<PAGE>



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-Q

 (Mark One)

X        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1996
                                                        OR

o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from              to

Commission File Number 0-25372

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


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

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

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

                                       N/A

                (Former name, former address and former fiscal year,
                         if changed since last report)

         Indicates by check mark whether the registrant  (1) has filed all 
reports  required to be filed by Section 13 or 15(d) of the  Securities  
Exchange Act of 1934 during the  preceding  12 months (or for such  shorter  
period that the registrant was required to file such reports),  and (2) has 
been subject to such filing requirements for the past 90 days. Yes  X    No

         At November  14,  1996,  there were  7,953,440  shares of common  stock
outstanding.









<PAGE>




                             COTELLIGENT GROUP, INC.


                                      INDEX

                         Part 1 - Financial Information


         Item 1. Financial Statements

                  Cotelligent Group, Inc.
                      Balance Sheet at March 31, 1996 and September 30, 1996
                      Statement of Operations for the Three and Six Months 
                         Ended September 30, 1995 and 1996 (Unaudited)
                      Statement of Cash Flows for the Six Months Ended 
                         September 30, 1995 and 1996(Unaudited)

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


                           Part II - Other Information






<PAGE>



                                 COTELLIGENT GROUP, INC.

                                CONSOLIDATED BALANCE SHEET

                             (In Thousands Except Share Data)
<TABLE>

                                                                              March 31, 1996          September 30, 1996   
                                                                            ---------------------     ---------------------
<S>                                                                        <C>                         <C>       
                                                                                                         (Unaudited)
Current Assets:
     Cash and cash equivalents........................................     $            14,548         $           9,987 
     Accounts receivable, less allowance for doubtful accounts of $120                  15,907                    16,823 
     Notes from stockholders..........................................                      74                        38
     Notes receivable from related party..............................                     105                         -  
     Deferred income taxes............................................                     286                       337 
     Prepaid expenses and other current assets........................                     682                       952 
                                                                         ---------------------     ---------------------
         Total current assets.........................................                  31,602                    28,137 
                                                                         ---------------------     ---------------------
Property and equipment, net...........................................                   1,465                     2,469 
Deferred income taxes.................................................                     266                       188 
Other assets..........................................................                     157                       126 
                                                                          =====================     =====================
         Total assets.................................................        $         33,490          $         30,920 
                                                                          =====================     =====================
                          
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Short-term debt...................................................     $           3,980        $             1,608
     Accounts Payable..................................................                   654                      1,617
     Accrued compensation and related payroll liabilities..............                 4,140                      4,377
     Income taxes payable..............................................                 1,243                        771
     Deferred income taxes.............................................                   846                        821
     Due to related party..............................................                   417                        100
     Other accrued liabilities.........................................                 1,510                      1,487
                                                                         ---------------------       --------------------
         Total current liabilities.....................................                12,790                     10,781
                                                                         ---------------------       --------------------
Long-term debt.........................................................                   450                        216
Deferred income taxes..................................................                    19                         20
Other long-term liabilities............................................                   942                        341

Stockholders' equity:
     Common Stock, $0.01 par value;100,000,000 shares authorized;
        7,917,440 and 7,953,440 shares outstanding, respectively.......                   79                          80
     Preferred Stock, $0.01 par value; 500,000 shares authorized; none
        issued and outstanding.........................................                    -                           -
     Additional paid-in capital........................................               18,202                      18,006
     Retained earnings ................................................                1,008                       1,476
                                                                        ---------------------        --------------------   
        Total stockholders' equity.....................................               19,289                      19,562
                                                                        =====================        ====================
        Total liabilities and stockholders' equity.....................     $         33,490            $         30,920
                                                                        =====================        ====================
</TABLE>




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




<PAGE>

                         COTELLIGENT GROUP, INC.

                    CONSOLIDATED STATEMENT OF OPERATIONS

              (In Thousands Except Share and Per Share Data)
                              (Unaudited)



<TABLE>

                                                     Three Months                            Pro Forma Three       Pro Forma Six
                                                        Ended           Six Months Ended       Months Ended         Months Ended
                                                  September 30, 1996   September 30, 1996   September 30, 1996   September 30, 1996
                                                  ------------------   ------------------   ------------------   -------------------
<S>                                               <C>                   <C>                 <C>                  <C>  
 
Revenues......................................... $         27,782      $          53,195    $         27,782     $          53,195
Cost of services.................................           19,707                 38,340              19,707                38,340
                                                  -----------------     ------------------   -----------------    ------------------
     Gross Margin...............................             8,075                 14,855               8,075                14,855
Non-recurring transaction costs.................               543                    788                   -                     -
Selling, general and administrative expenses....             6,153                 11,477               6,187                11,386
                                                  -----------------     ------------------   -----------------    ------------------
     Operating income...........................             1,379                  2,590               1,888                 3,469
Other (income) expense:
     Interest expense...........................                44                    130                  44                   108
     Interest income............................               (78)                  (216)                (78)                 (208)
     Other......................................               (28)                   (32)                (28)                  (32)
                                                  -----------------     ------------------   -----------------    ------------------
       Total other..............................               (62)                  (118)                (62)                 (132)
Income before provision for income taxes........             1,441                  2,708               1,950                 3,601
Provision for income taxes......................               575                  1,855                 741                 1,368 
                                                  -----------------     ------------------    ----------------    ------------------
Net income......................................   $           866       $            853      $        1,209     $           2,233 
                                                  =================     ==================    ================    ==================
                                                  
           
Net income per share (Note 4)...................  $            .11      $             .10     $           .15     $             .27 
                                                  =================     ==================    ================    ==================
                                                                                                                                    
Pro forma net income (adjusted for                                                                                                  
     income taxes - Note 5).....................   $            961      $           1,679                                          
                                                  =================     ==================                                          
                                                                                                                                    
Pro forma net income per share                                                                                                      
    (adjusted for income taxes)................   $           .12       $             .21                                           
                                                  ================      ==================                                          
                                                                                                                                    
Weighted average shares outstanding............         8,202,212               8,159,463            8,202,212            8,159,463 
                                                  ================      ==================   ==================    =================
                                                  
</TABLE>

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


(CONTINUED)

<PAGE>

                              COTELLIGENT GROUP, INC.            
                                                                 
                         CONSOLIDATED STATEMENT OF OPERATIONS    
                                                                 
                    In Thousands Except Share and Per Share Data)
                                   (Unaudited)                   
                    

<TABLE>

                                                    Three Months                           Pro Forma Three      Pro Forma Six
                                                       Ended           Six Months Ended      Months Ended        Months Ended
                                                  September 30, 1995  September 30, 1995   September 30, 1995  September 30, 1995
                                                  ------------------  -------------------  ------------------  -------------------
<S>                                               <C>                  <C>                 <C>                 <C>
 
Revenues......................................... $           5,980    $          11,769     $        21,836     $         42,405
Cost of services.................................             4,196                8,224              16,291               31,642
                                                  ------------------  -------------------  ------------------  -------------------
     Gross Margin...............................              1,784                3,545               5,545               10,763
Non-recurring transaction costs.................                  -                    -                   -                    -
Selling, general and administrative expenses....              1,528                3,017               4,326                8,326
                                                  ------------------  -------------------   -----------------  -------------------
     Operating income...........................                256                  528               1,219                2,437
Other (income) expense:
     Interest expense...........................                 43                   71                 130                  231
     Interest income............................                 (1)                  (1)                (15)                 (32)
     Other......................................                 (9)                 (15)                (29)                 (52)
                                                  ------------------  --------------------   ----------------  -------------------
       Total other..............................                 33                   55                  86                  147  
                                                  ------------------  --------------------   ----------------  -------------------
Income before provision for income taxes........                223                  473               1,133                2,290
Provision for income taxes......................                  2                   47                 453                  901 
                                                  ==================  ====================   ================  ===================
Net Income......................................   $            221    $             426      $          680    $           1,389   
                                                  ==================  ====================   ================  ===================
                                                  
           
Net income per share (Note 4)...........................................................     $          0.11    $            0.23   
                                                                                             ================  ===================
                                                                                                                                    
Weighted average shares outstanding.....................................................           6,101,350            6,101,350  
                                                                                             ================  ===================
                                                  
</TABLE>

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


<PAGE>
                                   COTELLIGENT GROUP, INC.            
                                                                      
                              CONSOLIDATED STATEMENT OF CASH FLOWS    
                                                                      
                                      (In Thousands)
                                       (Unaudited)                   
                         

<TABLE>
                                                                                Six Months Ended
                                                                    ----------------------------------------
                                                                    September 30, 1995   September 30, 1996
                                                                    ------------------   -------------------  
<S>                                                                 <C>                  <C>
Cash flows from operating activities:                                                                                               
    Net income................................................      $             426    $              853   
    Adjustments to reconcile net income to net cash provided
       by operating activities:
       Depreciation and amortization..........................                     38                   330                         
       (Gain) on disposal of property and equipment...........                      -                  (272)
       Deferred income taxes, net.............................                      -                    27  
       Changes in current assets and liabilities:                                                        
           Accounts receivable................................                   (328)                 (916)
           Prepaid expenses and other current assets..........                    (23)                 (270) 
           Accounts payable and accrued expenses..............                    892                 1,306 
           Income taxes payable...............................                     19                  (866)   
           Increase (decrease) in other liabilities                                (4)                  (23) 
       Changes in other assets................................                   (903)                   (8)
                                                                 ---------------------  --------------------  
           Net cash provided in operating activities..........                    117                    161  
                                                                 ---------------------  --------------------  
Cash flows from investing activities:                                                                                               
   Proceeds on sale of assets.................................                      -                   280  
   Purchases of property and equipment........................                   (248)               (1,334)  
   Net repayments from (advances to) related parties..........                    (10)                  100  
                                                                 ---------------------  --------------------  
            Net cash used in investing activities.............                   (258)                 (954) 
                                                                 ---------------------  --------------------  
Cash flows from financing activities:                                                                                               
   Repurchase of common stock.................................                    268                     -   
   Proceeds on long-term debt.................................                    215                     -   
   Payments on long-term debt.................................                     (8)                 (168) 
   Net borrowings (repayments) on short-term debt.............                     (2)               (2,837)  
   Payments on loans with related parties.....................                      -                  (244) 
   Net proceeds from issuance of common stock.................                     47                    46 
   Distribution to founding Companies former stockholders.....                    (73)                 (423) 
   Dividends..................................................                    (26)                 (142) 
                                                                 ---------------------  --------------------  
            Net cash provided by (used in) financing activities                   421                (3,768)  
                                                                 ---------------------  --------------------  
   Net increase (decrease) in cash and cash equivalents.......                    280                (4,561)  
   Cash and cash equivalents at beginning of period...........                    462                14,548   
                                                                 ---------------------  --------------------  
   Cash and cash equivalents at end of period................    $                742    $            9,987   
                                                                 =====================  ====================  
Supplemental disclosures of cash flow information:                                                                                  
   Interest paid.............................................     $                40    $              110   
   Income taxes paid ........................................     $                46    $            2,117   
</TABLE>

                                                                 
<PAGE>



                             COTELLIGENT GROUP, INC.

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

Note 1 - Business Organization and Basis of Presentation

         Cotelligent Group, Inc.  ("Cotelligent" or the "Company") was formed to
acquire,  own  and  operate  professional  service  businesses  specializing  in
computer consulting and contract programming.  On February 20, 1996, Cotelligent
acquired  (the  "Acquisitions")  four  companies  (the  "Founding   Companies"):
Financial  Data  Systems,  Inc.("FDSI"),  BFR  Co.,  Inc.("BFR"),  Data  Arts  &
Sciences,   Inc.  (`DASI")  and  Chamberlain   Associates,   Inc.  ("CAI").  All
outstanding shares of the Founding  Companies' capital stock were converted into
shares of Cotelligent  Common Stock  concurrently  with the  consummation  of an
initial public offering (the "Offering") of such Common Stock.

         The aggregate  consideration  paid by Cotelligent in these  transaction
was $3,492 in cash,  3,206,875  shares of Common  Stock of the  Company  and the
assumption of  approximately  $3,000 in debt, for an aggregate value of $35,304.
The aggregate  consideration for each of the Founding  Companies was as follows:
BFR:$11,958,  consisting  of $1,450 paid in cash and  1,167,587 of Common Stock;
CAI; $3,999 consisting of $300 paid in cash,  388,761 shares of Common Stock and
$200 in short-term and related-party  debt; DASI: $5,606 consisting of $400 paid
in  cash,   443,044  shares  of  Common  Stock  and  $1,219  in  short-term  and
related-party  debt;  and  FDSI:  $13,740  consisting  of  $1,342  paid in cash,
1,207,483 shares of Common Stock and $1,531 in short-term, long-term and related
party debt. As a result of the substantial continuing interest in the Company of
the former stockholders of BFR, CAI DASI, FDSI and Cotelligent, the Acquisitions
were accounted for on a historical cost basis.

         On June 28, 1996  Cotelligent  acquired ESP Software  Services,  Inc. 
("ESP") and INNOVA  Solutions,  Inc.("ISI") and on September 30, 1996 acquired
JasTech,  Inc. and JasTech of Florida,  Inc. ("JTI")  (collectively the "Pooled
Companies") in business combinations accounted for under the pooling-of-
interests method.

         The accompanying  consolidated financial statements include Cotelligent
Group,  Inc.,  restated to give  effect of the mergers of the Pooled  Companies,
through the date of acquisition of the Founding  Companies on February 20, 1996,
after which the financial  statements also reflect the results of the Founding
Companies.

         The pro forma  statements  of  operations  includes  the results of the
Founding  Companies and the Pooled  Companies as if they had been combined since
April 1, 1995. Pro forma data also reflects  adjustments  for: (i)  compensation
differentials  to former owners of the acquired  entities;  (ii)  termination of
contributions  to  retirement  plans;  (iii)  incremental  selling,  general and
administrative costs associated with Cotelligent corporate activities ; (iv) the
exclusion of non-recurring  transaction  costs related to the acquisition of the
Acquired  Companies;  and (v) income taxes as if the entities  were combined and
subject to the  effective  federal  and state  statutory  rates  throughout  the
periods presented.

Note 2 - Summary of Significant Accounting Policies

         The  accompanying  interim  financial  statements  do not  include  all
disclosures  included in the  financial  statements  for the fiscal  years ended
March 31,  1994,  1995 and 1996 as included in  Cotelligent's  Form 10-K for the
year ended March 31, 1996, and therefore  should be read in conjunction with the
financial statements included in the Form 10-K.

         In the opinion of management, the interim financial statements filed as
part of this  Form  10-Q  reflect  all  adjustments,  consisting  only of normal
recurring accruals,  necessary for a fair presentation of the financial position
and the  results  of  operations  and of cash  flows  for  the  interim  periods
presented.




<PAGE>


                             COTELLIGENT GROUP, INC.

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                 (In Thousands Except Share and Per Share Data)
                                   (Unaudited)

Note 3 - Changes in Stockholders' Equity

<TABLE>                                                                         

                                                                                                                   Total
                                                                          Additional Paid       Retained        Stockholders'
                                                     Common Stock          -In   Capital        Earnings           Equity
                                               ------------------------  -----------------   -------------   -----------------
                                                  Shares       Amount
                                               ------------- ----------
<S>                                              <C>          <C>         <C>                 <C>               <C>       
Balance at March 31, 1996...................       7,917,440  $     79    $        18,202     $     1,008       $      19,289
Dividends...................................               -         -                  -            (385)               (385)    
Distribution to former ESP stockholder......               -         -               (423)              -                (423)
Issuance of Common Stock....................          36,000         1                 45               -                  46
Tax benefit on stock options................               -         -                182               -                 182       
Net Income..................................               -         -                  -             853                 853
                                               ------------- ----------  -----------------   -------------   ----------------- 
Balance at September 30, 1996...............     7,953,440    $     80       $     18,006     $     1,476       $      19,562  
                                               ============= ==========  =================   =============   ================= 
</TABLE>
                                                     


Note 4 - Earnings Per Share

         Historical  earnings  per  share for the quarter and six  months  ended
September  30,  1995  has  not  been  presented  because  it is  not  considered
meaningful  as a result of the merger of the Founding Companies and
simultaneous initial public offering of the Company's stock, all which occurred
on February 20, 1996 (See Note 1).  Earnings per share has been  presented  on 
a  historical  basis for the second quarter fiscal 1997 and on a pro forma basis
for all periods presented.

Note 5 - Unaudited Pro Forma Income Tax Information

         Prior to the acquisition of the Pooled Companies,  ISI, ESP and JasTech
of Florida,  Inc. were S corporations and accordingly,  the financial statements
of ISI, ESP and JasTech of Florida,  Inc. did not reflect a provision for income
taxes, as income taxes were the  responsibility of the individual  stockholders.
Effective with their  respective  acquisitions  ISI, ESP and JasTech of Florida,
Inc.  terminated their S corporation  status. The following  unaudited pro forma
income tax  information  is presented in accordance  with Statement of Financial
Accounting  Standards  No.  109 as if the  companies  had  been a C  corporation
subject to federal and state income taxes thoughout the periods presented.

<TABLE>
                                                                 Quarter Ended       Quarter Ended
                                                                 September 30,       September 30,
                                                                      1995                1996
                                                                 -------------        ------------
<S>                                                              <C>                 <C>
Income before provision for income taxes.......................  $        473        $      2,708
Provision for income taxes.....................................           120               1,029
                                                                 -------------       -------------
Pro forma net income..........................................   $        353        $      1,679
                                                                 -------------       -------------
</TABLE>




<PAGE>


                                ITEM 2
          Management's Discussion and Analysis of Financial 
                  Condition and Results of Operations

Overview

         Cotelligent  was formed in February  1993 to  acquire,  own and operate
professional service businesses specializing in computer consulting and contract
programming.  On February 20, 1996,  Cotelligent  acquired (the  "Acquisitions")
four companies (the "Founding Companies"): Financial Data Systems, Inc.("FDSI"),
BFR Co.,  Inc.("BFR"),  Data Arts &  Sciences,  Inc.  ("DASI")  and  Chamberlain
Associates,  Inc.  ("CAI").  The Founding  Companies  have  operated  since 1975
(DASI), 1980 (CAI), 1982 (FDSI) and 1985 (BFR).

         On June 28, 1996 Cotelligent acquired two Companies which have operated
since 1987 (ESP) and 1991 (ISI).  On  September  30, 1996  Cotelligent  acquired
JasTech (JTI) which has operated since 1984.

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

         Pro  forma  data  also  reflects   adjustments  for:  (i)  compensation
differentials  to former owners of the acquired  entities;  (ii)  termination of
contributions  to  retirement  plans;  (iii)  incremental  selling,  general and
administrative costs associated with Cotelligent corporate activities;  (iv) the
exclusion of non-recurring  transaction  costs related to the acquisition of the
Pooled  Companies;  and (v) income  taxes as if the entities  were  combined and
subject to the  effective  federal  and state  statutory  rates  throughout  the
periods presented.


<PAGE>


                    PRO FORMA RESULTS OF OPERATIONS

          Three Months Ended September 30, 1996 Compared to 
               Three Months Ended September 30, 1995


Revenues

         Revenues  increased  $6.0  million,  or 27.2%,  to $27.8 million in the
three  months ended  September  30, 1996  ("second  quarter of 1997") from $21.8
million in the three months ended September 30, 1995 ("second quarter of 1996").
The  increase was  primarily  attributable  to a 21.0%  increase in total client
service  hours  provided  to 468,000  hours in the  second  quarter of 1997 from
387,000 hours in the second  quarter of 1996, and a 5.0% increase in the average
hourly  billing rate to $58.83 in the second  quarter of 1997 from $56.02 in the
second quarter of 1996.  The increase in hourly billing rate reflects  increased
demand  for  employees  and  consultants  with  higher  skill  levels and a more
favorable economic climate. The increases discussed above were in addition to an
increase in placement fee revenues  generated to $254,000 in the second  quarter
of 1997 from $159,000 in the second quarter of 1996.

Gross Margin

         The pro forma gross margin increased $2.6 million,  or 45.60 %, to $8.1
million in the second quarter of 1997 from $5.5 million in the second quarter of
1996,  primarily  as a result of an  increase  in hours of service  provided  to
clients.  Gross  margin as a  percentage  of revenues  increased to 29.1% in the
second quarter of 1997 from 25.4% in the second quarter of 1996, principally due
to an increase in project management engagements.

Selling, General and Administrative Expenses

         Selling,  general  and  administrative  expenses  on a pro forma  basis
increased  $1.9 million or 43.0%,  to $6.2 million in the second quarter of 1997
from $4.3  million  in the second  quarter of 1996.  The  increase  in  absolute
dollars was primarily due to increased  compensation to existing staff and staff
added to support  current and  anticipated  future growth,  increased  occupancy
expenses and related  operating  costs  associated  with the  Company's  growth.
Selling,  general and  administrative  expenses as a percentage of revenues were
22.3% for the second quarter of 1997 as compared to 19.8% for the second quarter
of 1996.

Interest Expense, Net

         Interest  expense,  net of  interest  income on a pro  forma  basis was
$115,000 in the second quarter of 1996. Interest income, net of interest expense
of $34,000 in the second quarter of 1997,  resulted from interest income on cash
provided  from the  Offering  and  consolidation  of banking  facilities  of the
Founding Companies effective June 1, 1996.

Provision for Income Taxes

         Provision  for  income  taxes on a pro forma  basis  were  $741,000  an
effective  tax rate of 39.0% of pro forma  income  before  provision  for income
taxes for the second  quarter of 1997,  compared to $453,000,  an effective  tax
rate of 40.0% of pro forma income before provision for income taxes for the 
second quarter of 1996. The reduced rate  reflects an  expansion  of  operations
in states  which do not have state income taxes.



<PAGE>


                    HISTORICAL COMBINED RESULTS OF OPERATIONS

               Three Months Ended September 30, 1996 Compared to 
                    Three Months Ended September 30, 1995

Revenues

         Revenues  increased $21.8 million,  or 364.6%,  to $27.8 million in the
second  quarter of 1997 from $6.0  million in the  second  quarter of 1996.  The
increase  was  primarily  attributable  to the  inclusion  of $13.0  million  of
revenues of the Founding  Companies in the second quarter of 1997 coupled with a
28.6% increase in total client service hours provided by the Pooled Companies to
162,000  hours in the second  quarter of 1997 from  126,000  hours in the second
quarter of 1996, and an 11.0% increase in the average hourly billing rate of the
Pooled  Companies  to $52.18 in the second  quarter  of 1997 from  $47.00 in the
second quarter of 1996.  The increase in hourly billing rate reflects  increased
demand  for  employees  and  consultants  with  higher  skill  levels and a more
favorable economic climate. The increases discussed above were in addition to an
increase in placement fee revenues of the Pooled Companies.

Gross Margin

         Gross margin increased $6.3 million,  or 352.6%, to $8.1 million in the
second  quarter  of 1997  from  $1.8  million  in the  second  quarter  of 1996,
primarily  due to the  inclusion  of the $5.0  million  in gross  margin  of the
Founding  Companies in the second  quarter of 1997  together with an increase in
hours of service  provided to clients.  Gross margin as a percentage of revenues
decreased  to 29.1% in the  second  quarter  of 1997  from  29.8% in the  second
quarter of 1996, primarily due to lower margins inherent in the client contracts
of the Founding Companies.

Non - Recurring Transaction Costs

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

Selling, General and Administrative Expenses

         Selling, general and administrative expenses increased $4.6 million, or
302.7%,  to $6.1 million in the second  quarter of 1997 from $1.5 million in the
second  quarter of 1996.  The increase in absolute  dollars was primarily due to
the  inclusion  of the $3.5  million  in  selling,  general  and  administrative
expenses of the Founding  Companies in the second  quarter of 1997 together with
increased  compensation to existing staff and staff added to support anticipated
growth.  Selling,  general and administrative expenses decreased as a percentage
of  revenues  from  25.6% in the  second  quarter of 1996 to 22.1% in the second
quarter of 1997,  primarily  due to the  spreading of corporate  overhead over a
larger revenue base.

Interest Expense, Net

         Interest  expense,  net of interest  income,  was $42,000 in the second
quarter of 1996.  Interest  income,  net of  interest  expense of $34,000 in the
second quarter of 1997,  resulted from interest income on cash provided from the
Offering and  consolidation  of banking  facilities  of the  Founding  Companies
effective June 1, 1996.

Provision for Income Taxes

         The Company's  provision for income taxes  increased to $575,000 in the
second   quarter  of  1997,   which   reflects  an   adjustment   to  bring  the
year-to-dateprovision  on pre-tax  income to 39%.  The Company  expects that its
effective statutory tax rate for the year ending March 31, 1997 will approximate
39%.



<PAGE>


                         PRO FORMA RESULTS OF OPERATIONS

               Six Months Ended September 30, 1996 Compared to 
                    Six Months Ended September 30, 1995

Revenues.

      Revenues  increased  $10.8 million,  or 25.4%, to $53.2 million in the six
months ended September 30, 1996 ("first half of 1997") from $42.4 million in the
six months ended  September  30, 1995  ("first half of 1996").  The increase was
primarily  attributable  to a 17.5%  increase  in  total  client  service  hours
provided to 905,000  hours in the first half of 1997 from  770,000  hours in the
first half of 1996,  and a 6.3% increase in the average  hourly  billing rate to
$58.25 in the  first  half of 1997 from  $54.78 in the first  half of 1996.  The
increase in hourly  billing rate  reflects  increased  demand for  employees and
consultants with higher skill levels and a more favorable economic climate.  The
increases  discussed  above were in addition to an  increase  in  placement  fee
revenues  generated  to $434,000 in the first half of 1997 from  $237,000 in the
first half of 1996.

Gross Margin

     The pro forma gross  margin  increased  $4.1  million,  or 38.0%,  to $14.9
million in the first half of 1997 from $10.8  million in the first half of 1996,
primarily  as a result of an increase  in hours of service  provided to clients.
Gross margin as a percentage of revenues increased to 27.9% in the first half of
1997 from 25.4% in the first half of 1996,  principally  due to an  increase  in
project management engagements, which generally have higher gross margins.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses on a pro forma basis increased
$3.1  million,  or 36.8%,  to $11.4  million in the first half of 1997 from $8.3
million  in the  first  half of 1996.  The  increase  in  absolute  dollars  was
primarily  due to increased  compensation  to existing  staff and staff added to
support current and anticipated future growth,  increased occupancy expenses and
related operating costs associated with the Company's growth.  Selling,  general
and administrative expenses as a percentage of revenues were 21.4% for the first
half of 1997 as compared to 19.6% for the first half of 1996.

Interest Expense, Net
 .
     Interest expense,  net of interest income on a pro forma basis was $199,000
in the first half of 1996.  Interest income, net of interest expense of $100,000
in the first half of 1997,  resulted from interest  income on cash provided from
the Offering and consolidation of banking facilities of the Founding Companies.

Provision for Income Taxes

     Provision  for  income  taxes on a pro forma  basis  were $1.4  million  an
effective  tax rate of 38.0% of pro forma  income  before  provision  for income
taxes for the first half of 1997,  compared to $901,000 an effective tax rate of
40.0% of pro forma income  before  provision for income taxes for the first half
of 1996. The reduced rate reflects an expansion of operations in states which do
not have state income taxes.



                    HISTORICAL COMBINED RESULTS OF OPERATIONS

                 Six Months Ended September 30, 1996 Compared to 
                       Six Months Ended September 30, 1995

Revenues.

     Revenues increased $41.4 million,  or 352.0%, to $53.2 million in the first
half of 1997 from  $11.8  million in the first half of 1996.  The  increase  was
primarily  attributable  to the  inclusion  of $36.8  million in revenues of the
Founding  Companies in the first half of 1997  coupled with a 19.2%  increase in
total client service hours provided by the Pooled  Companies to 310,000 hours in
the first half of 1997 from 260,000 hours in the first half of 1996, and a 16.5%
increase in the average hourly billing rate of the Pooled Companies to $52.31 in
the first half of 1997 from  $44.89 in the first half of 1996.  The  increase in
hourly billing rate reflects increased demand for employees and consultants with
higher skill levels and a more favorable economic climate.
<PAGE>

Gross Margin.

     Gross margin  increased $11.3 million,  or 319.0%,  to $14.9 million in the
first half of 1997 from $3.5 million in the first half of 1996, primarily due to
the  inclusion of the $9.5 million in gross margin of the Founding  Companies in
the first half of 1997 together with an increase in hours of service provided to
clients  by the Pooled  Companies.  Gross  margin as a  percentage  of  revenues
decreased  to 27.9% in the first  half of 1997 from  30.1% in the first  half of
1996,  primarily due to lower gross margins  inherent in the  engagements of the
Founding Companies.

Non-Recurring Transaction Costs

     Non-recurring  transaction costs include  expenditures  associated with the
acquisition  of  the  Pooled  Companies  as  a  result  of  accounting  for  the
acquisitions as poolings-of-interests.

Selling, General and Administrative Expenses

     Selling,  general and administrative  expenses  increased $8.5 million,  or
280.4%,  to $11.5  million  in the first  half of 1997 from $3.0  million in the
first half of 1996.  The increase in absolute  dollars was  primarily due to the
inclusion of the $6.5 million in selling,  general and  administrative  expenses
for the Founding  Companies in the first half of 1997  together  with  increased
compensation  to existing staff and staff added to support  anticipated  growth.
Selling,  general and  administrative  expenses  decreased  as a  percentage  of
revenues  from  25.6% in the first  half of 1996 to 21.6% in the  first  half of
1997, primarily due to the spreading of corporate overhead over a larger revenue
base.

Interest Expense, Net

     Interest expense,  net of interest income, was $70,000 in the first half of
1996.  Interest income,  net of interest expense of $86,000 in the first half of
1997,  resulted  from  interest  income on cash  provided  from the Offering and
consolidation of the banking facilities of the Founding Companies.

Provision for Income Taxes

     The Company's  provision for income taxes  increased to $1.9 million in the
first  half of  1997,  which  includes  an  $799,000  provision  related  to the
termination of the S corporation  status of the Pooled Companies together with a
39%  provision  on  pre-tax  income.  The  Company  expects  that its  effective
statutory tax rate for the year ending March 31, 1997 will approximate 38%.





<PAGE>




                         LIQUIDITY AND CAPITAL RESOURCES

         The Company has financed its growth principally through cash flows from
operations,  periodic  borrowings  under its credit  facilities,  and cash 
generated from the February 20, 1996 sale of stock to the public.

         The  Company's  primary  source of liquidity is the  collection  of its
accounts receivable.  Accounts receivable have grown as the Company's operations
have grown.  Receivables  decreased to 62 days of revenue at September  30, 1996
from 65 days of  revenue  at March 31,  1996.  The  Company's  ability to reduce
significantly  the aging of its outstanding  receivables is limited because of a
continuing general trend by clients to slow their payment of invoices as a means
of  managing  cash.  Should the  Company not be able to bill and collect for its
services on a timely basis, the Company could utilize existing cash on hand or 
draw upon available credit facilities to finance its operations.

         Cash flow  provided by  operating  activities  was $161,000 for the six
months ended  September 30, 1996.  During this period the Company has utilized
this cash plus a portion of existing cash balance to acquire fixed assets ($1.3)
million and to reduce short term debt ($2.8)  million.  The average  balance of
such  borrowings  outstanding was approximately  $2.8 million and approximately
$1.3 million during the first six months of 1997 and 1996, respectively.

         At September  30, 1996,  the Company had $10.0 million in cash and cash
equivalents  as compared to $14.5  million at March 31, 1996.  At September  30,
1996, the Company had short-term  notes payable under its bank revolving  credit
facilities and current installments of long-term obligations  outstanding in the
amount of $1.6  million.  Long-term  obligations,  consisting  of capital  lease
obligations and equipment loans, totaled $341,000 at September 30, 1996 compared
to $942,000 at March 31, 1996.

         Cotelligent  and each of the Founding  Companies  had separate  banking
relationships  through May 31,  1996.  Effective  June 1, 1996,  these  separate
banking  relationships were consolidated into a single banking relationship with
a major bank. The single relationship will provide for a more effective means of
managing operating capital. The new relationship provides a credit facility (the
"Facility") in the amount of $20.0 million for the Company,  secured by accounts
receivable  and  other  assets  of the  Company.  ESP and ISI  terminated  their
separate banking relationship in September 1996 and are now included in the 
consolidated credit facility. JTI will begin using the Company's banking
relationship in the near term.  Borrowings on the Facility bear interest  at  
the  bank's  prime  rate.  The  Company  intends  to  borrow from time-to-time 
to meet normal  operating  needs,  finance its  receivables or to effect 
acquisitions in connection with its acquisition strategy.

         As of April 1, 1995,  BFR  terminated  its S corporation  status.  As a
result, federal and state income taxes of approximately $463,000 are expected to
be paid ratably over the next two years. ESP and ISI terminated their respective
S corporation  elections on June 28, 1996. The  termination  of these  elections
will result in federal and state income taxes of  approximately  $800,000  being
paid ratably over the next four years.

         The Company  believes the net proceeds from the sale of Common Stock in
the Offering,  together with existing  sources of liquidity and funds  generated
from  operations,  will provide adequate cash to fund its anticipated cash needs
at least through the next six months.



<PAGE>


                           PART II - OTHER INFORMATION

Item 1.    Legal Proceedings.

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

Item 2.  Changes in Securities.

           None.

Item 3.  Defaults Upon Senior Securities.

           None.

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

           (A.)  The Company held its annual meeting of stockholders on 
                    September 10, 1996.

           (B.)  The following persons were elected to serve as directors for 
                    a three-year term expiring at the Annual Meeting in 1999:

                                    Edward E. Faber
                                    Daniel M. Beals
                                    Linda M. Cassell
                                    Harvey L. Poppel

                  The following persons are directors whose terms of office 
                    continue after the meeting and expire at the annual meeting
                    in 1997:

                                    Anthony M. Frank
                                    James R. Lavelle
                                    Bjorn E. Nordemo

                  The following persons are directors whose terms of office 
                    continue after the meeting and expire at the annual meeting
                    in 1998:

                                    Michael L. Evans
                                    Jeffery J. Bernardis
                                    John E. Chamberlain
                                    B. Tom Green

           (C.)    The following is a brief description of each matter voted 
                    upon at the annual meeting:

                  1.   Elections of four directors to serve for a three-year 
                         term expiring at the annual meeting 1999.

                                                  For      Against    Abstain
                          Edward E. Faber     5,995,868       0          350 
                          Daniel M. Beals     5,995,868       0          350    
                          Linda M. Cassell    5,995,868       0          350    
                          Harvey L. Poppel    5,995,868       0          350    


<PAGE>


                        PART II - OTHER INFORMATION
                                 (Continued)

                  2.   Approve the appointment of Price Waterhouse LLP as the 
                         Company's independent certified public accountants.

                                    FOR           5,988,008
                                    AGAINST           5,100 
                                    ABSTAIN           3,000

                  3.   Approve the Employee Stock Purchase Plan of the Company

                                    FOR           5,973,211
                                    AGAINST          14,897
                                    ABSTAIN           8,000

           (D.)    N/A


Item 5.  Other Information.

           None.


Item 6 Exhibits and Reports on Form 8-K.

           (a)    Exhibits.

           (b)    Reports on Form 8-K.

                  Thefollowing reports on Form 8-K have been filed during the
                    quarter ended September 30, 1996:

                  Cotelligent Group, Inc. acquisition of Innova Solutions, Inc.
                    nd ESP Software Services, Inc. - July 12, 1996.



<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
     the  registrant  has duly caused this report to be signed on its behalf
     by the undersigned, thereunto duly authorized.




                             COTELLIGENT GROUP, INC



Date:   November 14, 1996                        By :   /s/  Duane W. Bell

                                                       Duane W. Bell
                                                       Senior Vice President 
                                                            and Chief Financial 
                                                            Officer


<PAGE>


                                  EXHIBIT INDEX



NUMBER                          EXHIBIT                             PAGE

None

<PAGE>