<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 December 31, 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 February  14,  1997,  there were  9,697,369  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 December 31, 1996
                      Statement of Operations for the Three and Nine Months 
                         Ended December 31, 1995 and 1996 (Unaudited)
                      Statement of Cash Flows for the Nine Months Ended 
                         December 31, 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          December 31, 1996   
                                                                            ---------------------     ---------------------
<S>                                                                        <C>                         <C>       
                                                                                                         (Unaudited)
Current Assets:
     Cash and cash equivalents........................................     $            14,574         $           6,024 
     Marketable securities............................................                      26                         -
     Accounts receivable (billed and unbilled), net...................                  18,666                    24,561 
     Notes from stockholders..........................................                      74                        38
     Notes receivable.................................................                     136                         -
     Notes receivable from related party..............................                     105                         -  
     Prepaid expenses and other current assets........................                     770                     1,181 
                                                                         ---------------------     ---------------------
         Total current assets.........................................                  34,351                    31,804 
                                                                         ---------------------     ---------------------
Property and equipment, net...........................................                   1,690                     3,519 
Deferred income taxes.................................................                     247                       190 
Goodwill..............................................................                       -                     2,899
Other assets..........................................................                     160                       166 
                                                                          =====================     =====================
         Total assets.................................................        $         36,448          $         38,578 
                                                                          =====================     =====================
                          
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Short-term debt...................................................     $           4,863        $             6,156
     Accounts Payable..................................................                 1,428                      3,071
     Accrued compensation and related payroll liabilities..............                 4,737                      4,969
     Income taxes payable..............................................                 1,243                        877
     Deferred income taxes.............................................                   560                        420
     Due to related party..............................................                   417                          -
     Other accrued liabilities.........................................                 1,626                      1,010
                                                                         ---------------------       --------------------
         Total current liabilities.....................................                14,874                     16,503
                                                                         ---------------------       --------------------
Long-term debt.........................................................                   450                        200
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.......                   91                          92
     Preferred Stock, $0.01 par value; 500,000 shares authorized; none
        issued and outstanding.........................................                    -                           -
     Additional paid-in capital........................................               18,430                      18,357
     Retained earnings ................................................                1,661                       3,112
                                                                        ---------------------        --------------------   
        Total stockholders' equity.....................................               20,182                      21,561
                                                                        =====================        ====================
        Total liabilities and stockholders' equity.....................     $         36,448            $         38,578
                                                                        =====================        ====================




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


<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 Nine
                                                        Ended           Nine Months Ended       Months Ended         Months Ended
                                                   December 31, 1996    December 31, 1996   December 31, 1996    December 31, 1996
                                                  ------------------   ------------------   ------------------   -------------------
<S>                                               <C>                   <C>                 <C>                  <C>  
 
Revenues......................................... $         32,219      $          99,438    $         36,219     $          99,438
Cost of services.................................           26,170                 71,119              26,170                71,119
                                                  -----------------     ------------------   -----------------    ------------------
     Gross Margin...............................            10,049                 28,319              10,049                28,319
Non-recurring transaction costs.................               316                  1,107                   -                     -
Selling, general and administrative expenses....             7,572                 21,765               7,395                21,005
                                                  -----------------     ------------------   -----------------    ------------------
     Operating income...........................             2,158                  5,447               2,654                 7,314
Other (income) expense:
     Interest expense...........................               134                    293                 134                   279
     Interest income............................               (65)                  (273)                (65)                 (273)
     Other......................................              (114)                  (167)               (114)                 (167)
                                                  -----------------     ------------------   -----------------    ------------------
       Total other..............................               (45)                  (147)                (45)                 (161)
                                                  -----------------     ------------------   -----------------    ------------------
Income before provision for income taxes........             2,203                  5,594               2,699                 7,475
Provision for income taxes......................               821                  2,435               1,026                 2,840 
                                                  -----------------     ------------------    ----------------    ------------------
Net income......................................   $         1,382       $          3,159      $        1,673     $           4,635 
                                                  =================     ==================    ================    ==================
                                                  
           
Net income per share (Note 4)...................  $           0.15      $            0.34     $           .18     $             .49 
                                                  =================     ==================    ================    ==================
                                                                                                                                    
Weighted average shares outstanding............         9,442,464               9,404,603            9,442,464            9,404,603 
                                                  ================      ==================   ==================    =================
                                                  

<FN>
The accompanying notes are an integral part of these consolidated financial 
statements
</FN>
</TABLE>
                                   (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 Nine
                                                       Ended           Nine Months Ended      Months Ended        Months Ended
                                                   December 31, 1995   December 31, 1995    December 31, 1995   December 31, 1995
                                                  ------------------  -------------------  ------------------  -------------------
<S>                                               <C>                  <C>                 <C>                 <C>
 
Revenues......................................... $          10,555    $          32,908     $        26,165     $         77,887
Cost of services.................................             7,286               22,918              18,808               56,914
                                                  ------------------  -------------------  ------------------  -------------------
     Gross Margin...............................              3,269                9,990               7,357               20,973
Non-recurring transaction costs.................                  -                    -                   -                    -
Selling, general and administrative expenses....              2,674                8,227               5,386               15,581
                                                  ------------------  -------------------   -----------------  -------------------
     Operating income...........................                595                1,763               1,971                5,392
Other (income) expense:
     Interest expense...........................                 65                  191                 135                  410
     Interest income............................                 (2)                  (5)                (10)                 (42)
     Other......................................                 10                 (330)                  7                  (31)
                                                  ------------------  --------------------   ----------------  -------------------
       Total other..............................                 73                 (144)                132                  337  
                                                  ------------------  --------------------   ----------------  -------------------
Income before provision for income taxes........                522                1,907               1,839                5,055
Provision for income taxes......................                 (2)                  45                 736                2,022 
                                                  ==================  ====================   ================  ===================
Net Income......................................   $            524    $           1,862      $        1,103    $           3,033   
                                                  ==================  ====================   ================  ===================
                                                  
           
Net income per share (Note 4)...........................................................     $          0.15    $            0.42   
                                                                                             ================  ===================
                                                                                                                                    
Weighted average shares outstanding.....................................................           7,303,824            7,303,824  
                                                                                             ================  ===================
                                                  

<FN>
The accompanying notes are an integral part of these consolidated financial 
statements
</FN>
</TABLE>
<PAGE>
                                   COTELLIGENT GROUP, INC.            
                                                                      
                              CONSOLIDATED STATEMENT OF CASH FLOWS    
                                                                      
                                      (In Thousands)
                                       (Unaudited)                   
                         

<TABLE>
                                                                                Nine Months Ended
                                                                    ----------------------------------------
                                                                    December 31, 1995    December 31, 1996
                                                                    ------------------   -------------------  
<S>                                                                 <C>                  <C>
Cash flows from operating activities:                                                                                               
    Net income................................................      $           1,862    $            3,159   
    Adjustments to reconcile net income to net cash provided
       by operating activities:
       Depreciation and amortization..........................                    242                   586                         
       (Gain)loss on disposal of property and equipment.......                   (347)                   48
       Deferred income taxes, net.............................                    644                   (83) 
       Changes in current assets and liabilities:                                                        
           Accounts receivable................................                   (294)               (5,895)
           Prepaid expenses and other current assets..........                     (9)                 (411) 
           Accounts payable and accrued expenses..............                   (144)                1,875 
           Income taxes payable...............................                    540                  (366)   
           Increase (decrease) in other liabilities                                 -                (1,526) 
       Changes in other assets................................                   (177)                   10
                                                                 ---------------------  --------------------  
           Net cash provided by (used in)operating activities.                  2,317                (2,603)  
                                                                 ---------------------  --------------------  
Cash flows from investing activities:                                                                                               
   Proceeds on sale of assets.................................                    394                     -  
   Purchase of businesses, net of cash of acquired companies..                      -                (2,915)
   Purchases of property and equipment........................                   (339)               (2,415)  
   Net repayments from (advances to) related parties..........                   (669)                 (105) 
                                                                 ---------------------  --------------------  
            Net cash used in investing activities.............                   (614)               (5,435) 
                                                                 ---------------------  --------------------  
Cash flows from financing activities:                                                                                               
   Repurchase of common stock.................................                   (123)                    -   
   Payments on long-term debt.................................                    (40)                 (250)
   Net borrowings (repayments) on short-term debt.............                   (384)                1,293   
   Net borrowings (repayments) on loans with related parties..                   (342)                  105  
   Net proceeds from issuance of common stock.................                    382                    48 
   Distribution to founding Companies former stockholders.....                 (1,038)               (1,566) 
   Dividends..................................................                      -                  (142) 
                                                                 ---------------------  --------------------  
            Net cash provided by (used in) financing activities                (1,545)                 (512)  
                                                                 ---------------------  --------------------  
   Net increase (decrease) in cash and cash equivalents.......                    158                (8,550)  
   Cash and cash equivalents at beginning of period...........                    492                14,574   
                                                                 ---------------------  --------------------  
   Cash and cash equivalents at end of period................    $                650    $            6,024   
                                                                 =====================  ====================  
Supplemental disclosures of cash flow information:                                                                                  
   Interest paid.............................................     $               436    $              293   
   Income taxes paid ........................................     $               727    $            3,272   
</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  software professional  services  businesses  
specializing  in providing information technology ("IT") consultants on a 
contract basis and consulting and outsourcing services to business with complex
IT operations.  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"), on September 30, 1996 Cotelligent
acquired JasTech,  Inc. and JasTech of Florida,  Inc. ("JTI") and on November
27, 1996 Cotelligent acquired Pittsburgh Business Consultants ("PBC")
(collectively the "Pooled Companies") in business combinations accounted for 
under the pooling-of-interests method.

          Additionally, the Company acquired two businesses accounted for as a 
purchase.  The resulting goodwill of $2.9 million is being amortized over 30 
years.

         The accompanying  consolidated financial statements include Cotelligent
Group,  Inc.,  restated to give  effect to the acquisitions 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's 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.

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...................       9,119,914  $     91    $        18,430     $     1,008       $     19,289
Dividends...................................               -         -                  -          (1,708)              (385)    
Distribution to former ESP stockholder......               -         -              (423)              -                (423)
Issuance of Common Stock....................          45,853         1               168               -                 169
Tax benefit on stock options................               -         -               182               -                 182       
Net Income..................................               -         -                 -            3,159              3,159
Balance at September 30, 1996...............   ------------- ----------  -----------------   -------------   ----------------- 
                                                   9,165,767  $     92      $     18,357     $      3,476       $     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 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>
                                                               Three Months       Nine Months        Three Months       Nine Months
                                                                  Ended              Ended               Ended              Ended
                                                                December 31,       December 31,       December 31,      December 31,
                                                                   1995               1995               1996               1996
                                                               -------------      -------------      -------------     ------------
<S>                                                            <C>                <C>                <C>               <C>
Income before provision for income taxes....................... $      522         $     1,907        $     2,203       $     5,594
Provision for income taxes.....................................        141                 525                837             2,126
                                                                ------------       ------------       ------------      -----------
Pro forma net income..........................................  $      381         $     1,382        $     1,366       $     3,468
                                                                ------------       ------------       ------------      -----------
</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
software professional services businesses specializing in providing information
technology ("IT")  consultants on a contract basis and consulting and 
outsourcing  services to  businesses  with complex IT  operations.  On February
20, 1996,  Cotelligent acquired  (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 Software Services ("ESP") and 1991 Innova Solutions Inc. ("ISI").
On  September  30, 1996  Cotelligent  acquired JasTech (JTI) which has operated
since 1984.  On November 27, 1996  Cotelligent acquired Pittsburgh Business 
Consultants ("PBC") which has operated since 1983.

         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 December 31, 1996 Compared to 
                    Three Months Ended December 31, 1995


Revenues

         Revenues  on a pro forma basis increased  $10.0 million,  or 38.4%, to
$36.2 million in the three  months  ended  December  31,  1996  ("third  
quarter of 1997") from $26.2 million in the three months ended  December 31, 
1995 ("third  quarter of 1996").  The  increase was  primarily  attributable  
to a 37.0%  increase in total client service  hours  provided  to  643,000  
hours in the third  quarter  of 1997 from 470,000 hours in the third  quarter 
of 1996,  and a 1.3% increase in the average hourly  billing  rate to $55.86 in
the third  quarter of 1997 from $55.17 in the third  quarter of 1996.  These  
increases  were in addition to an increase in placement fee revenues generated 
to $286,000 in the third quarter of 1997 from $255,000 in the third quarter 
of 1996.

Gross Margin

         The pro forma gross margin increased $2.6 million,  or 36.6 %, to $10.0
million in the third  quarter of 1997 from $7.4 million in the third  quarter of
1996,  primarily  as a result of an  increase  in hours of service  provided  to
clients.  Gross  margin as a  percentage  of revenues  decreased to 27.7% in the
third quarter of 1997 from 28.1% in the third quarter of 1996,  principally  due
to a decrease in placement fee revenues as a percentage of total revenues and
an increase of low margin ancillary services provided to a key client.

Selling, General and Administrative Expenses

         Selling,  general  and  administrative  expenses  on a pro forma  basis
increased  $2.0 million, or 37.9%, to $7.4 million in the third  quarter of 1997
from $5.4 million in the third 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 20.4% for the third
quarter of 1997 as compared to 20.5% for the third quarter of 1996.

Interest Expense, Net

         Interest  expense,  net of interest  income on a pro forma basis was 
$125,000 in the third quarter of 1996 and $69,000 in the third quarter of 1997.

Provision for Income Taxes

         Provision  for income  taxes on a pro forma basis were $1.0 million, an
effective  tax rate of 38.0% of pro forma  income  before  provision  for income
taxes for the third quarter of 1997, compared to $736,000, an effective tax rate
of 40.0% of pro forma  income  before  provision  for income taxes for the third
quarter of 1996.  The reduced tax rate reflects an expansion of operations in 
states which do not have state income taxes.



<PAGE>


                    HISTORICAL COMBINED RESULTS OF OPERATIONS

               Three Months Ended December 31, 1996 Compared to Three 
                         Months Ended December 31, 1995

Revenues

         Revenues  increased $25.6 million,  or 243.1%,  to $36.2 million in the
third  quarter of 1997 from  $10.6  million  in the third  quarter of 1996.  The
increase  was  primarily  attributable  to the  inclusion  of $20.2  million  of
revenues of the Founding  Companies in the third  quarter of 1997 coupled with a
47.8% increase in total client service hours provided by the Pooled Companies to
331,000  hours in the  third  quarter  of 1997 from  224,000  hours in the third
quarter of 1996,  and an 3.1% increase in the average hourly billing rate of the
Pooled Companies to $47.88 in the third quarter of 1997 from $46.44 in the third
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 $6.7 million, or 207.4%, to $10.0 million in the
third quarter of 1997 from $3.3 million in the third quarter of 1996,  primarily
due to the  inclusion  of the $5.4  million  in  gross  margin  of the  Founding
Companies  in the third  quarter of 1997  together  with an increase in hours of
service provided to clients.  Gross margin as a percentage of revenues decreased
to 27.7% in the third  quarter of 1997 from 31.0% in the third  quarter of 1996,
primarily due to lower margins achieved by 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 $4.9 million, or
183.2%,  to $7.6  million in the third  quarter of 1997 from $2.7 million in the
third quarter of 1996. The increase in absolute dollars was primarily due to the
inclusion of the $4.4 million in selling, general and administrative expenses of
the Founding  Companies in the third  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 25.3% in the third  quarter of 1996 to 20.9% in the third 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 $63,000 in the third
quarter of 1996 and $69,000 in the third quarter of 1997.

Provision for Income Taxes

         The Company's  provision for income taxes  increased to $925,000 in the
third quarter of 1997,  which reflects an adjustment to bring the  year-to-date-
provision  on pre-tax  income to 42%.  The Company  expects  that its  effective
statutory tax rate for the year ending March 31, 1997 will approximate 40%.



<PAGE>


                         PRO FORMA RESULTS OF OPERATIONS

                Nine Months Ended December 31, 1996 Compared to
                     Nine Months Ended December 31, 1995

Revenues

      Revenues  on a pro forma basis increased $21.5 million,  or 27.7%, to 
$99.4 million in the nine months  ended  December  31, 1996  ("first  three  
quarters of 1997") from $77.9 million in the nine months ended  December 31, 
1995  ("first  three  quarters of 1996").  The increase was primarily  
attributable  to a 21.1%  increase in total client service hours provided to 
1,751,000  hours in the first three quarters of 1997  from  1,446,000  hours in
the first  three  quarters  of 1996,  and a 5.1% increase  in the  average  
hourly  billing  rate to $56.17  in the  first  three quarters of 1997 from 
$53.47 in the first three  quarters 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.  These increases were in 
addition  to an increase  in  placement  fee  revenues generated to $1.1 million
in the first three  quarters of 1997 from  $566,000 in the first three quarters
of 1996.

Gross Margin

     The pro forma gross  margin  increased  $7.3  million,  or 35.0%,  to $28.3
million in the first  three  quarters  of 1997 from  $21.0  million in the first
three quarters 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 28.5%
in the first three  quarters  of 1997 from 26.9% in the first three  quarters of
1996,  principally due to an increase in project management  engagements,  which
generally have higher gross margins and an increase in placement fee revenues as
a percentage of total revenues.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses on a pro forma basis increased
$5.4 million,  or 35.5%,  to $21.0  million in the first three  quarters of 1997
from $15.6 million in the first three quarters 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
21.1% for the first three quarters  of 1997 as  compared to 20.0% for the first
three quarters of 1996.

Interest Expense, Net

     Interest  expense,  net of interest  income on a pro forma basis was  
$368,000 in the first three  quarters of 1996 and $6,000 in the first three 
quarters of 1997.

Provision for Income Taxes

     Provision  for  income  taxes on a pro forma  basis  were $2.8  million  an
effective  tax rate of 38.0% of pro forma  income  before  provision  for income
taxes  for the  first  three  quarters  of 1997,  compared  to $2.0  million  an
effective  tax rate of 40.0% of pro forma  income  before  provision  for income
taxes for the first  three  quarters  of 1996.  The reduced  tax rate  reflects
an expansion of operations in states which do not have state income taxes.



<PAGE>




                    HISTORICAL COMBINED RESULTS OF OPERATIONS

                Nine Months Ended December 31, 1996 Compared to Nine 
                         Months Ended December 31, 1995

Revenues

     Revenues increased $66.5 million,  or 202.2%, to $99.4 million in the first
three  quarters of 1997 from $32.9 million in the first three  quarters of 1996.
The increase was  primarily  attributable  to the  inclusion of $57.0 million in
revenues of the Founding  Companies in the first three  quarters of 1997 coupled
with a 18.0%  increase  in total  client  service  hours  provided by the Pooled
Companies  to 907,000  hours in the first three  quarters  of 1997 from  769,000
hours in the first three  quarters of 1996,  and a 9.1%  increase in the average
hourly  billing  rate of the  Pooled  Companies  to $49.52  in the  first  three
quarters of 1997 from $45.41 in the first three  quarters 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.

Gross Margin

     Gross margin  increased $18.3 million,  or 183.5%,  to $28.3 million in the
first three  quarters of 1997 from $10.0 million in the first three  quarters of
1996,  primarily due to the inclusion of the $9.5 million in gross margin of the
Founding Companies in the first three quarters 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 28.5% in the first three quarters of 1997
from 30.4% in the first  three  quarters of 1996,  primarily  due to lower gross
margins achieved by 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 $13.6 million,  or
164.6%,  to $21.8 million in the first three  quarters of 1997 from $8.2 million
in the three  quarters  first of 1996.  The  increase  in  absolute  dollars was
primarily  due to the  inclusion  of the $12.9  million in selling,  general and
administrative  expenses for the Founding  Companies in the first three quarters
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 25.0% in the first three  quarters of
1996 to  21.9%  in the  first  three  quarters  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 $186,000 in the first 
three  quarters of 1996 and $20,000 in the first three quarters of 1997.

Provision for Income Taxes

     The Company's  provision for income taxes  increased to $3.1 million in the
first three quarters of 1997,  which includes an $799,000  provision  related to
the  termination of the S corporation  status of the Pooled  Companies  together
with a 42% provision on pre-tax  income.  The Company expects that its effective
statutory tax rate for the year ending March 31, 1997 will approximate 40%.





<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 Offering 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  increased  to 68 days of revenue at December  31, 1996
from 63 days of revenue at March 31,  1996.  The  increase in days of revenue is
due to 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 use utilize existing cash
on hand or draw upon available credit facilities to finance its operations.

         Cash flow used by  operating  activities  was $2.6 million for the nine
months  ended  December  31,  1996,  which  includes  $1.1  million  used to pay
non-recurring  cost to acquire  the Pooled  Companies.  During  this  period the
Company  utilized  this cash plus a portion of existing cash balances to acquire
fixed assets ($2.4 million) and purchase the operations of two companies  ($2.9
million).  The average balance of such borrowings  outstanding was  
approximately $4.1 million and approximately $1.8 million during the first nine
months of 1997 and 1996, respectively.

         At December  31,  1996,  the Company had $6.0  million in cash and cash
equivalents  as compared to $14.6  million at March 31,  1996.  At December  31,
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 $6.2  million.  Long-term  obligations,  consisting  of capital  lease
obligations and equipment loans,  totaled $314,000 at December 31, 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 provides 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 and PBC 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,  provides 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.

           None.


Item 5.  Other Information.

           None.


Item 6   Exhibits and Reports on Form 8-K.

           (a)    Exhibits.

           (b)    Reports on Form 8-K.

                  The  following  reports on Form 8-K have been filed during the
                  quarter ended December 31, 1996:

                  (1)    Cotelligent Group, Inc. acquisition of Pittsburgh 
                           Business Consultants. - December 11, 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:   February 14, 1997                By :   /s/  Curtis J. Parker
        -----------------                       ---------------------
                                                Curtis J. Parker
                                                Vice President and Chief 
                                                  Accounting Officer


<PAGE>


                                  EXHIBIT INDEX



NUMBER                              EXHIBIT                             PAGE

None

<PAGE>