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                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 1999.

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934.

                         COMMISSION FILE NUMBER: 0-21145

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

            NEVADA                                        56-1668867
-------------------------------                      -------------------
(State or other jurisdiction of                       (I.R.S. Employer
 incorporation or organization)                      Identification No.)

ONE GLENHARDIE CORPORATE CENTER, 1275 DRUMMERS LANE, SUITE 100, WAYNE,
  PENNSYLVANIA                                              19087
---------------------------------------               -----------------
(Address of principal executive offices)                  (Zip Code)

                     Issuer's telephone number: 610-975-9533

Securities registered under Section 12(b) of the Exchange Act:  NONE.

Securities registered under Section 12(g) of the Exchange Act:

                          COMMON STOCK, $.001 PAR VALUE

                                (Title of Class)

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year: $14,746,965

The aggregate market value of the common stock held by non-affiliates as of
March 15, 2000 was $36,085,406

As of March 15, 2000 there were 12,163,693 shares of common stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement to be filed with the Securities and
Exchange Commission relative to the Company's 2000 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Report.

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):  YES [ ]  NO  [X]

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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         Covalent Group, Inc. (the "Company") is a total research management
organization which designs and manages clinical trials in the drug and device
development process and with associated cost containment and quality of care
components. The Company specializes in Phase I through IV clinical trials and
cost effectiveness and outcomes studies for major customer groups such as
pharmaceutical companies, managed care organizations, insurers and employers. It
offers a full array of integrated services including study design, clinical
trial monitoring and management, data management, biostatistical analysis and
regulatory affairs services. The Company is structured to deliver customized
high quality solutions to its Fortune 500 and other clients.

         The Company utilizes its core expertise of clinical trials management
to provide high quality, clinical research and medical outcomes for its client
base. In addition, experience gained with more than 40 managed care
organizations facilitates designing and conducting clinical studies for
pharmaceutical clients in a managed care environment, thereby, improving the
market potential for a drug manufacturer's product. To aid its pharmaceutical
and managed care customers in clinical trials and outcomes research projects,
the Company has also developed several currently available proprietary products
utilizing interactive speech recognition technology including TeleTrial, a
clinical trial management system, and Virtual HouseCall, a disease assessment
system.

         The Company was incorporated under the laws of the State of Nevada on
August 1, 1989 under the name of West End Ventures, Inc. ("West End"). West
End's only activity prior to the acquisition of its subsidiary, Future Medical
Technologies, Inc. ("FMT"), a New Jersey corporation incorporated on September
28, 1989, was the completion of its initial public offering on January 15, 1990.
On January 26, 1990, West End acquired 100% of the outstanding securities of
FMT. FMT was located in Decatur, Georgia, and designed, manufactured and
distributed disposable micro-biological analytical products and ancillary
equipment for the detection of yeast, mold or bacteria in liquids or air for use
in industrial and clinical laboratories. The principal product of FMT was a
disposable plastic device for analyzing bacteria growth in liquid samples and
the diagnosis of urinary tract infections. FMT also developed a Salmonella
detection system with the intended purpose of increased speed and test
reliability as a practical means for broad scale sampling and testing.

         West End subsequently changed its name to Future Medical Technologies
International, Inc. ("FMTI"). On May 26, 1994, FMTI effected a one for five
reverse stock split. On February 22, 1995, FMTI effected a five for seven
reverse stock split and completed the acquisition of 100% of the stock of the
Covalent Research Alliance Corp., a Pennsylvania corporation, in exchange for
7,200,000 shares of post-split common stock of FMTI.

         On September 20, 1996, FMTI shareholders ratified the disposition of
100% of the stock of FMT, as of July 31, 1996. At the same time, stockholders
approved the change of the parent organization's name from Future Medical
Technologies International, Inc. to Covalent Group, Inc.

         Effective April 30, 1999, Covalent Research Alliance Corp. was merged
into its parent company, Covalent Group, Inc. The purpose of the merger was to
simplify the administrative structure between the two entities.

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CRO INDUSTRY OVERVIEW

The contract research organization ("CRO") industry provides independent product
development services for the pharmaceutical and biotechnology industries.
Generally, CRO's derive substantially all of their revenues from the research
and development expenditures of pharmaceutical and biotechnology companies.
According to the Pharmaceutical Researchers and Manufacturers of America, global
pharmaceutical and biotechnology industries spent an estimated $30 billion in
1999 on research and development, of which the Company estimates $16 billion was
spent on types of services offered by the CRO industry. Of this amount,
approximately $3.5 billion was outsourced to CRO's.

         The Company believes that the following trends will lead to further
growth opportunities for CRO's as pharmaceutical and biotechnology companies
continue to increase outsourcing of product development needs:

         (i)  price pressure by managed care organizations and pharmacy managers
              on pharmaceutical companies is forcing drug manufacturers to
              consolidate, down-size, and look to less expensive fixed cost
              alternatives than internal development, principally outsourcing to
              variable cost CRO's;
        (ii)  pharmaceutical companies are seeking faster product development
              times in order to maximize a new drug's patent and marketing
              exclusivity;
       (iii)  increasingly complex and stringent regulatory requirements have
              increased the volume of data required for regulatory filings and
              increased demands on data collection and analysis during the
              development process;
        (iv)  biotechnology companies are developing an increasing number of new
              drugs that require regulatory approval and should continue to find
              CRO's to be a cost effective alternative to building an internal
              drug development capability; and
         (v)  the need for sophisticated data management is increasing to
              expedite the drug development process.

         The Company has positioned its clinical development services to
capitalize on these market trends. As an additional element of its strategy, the
Company believes that it differentiates itself from other CRO's by expertise in
the design and execution of clinical studies which meet the requirements of
managed care and third party payors thereby enhancing the marketability of
clients' prescription drugs over their life cycle.

BUSINESS OF THE COMPANY

         The Company provides a full range of CRO services specializing in
clinical studies that may also include various types of outcomes measurement.
The Company provides clinical trial management, data management, biostatistical
analysis, medical and regulatory services, health economics and outcomes
research. The Company provides its services mostly to large pharmaceutical
companies. In 1999 the Company had 10 different clients, no one of which
accounted for more than 25% of total revenues, although a series of contracts
with two major clients accounted for 50% of 1999 revenues and the four largest
clients accounted for 89% of 1999 revenues.

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         The principal categories of services offered are:

CLINICAL TRIALS

         The Company utilizes over 110 full time and independent contractor
personnel with experience in the pharmaceutical, biotech and managed care
industries that it believes can support the needs of the most rigorous clinical
trials or medical outcomes studies. The Company has assembled an extensive
network of clinical investigators, managed care organizations, and clinical
research specialists, which it uses to coordinate and conduct clinical research.
Clinical investigators in the network are contracted for a specific clinical
study, on a case by case basis, where their expertise with a specific disease
will insure the highest quality medical care, treatment and clinical evaluation.
The Company's clinical monitors are strategically located throughout the country
to reduce the cost of travel to clinical or managed care sites. The Company's
clinical trial services include project coordination, processing of
documentation prescribed by various governmental jurisdictions, monitoring
services and quality control review.

DATA MANAGEMENT

         The Company has automated the data management process associated with
clinical trials management through its use and customization of the industry
standard software known as clinical trials management systems ("CTMS"). The
Company uses Domain Clintrial and Oracle Clinical as its CTMS. The software is
used to assist the Company in the collection, validations, and reporting of
clinical results to its pharmaceutical company clients as part of their
submission to the Food and Drug Administration ("FDA"), or other regulatory
agencies. The Company's data management professionals provide case report form
review and tracking; data entry; integrated clinical/statistical reports; and
manuscripts for publication.

BIOSTATISTICS

         The Company also provides comprehensive clinical statistics support.
The Company's biostatisticians have extensive pharmaceutical/medical industry
experience. The Company's biostatistical services include clinical trials
design; preparing statistical analysis plans; representing clients at the FDA;
and creating statistical reports.

MEDICAL AND REGULATORY AFFAIRS MANAGEMENT

         The Company's medical and regulatory group provides liaison services
between its clients and regulatory agencies in the preparation, review and
submission of Investigational New Drug ("IND"), New Drug Application ("NDA"),
510k, and Product License Application ("PLA") documents. The Company's medical
services include medical oversight of studies, review and interpretation of
adverse experiences, report writing and development of study protocols.
Regulatory services include strategy design, document preparation and client
consultation.

QUALITY ASSURANCE AND COMPLIANCE

         The Company also provides field inspections that include investigator
audits, presubmission protocol compliance audits, Good Clinical Practice audits
and staff training.

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OUTCOMES RESEARCH AND MANAGEMENT

         The Company provides its clients retrospective database studies,
therapeutic end-point determinations, cost effectiveness studies, drug
utilization reviews, drug utilization effectiveness reviews, and health status
survey development as well as patient drug compliance programs, patient
education programs and costs containment studies.

INTERACTIVE VOICE RECOGNITION SYSTEM

         The Company has developed several currently available proprietary
products using interactive voice recognition technology including TeleTrial, a
clinical trial management system, and Virtual HouseCall, a disease assessment
system.

         Three standard TeleTrial modules have been developed for use in
clinical trials. They are the centralized subject enrollment and randomization
module, the drug allocation module, and the questionnaire/survey/patient diary
module.

         o    The subject enrollment and randomization module provides
              centralized enrollment and randomization 24 hours per day, seven
              days per week. Study sites are able to randomize a patient,
              dispense drugs at a visit, discontinue a patient, and review
              patient information. The standard module is designed to
              accommodate up to three strata and three treatment arms per
              strata.

         o    The drug allocation module is directly linked to the subject
              enrollment database and has the capability to track which clinical
              and drug supplies are available at the study site, which drugs
              should be dispensed according to the subject randomization, and
              the time interval between dispensing of drugs. A fax system
              provides hard copy reports which are used as source data at the
              study site or clinical pharmacy.

         o    The third module collects subjective patient data in the form of a
              questionnaire, survey, or a patient diary. This module is accessed
              by patients and makes use of the speech recognition interface.

         The TeleTrial system has been designed, built, tested and documented
for use in federally regulated clinical trials.

         Virtual HouseCall ("VHC"), as developed by the Company, is an
interactive voice recognition system that the Company believes excels in the
type of data collection and analysis required by healthcare industry segments
focused on disease management. Disease management is a comprehensive, integrated
approach to care and reimbursement with the goal of promoting maximum healthcare
provider efficiency and effectiveness. Data collection becomes key to continuing
assessment of disease management programs.

         VHC is a telephone-based service that has been designed to reach large
numbers of patients in a personalized and supportive manner. VHC automates the
administration of subjective quality of life surveys and psychosocial
assessments, provides patient access to disease specific educational and
resource libraries, and facilitates the publication of personalized reports
through on-demand printing services and faxes to healthcare providers and
patients.

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COMPETITION

         The Company competes primarily against internal research departments of
pharmaceutical companies and other CROs. The CRO industry is highly fragmented
with several hundred small, limited services providers, and seven larger firms
with revenues in excess of $50 million each, the largest of which are: Quintiles
Transnational Corp.; Covance Inc.; and Pharmaceutical Product Development Inc.
These and some other competitors have substantially greater capital and
technical resources than the Company.

         Competitive factors that may influence a client's decision in choosing
a CRO include previous experience, references from existing clients, experience
with a particular type of project or area of clinical development, the quality
and timeliness of contract research, ability to recruit investigators and the
ability to provide a full range of services required by the client. The Company
believes it competes favorably in these respects.

CONTRACTUAL ARRANGEMENTS

         Compensation for services is contracted at a fixed price, but may
include some variable components, and can cover a period of several months to
several years. A portion of the contract fee is typically paid when a clinical
trial is initiated and the contract provides for milestone payments throughout
the duration of the trial. Contracts can usually be terminated at any time by
the client, but are usually subject to termination fees. Contracts may be
terminated for a number of reasons including insufficient patient enrollment,
unexpected results in the clinical trial or a client's decision to terminate
development of a particular drug.

BACKLOG

         The Company's backlog consists of anticipated revenue from contracts
that have been signed but not yet completed. Once a project commences, revenue
is recognized over the life of the contract, which is consistent with industry
practice.

         As of December 31, 1999, the Company's backlog amounted to
approximately $25 million as compared to approximately $26 million at December
31, 1998. The Company believes backlog at any given time is not necessarily a
meaningful indicator of future revenue. Clinical trials can be modified or
terminated by the client for any of the reasons mentioned above.

POTENTIAL LIABILITY

         The Company attempts to manage its liability risk through contractual
indemnification provisions with clients and investigators hired by the Company
on behalf of its clients and through insurance. The contractual indemnifications
generally do not protect the Company against certain of its own actions such as
negligence. The contractual arrangements are subject to negotiation with clients
and the terms and scope of such arrangements vary from client to client and from
trial to trial. Although most of the Company's clients are large
well-capitalized companies, the financial performance of these indemnitors is
not secured. Therefore, the Company bears the risk that the indemnifying party
may not have the financial ability to fulfill its indemnification obligations.
The Company maintains professional liability insurance which includes drug
safety issues as well as data processing errors and omissions. The Company could
be materially and adversely affected if it were required to pay damages or incur
defense costs in connection with a claim that is beyond the scope of an

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indemnity provision or beyond the level of insurance coverage or where the
indemnifying party does not fulfill its indemnification obligations. However,
the Company believes that its current insurance coverage is adequate.

EMPLOYEES

         At December 31, 1999, the Company employed 62 full time personnel and
contracts with approximately 50 independent contractors on an as-needed basis.
None of the employees are represented by a labor union and the Company believes
its relations with employees and independent contractors are good.

ITEM 2.  DESCRIPTION OF PROPERTY

         The Company is leasing approximately 14,600 square feet of
administrative and corporate offices from an independent third party at One
Glenhardie Corporate Center, 1275 Drummers Lane, Wayne, Pennsylvania, through
December 2001 at a base rent of $29,033 per month.

ITEM 3.  LEGAL PROCEEDINGS

         None.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

                                       7
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                                     PART II

ITEM 5.  MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock has been quoted in the Nasdaq Small Cap
Market since December 16, 1997 and was previously quoted in the over-the-counter
market on the OTC Bulletin Board under the symbol "CVGR". The following table
indicates the closing high and low bid price ranges of the Common Stock for each
quarter within the last two fiscal years.

          QUARTERLY PERIOD ENDED             HIGH BID           LOW BID
          ----------------------            -----------       -----------
          1998

                      March 31              $4     1/16       $2
                      June 30                2    11/16        1
                      September 30           2    11/16               5/8
                      December 31            3     1/16        1    13/16

          1999

                      March 31              $2    15/32       $1     9/16
                      June 30                2      1/4        1      5/8
                      September 30           2    15/32        1     7/16
                      December 31            4      1/2        1      3/4


         For the period from January 1, 2000 to March 15, 2000 the closing high
and low bid quotations for the Company's Common Stock were $7 1/2 and $3. As of
March 15, 2000, there were more than 600 holders of record of the Company's
Common Stock, however, the Company believes that there are at least an
additional 2,000 shareholders in "street name" who beneficially own the Common
Stock of the Company in various brokerage accounts.

         The Registrant has never declared a dividend and does not plan to do so
in the near future.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION

         CAUTIONARY STATEMENT

         When used in this Report on Form 10-KSB and in other public statements,
both oral and written, by the Company and Company officers, the words
"estimate," "project," "intend," "believe," "anticipate" and similar expressions
are intended to identify forward-looking statements regarding events and
financial trends that may affect the Company's future operating results and
financial position. Such statements are subject to risks and uncertainties that
could cause the Company's actual results and financial position to differ
materially. Such factors include, among others: (i) the Company's success in
attracting new business; (ii) the size, duration and timing of clinical trials;
(iii) the termination, delay or cancellation of clinical trials; (iv) the
intense competition in the industry in which the Company competes; (v) the
Company's ability to obtain financing on satisfactory terms; (vi) the
sensitivity of the Company's business to general economic conditions; and (vii)
other economic, competitive, governmental and technological factors affecting

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the Company's operations, markets, products, services and prices. The Company
undertakes no obligation to publicly release the result of any revision of these
forward-looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events.

GENERAL

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

         Clinical research service contracts generally have terms ranging from
several months to several years. A portion of the contract fee is generally
payable upon execution of the contract, with the balance payable in installments
over the life of the contract. Revenues and related direct expenses are
recognized as specific contract terms are fulfilled under the percentage of
completion method.

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

YEAR 2000

         The Company did not experience any significant disruptions in
operations during the transition into the Year 2000. Necessary assessments,
modifications or replacement and testing of systems critical for the delivery of
products and services were completed and the Company believes Year 2000
readiness objectives were met. A contingency plan was prepared to mitigate
potential adverse effects which might have arisen from non-compliant systems or
third parties who had not adequately addressed the Year 2000 issue. The amounts
incurred and expensed for developing and carrying out the overall Year 2000 plan
totaled approximately $60,000. While the Company did not experience any
significant Year 2000 disruptions during the transition into the Year 2000, it
will continue to monitor operations and systems and address any date-related
problems that may arise as the year progresses.

RESULTS OF OPERATIONS

         YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.

         Revenues in 1999 were $14,747,000 and represent services performed for
10 different clients, compared to $9,391,000 in 1998 representing services for
16 different clients. In 1999 and 1998 no single client accounted for more than
25% of total revenues in either year, although a series of contracts with two
major clients accounted for 50% of 1999 revenues and the four largest clients
accounted for 89% of 1999 revenues. Although the number of clients declined from
1998 to 1999, the increase in revenues is attributed to larger scale and dollar
value of individual clinical trials conducted in 1999 versus 1998.

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         Direct expenses include compensation and other expenses directly
related to conducting clinical trials. These costs increased by $2,487,000 from
$6,254,000 to $8,741,000 for the years ended December 31, 1998 and 1999,
respectively. The increase in expenses results principally from the cost of
additional personnel and related expenses associated with conducting larger
scale clinical trials. As a percentage of revenues, direct expenses decreased
from 67% for the year ended December 31, 1998 to 59% for the year ended December
31,1999. The decrease in relative percent is due to different cost structures of
clinical trials and different types of services requested by the Company's
clients.

         Selling, general and administrative expenses include all administrative
and business development personnel, and all other support expenses not directly
related to specific contracts. Selling, general and administrative expenses for
the year ended December 31, 1999 amounted to $3,832,000 as compared to
$4,162,000 for the prior year. As a percentage of revenues, selling, general and
administrative expenses decreased from 44% in 1998 to 26% in 1999. The decrease
of $330,000, or 8%, reflects increased efficiencies resulting from consolidation
within the Company's operating structure and settlement expenses paid in 1998 of
$229,000 to two former executives.

         Investment loss of $397,000 in 1998 represents the write down to market
value of 300,000 shares of ABS Group, Inc. common stock held by the Company. The
stock was received as partial payment in the sale of the Company's subsidiary,
Future Medical Technologies, Inc., in 1996.

         Interest income increased $8,000 from $100,000 for the year ended
December 31, 1998 to $108,000 for the year ending December 31, 1999.

         Income tax provision for the year ended December 31, 1999 amounted to
$845,000, which represents an effective tax rate of 37%. Income tax benefit for
the year ended December 31, 1998 amounted to $382,000 which represents an
effective tax rate of 29%. The effective tax rate is below the Federal Statutory
rate due to certain non-tax deductible expenses recorded in 1998. The Company
recorded a net deferred tax asset of $475,000 as of December 31, 1998. The net
deferred tax asset was fully realized in 1999.

         YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997.

         Revenues in 1998 were $9,391,000 and represent services performed for
16 different clients compared to $11,803,000 in 1997 representing services for
17 different clients. In 1998 no single client accounted for more than 24% of
total revenues as compared to 1997 when no single client accounted for more than
21% of the Company's total revenues. Although the number of projects worked on
in both years was identical, the decline in revenues from 1997 to 1998 is
primarily attributable to smaller value contracts for clinical trials.

         Direct expenses include compensation and other expenses directly
related to conducting clinical studies. These costs decreased by $1,968,000 from
$8,222,000 to $6,254,000 for the years ended December 31, 1997 and 1998,
respectively. As a percentage of revenues, direct expenses decreased from 70%
for the year ended December 31, 1997 to 67% for the year ended December 31,
1998. The decrease in relative percent is due to different cost structures of
the studies based on the work requested by the Company's clients in 1998. In
1998, the mix of work requested by the Company's clients resulted in higher
margins as compared to 1997.

                                       10
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         Selling, general and administrative expenses include all administrative
personnel and business development, and all other support expenses not directly
related to specific contracts. Also included are expenses associated with the
development of an interactive voice recognition system, the platform development
of which was essentially completed in January 1998. Selling, general and
administrative expenses for the year ended December 31, 1998 amounted to
$4,162,000 as compared to $3,615,000 for the prior year , or an increase of
$547,000. The increase in expenses consists primarily of costs associated with
hiring additional personnel necessary to staff new business obtained late in
1998, additional business development personnel, and settlement expenses of
$229,000 with two former executives of the Company. As a percentage of revenues,
selling, general and administrative expenses increased from 31% to 44% for the
years ended December 31, 1997 and 1998, respectively. The increase in such
expenses as a percentage of revenues resulted primarily from the decrease in
revenues.

         Investment loss of $397,000 represents the write down to market value
of 300,000 shares of ABS Group, Inc. common stock held by the Company. The stock
was received as partial payment in the sale of the Company's subsidiary, Future
Medical Technologies, Inc., in 1996.

         Interest income decreased $10,000 from $110,000 for the year ended
December 31, 1997 to $100,000 for the year ended December 31, 1998.

         Income tax benefit for the year ended December 31, 1998 amounted to
$382,000, which represents an effective tax rate of 29%. The effective tax rate
is below the Federal Statutory rate due to certain non tax deductible expenses
recorded in 1998. As of December 31, 1998, the Company recorded a net deferred
tax asset of $475,000, which includes the current year income tax benefit.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's contracts usually require a portion of the contract
amount to be paid at the time the contract is initiated. Additional payments are
generally made upon completion of negotiated performance requirements throughout
the life of the contract. Cash receipts do not necessarily correspond to costs
incurred and revenue recognized for most contracts (revenue recognition is based
on the percentage of completion accounting method). The Company typically
receives a low volume of large-dollar receipts. As a result, the number of days
revenue outstanding in accounts receivable will fluctuate due to the timing and
size of cash receipts. Compared to December 31, 1998, accounts receivable
increased $292,000 to $2,826,000 at December 31, 1999 primarily due to the
timing of progress payments for clinical trials. Cost and estimated earnings in
excess of related billings on uncompleted contracts increased $2,812,000 to
$3,415,000 at December 31, 1999. The increase was due to the timing of progress
billings for clinical trials. Accounts payable increased $980,000 to $2,042,000
at December 31, 1999 due to a greater number of payments due to investigator
sites. The contractual payments to investigator sites are based on completing
certain milestones during the clinical study. Investigator fees are therefore
accrued based on work completed and paid at a later date. Billings in excess of
related costs and estimated earnings on uncompleted contracts decreased $967,000
to $323,000 at December 31, 1999 due primarily to timing of billings on certain
contracts.

         The Company's cash and cash equivalents balance at December 31, 1999
was $559,000 as compared to $1,209,000 at December 31, 1998. The decrease in
cash was due to the funding of the Company's operations for the year, primarily
capital equipment.

                                       11
<PAGE>

         The Company purchased $692,000 of equipment in 1999 as compared to
$280,000 in 1998. Purchases in 1999 were primarily for an additional data
management system at $583,000 and $109,000 for computers and office equipment.
The Company does not anticipate the need for significant capital expenditures in
2000.

         The Company has a demand line of credit with a commercial bank
providing a maximum credit facility of $1 million which bears interest at a rate
not to exceed 1% point above the bank's prime rate. Borrowings outstanding under
the credit line are secured by substantially all of the assets of the Company.
No borrowings were outstanding under the credit line at December 31, 1999.

         The Company's principal cash needs on both a short and long-term basis
are for the funding of its operations, and capital expenditure requirements. The
Company expects to continue expanding its operations through internal growth,
expansion of its existing services, and the development of new service products
for clinical research and the healthcare industry. The Company expects such
activities to be funded from existing cash and cash equivalents and cash flow
from operations.

         Management believes that the Company's operations and financial results
are not materially affected by inflation.

RECENT ACCOUNTING PRONOUNCEMENTS

         In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 expresses the views of the SEC staff in applying
generally accepted accounting principles in certain transactions. The Company is
still in the process of analyzing the impact of SAB No. 101 on its financial
statements and related disclosures; however, management believes that this will
not have a material impact on the Company's financial position or results of
operations.

RISK FACTORS

         There are various risks associated with the Company and its business,
including the ones discussed below. Careful consideration of these risk factors
should be given, as well as the other information contained in this Form 10-KSB,
in evaluating the Company and its business.

         THE COMPANY'S CUSTOMERS ARE CONCENTRATED AND THE LOSS OF ONE OF ITS
         LARGEST CUSTOMERS COULD CAUSE REVENUES TO DROP QUICKLY AND
         UNEXPECTEDLY.

         Several of the Company's clients account for a significant percentage
of its revenues. For the year ended December 31, 1999, revenues from the
Company's four largest clients amounted to approximately 25%, 25%, 21%, and 18%
respectively (or 89% in the aggregate) of its total revenues; for the year ended
December 31, 1998, revenues from its four largest clients amounted to
approximately 24%, 22%, 16%, and 12% respectively (or 74% in the aggregate) of
its total revenues; and for the year ended December 31, 1997, revenues from its
four largest clients amounted to approximately 21%, 20%, 19% and 15%
respectively (or 75% in the aggregate) of its total revenues. The loss of
business from any of these major clients or failure of the Company to continue
to obtain new business would have a material adverse effect on the Company's
business and revenues.

                                       12
<PAGE>

         The Company's revenues are highly dependent on research and development
expenditures by the pharmaceutical industry. Decreases in these expenditures,
including decreases resulting from an economic downturn in this industry or from
mergers or other consolidations, could have a material adverse effect on the
Company. Additionally, the Company has benefited from the trend in the
pharmaceutical industry to outsource an increasing percentage of its clinical
trial projects. A reversal of this trend would have a material adverse effect on
the Company's business and its revenues.

         THE LOSS OR DELAY OF LARGE CONTRACTS WOULD MATERIALLY HURT REVENUES AND
         BUSINESS.

         Most of the Company's service contracts are terminable without cause by
a client with 30 days prior notice. The Company's clients may terminate or delay
contracts for a variety of reasons, including:

         o    the failure of drugs being tested to meet safety requirements;
         o    unexpected or undesired clinical results of the product;
         o    the client's decision to forego a particular study;
         o    insufficient patient enrollment or investigator recruitment; or
         o    production problems resulting in shortages of the drug.

         The Company believes that several factors, including increased cost
containment pressures associated with healthcare reform, have caused
pharmaceutical companies to apply more stringent criteria to the decision to
proceed with clinical trials and therefore may result in a greater willingness
of these companies to cancel contracts. The loss or delay of a large contract
would have a material adverse effect on the Company's business, results of
operations and financial condition.

         LOSS OF KEY PERSONNEL, OR FAILURE TO ATTRACT AND RETAIN ADDITIONAL
         PERSONNEL, MAY CAUSE THE SUCCESS AND GROWTH OF THE COMPANY'S BUSINESS
         TO SUFFER.

         The Company relies on a number of key executives including Kenneth M.
Borrow, M.D., Chief Executive Officer and Chief Medical Officer, and David
Weitz, Vice President and Chief Information Officer. Although the Company has an
employment agreement with Dr. Borow, it does not have employment agreements with
any other key personnel. The loss of services of any of the key executives could
have a material adverse effect on the Company's business, results of operations
and financial condition. Furthermore, the Company's performance also depends on
its ability to attract and retain qualified professional, scientific and
technical operating staff. The Company cannot be certain that it will be able to
continue to attract and retain qualified staff.

         INTENSE COMPETITION AND INCREASING CONSOLIDATION IN THE CRO INDUSTRY
         COULD CREATE STRONGER COMPETITORS AND HARM BUSINESS.

         The Company competes against in-house departments of pharmaceutical
companies and against other CROs, most of which possess substantially greater
capital, technical and other resources than the Company. CROs generally compete
on the basis of previous experience, medical and scientific expertise in
specific therapeutic areas, the quality of contract research, the ability to
organize and manage large scale trials, database management capabilities, the
ability to provide statistical and regulatory services, the ability to recruit
investigators, the ability to integrate information technology with systems to
improve the effectiveness of contract research and price. The Company's failure
to compete effectively in any one or more of these areas could have a material
adverse effect on its business, results of operations and financial condition.

                                       13
<PAGE>

         The CRO industry is highly fragmented with several hundred CROs ranging
from small, limited service providers to full service CROs with global drug
development operations. However, the industry is consolidating. This
consolidation is due, in part, to the decision by pharmaceutical companies to
contract with fewer CROs, to streamline the outsourcing process by entering into
preferred provider relationships with a few CROs or awarding a smaller number of
large contracts to qualified CROs. This trend is likely to increase competition
among the larger CROs and may lead to price erosion and other forms of
competition that could have a material adverse effect on the Company's business,
results of operations and financial condition.

         MANAGEMENT OF GROWTH

         The Company has experienced rapid growth since 1995 and management
believes that sustained growth places a strain on operational, human and
financial resources. To manage its growth, the Company must continue to improve
its operating and administrative systems, as well as retain and assimilate
qualified management and professional, scientific and technical personnel.
Failure to manage growth effectively could have a material adverse effect on the
Company's business, results of operations and financial condition.

         VOLATILITY OF QUARTERLY OPERATING RESULTS

         The Company's quarterly operating results have been and will be subject
to volatility due to factors such as the commencement, delay, completion or
cancellation of significant contracts and the mix of contracted services.
Because a large portion of its operating costs are fixed, variations in the
timing and progress of large contracts or of multiple contracts can have a
material effect on its quarterly results. The Company believes that quarter-to
quarter comparisons of operating results may not be a good indication of its
future performance, nor would operating results for any particular quarter be
indicative of future operating results. In some future quarters, operating
results may be below the expectations of the public market analysts and
investors. In such event, the price of the Company's common stock may decrease.

         POTENTIAL LIABILITY

         Clinical research services involve the testing of new drugs on human
volunteers pursuant to a study protocol that has been approved by an impartial
review board composed of medical and non-medical members. Such testing involves
risk of liability for personal injury or death to patients due to, among other
reasons, possible unforeseen adverse side effects or improper administration of
a new drug. Many of these patients are already seriously ill and are at risk of
further illness or death. While the Company is not aware of any event which
would likely have a material adverse impact on its financial condition, the
Company could be materially and adversely affected if it were required to pay
damages or incur defense costs in connection with a claim that is outside the
scope of the Company's indemnity or insurance coverage, or if the indemnity,
although applicable, is not performed in accordance with its terms or if the
Company's liability exceeds the amount of applicable insurance. Additionally,
there can be no assurance that such insurance coverage will continue to be
available on terms acceptable to the Company.

                                       14
<PAGE>

         DEPENDENCE ON GOVERNMENT REGULATION

         The Company's business depends on strict regulation of the drug
development process by the federal government. Changes in regulations, including
a relaxation in regulatory standards or the introduction of streamlined drug
approval procedures, could materially adversely affect the demand for the
Company's services. Furthermore, failure by the Company to comply with current
regulations regarding conduct of a clinical trial could result in termination of
ongoing research or disqualification of data for submission to regulatory
authorities.

         UNCERTAINTY IN HEALTHCARE INDUSTRY

         The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the pharmaceutical industry.
Implementation of comprehensive or incremental government healthcare reform, as
well as industry wide healthcare containment pressures, may adversely affect
research and development expenditures by pharmaceutical companies, which could
decrease the business available to the CRO industry. The Company is unable to
predict the likelihood of healthcare legislation being enacted or the effects
such legislation would have on it.

         THE MARKET PRICE OF THE COMPANY'S STOCK MAY FLUCTUATE WIDELY.

         The market price of the Company's common stock is subject to wide
fluctuations in response to quarterly variations in operating results, including
evolving business prospects, market conditions in the industry, prospects of
healthcare reform, changes in government regulation and general economic
conditions. Additionally, the stock market has from time to time experienced
extreme price and volume fluctuations in the shares of certain issuers, which in
some cases have been unrelated to the operating results of the particular
company affected. Because the Company's common stock currently trades at a high
price to earnings ratio, due in part to analysts' expectations of continued
growth of companies in the CRO industry, even a relatively small shortfall from
earnings expectations can cause an immediate and substantial decline in the
common stock price.

         THE COMPANY'S EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
         AND THEIR AFFILIATES OWN A LARGE PERCENTAGE OF THE COMPANY'S VOTING
         STOCK AND HAVE THE ABILITY TO MAKE DECISIONS THAT COULD ADVERSELY
         AFFECT ITS STOCK PRICE.

         The Company's officers, directors and greater-than five percent
stockholders (and their affiliates), in the aggregate, beneficially own more
than 56% of the Company's outstanding common stock. These persons, acting
together, have the ability to control substantially all matters submitted to the
Company's stockholders for approval, including the election and removal of
directors and any merger, consolidation or sale of all or substantially all of
the Company's assets, and to control management and affairs. Accordingly, this
concentration of ownership may have the effect of delaying, deferring or
preventing a change in control, impeding a merger, consolidation, takeover or
other business combination or discouraging a potential acquirer from making a
tender offer or otherwise attempting to obtain control, which in turn could
materially adversely affect the price of the Company's common stock.

         THE COMPANY DOES NOT INTEND TO PAY DIVIDENDS.

         The Company has never declared or paid any cash dividends on its common
stock. The Company currently intends to retain any future earnings for funding
growth and, therefore, does not expect to pay any dividends in the foreseeable
future.

                                       15
<PAGE>

         FAILURE TO MAINTAIN NASDAQ SMALLCAP MARKET MAINTENANCE CRITERIA COULD
         NEGATIVELY IMPACT THE LIQUIDITY AND MARKET PRICE OF THE COMPANY'S
         COMMON STOCK.

         The Company's common stock began trading on the Nasdaq SmallCap Market
in December 1997. The Nasdaq SmallCap Market imposes continued listing
requirements on all securities listed on this market. These requirements
include, among other things, that the Company maintain net tangible assets of $2
million or more, or market capitalization of $35 million or more, or net income
in the latest fiscal year or two of the last three fiscal years of $500,000 or
more. In addition, the Nasdaq SmallCap Market requires that the shares listed
maintain a minimum bid price of $1.00 per share. While the Company presently
believes that it meets all of the Nasdaq SmallCap continued listing
requirements, it cannot be certain that it will continue to meet such
requirements in the foreseeable future. Accordingly, it runs the risk of having
its common stock delisted from the Nasdaq SmallCap Market if it fails to
continue to meet the quantitative and qualitative continued listing standards.
If such delisting occurs, the common stock would be traded in the
over-the-counter market.

         THE POTENTIAL FOR THE COMPANY'S COMMON STOCK SHARES TO BECOME A "PENNY
         STOCK" MAY AFFECT ITS LIQUIDITY.

         Under Securities and Exchange Commission rules, stocks not traded on an
exchange or the Nasdaq market that trade for less than $5.00 per share may come
under the penny stock rules which require, among other things, that broker
dealers, in advance of any transactions in such stock, furnish to the customer a
detailed disclosure document and obtain from the customer a signed
acknowledgement of receipt of such document. Additional detailed information
about the penny stock transactions by the broker dealer engaged in on behalf of
the customer must also be supplied after such transaction. The penny stock
rules, while designed to protect investors, may have the effect of causing the
market for such stocks to become less liquid due to the increased administrative
burden imposed upon the broker associated with trading in such securities.

                                       16
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

         The Company's financial statements listed below are contained herein
beginning at page F-1:

                  (a) FINANCIAL STATEMENTS

                  Report of Independent Public Accountants             F-1
                  Balance Sheets -
                      December 31, 1999 and 1998                       F-2
                  Statements of Operations - Years Ended
                      December 31, 1999 and 1998                       F-4
                  Statements of Stockholders' Equity - Years
                      Ended December 31, 1999 and 1998                 F-5
                  Statements of Cash Flows - Years Ended
                      December 31, 1999 and 1998                       F-6
                  Notes to Financial Statements                        F-7

                  (b) FINANCIAL STATEMENTS SCHEDULES

                  All schedules have been omitted because either they are not
                  required or are not applicable or because the required
                  information has been included elsewhere in the Financial
                  Statements or the notes thereto.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

                                       17
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The following are the current Executive Officers and Directors of the Company as
of March 15, 2000.

NAME                       AGE      POSITION(S) HELD WITH COMPANY
----                       ---      -----------------------------

Kenneth M. Borow, M.D.     51       Chief Executive Officer, Chief Medical
                                    Officer, Director

Anthony Cerami, Ph.D.      59       Chairman of the Board, Director

Donald C. Holdsworth       45       Director

David Weitz                49       Secretary, Treasurer

William K. Robinson        60       Chief Financial Officer, Director

MANAGEMENT BIOGRAPHIES

         Brief biographies of the Directors and Officers of the Company are set
forth below. All Directors are elected annually and hold office until the next
annual stockholders meeting or until their earlier resignation, retirement,
removal, disqualification, death or until their successors have been elected and
qualified. Vacancies in the existing Board are filled by majority vote of the
remaining Directors. Officers of the Company serve at the will of the Board of
Directors.

         KENNETH M. BOROW, M.D., Chief Executive Officer, Chief Medical Officer
and Director joined the Company in 1997. For the previous four years, Dr. Borow
was Senior Director, Medical Research Associates Department, Merck Research
Laboratories where he directed clinical research operations for 163 different
protocols, and developed a Merck-based contract group consisting of field
monitors, data coordinators and statisticians. Previously, he was a Professor of
Medicine and Pediatrics at the University of Chicago, and originator of a
worldwide clinical research program in cardiac function which included
investigative sites in the United States, United Kingdom, Norway, Israel and
South Africa. Dr. Borow graduated from the Temple Medical School in 1974. Dr.
Borow is a Harvard-trained Internist, Pediatrician, Adult Cardiologist and
Pediatric Cardiologist.

         ANTHONY CERAMI, PH.D., Chairman of the Board and Director. Dr. Cerami
was appointed a Director in January 2000 and Chairman of the Board in February
2000. He is currently the Founder and Director of The Kenneth S. Warren
Laboratories, a nonprofit research institution, and President of Cerami
Consulting Corporation. In 1991 he established The Picower Institute for Medical
Research. For the previous 20 years, he was a professor and head of the
Laboratory of Medical Biochemistry and Dean of Graduate and Postgraduate Studies
at The Rockefeller University.

         DONALD C. HOLDSWORTH, Director. Mr. Holdsworth was appointed a Director
in January 2000. He is a principal with the investment firm of R. P. Associates.
>From 1995 to 1997 he served as a Senior Vice President Worldwide Marketing at
Merck & Co., Inc. Previously, he held senior management positions at PepsiCo
Inc. Prior to joining PepsiCo in 1991, he was a partner with the consulting firm
of McKinsey & Company.

                                       18
<PAGE>

         WILLIAM K. ROBINSON, Chief Financial Officer and Director, joined the
Company in 1996. He has over 25 years of diverse healthcare management
experience, both domestic and international, in large corporate and emerging
company operations. From 1994 to June 1996, he was Vice President of Finance for
Scott Specialty Gases, Inc., a manufacturer of calibration and medical gases. He
was President and Chief Executive Officer of Tektagen, Inc., a biopharmaceutical
testing laboratory from 1991 to 1994, and Chief Financial Officer from 1990 to
1991. Previously, he was employed by SmithKline Beckman for 17 years, where he
held the top financial positions in the U.S. Pharmaceuticals, Clinical
Laboratories and Animal Health Divisions.

         DAVID WEITZ, Secretary and Treasurer of the Company. In 1995, Mr. Weitz
was appointed Chief Information Officer. He is responsible for the planning,
implementation, and use of information technologies. Prior to January 1995 and
since 1985, he was the Manager of Technical Support and Training for Merck
Research Laboratories where he was responsible for planning, implementing and
operating a computer technical support program and computer application training
program for all divisional employees located at 5 geographical locations.

         Effective January 26, 2000, Bruce LaMont resigned as President, Chief
Executive Officer and Director of the Company, and John J. Whittle resigned as a
Director of the Company in connection with a change in control of the Company.
Mr. LaMont and Mr. Whittle each served as Directors for the entire 1999 fiscal
year.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Information concerning Beneficial Ownership Reporting Compliance is
incorporated herein by reference to the similarly titled section in the
Company's definitive proxy materials for the Company's 2000 Annual Meeting
Stockholders.

ITEM 10. EXECUTIVE COMPENSATION

         Information concerning Executive Compensation is incorporated herein by
reference to the similarly titled section in the Company's definitive proxy
materials for the Company's 2000 Annual Meeting of Stockholders.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      a. Information concerning Security Ownership of Certain Beneficial Owners
         is incorporated herein by reference to the similarly titled section in
         the Company's definitive proxy materials for the Company's 2000 Annual
         Meeting of Stockholders.

      b. Information concerning Security Ownership of Management is incorporated
         herein by reference to the similarly titled section in the Company's
         definitive proxy materials for the Company's 2000 Annual Meeting of
         Stockholders.

                                       19
<PAGE>

      c. Change in Control.

                On November 1, 1999, Bruce LaMont entered into an Option
              Agreement (the "Option Agreement") with Covalent Partners, LLC, a
              Delaware limited liability company ("Covalent Partners"). The
              Option Agreement granted Covalent Partners the option to acquire
              up to an aggregate of 6,015,500 shares of the Company's common
              stock held by Mr. LaMont at a purchase price of $2.00 per share.
              At the time of the grant, Mr. LaMont was the President, Chief
              Executive Officer and a director of the Company and held
              approximately 51% of the issued and outstanding common stock of
              the Company.

                On November 1, 1999, pursuant to the terms of the Option
              Agreement, Covalent Partners elected to purchase 1,000,000 shares
              of common stock of the Company from Mr. LaMont for an aggregate
              purchase price of $2,000,000. On November 27, 1999, pursuant to
              the terms of the Option Agreement, Covalent Partners elected to
              purchase 250,000 shares of common stock of the Company from Mr.
              LaMont for an aggregate purchase price of $500,000. On January 15,
              2000, pursuant to the terms of the Option Agreement, Covalent
              Partners elected to exercise the option to purchase from Mr.
              LaMont his remaining 4,765,500 shares of common stock of the
              Company. On January 26, 2000, Covalent Partners completed the
              purchase of 4,765,500 shares of common stock of the Company held
              by Mr. LaMont for an aggregate purchase price of $9,531,000.

                Covalent Partners was formed for the purpose of acquiring Mr.
              LaMont's shares of common stock of the Company in order to acquire
              a controlling interest in the Company. Richard D. Propper and
              Michael D. Chermak are each members and managers of Covalent
              Partners and Salman J. Chaudhry is a financial consultant to
              Covalent Partners. Mr. LaMont resigned as a Director, President
              and Chief Executive Officer of the Company on January 26, 2000
              upon Covalent Partners' purchase of his remaining shares.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         None for the fiscal year ended December 31, 1999.

                                       20
<PAGE>

ITEM 13. EXHIBITS

     (a) Exhibits

         3.1    Certificate of Incorporation of West End Ventures, Inc. (a
                predecessor to the Company) and all amendments thereto, a
                Nevada corporation.(1)
         3.2    Bylaws of Covalent Group, Inc. (1)
         10.1   1996 Stock Option Plan. (2)
         10.2   1995 Stock Option Plan. (3)
         10.3   Lease between Dean Witter Realty Income Partnership II and
                Covalent Group, Inc. dated November 14, 1996. (3)
         10.4   Credit Agreement with First Union Bank dated April 25, 1997. (1)
         10.5   Stock Purchase Warrant Agreement between Berkshire International
                Finance, Inc. and the Company dated June 20, 1996. (4)
         10.6   Stock Purchase Warrant Agreement between S&F Consulting, Inc.
                and the Company dated June 20, 1996. (5)
         10.7   Stock Purchase Warrant Agreement between S&F Consulting, Inc.
                and the Company dated May 8, 1996. (6)
         10.8   Form of Employment Agreement between the Company and Kenneth M.
                Borow. (7)
         21     Subsidiaries of the Registrant.(3)
         23     Consent of Arthur Andersen LLP
         27     Financial Data Schedule (in electronic format only).


     (b) Form 8-K

         On February 7, 2000 the Company reported on Form 8-K that Covalent
         Partners, LLC completed the purchase of an aggregate of 6,015,000
         shares of the Company's common stock from Bruce LaMont. Prior to the
         transaction, Mr. LaMont was President, Chief Executive Officer and a
         Director of the Company.

         On November 10, 1999 the Company reported on Form 8-K that the private
         investment firm Covalent Partners, LLC, formed by Richard Propper, M.D.
         and Michael Chermak, had purchased 1,000,000 shares of the Company's
         common stock owned by Bruce LaMont, its President and Chief Executive
         Officer.

-------------------------
(1)      Filed as an exhibit, to the Company's Amendment No. 1 to its Report
         Form 10-KSB (No. 0-21145) filed with the Securities & Exchange
         Commission on July 15, 1998 and incorporated herein by reference.
(2)      Incorporated by reference from Proxy Statement for 1996 Annual Meeting.
(3)      Filed as an exhibit to the Company's Report on Form 10-KSB (No.
         0-21145) filed with the Securities and Exchange Commission on March 30,
         1998 and incorporated herein by reference.
(4)      Incorporated by reference to Exhibit 4.1 to the Company's Amendment No.
         1 to Form S-3 filed July 15, 1998 (File No. 333-51079).
(5)      Incorporated by reference to Exhibit 4.2 to the Company's Amendment No.
         1 to Form S-3 filed July 15, 1998 (File No. 333-51079).
(6)      Incorporated by reference to Exhibit 4.3 to the Company's Amendment No.
         1 to Form S-3 filed July 15, 1998 (File No. 333-51079).
(7)      Incorporated by reference to Exhibit 99.6 to the Schedule 13D filed by
         Covalent Partners, LLC on November 10, 1999, as amended.

                                       21
<PAGE>

                              COVALENT GROUP, INC.
                              FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1999 AND 1998

                                      INDEX

                                                                        PAGE

Report of Independent Public Accountants ............................... F-1

Balance Sheets ......................................................... F-2

Statements of Operations ............................................... F-4

Statements of Stockholders' Equity ..................................... F-5

Statements of Cash Flows ............................................... F-6

Notes to Financial Statements .......................................... F-7


                                       22
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Covalent Group, Inc.:


We have audited the accompanying balance sheets of Covalent Group, Inc. (a
Nevada corporation) as of December 31, 1999 and 1998, and the related statements
of operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Covalent Group, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.

                                             Arthur Andersen LLP

Philadelphia, Pa.,
  February 18, 2000

                                      F-1
<PAGE>

                              COVALENT GROUP, INC.
                                 BALANCE SHEETS

     ASSETS                                                  December 31,
                                                     --------------------------
                                                         1999           1998
                                                     -----------    -----------
CURRENT ASSETS
   Cash and cash equivalents                         $   558,528    $ 1,208,956
   Restricted cash                                       697,050      1,000,000
   Accounts receivable                                 2,826,319      2,534,283
   Prepaid expenses and other                            131,711        295,689
   Costs and estimated earnings in excess of
     related billings on uncompleted contracts         3,414,930        603,226
                                                     -----------    -----------
            TOTAL CURRENT ASSETS                       7,628,538      5,642,154
                                                     -----------    -----------


PROPERTY AND EQUIPMENT
   Equipment                                           1,642,578        977,018
   Furniture and fixtures                                270,589        249,851
   Leasehold improvements                                120,863        115,391
                                                     -----------    -----------
                                                       2,034,030      1,342,260
         Less - Accumulated depreciation                (960,903)      (600,003)
                                                     -----------    -----------
                 NET PROPERTY AND EQUIPMENT            1,073,127        742,257
                                                     -----------    -----------

DEFERRED INCOME TAXES                                         --        475,239
                                                     -----------    -----------
OTHER ASSETS                                              40,507         59,165
                                                     -----------    -----------

TOTAL ASSETS                                         $ 8,742,172    $ 6,918,815
                                                     ===========    ===========


                     The accompanying notes are an integral
                       part of these financial statements

                                      F-2
<PAGE>

                                  COVALENT GROUP, INC.
                                     BALANCE SHEETS

<TABLE>
<CAPTION>

   LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                     December 31,
                                                             --------------------------
                                                                 1999           1998
                                                             -----------    -----------
<S>                                                          <C>            <C>
CURRENT LIABILITIES
   Accounts payable                                          $ 2,042,419    $ 1,062,564
   Accrued expenses                                              373,885        295,452
   Billings in excess of related costs and
    estimated earnings on uncompleted contracts                  322,571      1,289,970
   Customer advances                                           1,245,696      1,000,000
                                                             -----------    -----------
                  TOTAL CURRENT LIABILITIES                    3,984,571      3,647,986
                                                             -----------    -----------

COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY
   Common stock,  $.001 par value per
      share, 25,000,000 shares authorized,
      12,081,193 and 12,071,193 shares issued respectively        12,081         12,071
   Additional paid-in-capital                                  9,432,631      9,384,135
   Accumulated deficit                                        (4,636,795)    (6,075,061)
                                                             -----------    -----------
                                                               4,807,917      3,321,145
      LESS:
         Treasury stock, at cost, 12,500 shares                  (50,316)       (50,316)
                                                             -----------    -----------
                  TOTAL STOCKHOLDERS' EQUITY                   4,757,601      3,270,829
                                                             -----------    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $ 8,742,172    $ 6,918,815
                                                             ===========    ===========


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


                                      F-3
<PAGE>

                              COVALENT GROUP, INC.
                            STATEMENTS OF OPERATIONS


                                            Years Ended December 31,
                                          ---------------------------
                                              1999            1998
                                          ------------   ------------

REVENUES                                  $ 14,746,965   $  9,390,620

OPERATING EXPENSES

    Direct                                   8,740,943      6,254,481
    Selling, general and administrative      3,831,568      4,162,486
                                          ------------   ------------

TOTAL OPERATING EXPENSES                    12,572,511     10,416,967
                                          ------------   ------------

INCOME (LOSS) FROM OPERATIONS                2,174,454     (1,026,347)

LOSS FROM INVESTMENT                                --       (397,312)

INTEREST INCOME                                108,486         99,542
                                          ------------   ------------

INCOME (LOSS) BEFORE INCOME TAXES            2,282,940     (1,324,117)

INCOME TAX PROVISION (BENEFIT)                 844,674       (382,000)
                                          ------------   ------------

NET INCOME (LOSS)                         $  1,438,266   $   (942,117)
                                          ============   ============

NET INCOME (LOSS) PER COMMON SHARE

  Basic                                   $        .12   $       (.08)
  Diluted                                 $        .12   $       (.08)

WEIGHTED AVERAGE COMMON AND COMMON
  EQUIVALENT SHARES OUTSTANDING

  BASIC                                     12,059,207     11,808,306
  DILUTED                                   12,485,003     11,808,306


                     The accompanying notes are an integral
                       part of these financial statements


                                      F-4
<PAGE>

<TABLE>
<CAPTION>

                                 COVALENT GROUP, INC.
                          STATEMENTS OF STOCKHOLDERS' EQUITY


                                       Common Stock          Additional
                                --------------------------     Paid-in     Accumulated
                                   Shares         Amount       Capital       Deficit
                                -----------    -----------   -----------   -----------
<S>                              <C>           <C>           <C>           <C>
BALANCE,
  DECEMBER 31, 1997              11,755,709    $    11,756   $ 9,265,508   $(5,132,944)

Comprehensive loss:
Net loss                                 --             --            --      (942,117)
Unrealized loss on investment            --             --            --            --
Realized loss on investment              --             --            --            --

Total comprehensive loss
Exercise of stock options           315,484            315        99,877            --
Capital contribution                     --             --        18,750            --
                                -----------    -----------   -----------   -----------
BALANCE,
  DECEMBER 31, 1998              12,071,193         12,071     9,384,135    (6,075,061)

Comprehensive income:
Net income                               --             --            --     1,438,266
Unrealized loss on investment            --             --            --            --
Realized loss on investment              --             --            --            --

Total comprehensive income
Exercise of stock options            10,000             10        16,959            --
Capital contribution                     --             --        31,537            --
                                 -----------   -----------   -----------    -----------
BALANCE,
  DECEMBER 31, 1999              12,081,193    $    12,081   $ 9,432,631   $(4,636,795)
                                ===========    ===========   ===========   ===========



                                Unrealized
                                  Holding            Treasury Stock
                                  Loss on      --------------------------
                                 Investment      Shares          Amount         Total
                                -----------    -----------    -----------    -----------
<S>                              <C>           <C>           <C>           <C>
BALANCE,
  DECEMBER 31, 1997             $        --        (12,500)   $   (50,316)   $ 4,094,004

Comprehensive loss:
Net loss                                 --             --             --       (942,117)
Unrealized loss on investment      (397,312)            --             --       (397,312)
Realized loss on investment         397,312             --             --        397,312
                                                                             -----------
Total comprehensive loss                                                        (942,117)
Exercise of stock options                --             --             --        100,192
Capital contribution                     --             --             --         18,750
                                -----------    -----------    -----------    -----------
BALANCE,
  DECEMBER 31, 1998                      --        (12,500)       (50,316)     3,270,829

Comprehensive income:
Net income                               --             --             --      1,438,266
Unrealized loss on investment       (37,375)            --             --        (37,375)
Realized loss on investment          37,375             --             --         37,375
                                                                             -----------
Total comprehensive income                                                     1,438,266
Exercise of stock options                --             --             --         16,969
Capital contribution                     --             --             --         31,537
                                 -----------    -----------    -----------   -----------
BALANCE,
  DECEMBER 31, 1999             $        --        (12,500)   $   (50,316)   $ 4,757,601
                                ===========    ===========    ===========    ===========

</TABLE>


                        The accompanying notes are an integral
                          part of these financial statements

                                      F-5
<PAGE>

<TABLE>
<CAPTION>

                                COVALENT GROUP, INC.
                              STATEMENTS OF CASH FLOWS

                                                           YEARS ENDED DECEMBER 31,
                                                          --------------------------
                                                              1999           1998
                                                          -----------    -----------
OPERATING ACTIVITIES:
<S>                                                       <C>            <C>
Net income (loss)                                         $ 1,438,266    $  (942,117)
Adjustments to reconcile net income (loss) to
    net cash provided by (used in) operating activities
      Amortization and depreciation                           360,900        225,562
      Investment loss                                          37,375        397,312
      Deferred income taxes                                   475,259       (383,299)
      Non cash capital contribution                            31,537         18,750
      Changes In assets and liabilities
       (Increase) decrease in -
        Restricted cash                                       302,950     (1,000,000)
        Accounts receivable                                  (292,036)      (399,060)
        Prepaid expenses and other                            163,978       (124,755)
        Costs and estimated earnings in excess
          of related billings on uncompleted contracts     (2,811,704)       804,707
        Other assets                                          (18,717)       (10,579)
       Increase (decrease) in -
        Accounts payable                                      979,855       (740,493)
        Accrued expenses                                       78,433        197,033
        Customer Advances                                     245,696      1,000,000
        Billings in excess of related costs and
          estimated earnings on uncompleted contracts        (967,399)       550,857
                                                          -----------    -----------

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES            24,373       (406,082)
                                                          -----------    -----------

INVESTING ACTIVITIES:

Purchases of property and equipment                          (691,770)      (279,684)
                                                          -----------    -----------

NET CASH USED IN INVESTING ACTIVITIES                        (691,770)      (279,684)
                                                          -----------    -----------

FINANCING ACTIVITIES:

Proceeds from exercise of stock options                        16,969        100,192
                                                          -----------    -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES                      16,969        100,192
                                                          -----------    -----------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS         (650,428)      (585,574)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                1,208,956      1,794,530
                                                          -----------    -----------

CASH AND CASH EQUIVALENTS, END OF YEAR                    $   558,528    $ 1,208,956
                                                          ===========    ===========
</TABLE>

                       The accompanying notes are an integral
                         part of these financial statements

                                      F-6
<PAGE>

                              COVALENT GROUP, INC.

                          NOTES TO FINANCIAL STATEMENTS

1.      DESCRIPTION OF BUSINESS:

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

2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

        MERGER OF SUBSIDIARY

        Effective on April 30, 1999, Covalent Research Alliance Corporation
        ("CRA") was merged into Covalent Group, Inc. CRA was the Company's only
        subsidiary during 1998 and through the merger date. The financial
        statements for 1998 and 1999 include the accounts of the Company and
        it's wholly owned subsidiary. Intercompany transactions and balances
        have been eliminated in consolidation.

        USE OF ESTIMATES

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

        REVENUE RECOGNITION

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

        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.

        RESTRICTED CASH

        The Company received an advance payment from one of its customers as
        part of a long term contract, which includes a separate restricted cash
        account to be utilized for payment of investigator fees. As of December
        31, 1999 and 1998, this restricted cash amount was $697,050 and
        $1,000,000 respectively and this amount is also included in customer
        advances in the accompanying balance sheets.

                                      F-7
<PAGE>

        PROPERTY AND EQUIPMENT

        Property and equipment are recorded at cost. Depreciation is provided
        using the straight line method over the estimated useful lives of the
        assets which range from 3 to 7 years for equipment and furniture and
        fixtures and the remaining lease term for leasehold improvements.
        Depreciation expense for the years ended December 31, 1999 and 1998 was
        $360,900 and $225,562 respectively. Expenditures for maintenance and
        repairs are charged to expense as incurred. When assets are sold or
        retired, the cost and accumulated depreciation are removed from the
        accounts and any gain or loss is included in income.

        INCOME TAXES

        The Company accounts for income taxes under Statement of Financial
        Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS No.
        109) which requires the liability method of accounting for deferred
        income taxes. Deferred tax assets and liabilities are determined based
        on the difference between the financial statement and tax bases of
        assets and liabilities. Deferred tax assets or liabilities at the end of
        each period are determined using the tax rate expected to be in effect
        when taxes are actually paid or recovered.

        CONCENTRATION OF CREDIT RISK

        Financial instruments that potentially subject the Company to
        concentration of credit risk are accounts receivable and the Company's
        customer base principally comprises companies within the pharmaceutical
        industry. The Company does not require collateral from its customers.

        FAIR VALUE OF FINANCIAL INSTRUMENTS

        The Company's financial instruments consist primarily of cash and cash
        equivalents, accounts receivable, costs and estimated earnings in excess
        of related billings on uncompleted contracts, accounts payable and
        billings in excess of related costs and estimated earnings on
        uncompleted contracts. The book values of cash and cash equivalents,
        accounts receivable, costs and estimated earnings in excess of related
        billings on uncompleted contracts, accounts payable and billings in
        excess of related costs and estimated earnings on uncompleted contracts
        are considered to be representative of their respective fair values.

        NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE

        Basic net income (loss) per common share was computed by dividing net
        income (loss) by the weighted average number of shares of common stock
        outstanding during the period. Diluted net income per common share for
        the year ended December 31, 1999 reflects the potential dilution from
        the exercise of outstanding stock options and warrants into common
        stock. Inclusion of shares of common stock potentially issuable upon the
        exercise of stock options and warrants in calculating diluted net loss
        per common share for the year ended December 31, 1998, would have been
        anti dilutive, and therefore such shares were not included in the
        calculation.

                                      F-8
<PAGE>

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

                                                                      Years Ended
                                                                      December 31,
                                                             ---------------------------
                                                                  1999           1998
                                                             ------------   ------------
<S>                                                          <C>            <C>
          Net income (loss) used for basic
            and diluted net income (loss) per
            common share                                     $  1,438,266   $   (942,117)
                                                             ============   ============

          Weighted average common shares
            outstanding used for basic net income (loss)
            per common share                                   12,059,207     11,808,306

          Dilutive effect of common stock
            options and warrants outstanding                      425,796             --
                                                             ------------   ------------

          Weighted average common and common equivalent
            shares outstanding used for diluted net income
            (loss) per common share

                                                               12,485,003     11,808,306
                                                             ============   ============
</TABLE>

        COMPREHENSIVE INCOME (LOSS)

        In 1998, the Company adopted Statement of Financial Accounting Standards
        No. 130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130
        establishes standards for reporting and presentation of comprehensive
        income (loss) and its components in a full set of general-purpose
        financial statements that is presented with equal prominence as other
        financial statements. Comprehensive income (loss) consists of net income
        (loss) and unrealized holding gains and losses from investment. The
        adoption of SFAS No. 130 had no impact on total stockholders' equity and
        the comprehensive income (loss) amounts are presented on the
        accompanying statements of stockholders' equity. The comprehensive
        income adjustments for the years ended December 31, 1998 and 1999 relate
        to an unrealized loss on an investment and the reclassification for
        losses on investment realized in net income (loss).

        SEGMENT DISCLOSURES

        Effective January 1, 1998, the Company adopted Statement of Financial
        Accounting Standards No. 131, "Disclosures about Segments of an
        Enterprise and Related Information" (SFAS No. 131). SFAS No. 131
        superseded SFAS No. 14, "Financial Reporting for Segments of a Business
        Enterprise." SFAS No. 131 establishes standards for the way that public
        business enterprises report information about operating segments in
        annual financial statements and requires that those enterprises report
        selected information about operating segments in interim financial
        reports. SFAS No. 131 also establishes standards for related disclosures
        about products and services, geographic areas, and major customers. The
        Company operates in one industry segment and, accordingly, the adoption
        of SFAS No. 131 had no effect on the Company.

        SUPPLEMENTAL CASH FLOW INFORMATION

        Cash paid for income taxes during the years ended December 31, 1999 and
        1998 was approximately $173,000 and $3,000 respectively.

                                      F-9
<PAGE>

        NEW ACCOUNTING PRONOUNCEMENTS

        In December 1999, the Securities and Exchange Commission ("SEC") issued
        Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
        Financial Statements." SAB No. 101 expresses the views of the SEC staff
        in applying generally accepted accounting principles in certain
        transactions. The Company is still in the process of analyzing the
        impact of SAB No. 101 on its financial statements and related
        disclosures; however, management believes that this will not have a
        material impact on the Company's financial position or results of
        operations.

        RECLASSIFICATIONS

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

3.      INVESTMENT:

        In 1997 the Company did not receive the scheduled payments on the note
        from the sale of a former subsidiary of the Company, Future Medical
        Technologies, Inc. ("FMT"). ABS Group, Inc. ("ABS") acquired all of the
        outstanding common stock of FMT in 1996 for cash and a note. On December
        31, 1997, the Company agreed to exchange the note of $225,000 and
        related accrued interest of $13,000 for 300,000 shares of common stock
        of ABS, which are subject to certain restrictions. The common shares
        received were recorded at an amount equal to $434,687 which represented
        the closing bid price per share with a minimal discount due to the
        restrictions regarding the ability to sell these shares. As a result, as
        required by SFAS No. 115, the Company recorded a gain on this
        transaction of $196,687 in 1997.

        Pursuant to SFAS No. 115 this investment was classified as available for
        sale and during 1998 the unrealized holding losses were recorded as a
        separate component of stockholders' equity. During the first half of
        1998, the trading price for ABS stock declined and the trading price was
        consistently at a reduced level for the second half of 1998. As a
        result, pursuant to SFAS No. 115, the Company determined that this
        decline in value was other than temporary and the cost basis of the ABS
        stock was written down, with the writedown of $397,312 recorded as a
        realized loss from investment in 1998. During 1999, the trading price
        for ABS stock continued to decline and the trading price was
        consistently at a reduced level during 1999. As a result, pursuant to
        SFAS No. 115, the Company has determined that this decline in value is
        other than temporary and the cost basis of the ABS stock has been
        written down by $37,375.

4.      ACCOUNTS RECEIVABLE:

        No provision for uncollectible accounts was made in 1999 or 1998, as the
        Company considered all receivable balances fully collectible based on
        its historic bad debt experience and the financial stability of its
        customers.

5.      LINE OF CREDIT:

        In 1997, the Company obtained a demand line of credit facility with a
        bank. Maximum borrowings under the facility are the lessor of $1,000,000
        or 75% of eligible accounts receivable, as defined, and bear interest at
        the bank's prime rate plus 1.0%. There were no outstanding borrowings
        under this facility in 1999 or 1998.

                                      F-10
<PAGE>

6.      STOCKHOLDERS' EQUITY:

        COMMON STOCK OPTIONS

        The Company's 1996 stock incentive plan and 1995 employee stock option
        plan provide for the granting of incentive and non-qualified stock
        options for the purchase of shares of common stock to directors,
        officers, employees and consultants, as defined under the provisions of
        the plans. The Board of Directors determines the option exercise price
        per share, vesting period and expiration date (generally up to five
        years).

        The following table summarizes stock option activity:
<TABLE>
<CAPTION>

                                                                                           Weighted
                                                                                           Average
                                                                          Range of         Exercise
                                                       Number of      Exercise Prices     Price Per
                                                         Shares          Per Share           Share
                                                       ----------      -------------      ---------
<S>                                                     <C>            <C>                   <C>
        Options outstanding at December 31, 1997        2,126,984      $ .03 - $5.25         $2.12
            Granted                                     1,109,950        .69 -  2.75          1.42
            Exercised                                    (315,484)       .03 -  1.94           .32
            Canceled                                   (1,089,750)       .69 -  5.13          2.10
                                                       ----------
        Options outstanding at December 31, 1998        1,831,700        .69 -  5.25          2.02
            Granted                                       129,700       1.88 -  2.56          1.96
            Exercised                                     (10,000)       .69 -  1.88          1.70
            Canceled                                     (417,600)       .69 -  5.25          2.29
                                                       ----------
        Options outstanding at December 31, 1999        1,533,800      $ .69 - $5.25         $1.94
                                                       ==========      =============         =====
        Exercisable options outstanding at:
             December 31, 1998                          1,151,121      $ .69 - $5.25         $2.32
             December 31, 1999                          1,181,502        .69 -  5.25          2.04

</TABLE>

        The following table summarizes information regarding stock options
        outstanding at December 31, 1999:
<TABLE>
<CAPTION>

                                    Options Outstanding                                            Options Exercisable
      --------------------------------------------------------------------------------   -------------------------------------
                                                        Weighted          Weighted
                                                         Average           Average                                  Weighted
                                                        Remaining         Exercise                                  Average
          Range of            Number Outstanding       Contractual        Price per       Number Exercisable        Exercise
       Exercise Prices       At December 31, 1999     Life in Years         Share        at December 31, 1999        Price
      -------------------    ---------------------    --------------     ------------    ---------------------   -------------
<S>    <C>                          <C>                     <C>             <C>                 <C>                 <C>
                $ 0.69              529,750                 3.6             $ 0.69              371,750             $ 0.69
       $ 1.00 - $ 1.56               69,000                 3.7             $ 1.45               31,500             $ 1.44
       $ 1.78 - $ 1.94              219,700                 2.6             $ 1.93              176,918             $ 1.94
       $ 2.00 - $ 3.94              676,600                 1.3             $ 2.71              562,584             $ 2.79
       $ 4.63 - $ 5.25               38,750                 1.0             $ 5.08               38,750             $ 5.08
</TABLE>

        As of December 31, 1999, there were 573,222 stock options available for
        grant under the Company's stock option plans.

                                      F-11
<PAGE>

        The Company applies Accounting Principals Board Opinion No. 25
        "Accounting for Stock Issued to Employees" and the related
        interpretations in accounting for its stock option plans. The disclosure
        requirements of statement of Financial Accounting Standards No. 123
        "Accounting for Stock-Based Compensation" (SFAS No. 123) were adopted by
        the Company in 1997. Had compensation cost for options granted during
        1995 through 1999 under the stock options plan been determined based
        upon the fair value of the options at the date of grant, as prescribed
        by SFAS No. 123, the Company's pro forma net income (loss) and pro forma
        net income (loss) per share would have been as follows:
<TABLE>
<CAPTION>

                                                                   Years Ended December 31,
                                                                 ---------------------------
                                                                    1999             1998
                                                                 ----------       ----------
<S>                                                              <C>              <C>
             Net income (loss)                                   $1,438,266       $ (942,117)
             Pro forma net income (loss)                          1,297,990       (1,299,425)
             Basic net income (loss) per share                         0.12            (0.08)
             Pro forma basic net income (loss) per share               0.11            (0.11)
             Diluted net income (loss) per share                       0.12            (0.08)
             Pro forma diluted net income (loss) per share             0.10            (0.11)
</TABLE>

        The weighted average fair value of the stock options granted during the
        years ended December 31, 1999 and 1998 was $0.88 and $1.42 respectively.
        As of December 31, 1999, the weighted average remaining contractual life
        of each stock option outstanding was 2.4 years. The weighted average
        remaining contractual life of each stock option granted during the years
        ended December 31, 1999 and 1998 was 4.2 and 3.6 years, respectively.
        The fair value of each option grant is estimated on the date of grant
        using the Black - Scholes option pricing model with the following
        weighted average assumptions:

                                                        Years Ended
                                                        December 31,
                                             ----------------------------
                                                1999              1998
                                             ----------        ----------
             Risk - free interest rate       4.6% - 5.8%       4.1% - 5.7%
             Expected dividend yield              -                 -
             Expected life                     5 years           5 years
              Expected volatility                40.0%             40.0%

        Because additional option grants are expected to be made each year, the
        above pro forma disclosures are not representative of pro forma effects
        on reported net income for future years.

        COMMON STOCK WARRANTS

        In 1996, the Company issued 250,000 common stock warrants with an
        exercise price of $2.75 per share to an investment banking firm, and
        100,000 common stock warrants with an exercise price of $5.25 per share
        to a financial consultant in connection with an offering of common
        stock. The warrants were vested on the grant date.

                                      F-12
<PAGE>

7.      CUSTOMER INFORMATION:

        The following table summarizes significant customers with revenues in
        excess of 10% of total revenues (as a percentage of total revenues):

                                          Years Ended
                                          December 31,
                                      ------------------
              Customer                1999          1998
              --------                ----          ----
              A                        25%           24%
              B                        25%           22%
              C                        21%           16%
              D                        18%           12%
              E                         *            10%

        *Revenues were less than 10% of total revenues.

        The above revenue amounts consist of separate clinical trials ranging
        from one to five.

        For the years ended December 31, 1998 and 1999, the amount of revenues
        recognized related to transactions outside of the United States was not
        material.

8.      INCOME TAXES:

        The components of the income tax provision (benefit) are as follows:

                                            Years Ended December 31,
                                        -----------------------------
                                           1999                1998
                                        ----------          ---------
             Current:
                  Federal               $  149,435          $      --
                  State                    200,000                 --
                                        ----------          ---------
                                           369,435                 --
                                        ----------          ---------

             Deferred:
                  Federal                  475,239           (382,000)
                  State                         --                 --
                                        ----------          ---------
                                           475,239           (382,000)
                                        ----------          ---------
                                        $  844,674         $ (382,000)
                                        ==========         ==========

        Income tax expense differs from the amount currently payable because
        certain expenses, primarily depreciation and accruals, are reported in
        different periods for financial reporting and income tax purposes.

        The federal statutory income tax rate is reconciled to the effective
        income tax rate as follows:

                                                      Years Ended December 31,
                                                      ------------------------
                                                          1999        1998
                                                         ------      ------
        Federal statutory rate                            34.0%      (34.0%)
        State income taxes, net of federal benefit         6.0          --
        Nondeductible investment loss                       --         5.2
        Prior period net operating loss                     --          --
        Other                                             (3.0)         --
                                                         ------      ------
                                                          37.0%      (28.8%)
                                                         ======      ======

                                      F-13
<PAGE>

        The components of the net current and long-term deferred tax assets and
        liabilities, measured under SFAS No. 109, are as follows:

                                                      December 31,
                                                ----------------------
                                                   1999         1998
                                                ---------    ---------
        Deferred tax assets -
             Net operating loss carryforwards   $      --    $ 428,076
             Credit carryforwards                               19,493
             Investment valuation                  92,820       78,244
                                                ---------    ---------
                                                   92,820      525,813
                                                ---------    ---------
        Deferred tax liabilities-
             Depreciation                         (86,858)     (50,574)
             Other                                 (5,562)          --
                                                ---------    ---------
                                                  (92,820)     (50,574)
                                                ---------    ---------
                 Net deferred tax asset         $      --    $ 475,239
                                                =========    =========


9.      EMPLOYEE BENEFIT PLAN:

        The Company sponsors a 401(k) plan covering substantially all employees.
        Eligible employees may contribute up to 15% of their annual compensation
        to the plan. The Company does not match employee contributions.

10.     COMMITMENTS:

        The Company leases office facilities and other equipment under
        noncancellable operating leases expiring through June 2002. Rent expense
        was $331,645 in 1999 and $294,387 in 1998. Future minimum annual rental
        commitments under the noncancellable lease obligations are $337,200 in
        2000, $305,000 in 2001, and $6,000 in 2002.

        The Company has entered into an employment agreement with one of its
        officers that calls for specified annual compensation and includes
        provisions for continuation of salary upon termination as defined in the
        agreement.

                                      F-14
<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                       COVALENT GROUP, INC.

Dated:    3/28/00

                                       By:  /s/ KENNETH M. BOROW, M.D.
                                            ---------------------------
                                            Kenneth M. Borow, M.D.
                                            Chief Executive Officer,
                                              Chief Medical Officer and Director

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

Dated:     3/28/00

                                       By:  /s/ KENNETH M. BOROW, M.D.
                                            ----------------------------
                                            Kenneth M. Borow, M.D.
                                            Chief Executive Officer,
                                              Chief Medical Officer and Director

Dated:     3/28/00

                                       By:  /s/ ANTHONY CERAMI, PH.D.
                                            --------------------------
                                            Anthony Cerami, Ph.D.
                                            Chairman of the Board and Director

Dated:     3/28/00

                                       By:  /s/ DONALD C. HOLDSWORTH
                                            --------------------------
                                            Donald C. Holdsworth
                                            Director

Dated:     3/28/00

                                       By:  /s/ WILLIAM K. ROBINSON
                                            --------------------------
                                            William K. Robinson
                                            Chief Financial Officer and Director