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 June 30, 1998
                                       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 of                     (I.R.S. Employer
 incorporation or organization)                    Identification No.)

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

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

                                       N/A

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


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

         At August  13,  1998  there  were 14,128,457 shares of common  stock
outstanding.



<PAGE>



                             COTELLIGENT GROUP, INC.


                                      INDEX

                         Part I - Financial Information
<TABLE>
<CAPTION>

Item 1. Financial Statements                                                                        PAGE


<S>                                                                                                 <C>
Cotelligent Group, Inc.
         Consolidated Balance Sheets at June 30, 1998 and March 31, 1998                              3
         Consolidated Statements of Operations for the Three Months Ended
            June 30, 1998 and 1997                                                                    4
         Consolidated Statements of Cash Flows for the Three Months Ended
            June 30, 1998 and 1997                                                                    5
         Notes to Consolidated Financial Statements                                                   6



Item 2. Management's Discussion and Analysis of
         Financial Condition and Results of Operations                                               10


                           Part II - Other Information
Signatures                                                                                           15
</TABLE>


                                       2
<PAGE>





                             COTELLIGENT GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>

                                                                         June 30,            March 31,
                                                                           1998                1998
                                                                      ----------------    ----------------
                             ASSETS
<S>                                                                   <C>                 <C>
Current assets:
   Cash and cash equivalents..................................         $       43,666        $     40,528
   Accounts receivable, including unbilled accounts
    of $7,920 and $10,120 and net of allowance for doubtful
    accounts of accounts of $1,725 and $2,123, respectively...                 49,875              48,982
   Notes receivable from officers.............................                    190                 230
   Prepaid expenses and other.................................                  2,215               2,292
                                                                      ----------------    ----------------
     Total current assets.....................................                 95,946              92,032
Property and equipment, net...................................                  8,367               7,568
Goodwill, net of accumulated amortization of $580 and $359,
       respectively...........................................                 17,917              18,106
Other assets..................................................                    711                 853
                                                                      ================    ================
     Total assets.............................................          $     122,941         $   118,559
                                                                      ================    ================

              LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Short-term debt............................................          $         168          $      192
   Accounts payable...........................................                  7,751               4,344
   Accrued compensation and related payroll liabilities.......                 13,327              15,268
   Income taxes payable.......................................                  3,946               3,171
   Deferred tax liabilities...................................                    578                 508
   Other accrued liabilities..................................                  1,987               4,525
                                                                      ----------------    ----------------
     Total current liabilities................................                 27,757              28,003
Long-term debt................................................                    238                 199
Other long-term liabilities...................................                     18                  18
                                                                      ----------------    ----------------
     Total liabilities........................................                 28,013              28,220
                                                                      ----------------    ----------------
Stockholders' equity:
    Preferred Stock, $0.01 par value; 500,000 shares 
     authorized, no shares issued or outstanding..............                      -                   -
Common Stock, $0.01 par value; 100,000,000 shares authorized,
    14,097,359 and 14,057,884 shares issued and outstanding,
    respectively.............................................                     141                 141
Additional paid-in capital...................................                  81,409              80,335
Retained earnings............................................                  13,378               9,863
                                                                      ----------------    ----------------
    Total stockholders' equity...............................                  94,928              90,339
                                                                      ----------------    ----------------
    Total liabilities and stockholders'equity................         $       122,941      $      118,559
                                                                      ================    ================

</TABLE>




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



                                       3
<PAGE>





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


                                                                        Three Months          Three Months
                                                                            Ended                Ended
                                                                           June 30,             June 30,
                                                                             1998                 1997
                                                                       ---------------        --------------


<S>                                                                     <C>                     <C>        
Revenues......................................................          $     73,049            $    54,304
Cost of services..............................................                52,183                 38,187
                                                                        ---------------         --------------
     Gross profit ............................................                20,866                 16,117
Selling, general and administrative expenses..................                15,430                 12,962
                                                                       ---------------        --------------
     Operating income.........................................                 5,436                  3,155
Other income (expense):
     Interest expense ........................................                   (22)                  (118)
     Interest income..........................................                   332                     11
     Other ...................................................                    (2)                   (30)
                                                                       ---------------        --------------
        Total other income (expense)..........................                   308                   (137)
                                                                       ---------------        --------------
Income before provision for income taxes......................                 5,744                  3,018
Provision for income taxes....... ............................                 2,229                  1,208
                                                                       ---------------        --------------
Net income....................................................          $      3,515           $      1,810
                                                                       ===============        ==============
Earnings per share - basic and diluted........................          $       0.25           $       0.16
                                                                       ===============        ==============
Weighted average shares outstanding -
          Basic...............................................            14,084,703              11,322,569
                                                                       ===============        ==============
          Diluted.............................................            14,308,749              11,367,474
                                                                       ===============        ==============
</TABLE>



















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


                                       4
<PAGE>




                             COTELLIGENT GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                             Three Months Ended
                                                                     ------------------------------------
                                                                        June 30,            June 30,
                                                                          1998                1997
                                                                     ----------------    ----------------

<S>                                                                  <C>                 <C>
Cash flows from operating activities:
     Net income................................................      $         3,515      $      1,810
     Adjustments to reconcile net income to net cash provided
        by operating activities:
        Depreciation and amortization .........................                1,483               620
         Provision for doubtful accounts.......................                  154               125
         Loss on sale of assets................................                   16                 -
        Deferred income taxes, net ............................                    -                54
        Changes in current assets and liabilities:
              Accounts receivable .............................               (1,048)           (5,672)
              Prepaid expenses and other.......................                  117              (352)
              Accounts payable and accrued expenses ...........               (1,072)            4,403
              Income taxes payable ............................                  850             1,143
              Other liabilities ...............................                    -               224
        Changes in other assets ...............................                    -               100
                                                                     ----------------       ----------------    
              Net cash provided by operating activities                        4,015             2,455
                                                                     ----------------       ----------------
                                                                     
Cash flows from investing activities:
     Proceeds on sale of assets................................                  147                 -
     Purchases of property and equipment.......................               (2,112)             (886)
                                                                     ----------------    ----------------
             Net cash used in investing activities ............               (1,965)             (886)
                                                                     ----------------    ----------------
Cash flows from financing activities:
     Net borrowings (repayments) on short term debt............                   15            (4,528)
     Net proceeds from issuance of Common Stock................                1,073             1,734
                                                                     ----------------    ----------------
         Net cash provided by (used in) financing activities...                1,088            (2,794)
                                                                     ----------------    ----------------
     Net increase (decrease) in cash and cash equivalents.......               3,138            (1,225)
     Cash and cash equivalents at beginning of period...........              40,528             2,904
                                                                     ----------------    ----------------

     Cash and cash equivalents at end of period.................       $      43,666       $     1,679
                                                                     ================    ================
Supplemental disclosures of cash flow information:
     Interest paid..............................................       $          22       $       104
     Income taxes paid..........................................               1,454               133





</TABLE>




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



                                       5
<PAGE>



                             COTELLIGENT GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)


Note 1 - Business Organization and Basis of Presentation

         Cotelligent Group, Inc.  ("Cotelligent" or the "Company") was formed in
February  1993  to  acquire,  own and  operate  software  professional  services
businesses  specializing in providing information  technology ("IT") consultants
on a contract basis and consulting and  outsourcing  services to businesses with
complex IT operations.

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

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

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


Note 2 - Summary of Significant Accounting Policies

         Interim Financial Statement Presentation

         The  accompanying  interim  financial  statements  do not  include  all
disclosures  included in the financial  statements as included on  Cotelligent's
Annual Report on Form 10-K for the year ended March 31, 1998 ("Form 10-K"),  and
therefore should be read in conjunction with the financial  statements  included
on Form 10-K.

         In the opinion of management, the interim financial statements filed as
part of this Quarterly Report on 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.

         Comprehensive Income

     Effective  April 1,  1998,  the  Company  adopted  Statement  of  Financial
Accounting  Standards  Board  (SFAS) No. 130,  Reporting  Comprehensive  Income.
Except for net  income,  the  Company  does not have any  transactions  or other
economic events that qualify as  comprehensive  income as defined under SFAS No.
130.

Recent Accounting Pronouncements

         In June 1997, the FASB issued SFAS No. 131,  Disclosures About Segments
of an Enterprise  and Related  Information.  SFAS No. 131 introduces a new model
for segment reporting, called the "management approach". The management approach
is based on the manner in which management  organizes  segments within a company
for  making  operating  decisions  and  assessing  performance.  The  management
approach replaces the notion of industry and geographic segments. This statement
is effective for financial  statements for periods  beginning after December 15,
1997. The Company  operates  within one business  segment and therefore SFAS No.
131 does not affect the Company's current reporting.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative  Instruments and for Hedging Activities.  SFAS No. 133
requires  derivatives  to be recognized in balance  sheets at  fair-value.  This
statement is effective for financial statements for periods beginning after June
15,  1999.  The  Company  does not  believe  that  adoption of SFAS No. 133 will
materially affect the Company's financial statements.


                                       6
<PAGE>

                             COTELLIGENT GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)


Note 3 - Changes in Stockholders' Equity
<TABLE>
<CAPTION>

                                                              
                                     Common Stock              Additional                          Total  
                              ----------------------------      Paid-In          Retained       Stockholders'
                                Shares            Amount        Capital          Earnings          Equity
                              ------------      ----------    ------------    -------------    ---------------
<S>                           <C>               <C>           <C>              <C>              <C>          
Balance at March 31, 1998...    14,057,884       $    141     $    80,335      $    9,863       $      90,339
Issuance of Common Stock....        26,819              -           1,074               -               1,074
Net income..................             -              -               -           3,515               3,515
                              ============      ==========    ============    =============    ===============
Balance at June 30, 1998       14,084,703       $     141     $    81,409      $   13,378       $      94,928
                              ============      ==========    ============    =============    ===============

</TABLE>


Note 4 - Pro Forma Results

         The  following  "Pro  Forma"  results  reflect  adjustments  related to
businesses  accounted  for  under  the  pooling-of-interests  method  including:
compensation  differentials  to former  owners  and  employees,  termination  of
contributions  to retirement  plans,  elimination of  non-recurring  transaction
costs  related  to  the  acquisition  of  businesses  accounted  for  under  the
pooling-of-interests  method and income taxes as if the entities  were  combined
and subject to the effective  federal and state statutory  rates  throughout the
periods  discussed.  Since there were no  acquisitions  during the quarter ended
June 30, 1998, Pro Forma has not been presented for this period.
<TABLE>
<CAPTION>

                                                                                 Three Months
                                                                                     Ended
                                                                                 June 30,1997
                                                                              -------------------

<S>                                                                            <C>            
Revenues..................................................................     $        54,304
Cost of services..........................................................              38,179
                                                                               ----------------
     Gross profit.........................................................              16,125
Selling, general and administrative expenses..............................              12,527
                                                                               ----------------
     Operating income.....................................................               3,598
Other income (expense):
     Interest expense.....................................................               (118)
     Interest income......................................................                 11
     Other................................................................                (30)
                                                                               ----------------
        Total other income(expense).......................................               (137)
                                                                               ----------------
Income before provision for income taxes..................................              3,461
Provision for income taxes................................................              1,419
                                                                               ----------------
Net income ...............................................................     $        2,042
                                                                               ================

Earnings per share - basic and diluted....................................     $         0.18
                                                                               ================

Weighted average shares outstanding -
     Basic................................................................          11,322,569
                                                                               ================
     Diluted..............................................................          11,367,474
                                                                               ================
</TABLE>



                                       7
<PAGE>





                             COTELLIGENT GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)



Note 5 - Pro Forma For Purchased Companies Results

     In accordance with disclosure  requirements under the Accounting Principles
Board  Statement  No. 16, the  following  "Pro  Forma For  Purchased  Companies"
consolidated  statements of operations  for the three months ended June 30, 1998
and 1997 give effect to the  acquisitions of the Pooled  Companies and Purchased
Companies as if these  acquisitions had occurred on the first day of the periods
presented.  These Pro  Forma For  Purchased  Companies  consolidated  statements
reflect  adjustments  for the  acquisitions of the Pooled  Companies  including:
compensation  differentials  to former  owners  and  employees,  termination  of
contributions  to retirement  plans,  elimination of  non-recurring  transaction
costs  related  to  the  acquisition  of  businesses  accounted  for  under  the
pooling-of-interests  method and income taxes as if the entities  were  combined
and subject to the effective  federal and state statutory  rates  throughout the
periods  discussed.  Additionally,  these  Pro  Forma  For  Purchased  Companies
consolidated  financial  statements reflect  adjustments for interest expense on
cash  consideration  and  amortization of goodwill  resulting from the Purchased
Companies for all periods prior to their acquisition.
<TABLE>
<CAPTION>

                                                                      Three Months        Three Months
                                                                          Ended               Ended
                                                                        June 30,            June 30,
                                                                          1998                1997
                                                                     ----------------    ----------------


<S>                                                                   <C>                 <C>          
                Revenues.......................................       $    73,049         $      60,696
                Cost of services...............................            52,183                42,930
                                                                     ----------------    ----------------
                       Gross profit............................            20,866                17,766
                Selling, general and administrative expenses...            15,430                13,598
                                                                     ----------------    ----------------
                Operating income ..............................             5,436                 4,168
                Other income (expense).........................               308                  (240)         
                                                                     ----------------    ----------------
                Income before provision for income taxes.......             5,744                 3,928
                Provision for income taxes.....................             2,229                 1,610
                                                                     ----------------    ----------------
                Net income.....................................       $     3,515         $       2,318
                                                                     ================    ================
                Earnings per share basic and diluted...........       $      0.25         $        0.20
                                                                     ================    ================
                Weighted average shares outstanding -
                     Basic.....................................        14,084,703            11,322,569
                                                                     ================    ================    
                     Diluted...................................        14,308,749            11,367,474
                                                                     ================    ================


</TABLE>


                                       8
<PAGE>





                             COTELLIGENT GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands, except share data)


Note 6 - Earnings Per Share

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

                                                                   For the Year Ended June 30, 1998
                                                          ---------------------------------------------------
                                                                                                Per Share
                                                               Income             Shares           Amount
                                                          -----------------    --------------   -------------
<S>                                                       <C>                  <C>              <C> 
Basic earnings per share-
Net income available to common stockholders                $       3,515          14,084,703     $    0.25
Options issued to directors and employees..........                                  224,046
                                                                               --------------
Diluted earnings per share-
Income available to common stockholders
    plus assumed conversions.......................        $       3,515          14,308,749     $    0.25
                                                                               ==============


                                                                   For the Year Ended June 30, 1997
                                                          ---------------------------------------------------
                                                                                                 Per Share
                                                               Income             Shares           Amount
                                                          -----------------    --------------    ------------
Basic earnings per share-
Net income available to common stockholders                $        1,810         11,322,569      $   0.16
Options issued to directors and employees..........                                   44,905
                                                                               --------------
Diluted earnings per share-
Income available to common stockholders
    plus assumed conversions.....................          $        1,810         11,367,474      $   0.16
                                                                               ==============


</TABLE>

        



                                       9
<PAGE>







                                     ITEM 2



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

Overview

         Cotelligent Group, Inc.  ("Cotelligent" or the "Company") was formed in
February  1993  to  acquire,  own and  operate  software  professional  services
businesses  specializing in providing information  technology ("IT") consultants
on a contract basis and consulting and  outsourcing  services to businesses with
complex IT operations.

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

    In  addition,  during  fiscal  1997  and  1998,  the  Company  acquired  six
businesses  accounted for under the purchase method. The consolidated  financial
statements include the operating results of these companies  subsequent to their
respective acquisition dates.

    Comparisons  to Pro Forma  results  for the same period of the prior year as
presented on Note 4 of the accompanying financial statements include adjustments
related  to  businesses  accounted  for  under the  pooling-of-interests  method
including:   compensation   differentials   to  former  owners  and   employees,
termination of contributions to retirement  plans,  elimination of non-recurring
transaction  costs related to the acquisition of businesses  accounted for under
the  pooling-of-interests  method  and  income  taxes  as if the  entities  were
combined  and  subject  to the  effective  federal  and  state  statutory  rates
throughout the periods discussed.

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

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

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

                                       10
<PAGE>

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

    Except  for  historical   information   contained  herein,  the  information
contained  in this  report  includes  forward-looking  statements  that  involve
certain  risks  and  uncertainties  that  could  cause  actual  results  to vary
materially from such statements. All forward-looking statements included in this
report  are based  upon  information  available  to  Cotelligent  as of the date
thereof,  and  Cotelligent  assumes no  obligation  to update  any such  forward
looking  statement.  Please  refer to the  discussion  of risk factors and other
factors included in Cotelligent's Annual Report on Form 10-K for the fiscal year
ended March 31, 1998 and other  filings  made with the  Securities  and Exchange
Commission.



                                       11
<PAGE>



                       CONSOLIDATED RESULTS OF OPERATIONS



                  Three Months Ended June 30, 1998 Compared to
                        Three Months Ended June 30, 1997

Revenues

         In the first quarter of fiscal 1999 revenues  increased  $18.7 million,
or 34.5%,  to $73.0  million from $54.3  million in the first  quarter of fiscal
1998.  The  increase was  primarily  attributable  to a 22.2%  increase in total
client service hours to 1,091,000 from 893,000 in the first quarter of 1998, and
a 9.6% increase in the average  hourly billing rate to $65.74 from $59.97 in the
comparable  quarter  of 1998.  The  increase  in hourly  billing  rate  reflects
increased  demand for employees and  consultants  with higher skill levels and a
more favorable economic climate.  The increase in revenues was also attributable
to the inclusion of revenues of the companies acquired under the purchase method
of accounting during fiscal 1998 ("FY 1998 Purchases").

Gross Profit

         Gross profit increased $4.7 million,  or 29.5%, to $20.9 million in the
first quarter of 1999 from $16.1 million in the first quarter of 1998, primarily
due to an increase in hours of service  provided to clients and the inclusion of
the FY 1998  Purchases.  Gross margin as a percentage  of revenues  decreased to
28.6% in the first  quarter  of 1999 from  29.7% in the  first  quarter  of 1998
primarily due to the inclusion of the FY 1998 Purchases with lower gross margins
and a change in the mix of services.

Selling, General and Administrative Expenses

         Selling, general and administrative expenses increased $2.5 million, or
19.0%,  to $15.4  million in the first quarter of 1999 from $13.0 million in the
first quarter of 1998. The increase was primarily due to increased  compensation
to existing staff, staff added to support growth,  additional locations, as well
as incremental costs of Cotelligent's corporate activities. Selling, general and
administrative  expenses  decreased as a percentage  of revenues to 21.1% in the
first quarter of 1999 from 23.9% in the first  quarter of 1998.  There can be no
assurance that such  efficiencies  can be sustained in the future as the Company
undertakes to integrate the acquired entities, expand geographically and acquire
other companies.

         Selling,  general and  administrative  expenses were $15.4 million,  or
21.1% of revenues,  compared to Pro Forma  selling,  general and  administrative
expenses of $12.5 million,  or 23.1% of Pro Forma revenues,  for the same period
in the prior  year.  The  decrease in selling,  general  and  administrative  as
percentage  of revenues is due to greater  operating  efficiencies  and a larger
revenue base.

Interest Income/Expense, Net

         Interest  income was $0.3 million in the first quarter of 1999 compared
to interest expense, net of interest income of $0.1 million in the first quarter
of 1998.  Net  interest  income was  earned in the first  quarter of 1999 due to
earnings from investment of the proceeds from a secondary  offering completed in
March of 1998.

Provision for Income Taxes

         Provision  for income  taxes was $2.2  million in the first  quarter of
1999,  which reflects a provision on pre-tax income of 38.8%.  The provision for
income taxes was $1.2  million in the first  quarter of 1998 at a rate of 40.0%.
The decrease in the effective  tax rate was  primarily due to the  investment in
tax  free  instruments  from  the  proceeds  of the  secondary  offering  in tax
preferred instruments.






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                         LIQUIDITY AND CAPITAL RESOURCES



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

         The  Company's  primary  sources of liquidity  are cash  balances,  the
Credit Line and the collection of its accounts  receivable.  Accounts receivable
have increased as the Company's operations have grown. Total receivables were 62
and 72 days of revenue at June 30, 1998 and March 31,  1998,  respectively.  The
Company could draw upon available cash or existing credit  facilities to finance
its operations should the Company be unable to bill and collect for its services
on a timely basis.

         Cash provided from operating  activities was $4.0 million for the first
quarter of 1999. At June 30, 1998 the Company had no balance  outstanding  under
the Credit Line.

         At June 30,  1998,  the  Company  had  $43.7  million  in cash and cash
equivalents  as compared to $40.5 million at June 30, 1998. The increase in cash
and cash  equivalents is related to  collections  in accounts  receivable and an
increase in revenues generated by the operations.  At June 30, 1998, the Company
had  long-term  capital lease  obligations  and other notes  outstanding  in the
amount of $0.4 million.  The current installments of the long-term capital lease
obligations and other notes were $0.2 million at June 30, 1998.

         On May 29, 1998 the Company registered 4.0 million shares of its common
stock to be used in connection with merger and acquisition activities.





                                       13
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                           PART II - OTHER INFORMATION



Item 5.  Other Information.

              None.


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

           (A.)    Exhibits.

           (B) Reports on Form 8-K.

                   None




                                       14
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                                   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: August 14, 1998                         By: /s/ Herbert D. Montgomery
                                              -----------------------------
                                              Herbert D. Montgomery
                                                Senior Vice President,
                                                Chief Financial Officer and
                                                Treasurer


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