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, 1997
                                       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  12,  1998 there were  11,718,851  shares of common  stock
outstanding.













<PAGE>


                             COTELLIGENT GROUP, INC.

<TABLE>
<CAPTION>

                                      INDEX

                         Part I - Financial Information

              <S>                                                                                   <C>                           
              Item 1. Financial Statements                                                          PAGE

              Cotelligent Group, Inc.
                  Consolidated Balance Sheets at March 31, 1997  and
                     December 31, 1997                                                                3
                  Consolidated Statements of Operations for the Three and
                     Nine Months Ended December 31, 1997                                              4
                  Consolidated Statements of Operations for the Three and 
                     Nine Months Ended  December 31, 1996                                             5
                  Consolidated Statements of Cash Flows for the 
                     Nine Months Ended December 31, 1996 and 1997                                     6
                  Notes to Consolidated Financial Statements                                          7



              Item 2. Management's Discussion and Analysis of
                    Financial Condition and Results of Operations                                     11


                           Part II - Other Information
              Signatures                                                                              18

</TABLE>

<PAGE>


                             COTELLIGENT GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)
<TABLE>
<CAPTION>

                                                                         
                                                                         March 31,          December 31,
                                                                           1997                 1997
                                                                      ----------------    -----------------
                             ASSETS
<S>                                                                   <C>                 <C>
Current assets:
   Cash and cash equivalents..................................          $      2,904        $         684
   Accounts receivable, including unbilled accounts
          of $5,595 and $8,057 and net of allowance for 
          doubtful accounts of accounts of $632 and $1,603, 
          respectively........................................                32,387               47,060
   Notes receivable from officers.............................                   225                  229
   Prepaid expenses and other.................................                 1,306                2,137
                                                                      ----------------    -----------------
     Total current assets.....................................                36,822               50,110
Property and equipment, net...................................                 5,448                6,497
Deferred tax assets...........................................                    54                    -
Goodwill, net of accumulated amortization of $38 and $159,
       respectively...........................................                 2,409               17,588
Other assets..................................................                   434                  336
                                                                      ================    =================
     Total assets.............................................          $     45,167         $     74,531 
                                                                      ================    =================

              LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Short-term debt............................................          $      4,409         $        234
   Accounts payable...........................................                 2,590                2,331
   Accrued compensation and related payroll liabilities.......                 9,990               17,006
   Income taxes payable.......................................                   491                3,478
   Deferred tax liabilities...................................                   761                  383
   Other accrued liabilities..................................                 3,110                4,031
                                                                      ----------------    -----------------
     Total current liabilities................................                21,351               27,463
Long-term debt................................................                   648               12,296
Deferred tax liabilities......................................                     -                  102
Other long-term liabilities...................................                    31                   20
                                                                      ----------------    -----------------
     Total liabilities........................................                 22,030               39,881
                                                                      ----------------    -----------------
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, 11,272,401 and 11,713,596 shares
      issued and outstanding, respectively....................                    113                  117
   Additional paid-in capital.................................                 19,046               27,399
   Retained earnings..........................................                  3,978                7,134
                                                                      ----------------    -----------------
     Total stockholders' equity...............................                 23,137               34,650
                                                                      ----------------    -----------------
                                                                                          
     Total liabilities and stockholders' equity...............         $      45,167       $        74,531
                                                                      ================    =================


</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>

                                                                                           Pro Forma         Pro Porma
                                                   Three Months          Nine Months      Three Months      Nine Months
                                                     Ended                  Ended            Ended             Ended
                                                   December 31,          December 31,     December 31,      December 31,          
                                                        1997               1997              1997               1997
                                                   ---------------     --------------    -------------     ---------------

<S>                                                <C>                 <C>               <C>                <C>         
Revenues.........................................  $       63,111      $    175,981      $    63,111        $    175,981
Cost of services.................................          44,730           124,156           44,723             124,137
                                                    --------------      -------------    -------------      ---------------
     Gross profit ...............................          18,381            51,825           18,388              51,844
Selling, general and administrative expenses               14,759            41,593           13,732              39,629
Non-recurring transaction costs .................             855               855               -                 -
                                                   ---------------     --------------    -------------     ---------------
     Operating income...........................            2,767             9,377            4,656              12,215
Other (income) expense:
     Interest expense...........................              172               370              172                 370
     Interest income ...........................              (18)              (38)             (18)                (38)
     Other .....................................              (17)               16              (17)                 16
                                                   ---------------     --------------    -------------     ---------------
        Total other (income) expense............              137               348              137                 348
                                                   ---------------     --------------    -------------     ---------------
Income before provision for income taxes .......            2,630             9,029            4,519              11,867
Provision for income taxes......................            2,768             5,327            1,853               4,865
                                                   ---------------     --------------    -------------     ---------------
Net income (loss)................................  $         (138)      $     3,702      $     2,666       $       7,002
                                                   ===============     ==============    =============     ===============

Earnings (loss) per share - basic and diluted      $        (0.01)      $      0.32      $      0.23       $        0.61
                                                   ===============     ==============    =============     ===============

Weighted average shares outstanding -
          Basic..................................      11,584,353         11,399,141       11,584,353          11,399,141
                                                   ===============     ==============    =============     ===============
          Diluted................................      11,756,214         11,503,578       11,756,214          11,503,578
                                                   ===============     ==============    =============     ===============

</TABLE>


















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

                                    4
<PAGE>


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


<TABLE>
<CAPTION>
                                                                                           Pro Forma         Pro Porma
                                                   Three Months          Nine Months      Three Months      Nine Months
                                                     Ended                  Ended            Ended             Ended
                                                   December 31,          December 31,     December 31,      December 31,          
                                                        1996               1996              1996               1996
                                                   ---------------     --------------    -------------     ---------------
<S>                                                <C>                 <C>               <C>                <C>         
Revenues.........................................  $       42,534      $    118,294      $    42,534        $    118,294
Cost of services.................................          30,104            82,973           30,096              82,950
                                                    --------------      -------------    -------------      ---------------
     Gross profit ...............................          12,430            35,321           12,438              35,344
Selling, general and administrative expenses                9,694            28,100            9,365              26,825
Non-recurring transaction costs .................             319             1,105                -                   -
                                                   ---------------     --------------    -------------     ---------------
     Operating income...........................            2,417             6,116            3,073               8,519
Other (income) expense:
     Interest expense...........................              179               385              179                 385
     Interest income ...........................              (70)             (287)             (70)               (287)
     Other .....................................             (120)             (218)            (120)               (218)
                                                   ---------------     --------------    -------------     ---------------
        Total other (income) expense  ..........              (11)             (120)             (11)               (120)
                                                   ---------------     --------------    -------------     ---------------
Income before provision for income taxes .......            2,428             6,236            3,084               8,639
Provision for income taxes......................              841             2,745            1,265               3,542
                                                   ---------------     --------------    -------------     ---------------
Net income (loss)................................  $        1,587       $     3,491      $     1,819       $       5,097
                                                   ===============     ==============    =============     ===============

Earnings (loss) per share - basic and diluted      $         0.14       $      0.31      $      0.16       $        0.45
                                                   ===============     ==============    =============     ===============

Weighted average shares outstanding -
          Basic..................................      11,229,131         11,223,131       11,229,131          11,223,132
                                                   ===============     ==============    =============     ===============
          Diluted................................      11,393,769         11,373,930       11,393,769          11,373,930
                                                   ===============     ==============    =============     ===============



</TABLE>















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


                                    5
<PAGE>


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

                                                                                          Nine Months Ended
                                                                                ---------------------------------------
                                                                                December 31, 1996       December 31,
                                                                                                            1997
                                                                                ------------------    -----------------

       <S>                                                                      <C>                    <C>
        Cash flows from operating activities:
             Net income.......................................................  $          3,491       $       3,702
             Adjustments  to  reconcile  net  income  to net  cash  provided
                by operating    activities:     
                 Depreciation    and    amortization ..........................              494               1,542
                 Provision for doubtful accounts...............................              235                 823
                 Loss on sale of assets........................................               45
                Deferred income taxes, net ....................................             (105)               (222)
                Changes in current assets and liabilities:
                      Accounts receivable .....................................           (6,001)            (13,091)
                      Prepaid expenses and other...............................             (465)               (809)
                      Accounts payable and accrued expenses....................            2,215               6,848          
                      Income taxes payable ....................................             (292)              2,691
                      Other liabilities .......................................           (1,526)                (11)
                Changes in other assets........................................               11                 105 
                                                                                ------------------    -----------------
                      Net cash provided by (used in) operating activities                 (1,898)              1,578
                                                                                ------------------    -----------------
                                                                                
        Cash flows  from  investing   activities:   
             Purchases  of  property  and equipment ..........................            (2,415)              (2,194)
             Acquisition of businesses, net of cash...........................            (2,915)              (7,325)
             Net advances to related parties..................................              (105)                   -
                                                                                ------------------    -----------------
                     Net cash used in investing activities....................            (5,435)              (9,519)
                                                                                ------------------    -----------------
        Cash flows from financing activities:
             Net borrowings (repayments) on short-term debt...................             1,229               (4,597)
             Net borrowings (repayments) on long-term debt....................              (250)              12,070 
             Borrowings from related parties..................................               105                    -
             Net proceeds from issuance of Common Stock......................                 29                   54
             Distributions from certain Pooled Companies, prior to
              acquisition....................................................             (1,774)              (1,806)         
                                                                                ------------------   ------------------
                     Net cash provided by (used in) financing activities                    (661)                5,721
                                                                                ------------------    -----------------
             Net decrease in cash and cash equivalents........................            (7,994)              (2,220)
             Cash and cash equivalents at beginning of period................ .           14,916                2,904
                                                                                ------------------    -----------------
                                                                              
             Cash and cash equivalents at end of period.......................  $           6,922      $          684
                                                                                ==================    =================
        Supplemental disclosures of cash flow information:
             Interest paid....................................................                293                 585
             Income taxes paid ...............................................              3,272               3,818
             Stock issued to acquire business................................                   -               7,464




</TABLE>





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

                                    6
<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. On February 20, 1996, Cotelligent acquired four companies
(the "Founding  Companies")  simultaneously  with the initial public offering of
its  Common  Stock  (the  "Offering").  Prior  to this  date  Cotelligent  was a
non-operating entity.

     During the year ended March 31, 1997 ("fiscal  1997") and in the first nine
month  period  ended  December  31,  1997  ("fiscal  1998") 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  1997 and 1998,  the  Company  acquired  five
businesses  accounted for under the purchase method (the "Purchased  Companies")
for aggregate consideration of $17,990 (362,998 shares of Common Stock issued at
fair market  value of $7,464 and $10,526 of cash).  The  consolidated  financial
statements include the operating results of these companies  subsequent to their
respective acquisition dates.

         Pro forma data on the  consolidated  statements of operations  reflects
adjustments for 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 Pooled Companies
and income taxes as if the entities  were  combined and subject to the effective
federal and state statutory rates throughout the periods discussed.



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  for the fiscal  years ended
March 31, 1995, 1996 and 1997 as included on Cotelligent's Annual Report on Form
10-K for the year ended March 31, 1997 ("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.

                                    7
<PAGE>


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

 


        Recent Accounting Pronouncements

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards  (SFAS) No. 128 "Earnings  per Share".  This
statement  establishes  standards for presenting earnings per share ("EPS"). The
SFAS No. 128 requires dual presentation of basic and dilutive EPS on the face of
the income  statement.  Basic EPS is computed by dividing  income  available  to
common  shareholders by the weighted average number of common shares outstanding
for the period.  Diluted EPS reflects the potential dilution that could occur if
securities or other  contracts to issue common stock were exercised or converted
into common  stock.  The Company  adopted this  statement  in the quarter  ended
December 31, 1997 and has  restated all  prior-period  EPS data  presented.  The
difference  between  basic and diluted  shares  results  from the  inclusion  of
dilutive  stock  options.  

         In June 1997, the Financial  Accounting  Standards Board issued SFAS No
130,  Reporting  Comprehensive  Income.  SFAS No. 130  established  standards to
measure all changes in equity that result from  transactions  and other economic
events other than transactions with owners. Comprehensive income is the total of
net income and all other nonowner changes in equity. This statement is effective
for financial statements for periods beginning after December 15, 1997.

         In June 1997, the Financial  Accounting Standards Board 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 does not believe that adoption of SFAS No. 130 and SFAS No. 131
will significantly alter its financial statement presentation.









                                    8
<PAGE>



                             COTELLIGENT GROUP, INC.
                          NOTES TO 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, 1997...    11,272,401       $    113      $   19,046      $    3,978        $    23,137
Issuance of Common Stock....       441,195              4           8,353               -              8,357
Dividends from certain Pooled
 Companies, prior to                   
acquisition                             -               -               -            (546)             (546)
Net income...................           -               -               -           3,702             3,702
                              ============      ==========    ============    =============    ===============
Balance at December 31, 1997   11,713,596       $     117      $   27,399       $    7,134       $   34,650
                              ============      ==========    ============    =============    ===============
</TABLE>



Note 4 - Pro Forma Results

     The following pro forma consolidated statements of operations for the three
months ended  December 31, 1996 and 1997 and the nine months ended  December 31,
1996 and 1997 give effect to the acquisitions of the Founding Companies,  Pooled
Companies  and  Purchased  Companies  as if these  acquisitions  had always been
members of the same operating  group.  These pro forma  consolidated  statements
reflect  adjustments  for the  acquisitions  of the Pooled  Companies  including
elimination of non-recurring  transaction costs,  compensation  differentials to
employees and former owners of the Pooled Companies,  the planned termination of
contributions to retirement plans, and adjustments to reflect income taxes as if
the  entities  were  combined  and  subject to the  effective  federal and state
statutory  rates  for  the  combined  entity.  Additionally,   these  pro  forma
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        Nine Months        Three Months        Nine Months
                                                       Ended               Ended              Ended               Ended
                                                     December 31,        December 31,       December 31,        December 31,
                                                        1996                1996               1997                1997
                                                   ---------------     ---------------    ---------------     ---------------
                                                

<S>                                                 <C>                  <C>                <C>                 <C>         
Revenues.......................................     $      47,057        $    132,131       $      64,476       $    186,648
Cost of services..............................             33,478              93,089              45,571            131,370
                                                   ---------------     ---------------    ---------------     ---------------
     Gross profit..............................            13,579              39,042             18,905              55,278
Selling, general and administrative...........             10,451              29,539             14,011              41,779
                                                   ---------------     ---------------    ---------------     ---------------
Operating income............................                3,128               9,503              4,894              13,499
Other expense.................................                152                 373                218                 704
                                                   ---------------     ---------------    ---------------     ---------------
Income before provision for income taxes                    2,976               9,130              4,676              12,795
Provision for income taxes.................                 1,220               3,743              1,918               5,246
                                                   ---------------     ---------------    ---------------     ---------------
Net income...................................       $       1,756       $       5,387      $       2,758       $       7,549
                                                   ===============     ===============    ===============     ===============
Earnings per share -
   Basic.....................................       $        0.15       $        0.46      $        0.24      $         0.65
                                                   ===============     ===============    ===============     ===============
   Diluted...................................       $        0.15       $        0.46      $        0.23      $         0.64
                                                   ===============     ===============    ===============     ===============
Weighted average shares outstanding -
   Basic.....................................          11,592,129          11,586,129         11,702,728          11,680,299
                                                   ===============     ===============    ===============     ===============     
   Diluted...................................          11,756,767          11,736,928         11,874,583          11,784,736
                                                   ===============     ===============    ===============     ===============
</TABLE>
                                    9
<PAGE>



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


Note 5 - Supplemental Pro Forma Income Tax Information

     Prior  to their  acquisitions  in  fiscal  1997 and  1998,  certain  Pooled
Companies were S corporations and accordingly, these companies did not reflect a
provision for federal or certain state income  taxes.  In connection  with these
acquisitions by Cotelligent,  the acquired companies terminated their respective
S  corporation  status.  The  following  pro forma  income  tax  information  is
presented  in  accordance  with SFAS No.  109 as if these  companies  had been C
corporations  subject to federal and state income taxes  throughout  the periods
presented.
<TABLE>
<CAPTION>


                                                     Three         Nine Months      Three Months      Nine Months
                                                     Months           Ended             Ended             Ended
                                                     Ended         December 31,        December          December
                                                  December 31,         1996            31, 1997          31, 1997
                                                     1996
                                                 ------------     --------------    -------------     -------------

<S>                                               <C>               <C>              <C>              <C>         
Income before provision for income taxes..        $    2,428         $    6,236       $    2,630       $      9,029
Pro forma provision for income taxes                     889              2,901            2,758              5,130
                                                 ------------     --------------    -------------     --------------
                                                                                 
Pro forma net income..........................    $    1,539         $    3,335       $     (128)      $      3,899
                                                 =============     ==============    =============    ==============


</TABLE>

Note 6 - Subsequent Event

     On January 2,  1998,  the  Company  acqurired  a business  for cash of $1.4
million,  to be accounted for under the purchase method of accounting.  Goodwill
from the  purchase is  estimated  to be $1.0  million.  The  purchase  agreement
provides for  additional  consideration  based on financial  performance  of the
acquired company subsequent to the acquisition.  Potential earn-out payments are
due in fiscal  years 1999 and 2000 and will be  considered  additional  purchase
price in the year the earn-out periods end.




                                   10
<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. On February 20, 1996, Cotelligent acquired four companies
(the "Founding  Companies")  simultaneously  with the initial public offering of
its  Common  Stock  (the  "Offering").  Prior  to this  date  Cotelligent  was a
non-operating entity.

     During the year ended March 31, 1997 ("fiscal  1997") and in the first nine
month period ended  December 31, 1997 ("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 five
businesses  accounted for under the purchase method. The consolidated  financial
statements include the operating results of these companies  subsequent to their
respective acquisition dates.

         Pro forma data on the  consolidated  statements of operations  reflects
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.

                                   11
<PAGE>

         As a  professional  services  organization,  the  Company  responds  to
service demands from its clients.  Accordingly,  the Company has limited control
over the  timing  and  circumstances  under  which its  services  are  provided.
Therefore,  the Company can experience  volatility in its operating results from
quarter to quarter.  The operating  results for any quarter are not  necessarily
indicative  of  the  results  for  any  future  period.  The  Company  generally
experiences  a reduction  in gross profit in the first  calendar  quarter due to
the impositon of employment related taxes.

     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
issue 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.

                                   12
<PAGE>


                  CONSOLIDATED RESULTS OF OPERATIONS

          Three Months Ended December 31, 1997 Compared to Three Months
                             Ended December 31, 1996

Revenues

     In the third quarter of fiscal 1998 revenues  increased  $20.6 million,  or
48.4% to $63.1  million from $42.5  million in the third quarter of fiscal 1997.
The  increase was  primarily  attributable  to a 28.9%  increase in total client
service hours to 964,000 from 748,000 in the third quarter of 1997,  and a 15.6%
increase  in the  average  hourly  billing  rate to  $64.62  from  $55.91 in the
comparable  quarter  of 1997.  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 $6.0 million, or 47.9% to $18.4 million in the third
quarter of 1998 from $12.4 million in the third  quarter of 1997,  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 29.1%
in the third quarter of 1998 from 29.2% in the third  quarter of 1997  primarily
due to the  inclusion  of the FY 1998  Purchases  with lower  gross  margins and
certain of the Pooled  Companies  engaging  new clients at lower  gross  margins
prior to the acquisition by the Company.

Non - Recurring Transaction Costs

         Non-recurring  transaction costs include  expenditures  associated with
the  acquisition  of four Pooled  Companies  acquired  during the period and are
expensed as incurred on an historical basis.


Selling, General and Administrative Expenses

     Selling,  general and administrative  expenses  increased $5.1 million,  or
52.2% to $14.8  million in the third  quarter  of 1998 from $9.7  million in the
third quarter of 1997. The increase was primarily due to increased  compensation
to  existing  staff,  staff  added to  support  anticipated  growth,  additional
occupancy costs and an increased level of corporate activities. Selling, general
and  administrative  expenses  increased as a percentage of revenues to 23.4% in
the third quarter of 1998 from 22.8% in the third quarter of 1997.

     Selling,  general  and  administrative  espenses  on a pro forma basis were
$13.7  million  or 21.8% of pro forma  revenues  for the third  quarter of 1998,
compared to historical  selling,  general and  administration  expenses of $14.8
million,  or 23.4% of  historical  revenues.  The reduced  selling,  general and
administrative  expenses on a pro forma basis  reflect a reduction  in executive
and employee compensation arrangements in connection with the Pooled Companies.

     On  a  pro  forma  basis,  selling,  general  and  administrative  expenses
increased $4.4 million,  or 46.6% to $13.7 million in the third quarter of 1998.
The increase was  primarily  due to increased  compensation  to existing  staff,
staff added to support  anticipated  growth,  additional  occupancy costs and an
increased  level  of  corporate  activities.  Pro  forma  selling,  general  and
administrative  expenses  decreased as a percentage  of revenues to 21.8% in the
third quarter of 1998 from 22.0% in the third quarter of 1997 reflecting greater
operating  efficiencies and a larger revenue base. The Company cannot be certain
that such  efficiencies  can be sustained in the near term as is  undertakes  to
integrate  the  acquired  entities,  expand  geographically  and  acquire  other
companies.

                                   13
<PAGE>

Interest Expense, Net

     Interest  expense,  net of  interest  income was $0.2  million in the third
quarter of 1998 and $0.1 million in the third quarter of 1997.


Provision for Income Taxes

     Provision  for income taxes was $2.8 million in the third  quarter of 1998,
which  reflects a provision on pre-tax  income of 105%. The provision for income
taxes  was $0.8  million  in the  third  quarter  of 1997 at a rate of 35%.  The
increase in the  effective tax rate is due to the  termination  of S Corporation
status of certain  Pooled  Companies,  the  requirement  to change from the cash
basis  to the  accrual  basis  of  accounting  for tax  purposes  at the date of
acquisition  and the  non-deductibility  of  certain  non-recurring  transaction
costs.
         
     The primary difference  between the Company's  historical and pro forma
effective tax rates related to the  termination of certain  Pooled  Companies' S
corporation  election  and  the   non-deductibility  of  certain   non-recurring
transaction costs.




           Nine Months Ended December 31, 1997 Compared to Nine Months
                             Ended December 31, 1996


Revenues

     In the first nine months of fiscal 1998 revenues  increased  $57.7 million,
or 48.8% to $176.0  million  from  $118.3  million in the first  nine  months of
fiscal  1997.  The  increase  was  primarily  due to a 33.3%  increase in client
service  hours to 2.8 million from 2.1 million hours in the first nine months of
fiscal  1997 and a 9.8%  increase  in the  average  billing  rate to $62.15 from
$56.60 in the  comparable  period of fiscal  1997.  The increase in revenues was
also attributable to the inclusion of revenues of the FY1998 Purchases.


Gross Profit

     Gross profit increased $16.5 million,  or 46.7% to $51.8 million during the
first nine months of fiscal 1998 from $35.3  million in the first nine months of
fiscal 1997 primarily as a result of an increase in client service hours and the
inclusion of the FY 1998  Purchases.  Gross  profit as a percentage  of revenues
decreased  to 29.4% of  revenues  for the first nine  months of fiscal 1998 from
29.9% in the first nine months of fiscal 1997  primarily due to the inclusion of
the FY 1998  Purchases  with  lower  gross  margins  and  certain  of the Pooled
Companies  engaging new clients at lower gross margins prior to  acquisition  by
the Company.


Selling, General And Administrative Expenses

         Selling,  general and administrative  expenses increased $13.5 million,
or 48.0% to $41.6  million  in the first nine  months of fiscal  1998 from $28.1
million in the first nine months of fiscal 1997.  The increase was primarily due
to increased  compensation  to existing  staff,  staff added to support  growth,
additional  locations,  installation  of a  company-wide  network and associated
costs to maintain  these systems as well as incremental  costs of  Cotelligent's
corporate activities.  Selling, general and administrative expenses decreased as
a percentage of revenues to 23.6% of revenues in the first nine months of fiscal
1998 from 23.8% in the first nine months of fiscal 1997.

                                   14
<PAGE>


     Selling,  general  and  administration  expenses  on a pro forma basis were
$39.6 million, or 22,5% of pro forma revenues for the nine months ended December
31, 1997, compared to historical selling, general and administrative expenses of
$41.6  million,  or 23.6% of  historical  revenues.  The  reduction  of selling,
general and administrative  expenses on a pro forma basis reflect a reduction in
executive and employee  compensation  arrangements in connection with the Pooled
Companies.

     On  a  pro  forma  basis,  selling,  general  and  administrative  expenses
increased  $12.8 million,  or 47.7% to $39.6 million in the first nine months of
1998.  The increase was  primarily  due to  increased  compensation  to existing
staff, staff added to support anticipated growth, additional occupancy costs and
an  increased  level of corporate  activities.  Pro forma  selling,  general and
administrative  expenses  decreased as a percentage  of revenues to 22.5% in the
first nine months of 1998 from 22.7% in the first nine months of 1997 reflecting
greater operating  efficiencies and a larger revenue base. The Company cannot be
certain  that  such  efficiencies  can be  sustained  in  the  near  term  as is
undertakes to integrate the acquired entities, expand geographically and acquire
other companies.


Non-Recurring Transaction Costs

         Non-recurring  transaction costs include  expenditures  associated with
the  acquisition  of four Pooled  Companies  acquired  during the period and are
expensed as incurred on an historical cost basis.

Interest Expense, Net

         Interest expense, net of interest income increased $0.2 million to $0.3
million in the first nine months of fiscal  1998 from $0.1  million in the first
nine  months of fiscal  1997,  primarily  due to a reduction  in  invested  cash
balances to fund growth and acquisition activity.

Provision for Income Taxes

         Provision for income taxes was $5.3  million,  or an effective tax rate
of 59% of pre-tax  income for the first nine months of fiscal  1998  compared to
income taxes of $2.7 million,  or an effective rate of 44% of pre-tax income for
the first nine months of fiscal 1997.  The increase in the effective tax rate is
due to an  increase  in  revenues  in states with higher tax rates and a greater
amount  of  non-recurring  transaction  costs,  certain  portions  of which  are
non-deductible for tax purposes.

         The primary difference  between the Company's  historical and pro forma
effective tax rates related to the  termination of certain  Pooled  Companies' S
corporation  election  and  the   non-deductibility  of  certain   non-recurring
transaction costs.



                         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 the Offering.  On September 12, 1997, the Company entered into
a $40 million  revolving line of credit facility (the "Credit Line") with a lead
lender bank and two other banks.  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. At
February  12, 1998 the Company had $10.3  million  outstanding  under the Credit
Line.

         The Company's  primary  sources of liquidity are cash,  the Credit Line
and the collection of its accounts  receivable.  Accounts receivables have grown
as the Company's  operations have grown.  Billed receivables were 64 and 59 days
of revenue at December  31, 1997 and March 31,  1997,  respectively.  Should the
Company be unable to bill and collect for its  services on a timely  basis,  the
Company could draw upon available cash or existing credit  facilities to finance
its operations.

                                   15
<PAGE>

     Cash provided by operating  activities was $1.6 million for the nine months
ended  December 31, 1997. The Company  supplemented  cash provided by operations
periodically with short-term borrowings.  The average balance of such borrowings
outstanding was approximately $6.7 million during the nine months ended December
31, 1997 and approximately $5.9 million during fiscal 1997.

     At  December  31,  1997  the  Company  had  $0.7  million  in cash and cash
equivalents as compared to $2.9 million at March 31, 1997. At December 31, 1997,
the Company had long-term notes payable under the Credit Line, long-term capital
lease  obligations  and other notes  outstanding in the amount of $12.3 million.
The current  installments of the long-term  capital lease  obligations and other
notes were $0.2 million at December 31, 1997.

     At March 31,  1997,  the  Company had  short-term  notes  payable,  current
installments of long-term  capital lease obligations and other notes outstanding
in the amount of $4.4 million.  At March 31, 1997,  the  long-term  debt of $0.6
million consisted of capital lease obligations and other notes.

     The  Company  intends  to borrow and re-pay  against  the Credit  Line from
time-to-time  to meet normal  operating  needs,  finance its  receivables  or to
effect acquisitions in connection with its acquisition strategy.




                                   16
<PAGE>


                           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.

                    During the quarter  ended  December  31,  1997,  the Company
filed a Current Report on form 8-K on October 28, 1997.


                                   17
<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 17, 1998                     By: /s/ Curtis J. Parker
                                                ----------------------
                                                Curtis J. Parker
                                                Vice President,
                                                    Chief Accounting Officer





                                   18
<PAGE>