 - 2004
Exercisable at March 31, 1997                249,040       $2.70 - 19.00                 $15.25        2003 - 2004

</TABLE>

        The Plan provides for stock-base  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  only 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  provision  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 and 1997,  based on the fair value as described in 
SFAS No. 123 as prescribed by 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 and 1997,  respectively:  (i) risk-free  interest rates of
5.97 and 6.12, (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 and 4.2 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.
                                       36
<PAGE>
                             COTELLIGENT GROUP, INC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In Thousands, Except Share and Per Share Amounts)


        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 method of SFAS 123, the  Company's  net income and earnings per share would
have been adjusted to the pro forma amounts indicated below.
<TABLE>
<CAPTION>

                                                                    March 31,
                                        -------------------------------------------------------------------
                                                         1996                              1997
                                        ---------------------------------    ------------------------------
                                           As Reported           Pro         As Reported          Pro
                                                                Forma                            Forma
                                        ----------------     ------------    ------------     -------------
                 <S>                    <C>                  <C>             <C>              <C>    
                  
                  Net income ..........    $      2,518       $    2,327      $ 3,636          $    2,834
                  Earnings per share...                                       $   .37          $      .29
                                                                                            

</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 Founding  Companies and the Offering as discussed in Note 1.
         
The  weighted  average fair values of options  granted  during 1997 and
1996 were  $18.59  and $8.63 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 percent 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
1997, employees purchased 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 "Plan")  effective March 1, 1997, for the
benefit  of all  employees  upon date of hire.  The Plan is  funded by  employee
payroll deduction.  In addition, the Company has the option to contribute to the
plan on the employee's behalf. The company did not make any contributions to the
Plan for the year ended March 31, 1997.

     Subsidiary Plans

         Prior to their acquisition certain  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,
1995,  1996 and 1997 were $27, $70 and $47, respectively.


Note 12- 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.

                                       37
<PAGE>
                             COTELLIGENT GROUP, INC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In Thousands, Except Share and Per Share Amounts)

   ESP Stock Redemption

         On May 5, 1994, ESP entered into an agreement with a stockholder owning
a 47%  interest  in the Company to redeem all of the 953 shares held for him for
$206, of which $41 was paid at closing and the balance of $165 payable quarterly
over an eight year period with interest  accruing at the rate of 2% in excess of
the index rate  established  by National City Bank.  In addition,  the agreement
provided  for an  additional  payment for the stock in the event of a subsequent
sale of ESP. The balance  outstanding  on this  obligation at March 31, 1995 and
1996 was $150 and $136 respectively.

         In  conjunction  with  the acquisition of ESP by the Company,  the 
remaining  principal  balance of the note payable above was paid in
full on June 28,  1996.  Additionally,  $552 was paid as a  distribution  to the
former  stockholder  in  accordance  with  the  terms  of the  stock  redemption
agreement.

     ESP Deferred Compensation Plan

         In connection with the stock redemption  agreement discussed above, ESP
entered into a salary  continuation  agreement  with the former  stockholder  in
recognition of his  contributions to the growth,  management and success of ESP.
The salary  continuation  agreement  provided  that the  stockholder  be paid an
annual sum of $45 for each of the years 1994 through 1997,  and an annual sum of
$93 for each of the years  1998  through  2005.  The  agreement  provides  for a
discount  rate  of 8% to  arrive  at the  present  value  of the  unpaid  salary
continuation  payments. The unpaid present value of this obligation at March 31,
1996 was $548.

         In  conjunction  with  the  acquisition of ESP by the Company,
the remaining principal balance of the deferred compensation was paid in
full on June 28, 1996.

JTI Separation Agreement

         JTI was paying a former employee termination benefits amounts of $3 per
month starting in January 1992 continuing through June 2002 in accordance with a
separation agreement.  During July 1996 the Company cashed out the agreement for
the present value resulting in the payments of $235.

    BFR Consulting Contract

         The Company  entered into a consulting  contract with a former employee
of BFR effective  February 19, 1996,  whereby the former employee is required to
perform certain  management  advisory services as required by and at the request
of the Company.  Payments under the contract are $8 per month,  continue through
December 2000 and have been fully recorded as an obligation of the Company as of
March 31, 1996.

     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.

Note 13- Disposition of MCS Practice

         PBC  ceased  the  operations  of its  MCS  consulting  division  in two
transactions as described below.
                                       38
<PAGE>

                             COTELLIGENT GROUP, INC

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (In Thousands, Except Share and Per Share Amounts)



         Under the terms of a purchase and sale agreement (the Agreement), dated
June 9, 1995 PBC sold,  to an  unrelated  third  party,  certain  furniture  and
equipment  with a net  book  value  of  $49,  seven  employment  contracts  with
professional  consulting  staff,  the right to enter into contracts with certain
customers in the health care  industry  that were in process,  the trade name of
its MCS division, and related goodwill for an adjusted cash sales price of $388.
The sale  resulted  in a gain of $325  which is  included  in the  statement  of
operations. The Agreement also provides, among other things, that PBC cannot own
or have an equity interest in any data center which processes  transactions  
for the health care industry,  and competes  with the  purchaser  for a period 
of 5 years.

         Additionally,  pursuant  to the terms of a sales  agreement  (the Sales
Agreement)  effective January 1, 1996, PBC sold its right, title and interest to
a consulting contract with a customer, to Manutech Services, Inc. (Manutech), an
entity  incorporated on February 12, 1996, and owned by the  stockholders of PBC
and the three children of its majority stockholder who are presently employed by
PBC. PBC  received a promissory  note in the amount of $25 to be paid in monthly
installments of $2 including interest at 6.4 percent through March 1, 1997.



Note 14- Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>

                                            Year Ended March 31, 1997
                               -------------------------------------------------------------    
                                  First          Second           Third           Fourth
                                 Quarter         Quarter         Quarter          Quarter
                               ------------    ------------    ------------    --------------
<S>                           <C>              <C>              <C>            <C>    
Revenues.................       $  31,963       $  35,127       $   37,806      $     41,876
Gross profit ............           9,020          10,646           10,699            11,622
Operating income.........           1,510           1,887            2,299             1,592
                               ------------    ------------    ------------    ==============
Net income...............       $     310       $   1,312       $    1,481      $        533
                               ============    ============    ============    ==============
                                $     .03       $     .13       $      .15      $        .05 
                               ============    ============    ============    ==============

</TABLE>

<TABLE>
<CAPTION>

                                            Year Ended March 31, 1996
                                ------------------------------------------------------------    
                                  First          Second           Third           Fourth
                                 Quarter         Quarter         Quarter          Quarter
                               ------------    ------------    ------------    --------------
<S>                             <C>             <C>             <C>             <C>         
Revenues.................       $  11,194       $  11,159       $   10,555      $     19,878
Gross profit ............           3,373           3,348            3,269             5,569
Operating income.........             540             628              569               834
                               ------------    ------------    ------------    ==============
Net income...............       $     439       $     899       $      524      $        656
                              ============    ============    ============    ==============

<FN>

        Historical  earnings  per share for the  quarterly  data for fiscal year
1996 have not been presented as it is not considered  meaningful  given the four
Founding  Companies are not included prior to the date of the Company's  initial
public offering.
</FN>
</TABLE>





                                       39
<PAGE>

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

     None.

                                       40
<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
1997 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.




                                       41
<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 Statement 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

                1. The following is a list of all Exhibits filed as part of this
report.

       EXHIBIT NO.                        DESCRIPTION

             2.1     Agreement and Plan of  Reorganization  dated as of December
                     8, 1995, by and among  Cotelligent  Group,  Inc.,  James R.
                     Lavelle,  BFR Co., Inc., BFR Acquisition  Corporation,  and
                     the   Stockholders   named  therein  (Exhibit  2.1  of  the
                     Registration  Statement  of Form S-1  (File  No.  33-80267)
                     effective  February 16,  1996,  is hereby  incorporated  by
                     reference)

             2.2     Agreement and Plan of  Reorganization  dated as of December
                     8, 1995, by and among  Cotelligent  Group,  Inc.,  James R.
                     Lavelle,    Chamberlain   Associates,   Inc.,   Chamberlain
                     Acquisition Corporation, and the Stockholders named therein
                     (Exhibit  2.2 of the  Registration  Statement  of Form  S-1
                     (File No. 33-80267)  effective February 16, 1996, is hereby
                     incorporated by reference)

             2.3     Agreement and Plan of  Reorganization  dated as of December
                     8, 1995, by and among  Cotelligent  Group,  Inc.,  James R.
                     Lavelle,  BFR Co., Inc.,  Data Arts & Sciences,  Inc., DASI
                     Acquisition Corporation, and the Stockholders named therein
                     (Exhibit  2.3 of the  Registration  Statement  of Form  S-1
                     (File No. 33-80267)  effective February 16, 1996, is hereby
                     incorporated by reference)

             2.4     Agreement and Plan of  Reorganization  dated as of December
                     8, 1995, by and among  Cotelligent  Group,  Inc.,  James R.
                     Lavelle,  Financial Data Systems,  Inc.,  FDSI  Acquisition
                     Corporation,  and the  Stockholders  named therein (Exhibit
                     2.4 of the  Registration  Statement  of Form S-1  (File No.
                     33-80267)   effective   February   16,   1996,   is  hereby
                     incorporated by reference)

             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)*
                                       42
<PAGE>

            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 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)*

            10.5      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)*

            10.6      Employment  Agreement between CAI,  Cotelligent and 
                      Linda M. Cassell (contained in Exhibit 2.2) (Exhibit 10.7
                      of the  Registration  Statement  on Form  S-4  
                      (File No. 333-6086) is hereby incorporated by reference)*

            10.7      Employment  Agreement between DASI,  Cotelligent and
                      John C. Travers (contained in Exhibit 2.3) (Exhibit 10.6
                      of the Registration  Statement on Form  S-4 
                      (File No. 333-6068) is hereby incorporated by reference).

            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.

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

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

            10.12     Business Loan Agreement between Cotelligent Group, Inc.
                      and U.S. Bank of Washington,  Agreement and National 
                      Association effective May 1, 1996

            11.1      Statement re: computation of per share earnings.

            21.1      Subsidiaries of the registrant **

            23.1      Consent of Price Waterhouse  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, 1997. Report of Independent Accountants and 
     the related financial statements of Cotelligent Group, Inc. as at March 31,
     1995 and 1996,  including the results of operations and cash flows for each
     of the  three  years in the  period  ended  March 31,  1996,  and pro forma
     statement  of  operations  for the year ended March 31,  1996,  as filed on
     March 18, 1997.

                                       43
<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 30 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 and  Daniel  E.  Jackson,  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>

   Signature                                     Capacity                                   Date

<S>                                    <C>                                                <C>   
/s/ James R. Lavelle
------------------------------
James R. Lavelle                       Chairman of the Board of Directors and Chief        June   30 , 1997
                                        Executive Officer (Principal Executive Officer)           --                                
------------------------------
Edward E. Faber                        Vice Chairman of the Board of Directors             June   30 , 1997
                                                                                                  --       

/s/ Michael L. Evans
------------------------------
Michael L. Evans                       President and Chief Operating Officer and Director  June   30 , 1997
                                                                                                  --       
/s/ Daniel E. Jackson
------------------------------
Daniel E. Jackson                      Senior Vice President, Corporate Development        June   30 , 1997
                                         General Counsel and Secretary (Principal                 --       
                                         Financial Officer)
                                       
/s/ Curtis J. Parker
------------------------------
Curtis J. Parker                       Vice President, Chief Accounting Officer            June   30 , 1997
                                         (Principal Accounting Officer)                           --       
                                      
/s/ Daniel M. Beals
------------------------------
Daniel M. Beals                        Director                                            June   30 , 1997
                                                                                                  --       

/s/ Jeffrey J. Bernardis
------------------------------
Jeffrey J. Bernardis                   Director                                            June   30 , 1997
                                                                                                  --       

/s/ Linda M. Cassell
------------------------------
Linda M. Cassell                       Director                                            June   30 , 1997
                                                                                                  --       
</TABLE>

                                       44
<PAGE>

<TABLE>

   Signature                                       Capacity                                     Date
<S>                                    <C>                                                 <C> 

/s/ John E. Chamberlain
------------------------------
John E. Chamberlain                    Director                                            June   30 , 1997
                                                                                                  --       

/s/ Anthony M. Frank
------------------------------
Anthony M. Frank                       Director                                            June   30 , 1997
                                                                                                  --       


------------------------------
B. Tom Green                           Director                                            June   30 , 1997
                                                                                                  --       

/s/ John C. Travers
------------------------------
John C. Travers                        Director                                            June   30 , 1997
                                                                                                  --       

/s/ Harvey L. Poppel
------------------------------
Harvey L. Poppel                       Director                                            June   30 , 1997
                                                                                                  --       

</TABLE>

                                       45
<PAGE>



                                  EXHIBIT INDEX

    EXHIBIT NO.                        DESCRIPTION

             2.1     Agreement and Plan of  Reorganization  dated as of December
                     8, 1995, by and among  Cotelligent  Group,  Inc.,  James R.
                     Lavelle,  BFR Co., Inc., BFR Acquisition  Corporation,  and
                     the   Stockholders   named  therein  (Exhibit  2.1  of  the
                     Registration  Statement  of Form S-1  (File  No.  33-80267)
                     effective  February 16,  1996,  is hereby  incorporated  by
                     reference)

             2.2     Agreement and Plan of  Reorganization  dated as of December
                     8, 1995, by and among  Cotelligent  Group,  Inc.,  James R.
                     Lavelle,    Chamberlain   Associates,   Inc.,   Chamberlain
                     Acquisition Corporation, and the Stockholders named therein
                     (Exhibit  2.2 of the  Registration  Statement  of Form  S-1
                     (File No. 33-80267)  effective February 16, 1996, is hereby
                     incorporated by reference)

             2.3     Agreement and Plan of  Reorganization  dated as of December
                     8, 1995, by and among  Cotelligent  Group,  Inc.,  James R.
                     Lavelle,  BFR Co., Inc.,  Data Arts & Sciences,  Inc., DASI
                     Acquisition Corporation, and the Stockholders named therein
                     (Exhibit  2.3 of the  Registration  Statement  of Form  S-1
                     (File No. 33-80267)  effective February 16, 1996, is hereby
                     incorporated by reference)

             2.4     Agreement and Plan of  Reorganization  dated as of December
                     8, 1995, by and among  Cotelligent  Group,  Inc.,  James R.
                     Lavelle,  Financial Data Systems,  Inc.,  FDSI  Acquisition
                     Corporation,  and the  Stockholders  named therein (Exhibit
                     2.4 of the  Registration  Statement  of Form S-1  (File No.
                     33-80267)   effective   February   16,   1996,   is  hereby
                     incorporated by reference)

             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 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)*

            10.5      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)*

            10.6      Employment  Agreement between CAI,  Cotelligent and 
                      Linda M. Cassell (contained in Exhibit 2.2) (Exhibit 10.7
                      of the  Registration  Statement  on Form  S-4  
                      (File No. 333-6086) is hereby incorporated by reference)*
                                       46
<PAGE>

            10.7      Employment  Agreement between DASI,  Cotelligent and
                      John C. Travers (contained in Exhibit 2.3) (Exhibit 10.6
                      of the Registration  Statement on Form  S-4 
                      (File No. 333-6068) is hereby incorporated by reference).

            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.

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

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

            10.12     Business Loan Agreement between Cotelligent Group, Inc.
                      and U.S. Bank of Washington,  Agreement and National 
                      Association effective May 1, 1996

            11.1      Statement re: computation of per share earnings.

            21.1      Subsidiaries of the registrant **

            23.1      Consent of Price Waterhouse  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, 1997. Report of Independent Accountants and 
     the related financial statements of Cotelligent Group, Inc. as at March 31,
     1995 and 1996,  including the results of operations and cash flows for each
     of the  three  years in the  period  ended  March 31,  1996,  and pro forma
     statement  of  operations  for the year ended March 31,  1996,  as filed on
     March 18, 1997.


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