===============================================================================



                    SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  Form 8-K

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

                                  MARCH 18, 1997
                                 (Date of Report)

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




DELAWARE                       0-25372                      94-3173918

(State or other       (Commission File Number)            (IRS Employer 
jurisdiction of                                           Identification   
 incorporation)                                                 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)



-------------------------------------------------------------------------------



<PAGE>

Item 5.

     The Company hereby files the Report of Independent Accountants and the 
related financial statements for Cotelligent Group, Inc. and its subsidiaries at
March 31, 1995 and 1996 and the results of operations and cashflows for each of
the three years in the period ended March 31, 1996.  Additionally, the Company
hereby files Pro Forma Statement of Operations for the year ended March 31,
1996.




<PAGE>

                   COTELLIGENT GROUP, INC. FORM 8-K

                                 INDEX


                                                                     Page
Item 5 - Financial Statements and Exhibits

COTELLIGENT GROUP, INC.
Pro Forma Consolidated Statement of Operations for the Year 
  Ended March 31, 1996 (Unaudited)...................................  5
Notes to Pro Forma Consolidated Statements of Operations.............  6


COTELLIGENT GROUP, INC.

Report of Price Waterhouse LLP, Independent Accountants..............  7
Consolidated Balance Sheet as of March 31, 1995 and 1996.............  8
Consolidated Statement of Operations for the Years Ended 
  March 31, 1994, 1995 and 1996......................................  9
Consolidated Statement of Stockholders' Equity for the 
  Years Ended March 31, 1994, 1995 and 1996.......................... 10
Consolidated Statement of Cash Flows for the Years Ended 
  March 31, 1994, 1995 and 1996...................................... 11
Notes to Consolidated Financial Statements........................... 13


<PAGE>



                         COTELLIGENT GROUP, INC.

            PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                               (Unaudited)


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

         On June 28, 1996  Cotelligent  acquired  ESP  Software  Services,  Inc.
("ESP") and INNOVA  Solutions Inc. ("ISI") and on September 30, 1996 Cotelligent
acquired JasTech,  Inc. and JasTech of Florida, Inc. ("JTI") and on November 27,
1996   Cotelligent    acquired    Pittsburgh    Business    Consultants,    Inc.
("PBC")(collectively  the "Pooled Companies") in business combinations accounted
for under the pooling-of-interests method. Accordingly, the historical financial
statements  of  Cotelligent  have been  restated in  accordance  with  generally
accepted  accounting  principles to present the financial data as if Cotelligent
and the Pooled Companies had always been members of the same operating group.



         The pro forma consolidated  statements of operations for the year ended
March 31, 1996 give effect to the  acquisitions of the Founding  Companies as if
these  acquisitions  were  made on April 1,  1995.  Additionally,  the pro forma
consolidated  statements reflect  adjustments for the acquisitions of the Pooled
Companies and the Founding  Companies  including  elimination  of the results of
operations  of  a  PBC  consulting  division  ("MCS")  which  was  discontinued,
compensation  differentials  to  employees  and  former  owners of the  Founding
Companies and the Pooled Companies,  the planned termination of contributions to
retirement plans,  incremental selling,  general and administrative costs of the
corporate activities of Cotelligent,  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 throughout the periods presented.







<PAGE>


                             COTELLIGENT GROUP, INC.

                         PRO FORMA STATEMENT OF OPERATIONS

                       FOR THE YEAR ENDED  MARCH 31,  1996 (In
                   Thousands, Except Share and Per Share Amounts)
                                    (Unaudited)

<TABLE>
<CAPTION>
                                                                Founding
                                                               Companies
                                     Cotelligent             April 1, 1995-            Pro Forma
                                     Group, Inc.              Feb 19, 1996            Adjustments              Pro Forma
                                    ---------------       ---------------------    ------------------       -----------------
<S>                                 <C>                   <C>                      <C>                      <C>
Revenues.......................      $     52,786          $          55,745        $        (2,430) (d)      $    106,101
Cost of services...............                                                              (1,631) (d)
 ...............................            37,227                      42,361                  (298) (a)            77,659
                                    ---------------       ---------------------    ------------------       -----------------
      Gross margin.............            15,559                      13,384                  (501)                28,442
Selling, general and                                                                           (565) (d)
  administrative expenses......            12,962                      10,374                (1,561) (b)            21,210
                                    ---------------       ---------------------    ------------------       -----------------
Operating income...............             2,597                       3,010                 1,625                  7,232
Other expense (income):
   Interest expense (income),                                                                   (16)  (d)
     net.......................               226                         421                  (202)  (c)               429
   Other (income)..............              (346)                        (36)                  339   (d)               (43)
                                    ---------------       ---------------------    ------------------       -----------------
      Total other expense
        (income)...............              (120)                        385                    121                    386
                                    ---------------       ---------------------    ------------------       -----------------
Income before income taxes.....             2,717                       2,625                  1,504                  6,846
Provision for income taxes.....               199                       1,952                    587  (e)             2,738
                                    ---------------       ---------------------    ------------------       -----------------
Net income.....................      $      2,518         $               673      $             917         $        4,108
                                    ===============       =====================    ==================       =================
Earnings per share.............                                                                                        $.54
                                                                                                            =================
Weighted average shares
  outstanding..................                                                                       (f)         7,540,273
                                                                                                            =================


</TABLE>
















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


<PAGE>
                              COTELLIGENT GROUP, INC.

                 NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                                   (In Thousands)
                                     (Unaudited)


Note 1 - Unaudited Pro Forma Adjustments

Pro forma data reflects adjustments for the following:

(a)  Reduction in compensation to former owners and employees as a result of the
     renegotiation of executive compensation arrangements and the termination of
     contributions  to  employee  benefit  plans  made in  conjunction  with the
     acquisition of the Founding Companies;

(b)  Reduction in  compensation  to former  owners and employees of the Founding
     Companies,  and the Pooled  Companies as a result of the  renegotiation  of
     executive  compensation  arrangements  ($2,147 for the year ended March 31,
     1996,  termination of contributions to employee benefit plans ($117 for the
     year ended March 31,  1996),  offset by increased  expenses  for  corporate
     operating activities ($703 for the year ended March 31, 1996);

(c)  Reduction  in interest  expense as a result of  termination  of an employee
     stock  ownership  plan  ($147 for the year  ended  March 31,  1996) and the
     payoff of debt to a former  stockholder  ($55 for the year ended  March 31,
     1996);

(d)  Adjustments  to eliminate the results of operations of Pittsburgh  Business
     Consultants,  Inc.'s MCS consulting  division which was  discontinued as of
     December 31, 1995.

(e)  Income taxes as if the entities  were combined and subject to the effective
     federal and state statutory rates throughout the periods presented (40% for
     the year ended March 31, 1996);

(f)  Pro forma weighted  average shares  outstanding used to determine pro forma
     earnings  per share  were  calculated  based on the  following:  (i) shares
     issued  by  Cotelligent  prior  to  the  Offering,  shares  issued  to  the
     stockholders of the Founding  Companies in connection with the Acquisitions
     and  shares  sold  in  the   Offering  to  pay  the  cash  portion  of  the
     consideration of the Founding Companies were considered outstanding for the
     entire period,  (ii)  additional  shares sold to the public in the Offering
     from the date of  issuance,  (iii)  shares  issued to  acquire  the  Pooled
     Companies,  and (iv) dilution  attributable  to options to purchase  common
     stock in applying the treasury method.



<PAGE>


                           REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors
  and Stockholders of
  Cotelligent Group, Inc.

         In our opinion,  the  accompanying  consolidated  balance sheet and the
related  consolidated  statements of operations,  of stockholders' equity and of
cash flows present fairly, in all material  respects,  the financial position of
Cotelligent  Group, Inc. and its subsidiaries at March 31, 1995 and 1996 and the
results of their  operations and their cash flows for each of the three years in
the  period  ended  March  31,  1996,  in  conformity  with  generally  accepted
accounting principles.  These financial statements are the responsibility of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements  based on our  audits.  We  conducted  our audits of these
statements  in accordance  with  generally  accepted  auditing  standards  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for the opinion expressed above.





PRICE WATERHOUSE LLP

Minneapolis, Minnesota
April 20,  1996,  except  as to the  pooling  of  interests  with  ESP  Software
  Services,  Inc. and INNOVA Solutions,  Inc. which are as of June 28, 1996, the
  pooling of interests with JasTech, Inc. which is as of September 30, 1996, and
  the pooling of interests with Pittsburgh  Business  Consultants Inc., which is
  as of November 27, 1996




<PAGE>


                           COTELLIGENT GROUP, INC.

                          CONSOLIDATED BALANCE SHEET
                    (In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
                                                                    March 31,        March 31,
                             ASSETS                                    1995             1996
                                                                  -------------    -------------
<S>                                                               <C>              <C>
Current assets:
   Cash and cash equivalents..................................     $      260        $   14,574
   Marketable securities......................................             -                 26
   Accounts receivable, less allowance for doubtful
     accounts of $0 and $235  at March 31, 1995 and 1996.......         6,021            18,666
   Notes receivable, including $179 from related parties......             36               315
   Prepaid expenses and other current assets..................            186               770
                                                                   -------------    -------------
     Total current assets.....................................           6,503            34,351
                                                                   -------------    -------------
Property and equipment, net...................................             600            1,690
Deferred income taxes.........................................             165              247
Other assets..................................................               8              160
                                                                   =============    =============
     Total assets.............................................          $7,276       $   36,448
                                                                   =============    =============


              LIABILITIES AND STOCKHOLDERS' EQUITY 

Current liabilities:
   Short-term debt............................................       $  1,954         $   4,863
   Accounts payable...........................................            600               771
   Accrued compensation and related payroll liabilities.......          1,823             5,324
   Due to related parties.....................................            473               417
   Income taxes payable.......................................             56             1,243
   Deferred income taxes......................................             -                560
   Billings in excess of costs and estimated earnings on
        uncompleted contracts.................................            515                 -
   Other accrued liabilities..................................            261             1,696
                                                                   -------------    -------------
     Total current liabilities................................           5,682            14,874
                                                                   -------------    -------------
Long-term debt................................................             143              450
Other long-term liabilities...................................             549              942
                                                                   -------------    -------------
     Total liabilities........................................           6,374           16,266
                                                                   -------------    -------------
Commitments and contingencies.................................               -                -  
Stockholders' equity:
    Preferred stock, 500,000 authorized 0 shares outstanding..               -                -
    Common stock, $0.01 par value; 100,000,000 shares
      authorized 3,478,271 and  9,119,914 shares
      outstanding, respectively...............................              35               91
   Additional paid-in capital.................................             313           18,430
   Retained earnings..........................................             554            1,661
                                                                   -------------    -------------
     Total stockholders' equity...............................             902           20,182
                                                                   -------------    -------------
     Total liabilities and stockholders' equity...............     $      7,276      $   36,448
                                                                   =============    =============


</TABLE>






 The accompanying notes are an integral part of these financial statements


<PAGE>


                                     COTELLIGENT GROUP, INC.

                               CONSOLIDATED STATEMENT OF OPERATIONS
                        (In Thousands, Except Share and Per Share Amounts)

<TABLE>

<CAPTION>
                                                For the Year Ended March 31,
                                         --------------------------------------------
                                             1994            1995            1996
                                         -------------    ------------    -----------
<S>                                      <C>              <C>             <C> 
Revenues..................................$   26,679        $ 33,264       $  52,786
Cost of services.......................       17,042          22,621          37,227
                                         -------------    ------------    -----------
        Gross margin...................        9,637          10,643          15,559
Selling, general and administrative
  expenses.............................        8,204          10,451          12,962
                                         -------------    ------------    -----------
Operating income.......................        1,433             192           2,597
Other (income) expense:
   Interest expense....................           74             119             321
   Interest income.....................           (5)            (15)            (75)
   Other...............................            5             (12)           (366)
                                         -------------    ------------    -----------
     Total other (income) expense......           74              92            (120)
                                         -------------    ------------    -----------

Income before income taxes.............        1,359             100           2,717
Provision (benefit) for income taxes...          162             (77)            199
                                         =============    ============    ===========
Net income.............................   $    1,197       $     177      $    2,518
                                         =============    ============    ===========





</TABLE>















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


<PAGE>


                         COTELLIGENT GROUP, INC.

              CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                    (In Thousands, Except Share Amounts)

<TABLE>
<CAPTION>
                                                                           Additional
                                                                            Paid In         Retained          Total
                                             -------------- ------------- -------------- ---------------- ---------------
                                                Shares         Amount       Capital         Earnings         Equity
                                             -------------- ------------- -------------- ---------------- ---------------
<S>                                          <C>            <C>           <C>             <C>             <C>         
Balance at March 31, 1993.................      3,224,266             32            _      $       1,205   $      1,237
   Dividends to certain pooled companies..              -              -            -               (550)          (550)
   Issuance of common stock...............         97,124              1            91                 -             92
   Net income.............................               -            -             -              1,197          1,197
                                             -------------- ------------- -------------- ------------------- ------------

Balance at March 31, 1994.................       3,321,390           33             91            1,852        1,976
   Dividends to certain pooled companies..         -                  -              -          (1,269)       (1,269)
   Stock redemption.......................         -                  -              -            (206)         (206)
   Issuance of common stock...............        156,881             2            222                           224
   Net income.............................               -            -              -             177           177
                                              -------------- ------------- -------------- ------------------- -----------

Balance at March 31, 1995.................      3,478,271            35            313              554          902   
   Issuance of common stock prior to
     Offering.............................        120,478             1            381                 -         382
   Redemption of common stock prior to
     Offering.............................        (74,140)           (1)          (119)                -         (120)
   Dividends to certain pooled companies..                                                        (1,393)      (1,393)
   Reclassification of Founding
     Companies Equity.....................               -            -           4,307                 -       4,307
   Issuance of common stock net of cost...      5,595,305            56          16,903                        16,959
   Distribution to founding stockholders..               -            -          (3,492)                -      (3,492)
   Adjustments to conform year-ends of
    pooled companies:
         Capital Contribution.............               -            -            137                 -          137
         Net income.......................               -            -              -                270         270
         Dividends........................               -            -              -               (288)       (288)
   Net income.............................               -            -              -               2,518      2,518
                                             ============== ============= ============== ================== ============
Balance at March 31, 1996.................      9,119,914            91        18,430                1,661      20,182
                                             ============== ============= ============== ================== ============
</TABLE>

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


<PAGE>


                           COTELLIGENT GROUP, INC.

                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                       For the Year Ended March 31,
                                                 -----------------------------------------
                                                    1994           1995           1996
                                                 -----------    -----------    -----------
<S>                                              <C>             <C>           <C> 
Cash flows from operating activities:
   Net income..............................      $   1,197        $   177        $   2,518
   Adjustments to reconcile net income to
     net cash provided by (used in)
     operating activities..................
     Depreciation and amortization.........            174             221           308
     Loss (gain) on disposal of property
       and equipment.......................              3              42          (325)
     Provision for doubtful accounts.......              -               -           156
     Net change in deferred income taxes...            127                -         (539)
     Change in current assets and liabilities:
       (Increase) in accounts  receivable..           (674)         (2,680)       (2,743)
       (Increase) in prepaid expenses and
           other current assets............            (12)           (109)         (216)
       Increase in accounts payable and
           accrued liabilities.............             14           2,458           128
       Increase (decrease) in income taxes
         payable...........................             73             (29)          307
       Changes in other assets.............             34               4            19
                                                 -----------    -----------    -----------
         Net cash provided by (used in)
           operating activities............            936              84          (387)

Cash flows from investing activities:
   Proceeds on sale of assets..............             25              53           374
   Purchases of property and equipment.....           (139)           (420)         (652)
   Advances to stockholders................              8             -             (60)
   Net repayments from (advances to)
     related parties.......................            (45)            (25)           (3)
   Cash and cash equivalents of Founding
     Companies at date of acquisition......            -               -             525
                                                 -----------    -----------    -----------
         Net cash provided by (used in)
           investing activities............           (151)           (392)          184
                                                 -----------    -----------    -----------



</TABLE>





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


<PAGE>


                            COTELLIGENT GROUP, INC.

             CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                       For the Year Ended March 31,
                                                  ----------------------------------------
                                                     1994           1995           1996
                                                  ------------    ----------    -----------
<S>                                                <C>            <C>           <C>
Cash flows from financing activities:
   Redemption of common stock...............             -            (206)         (120)
   Proceeds from long-term debt.............             -             168            64
   Principal payments of long-term debt.....             (11)          (47)          (19)
   Payments on capital lease obligations....             -             -             (49)
   Net borrowings (repayments) on short-
     term debt..............................             (11)          996           371
   Borrowings from related parties..........              51            10           848
   Payments on loans with related parties...             -             -            (700)
   Proceeds from issuance of common stock...              92           224        18,378
   Distribution to founding Companies
     former stockholders....................             -             -          (3,492)
   Dividends to certain pooled companies....            (550)       (1,269)       (1,303)
   Net change in cash due to conforming
     fiscal year-end of pooled companies....             -             -             539
                                                  ------------    ----------    -----------
         Net cash provided by (used in)
           financing activities.............            (429)         (124)       14,517
                                                  ------------    ----------    -----------

Net increase (decrease) in cash and cash
  equivalents...............................             356          (432)       14,314
Cash and cash equivalents beginning
  of period.................................             336           692           260
                                                  ============    ==========    ===========
Cash and cash equivalents end of period.....      $      692       $   260      $ 14,574
                                                  ============    ==========    ===========

Supplemental disclosures of cash flow information:
   Interest paid............................      $       57       $   122       $   355
                                                                  
   Income taxes paid........................      $      130       $    14       $   338
                                                                        
Non-cash investing and financing transactions:
   Capital lease obligations incurred.......       $       -       $    10       $   158
                                                                 
   Conversion of trade accounts receivable
     to note receivable.....................       $      -        $    -        $    53
                                                                              



</TABLE>




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


<PAGE>


                       COTELLIGENT GROUP, INC.

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

Note 1 - Business Organization and Basis of Presentation

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

         The aggregate  consideration  paid by Cotelligent in these transactions
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 shares 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  interests in the
Company of the former stockholders of BFR, CAI, DASI, FDSI and Cotelligent,  the
Acquisitions were accounted for on a historical cost basis.

         As further discussed in Note 3, 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,  Inc. ("PBC").   (collectively   the "Pooled
Companies")   in   business   combinations   accounted   for  under  the
pooling-of-interests method.

         The accompanying  consolidated  financial statements have been restated
to give  effect  to the  mergers  of the  Pooled  Companies.  Additionally,  the
financial  statements  also  reflect  the  results of these  Founding  Companies
subsequent to the acquistions on February 20, 1996.

         The  following  presents the  unaudited  results of  operations  of the
Company for the fiscal  years  ended March 31, 1995 and 1996 as if the  Founding
Companies described above had been consummated as of April 1, 1994:
<TABLE>
<CAPTION>
                                                                                   For the Fiscal Year
                                                                                Ended March 31,
                                                                        ------------- -- -------------
                                                                            1995             1996
                                                                        -------------    -------------
                    <S>                                                 <C>              <C>
                    Revenues..........................................    $   83,292       $  108,531
                    Net Income........................................           419            3,191

</TABLE>
Note 2 - Summary of Significant Accounting Policies

     Principles of Consolidation

         The  consolidated  financial  statements  include  the  accounts of the
Company  and  its  wholly  owned  subsidiaries.   All  significant  intercompany
transactions and accounts have been eliminated in consolidation.



<PAGE>


                         COTELLIGENT GROUP, INC.

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

     Use of Estimates

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

     Cash and Cash Equivalents

         The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.

     Property and Equipment

         Property  and  equipment  are stated at cost.  Depreciation,  including
amortization of capitalized  leases, is provided over the estimated useful lives
of the  respective  assets  (generally  ranging  from  five to ten  years)  on a
straight-line or an accelerated basis. Leasehold improvements are amortized over
the shorter of the lease term or the  estimated  useful  life of the  respective
assets.

     Concentration of Credit Risk

         Financial   instruments  that   potentially   subject  the  Company  to
concentrations of credit risk consist principally of trade accounts  receivable.
Receivables arising from services provided to clients are not collateralized and
accordingly,  the Company performs ongoing credit  evaluations of its clients to
reduce the risk of loss.

     Revenue Recognition

         Revenue is recognized as services are performed.

         Prior to its sale,  PBC's MCS division  entered into contract  revenues
which were recognized on the percentage-of-completion  method of accounting. The
length of these MCS  contracts  varied  and were  typically  less than 1 year in
duration. Contract income was recognized based on the ratio of costs incurred to
estimated total costs.

         Costs and  estimated  earnings  in excess of  billings  on  uncompleted
contracts (the asset)  represent costs incurred plus gross profit  recognized in
excess of amounts  billed at March 31, 1995.  Conversely,  billings in excess of
costs and estimated earnings on uncompleted  contracts (the liability) represent
billings in excess of costs  incurred plus gross profit  recognized at March 31,
1995.

     Fair Value of Financial Instruments

         The Company's financial instruments primarily consist of cash, accounts
receivable  and  payables  for which  current  carrying  amounts are equal to or
approximate fair market value. Additionally,  interest rates on outstanding debt
are at rates which  approximate  market  rates for debt with  similar  terms and
maturities.

     Income Taxes

         The Company  accounts for income taxes in accordance  with Statement of
Financial  Accounting  Standards  No. 109,  "Accounting  for Income Taxes" (SFAS
109). The asset and liability approach used in SFAS 109 requires the recognition
of deferred tax assets and  liabilities  for the tax  consequences  of temporary
differences by applying  enacted  statutory tax rates applicable to future years
to  differences  between the financial  statement  carrying  amounts and the tax
bases of existing assets and liabilities.

<PAGE>

                       COTELLIGENT GROUP, INC.

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

         PBC  previous  to the merger  elected  to be treated as an S  
corporation  for  federal  and state  income taxes.  Accordingly,  any tax  
liabilities  of the  Company  were  the  responsibility  of the  stockholders. 
This S corporation status terminated as a result of the merger with Cotelligent.


         Prior to the merger on June 28,  1996,  ESP elected to be taxed as an S
corporation  for federal and state  income tax  purposes.  Accordingly,  any tax
liabilities were the  responsibility of the ESP stockholder.  Additionally,  ISI
was a C  corporation  until January 1, 1995, at which time it also elected to be
taxed for federal income tax purposes as an S corporation,  and accordingly, any
tax liabilities were the responsibility of the ISI shareholder.


         Effective  June 28,  1996,  ESP's  and  ISI's S  corporation  elections
terminated as a result of the mergers with Cotelligent.  In connection with this
conversion,  approximately  $800  was  recorded  as  income  tax  expense  which
represents the net deferred tax  liabilities of ESP and ISI. This amount will be
paid on a pro rata basis over a four-year  period.  See Note 7 for unaudited pro
forma income tax information and further discussion.

         Effective January 1, 1996, JasTech of Florida, Inc. elected to be taxed
as an S corporation for federal and state income tax purposes.  Accordingly, any
tax  liabilities   subsequent  to  this  date  and  prior  to  the  merger  with
Cotelligent,  are the  responsibility  of the stockholder of JasTech of Florida,
Inc.

         Effective September 30, 1996, JasTech of Florida,  Inc.'s S corporation
status terminated as a result of the merger with Cotelligent.

     Earnings Per Share

         Historical  earnings per share for the three years ended March 31, 1996
have not been  presented  because it is not  considered  to be  meaningful  as a
result of the Acquisitions and the Offering as discussed in Note 1.

     SFAS 123 "Accounting for Stock Based Compensation"

         In October 1995, the Financial  Accounting  Standards Board issued SFAS
123,  "Accounting  for Stock Based  Compensation."  SFAS 123  establishes a fair
value based method of accounting for employee stock based compensation plans and
encourages companies to adopt that method.  However, it also allows companies to
continue to apply the intrinsic value based method  currently  prescribed  under
APB Opinion No. 25, provided certain pro forma disclosures are made. SFAS 123 is
not  required  to be adopted by the  Company  until  fiscal  1997.  The  Company
currently  intends to continue to apply the accounting  method prescribed by APB
Opinion 25 and,  accordingly,  the adoption of SFAS 123 will not have a material
impact on the Company's operating results.

Note 3 - Business Combinations Accounted for Under the Pooling-of-Interests 
         Method

         Effective June 28, 1996,  Cotelligent  acquired all of the  outstanding
common stock of ESP Software Services,  Inc. ("ESP") and INNOVA Solutions,  Inc.
("ISI") in exchange  for 534,919  shares of common  stock with a market value of
$9,000  and  521,390  shares  of common  stock  with a market  value of  $9,000,
respectively.  On September 30, 1996 Cotelligent acquired all of the outstanding
common stock of JasTech, Inc. and JasTech of Florida, Inc.  (collectively "JTI")
in exchange  for 644,826  shares of common  stock with a market value of $8,710.
Additionally,  on November 26, 1996 Cotelligent  acquired all of the outstanding
stock of Pittsburgh Business Consultants, Inc. ("PBC") in exchange for 1,202,474
shares of common stock with a market value of $21,000.  ESP, ISI and JTI and PBC
are herein referred to as the "Pooled Companies.".  These business  combinations
were  accounted  for as  poolings-of-interests  and  accordingly,  the Company's
financial  statements give retroactive  effect to the acquisitions of the Pooled
Companies for all periods presented.



<PAGE>




                          COTELLIGENT GROUP, INC.

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

The results of these Pooled  Companies were  previously  reported on December 31
year ends.  The  accounts of these  companies  for the years ended  December 31,
1993,  1994 and 1995 have been combined with the accounts of Cotelligent for the
years ended March 31, 1994, 1995 and 1996, respectively.  Commencing on April 1,
1996, the year ends of these Companies were changed to March 31, resulting in an
increase to retained  earnings of $270 during fiscal year ending March 31, 1996.
Following  is a summary of the results  related to the  adjustments  to retained
earnings:
<TABLE>
<CAPTION>
                                    ESP             ISI              JTI             PBC            Total
                                ------------    -------------    ------------    ------------    ------------
<S>                             <C>             <C>              <C>             <C>             <C>
Revenues...................      $   2,757        $   2,034       $  2,598        $  4,434         $  11,823
Costs and expenses.........          2,824            1,724          2,501           4,504            11,553
                                ============    =============    ============    ============    ============
                                 $     (67)       $     310       $      97        $   (70)         $    270
                                ============    =============    ============    ============    ============
</TABLE>
The  separate  results  of  Cotelligent  and the Pooled  Companies  prior to the
acquisitions are as follows:
<TABLE>
<CAPTION>

                                         For the Year Ended March 31,
                                    ------------ -- ------------- - -------------
                                       1994             1995            1996
                                    ------------    -------------   -------------
<S>                                 <C>             <C>             <C>
Cotelligent:
  Revenues.....................      $     -          $       -      $    8,265
  Net income (loss)............           (167)            (201)             88

ESP:
  Revenues.....................          4,936            6,950          10,274
  Net income (loss)............            282             (219)            205

ISI:
  Revenues.....................          4,304            2,860           5,867
  Net income (loss)............            284              (79)            668

JasTech:
  Revenues.....................          6,674            7,670           8,698
  Net income...................             24               30             131

PBC:
  Revenues                              10,765          15,784           19,682
  Net income                               774             646            1,426

Combined:
  Revenues.....................         26,679           33,264          52,786
  Net income...................          1,197              177           2,518
</TABLE>
<PAGE>

                             COTELLIGENT GROUP, INC.

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

Note 4 - Allowance for Doubtful Accounts

Allowance for doubtful accounts activity is as follows:

<TABLE>
<S>                                                                                         <C>
Balance, March 31, 1994 and 1995..........................................................   $  60
Balance of Founding Companies allowance for doubtful accounts at acquisition..............      40
Charges to costs and expenses.............................................................     156
Write-offs................................................................................     (21)
                                                                                          =============
Balance at March 31, 1996.................................................................   $ 235
                                                                                          =============
</TABLE>
Note 5 - Property and Equipment

Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
                                                          -----------------------------
                                                                   March 31,
                                                          -----------------------------
                                                              1995          1996
                                                          -------------- -----------
<S>                                                      <C>            <C>
Automobiles.............................................  $         52   $      102
Computer and office equipment...........................           300        2,063
Furniture and fixtures..................................           956        1,325
Leasehold improvements..................................           -            326
                                                          -------------- -----------
                                                                 1,308        3,816
Less:  Accumulated depreciation.........................           708        2,126
                                                          ============== ===========
                                                          $        600    $   1,690
                                                          ============== ===========

</TABLE>
Depreciation and  amortization  expense for the years ended March 31, 1994, 1995
and 1996 was $174, $221, and $308, respectively.


<PAGE>


                           COTELLIGENT GROUP, INC.

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

Note 6 - Credit Facilities

Credit facilities consist of the following:

   Short-Term Debt

<TABLE>
<CAPTION>
                                                                                     ---------------------------
                                                                                                  March 31,
                                                                                     ---------------------------
                                                                                        1995           1996
                                                                                     -----------    ------------
<S>                                                                                  <C>            <C>
Bank line of  credit,  with  borrowings  up to 80% of  PBC's  eligible  accounts
  receivable  or $1,900,  secured by accounts  receivable  and equipment of PBC,
  interest at prime plus 1 3/4% (9.5% at March 31, 1995) and 9.25% at
  March 31, 1996............................................................          $   1,136      $    883
Bank line of credit, with maximum borrowings of $1,250 secured by
  FDSI's accounts receivable,  property and equipment, and personally guaranteed
  by several Cotelligent stockholders who are also officers of FDSI, due May 28,
  1998. Interest at the prime rate plus 1.50% per annum
  (9.75% at March 31, 1996).................................................                  -         1,097
Bank line of credit, for borrowings up to the lesser of $1,300 or 70% of the
  DASI's eligible accounts receivable, secured by all assets of DASI, as
well
  as the personal guarantees of two Cotelligent stockholders who are also
  officers of DASI, due May 31, 1996.  Interest at 1.25% above the bank's                     -           809
  base lending rate (9.5% at March 31, 1996)................................
Bank line of  credit,  for  borrowings  of up to $1,500  secured by all of BFR's
  assets, due May 31, 1996. Interest at bank's prime rate of 8.25%
  at March 31, 1996.........................................................                  -           300
Bank line of credit, for borrowing up to $250, secured by accounts
  receivable and property and equipment and personally guaranteed by
  stockholder who is an officer of ISI.  Interest at prime plus 2.0%
(10.25%                                                                                       -           195
  at March 31, 1996)........................................................
Bank  line of  credit,  for  borrowings  up to  $1,000  in  combination  with an
  affiliated  organization,  personally  guaranteed by ESP stockholder who is an
  officer of ESP, secured by accounts  receivable and general tangible assets of
  combined companies. Interest at bank's base rate plus 1.25%
  (9.5% at March 31, 1996)..................................................                  -            824
Bank line of credit, with two separate banks for borrowing up to $900 and
  $300, secured by accounts receivable and fixed assets of JasTech.
Interest
  at prime rate plus 0.50% and 1.25% (8.75% and 9.50% at March 31, 1996)....                   590         408
Note payable for consulting services performed, which bears interest at
  the rate of 10% from June 1995, paid on completion of the Offering........                    52          -
Related party loans, due on demand, interest rates from 8.0% to 12.5%.......                   159          84
Capital lease obligations...................................................                     3         142
Current portion of long-term debt...........................................                    14         121
                                                                                          ----------- ------------
       Total short-term debt................................................               $ 1,954     $ 4,863
                                                                                          =========== ============

</TABLE>
         The lines of credit were executed  pursuant to agreements  that contain
various covenants that include,  among other things,  restrictions on additional
debt and  distributions,  and  maintenance of certain  financial  ratios and net
worth requirements. The Subsidiaries were in compliance with or obtained waivers
for all covenants as of March 31, 1996.
<PAGE>        

                      COTELLIGENT GROUP, INC.

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


Long-Term Debt:
<TABLE>
<CAPTION>
                                                                                          March 31,
                                                                                  ----------------------------
                                                                                     1995             1996
                                                                                  -----------      ------------
<S>                                                                               <C>              <C> 
Note payable to bank,  monthly payments of $6, including  interest at the bank's
  prime rate plus 2.25% (10.50% at March 31,1996) per annum;  maturing March 30,
  1998 and  secured  by FDSI's  assets  and the  personal  guarantee  of several
  Cotelligent stockholders who are also officers of
  FDSI.......................................................................           -            $   131

Note payable to bank,  monthly payments of $2, including  interest at the bank's
  prime rate plus 2.25%  (10.50% at March 31, 1996) per annum;  maturing May 29,
  1998 and  secured by FDSI's  assets  and the  personal  guarantees  of several
  Cotelligent stockholders who are also officers of
  FDSI.......................................................................           -                  56
Note payable to related party, quarterly installments of $7 plus interest at
  2% over bank index rate, due December 2001.................................           150               136
Capital lease obligations....................................................            10              390
                                                                                  -----------      ------------
                                                                                        160              713
Less:  Current maturities....................................................            17              263
                                                                                  -----------      ------------
        Total long-term debt.................................................        $  143           $  450
                                                                                  ===========      ============

</TABLE>

Total maturities of long-term debt are as follows:

                                                       ------------------
                                                           Year Ending
                                                             March 31,
                                                               1996
                                                       ------------------


1997....................................................      $     263
1998....................................................            262
1999....................................................             77
2000....................................................             47
2001....................................................             32
Thereafter..............................................             32
                                                        ------------------
Total...................................................      $     713
                                                        ==================





<PAGE>


                        COTELLIGENT GROUP, INC.

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

Note 7 - Income Taxes

         Cotelligent  will file a  consolidated  federal  income  tax return for
periods subsequent to the Acquisitions described in Note 2.

The provision (benefit) for income taxes is as follows:
<TABLE>                                                      
<CAPTION>
                                                                    Year Ended March 31
                                                              ----------------------------------
                                                                1994        1995         1996
                                                              ---------   ----------   ---------
<S>                                                           <C>         <C>          <C>    
Current:
  Federal..................................................     $  21       $  64       $  742
  State....................................................         2           2          134
                                                              ---------   ----------   ---------
                                                                   23          66          876
                                                              ---------   ----------   ---------
Deferred:
  Federal..................................................        82        (211)        (530)
  State....................................................       (10)        (12)        (107)
                                                              ---------   ----------   ---------
                                                                   72        (223)        (637)

Valuation allowance........................................        67          80          (40)
                                                              ---------   ----------   ---------

Total provision (benefit) for income taxes.................     $ 162      $  (77)      $  199
                                                              =========   ==========   =========
</TABLE>

Deferred tax assets (liabilities) are comprised of the following.
<TABLE>
<CAPTION>
                                                                                            March 31,
                                                                                -------------------------
                                                                                  1995           1996
                                                                                ----------     ----------
<S>                                                                             <C>            <C>
Allowance for doubtful accounts............................................      $  -           $    16
Accrued liabilities........................................................        165              406
Cash to accrual............................................................          -             (846)
Operating loss carry forward...............................................        147              317
Depreciation...............................................................          -              (19)
                                                                                ----------     ----------
     Deferred tax asset (liability)........................................        312             (126)
Valuation allowance........................................................       (147)            (187)
                                                                                ==========     ==========
     Net deferred tax assets (liabilities).................................      $ 165           $ (313)
                                                                                ==========     ==========

</TABLE>
<PAGE>



                        COTELLIGENT GROUP, INC.

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


     The Company's effective income tax rate varied from the U.S. federal 
statutory tax rate as follows:
<TABLE>
<CAPTION>
                                                               Year Ended March 31,
                                                    -------------------------------------------
                                                       1994            1995            1996
                                                    -----------     -----------      ----------
<S>                                                 <C>             <C>              <C>
U.S. federal statutory rate.........................     34.0%           34.0%           34.0%
Income of S corporation.............................    (27.0)         (160.0)          (28.2)
Conversion to S corporation........................       -             (34.0)            -
Valuation allowance against net operating loss...         4.9            80.0             1.5
                                                    ===========     ===========      ==========
     Effective tax rate.............................     11.9%         (80.0)%           7.3%
                                                    ===========     ===========      ==========

</TABLE>
         Prior to the  Acquisitions,  Cotelligent  Group, Inc. had established a
valuation  allowance  against the tax assets  associated  with the net operating
losses of previous years due to the  uncertainty  of realization  through future
income.  Subsequent to the  Acquisitions,  the Company reversed a portion of the
valuation  allowance as a result of the estimated  utilization  of the operating
losses against future taxable income.

         As discussed in Note 2, ISI was a C corporation until December 31, 1994
at which time ISI elected to be taxed as an S corporation,  and  therefore,  any
tax  liabilities  subsequent  to this  date  were  the  responsibility  of ISI's
shareholder.  Accordingly, net deferred tax liabilities of approximately $117 as
of December 31, 1994 were recognized in income upon the conversion in 1994.

         As a result of the merger with  Cotelligent on June 28, 1996, ISI's and
ESP's S corporation  elections  terminated.  Approximately  $800 of deferred tax
liabilities were recorded at this time and these federal and state taxes will be
paid ratably over the next four years.

         Effective January 1, 1996, JasTech of Florida,  Inc. also elected to be
taxed as an S corporation and therefore any tax  liabilities  subsequent to this
date and prior to the merger date with Cotelligent are the responsibility of the
stockholder of JasTech of Florida, Inc.

         Prior to the  merger,  PBC was also an S  corporation  for  federal and
state  income  tax  purposes,  and  accordingly  any tax  liabilities  were  the
responsibility of the PBC stockholders.

         The following  unaudited pro forma income tax  information is presented
in accordance  with  Statement of Financial  Accounting  Standards No. 109 as if
ESP,  ISI,  JTI and PBC had been C  corporations  subject to  federal  and state
income taxes for all periods presented.
<TABLE>
<CAPTION>
                                                  For the Year Ended
                                                       March 31,
                                        --------------------------------------
                                            1994         1995         1996
                                        ------------ ------------  -----------
<S>                                     <C>          <C>           <C>
Income (loss) before provision for
  income taxes........................   $   1,359    $     100    $   2,717
Pro forma provision for income taxes..         585          126        1,077
                                        ============ ============  ===========
Pro forma net income (loss)...........   $     774    $    (26)    $   1,640
                                        ============ ============  ===========

</TABLE>
<PAGE>


                        COTELLIGENT GROUP, INC.

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

Note 8 - Lease Commitments

         Cotelligent  leases  various office space and certain  equipment  under
noncancellable lease agreements which expire at various dates.

Future minimum rental payments under such leases are as follows.
<TABLE>
<CAPTION>

                                                                         Years Ending
                                                                           March 31,
                                                              ------------------------------------
                                                                 Capital             Operating
                                                                 Leases                Leases
                                                              --------------       ---------------
<S>                                                           <C>                  <C> 
1997..........................................................   $     192           $      1,334
1998..........................................................         163                  1,285
1999..........................................................          89                    997
2000..........................................................          32                    783
2001..........................................................         -                      312
Thereafter....................................................         -                       32
                                                              --------------        --------------
Total minimum lease payments..................................         476           $      4,743
                                                                                    ==============
Less:  Amounts representing interest..........................         (86)
                                                              --------------
Present value of net minimum lease payments...................     $   390
                                                              ==============
</TABLE>
         Rental  expense  under these leases was $389,  $489 and $640 for the 
years ended March 31, 1994,  1995 and 1996.

Note 9 - Related Parties

         The Company recognized $5 in revenue for providing computer  consulting
services to CyberSAFE (an entity owned in part by a few Cotelligent stockholders
who are also  officers of FDSI) for the period  subsequent  to the  Acquisitions
through  March 31,  1996,  all of which was included in accounts  receivable  at
March 31, 1996.

         In May 1994,  one of the  Founding  Companies  negotiated  a  perpetual
software marketing agreement with CyberSAFE to sublicense  CyberSAFE software in
exchange  for  royalty  payments  of 15% of the  purchase  price for every  copy
licensed.  For the period subsequent to the Acquisitions through March 31, 1996,
the Company paid no royalties to CyberSAFE.

         In addition, one of the Founding Companies has made short-term advances
to CyberSAFE. The balance due on these short-term advances,  bearing interest at
9% per annum at March 31, 1996 was $105.  Included in interest  income is $2 for
the  period  subsequent  to the  Acquisitions  through  March 31,  1996,  on the
advances.

         The Company leases general offices, and transportation  equipment under
operating leases,  occupied or used by BFR, from a third party,  which is mostly
owned by several  Cotelligent  stockholders who are also officers of BFR. Rental
expense under these leases was $20 for the period subsequent to the Acquisitions
through March 31, 1996. In addition, the Company leases certain office equipment
under capital  leases from the same entity.  Payments under these capital leases
for the period subsequent to the Acquisitions through March 31, 1996, were $6.

         The Company leases office space,  occupied by DASI, from the Strathmore
Realty Trust.  Two Cotelligent  stockholders,  one of whom is an officer of DASI
and a Director of the Company,  are the sole trustees and  beneficiaries  of the
Strathmore  Realty Trust.  Rental expense recorded for this office space was $12
for the period subsequent to the Acquisitions through March 31, 1996.


<PAGE>


                          COTELLIGENT GROUP, INC.

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

         Prior to its acquisition by Cotelligent,  ESP was related to Electronic
Systems  Personnel,  Inc. through common  ownership.  ESP shares office space as
well as various administrative resources with Electronic Systems Personnel, Inc.
Additionally,  certain  ESP  employees  are  hired  through  Electronic  Systems
Personnel,   Inc.,  a  placement  firm.   Below  is  a  summary  of  significant
transactions and account balances for the two companies:
<TABLE>
<CAPTION>

                                                                                    1996            1995
                                                                                -------------- ---------------
<S>                                                                             <C>            <C>
Due to Electronic Systems Personnel, Inc.....................................   $        6      $       209
Administrative expense.......................................................          164               73
Placement fee expense........................................................          527              526
</TABLE>
         At March 31, 1996,  ESP had a $94 note  receivable  from its  principal
stockholder due in five equal principal installments of $19 beginning January 1,
1997. Interest at 8% is due quarterly with the first payment on April 1, 1996.

         JTI  currently  leases  office  space  in Boca  Raton,  Florida  from a
shareholder of the Company. JTI leases the space on a month to month basis. Rent
expense  associated  with this lease  amounted  to $22 for each of the two years
ended March 31, 1995 and 1996.

         In January 1996, PBC entered into an agreement with Manutech  Services,
Inc. an affiliated  entity which provides for the Company to borrow from or lend
to the affiliate up to $500,000 at a rate of 9.25%. As of September 30, 1996 the
Company had $165 of outstanding  borrowings on this agreement.  The Company also
provides accounting and administrative  services for Manutech Service,  Inc. The
Company  charges $2 per month for these  services which is deemed to be the cost
of providing these services.

Note 10 - Employee Benefit Plans

         Certain  subsidiaries of the Company have various defined  contribution
plans which allow  employees  to  participate  upon  meeting  specified  service
requirements.   Additionally,   these  plans  also  provide  for   discretionary
contributions  by the respective  entities.  The  subsidiaries'  contribtions to
these plans for the fiscal  years ended March 31,  1994,  1995 and 1996 were $0,
$27 and $70, respectively.

         In September 1995,  Cotelligent's  Board of Directors and  stockholders
approved  Cotelligent's 1995 Long-Term Incentive Plan (the "Plan").  The purpose
of the Plan is to provide  directors,  officers,  key employees and  consultants
with  additional  incentives  by  increasing  their  ownership  interests in the
Company.

         Under the  provisions  of the Plan,  non-qualified  stock  options and
other  stock  awards are granted at prices not less than fair market value at 
the date of grant.  A summary of option transactions follows:
<TABLE>
<CAPTION>
                                                                  Option Price
                                                   Number          Range per          Expiration
                                                 of Shares           Share               Date
                                               ---------------    -------------      --------------
<S>                                            <C>                <C>                <C>
Outstanding at March 31, 1995..................            0            -                   -
    Granted....................................      479,102       2.70 - 10.25           2003
    Exercised..................................            0            -                   -
    Canceled...................................        2,400          9.00                2003
                                               ---------------    -------------      --------------
Outstanding at March 31, 1996.................       476,702       2.70 - 10.25           2003
Exercisable at March 31, 1996.................        87,072       2.70 - 10.00           2003
</TABLE>




<PAGE>



                         COTELLIGENT GROUP, INC.

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

         The Plan has a  provision  to  grant a total of  932,445  non-qualified
options. Non-qualified options are generally exercisable beginning one year from
the date of grant in cumulative yearly amounts of 25% of the shares under option
and generally expire seven years from the date of grant.

Note 11 - Commitments and Contingencies

     Employment Agreements

         Each  executive  officer  and  certain   principals  of  the  Company's
subsidiaries  have entered into  employment  agreements  with the Company  which
contain provisions for compensation upon termination without cause or changes in
control..  Pursuant to such employment agreements, each such officer is eligible
to earn bonus  compensation  payable out of a bonus pool determined by the Board
of Directors  or its  Compensation  Committee.  Bonuses  will be  determined  by
measuring,  among  other  objective  and  subjective  measures,  such  officer's
performance,  the  performance of the local operation for which such officer has
primary responsibility and the Company's performance against targets.


     ESP Stock Redemption

         On May 5, 1994, ESP entered into an agreement with a stockholder owning
a 47%  interest  in the Company to redeem all of the 953 shares held for him for
$206, of which $41 was paid at closing and the balance of $165 payable quarterly
over an eight year period with interest  accruing at the rate of 2% in excess of
the index rate  established  by National City Bank.  In addition,  the agreement
provided  for an  additional  payment for the stock in the event of a subsequent
sale of ESP. The balance  outstanding  on this  obligation at March 31, 1995 and
1996 was $150 and $136 respectively.

         In  conjunction  with  the  agreement  and plan of  reorganization  and
merger,  the remaining  principal  balance of the note payable above was paid in
full on June 28,  1996.  Additionally,  $552 was paid as a  distribution  to the
former  stockholder  in  accordance  with  the  terms  of the  stock  redemption
agreement.

     ESP Deferred Compensation Plan

         In connection with the stock redemption  agreement discussed above, ESP
entered into a salary  continuation  agreement  with the former  stockholder  in
recognition of his  contributions to the growth,  management and success of ESP.
The salary  continuation  agreement  provided  that the  stockholder  be paid an
annual sum of $45 for each of the years 1994 through 1997,  and an annual sum of
$93 for each of the years  1998  through  2005.  The  agreement  provides  for a
discount  rate  of 8% to  arrive  at the  present  value  of the  unpaid  salary
continuation  payments. The unpaid present value of this obligation at March 31,
1995 and 1996 was $548.

         In  conjunction  with  the  agreement  and plan of  reorganization  and
merger, the remaining principal balance of the deferred compensation was paid in
full on June 28, 1996.

     JTI Separation Agreement

         JTI was paying a former employee termination benefits amounts of $3 per
month starting in January 1992 continuing through June 2002 in accordance with a
separation agreement.  During July 1996 the Company cashed out the agreement for
the present value resulting in the payments of $235.


<PAGE>

                       COTELLIGENT GROUP, INC.

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

     BFR Consulting Contract

         The Company  entered into a consulting  contract with a former employee
of BFR effective  February 19, 1996,  whereby the former employee is required to
perform certain  management  advisory services as required by and at the request
of the Company.  Payments under the contract are $8 per month,  continue through
December 2000 and have been fully recorded as an obligation of the Company as of
March 31, 1996.

     Legal Matters

         The Company is involved in various  legal  matters in the normal course
of business.  In the opinion  management,  these matters are not  anticipated to
have a  material  adverse  effect  on  the  financial  position  or  results  of
operations or cash flows of the Company.

Note 12 - Disposition of MCS Practice

         PBC  ceased  the  operations  of its  MCS  consulting  division  in two
transactions as described below.

         Under the terms of a purchase and sale agreement (the Agreement), dated
June 9, 1995 PBC sold,  to an  unrelated  third  party,  certain  furniture  and
equipment  with a net  book  value  of  $49,  seven  employment  contracts  with
professional  consulting  staff,  the right to enter into contracts with certain
customers in the health care  industry  that were in process,  the trade name of
its MCS division, and related goodwill for an adjusted cash sales price of $388.
The sale  resulted in a gain of $325 which is  included  in other  income in the
statement of operations.  The Agreement also provides,  among other things, that
PBC cannot own or have an equity  interest  in any data center  which  processes
transactions for the health care industry, and competes with the purchaser for a
period of 5 years.

         Additionally,  pursuant  to the terms of a sales  agreement  (the Sales
Agreement)  effective January 1, 1996, PBC sold its right, title and interest to
a consulting contract with a customer, to Manutech Services, Inc. (Manutech), an
entity  incorporated on February 12, 1996, and owned by the  stockholders of PBC
and the three children of its majority stockholder who are presently employed by
PBC. PBC  received a promissory  note in the amount of $25 to be paid in monthly
installments of $2 including interest at 6.4 percent through March 1, 1997.

         Additionally,  PBC sold, at net book value,  furniture and equipment to
Manutech  for a $73  promissory  note to be paid in monthly  installments  of $6
including interest at 9.25% through March 1, 1997.

         During the year ended  December 31,  1995,  contract  income,  from the
customer associated with the contract sold to Manutech accounted for 7% of PBC's
sales.

         The Sales  Agreement and the agreements  referred to in the preceding 
paragraph  violated the covenant in the PBC's Loan  Agreement  with respect to 
the transfer of assets or  conducting  business  with any  affiliate.  A waiver
was obtained from the lending bank for this violation.

Note 13 - Subsequent Events

         Cotelligent  and each of the Founding  Companies  had separate  banking
relationships through May 31, 1996. Effective June 1, 1996, the separate banking
relationships were consolidated into a single banking  relationship with a major
bank,  providing a more efficient means of managing operating  capital.  The new
relationship provided a credit facility in the amount of $10.0 million,  secured
by  accounts  receivable  and other  assets of the  company.  Borrowings  on the
facility bear interest at the bank's prime rate. In October 1996,  the amount of
the credit  facility was increased to $20.0 million.  The Pooled  Companies have
subsequently  terminated  their separate  banking  relationships  and have begun
participating in the Cotelligent banking relationship.


<PAGE>

                             SIGNATURES
                             ----------


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


                                             COTELLIGENT GROUP, INC.
                                             -----------------------
                                                 (Registrant)


                                             /s/  Curtis J. Parker
                                             ------------------------
                                                  (Signature)
                                             Curtis J. Parker
                                             Vice President, Chief Accounting
                                                  Officer

Date:     March 18, 1997




<PAGE>
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{"company-data": {"conformed-name": "COTELLIGENT GROUP INC", "cik": "0001004963", "assigned-sic": "7373", "irs-number": "943234049", "state-of-incorporation": "DE", "fiscal-year-end": "0331"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-27412", "film-number": "97558459"}, "business-address": {"street1": "101 CALIFORNIA ST", "street2": "STE 2050", "city": "SAN FRANCISCO", "state": "CA", "zip": "94111", "phone": "4153910300"}, "mail-address": {"street1": "101 CALIFORNIA ST", "street2": "STE 2050", "city": "SAN FRANCISCO", "state": "CA", "zip": "94111"}}
===============================================================================

                    SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  Form 8-K

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

                                  MARCH 18, 1997
                                 (Date of Report)

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

DELAWARE                       0-25372                      94-3173918

(State or other       (Commission File Number)            (IRS Employer 
jurisdiction of                                           Identification   
 incorporation)                                                 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)

-------------------------------------------------------------------------------
Item 5.

     The Company hereby files the Report of Independent Accountants and the 
related financial statements for Cotelligent Group, Inc. and its subsidiaries at
March 31, 1995 and 1996 and the results of operations and cashflows for each of
the three years in the period ended March 31, 1996.  Additionally, the Company
hereby files Pro Forma Statement of Operations for the year ended March 31,
1996.
COTELLIGENT GROUP, INC. FORM 8-K

                                 INDEX

                                                                     Page
Item 5 - Financial Statements and Exhibits

COTELLIGENT GROUP, INC.
Pro Forma Consolidated Statement of Operations for the Year 
  Ended March 31, 1996 (Unaudited)...................................  5
Notes to Pro Forma Consolidated Statements of Operations.............  6

COTELLIGENT GROUP, INC.

Report of Price Waterhouse LLP, Independent Accountants..............  7
Consolidated Balance Sheet as of March 31, 1995 and 1996.............  8
Consolidated Statement of Operations for the Years Ended 
  March 31, 1994, 1995 and 1996......................................  9
Consolidated Statement of Stockholders' Equity for the 
  Years Ended March 31, 1994, 1995 and 1996.......................... 10
Consolidated Statement of Cash Flows for the Years Ended 
  March 31, 1994, 1995 and 1996...................................... 11
Notes to Consolidated Financial Statements........................... 13
COTELLIGENT GROUP, INC.

            PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                               (Unaudited)

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

         On June 28, 1996  Cotelligent  acquired  ESP  Software  Services,  Inc.
("ESP") and INNOVA  Solutions Inc. ("ISI") and on September 30, 1996 Cotelligent
acquired JasTech,  Inc. and JasTech of Florida, Inc. ("JTI") and on November 27,
1996   Cotelligent    acquired    Pittsburgh    Business    Consultants,    Inc.
("PBC")(collectively  the "Pooled Companies") in business combinations accounted
for under the pooling-of-interests method. Accordingly, the historical financial
statements  of  Cotelligent  have been  restated in  accordance  with  generally
accepted  accounting  principles to present the financial data as if Cotelligent
and the Pooled Companies had always been members of the same operating group.

         The pro forma consolidated  statements of operations for the year ended
March 31, 1996 give effect to the  acquisitions of the Founding  Companies as if
these  acquisitions  were  made on April 1,  1995.  Additionally,  the pro forma
consolidated  statements reflect  adjustments for the acquisitions of the Pooled
Companies and the Founding  Companies  including  elimination  of the results of
operations  of  a  PBC  consulting  division  ("MCS")  which  was  discontinued,
compensation  differentials  to  employees  and  former  owners of the  Founding
Companies and the Pooled Companies,  the planned termination of contributions to
retirement plans,  incremental selling,  general and administrative costs of the
corporate activities of Cotelligent,  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 throughout the periods presented.
COTELLIGENT GROUP, INC.

                         PRO FORMA STATEMENT OF OPERATIONS

                       FOR THE YEAR ENDED  MARCH 31,  1996 (In
                   Thousands, Except Share and Per Share Amounts)
                                    (Unaudited)
Founding
                                                               Companies
                                     Cotelligent             April 1, 1995-            Pro Forma
                                     Group, Inc.              Feb 19, 1996            Adjustments              Pro Forma
                                    ---------------       ---------------------    ------------------       -----------------
Revenues.......................      $     52,786          $          55,745        $        (2,430) (d)      $    106,101
Cost of services...............                                                              (1,631) (d)
 ...............................            37,227                      42,361                  (298) (a)            77,659
                                    ---------------       ---------------------    ------------------       -----------------
      Gross margin.............            15,559                      13,384                  (501)                28,442
Selling, general and                                                                           (565) (d)
  administrative expenses......            12,962                      10,374                (1,561) (b)            21,210
                                    ---------------       ---------------------    ------------------       -----------------
Operating income...............             2,597                       3,010                 1,625                  7,232
Other expense (income):
   Interest expense (income),                                                                   (16)  (d)
     net.......................               226                         421                  (202)  (c)               429
   Other (income)..............              (346)                        (36)                  339   (d)               (43)
                                    ---------------       ---------------------    ------------------       -----------------
      Total other expense
        (income)...............              (120)                        385                    121                    386
                                    ---------------       ---------------------    ------------------       -----------------
Income before income taxes.....             2,717                       2,625                  1,504                  6,846
Provision for income taxes.....               199                       1,952                    587  (e)             2,738
                                    ---------------       ---------------------    ------------------       -----------------
Net income.....................      $      2,518         $               673      $             917         $        4,108
                                    ===============       =====================    ==================       =================
Earnings per share.............                                                                                        $.54
                                                                                                            =================
Weighted average shares
  outstanding..................                                                                       (f)         7,540,273
                                                                                                            =================
The  accompanying  notes  are  an  integral  part  of  these
                              financial statements.
COTELLIGENT GROUP, INC.

                 NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                                   (In Thousands)
                                     (Unaudited)

Note 1 - Unaudited Pro Forma Adjustments

Pro forma data reflects adjustments for the following:

(a)  Reduction in compensation to former owners and employees as a result of the
     renegotiation of executive compensation arrangements and the termination of
     contributions  to  employee  benefit  plans  made in  conjunction  with the
     acquisition of the Founding Companies;

(b)  Reduction in  compensation  to former  owners and employees of the Founding
     Companies,  and the Pooled  Companies as a result of the  renegotiation  of
     executive  compensation  arrangements  ($2,147 for the year ended March 31,
     1996,  termination of contributions to employee benefit plans ($117 for the
     year ended March 31,  1996),  offset by increased  expenses  for  corporate
     operating activities ($703 for the year ended March 31, 1996);

(c)  Reduction  in interest  expense as a result of  termination  of an employee
     stock  ownership  plan  ($147 for the year  ended  March 31,  1996) and the
     payoff of debt to a former  stockholder  ($55 for the year ended  March 31,
     1996);

(d)  Adjustments  to eliminate the results of operations of Pittsburgh  Business
     Consultants,  Inc.'s MCS consulting  division which was  discontinued as of
     December 31, 1995.

(e)  Income taxes as if the entities  were combined and subject to the effective
     federal and state statutory rates throughout the periods presented (40% for
     the year ended March 31, 1996);

(f)  Pro forma weighted  average shares  outstanding used to determine pro forma
     earnings  per share  were  calculated  based on the  following:  (i) shares
     issued  by  Cotelligent  prior  to  the  Offering,  shares  issued  to  the
     stockholders of the Founding  Companies in connection with the Acquisitions
     and  shares  sold  in  the   Offering  to  pay  the  cash  portion  of  the
     consideration of the Founding Companies were considered outstanding for the
     entire period,  (ii)  additional  shares sold to the public in the Offering
     from the date of  issuance,  (iii)  shares  issued to  acquire  the  Pooled
     Companies,  and (iv) dilution  attributable  to options to purchase  common
     stock in applying the treasury method.
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
  and Stockholders of
  Cotelligent Group, Inc.

         In our opinion,  the  accompanying  consolidated  balance sheet and the
related  consolidated  statements of operations,  of stockholders' equity and of
cash flows present fairly, in all material  respects,  the financial position of
Cotelligent  Group, Inc. and its subsidiaries at March 31, 1995 and 1996 and the
results of their  operations and their cash flows for each of the three years in
the  period  ended  March  31,  1996,  in  conformity  with  generally  accepted
accounting principles.  These financial statements are the responsibility of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements  based on our  audits.  We  conducted  our audits of these
statements  in accordance  with  generally  accepted  auditing  standards  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Minneapolis, Minnesota
April 20,  1996,  except  as to the  pooling  of  interests  with  ESP  Software
  Services,  Inc. and INNOVA Solutions,  Inc. which are as of June 28, 1996, the
  pooling of interests with JasTech, Inc. which is as of September 30, 1996, and
  the pooling of interests with Pittsburgh  Business  Consultants Inc., which is
  as of November 27, 1996
COTELLIGENT GROUP, INC.

                          CONSOLIDATED BALANCE SHEET
                    (In Thousands, Except Share Amounts)
March 31,        March 31,
                             ASSETS                                    1995             1996
                                                                  -------------    -------------
Current assets:
   Cash and cash equivalents..................................     $      260        $   14,574
   Marketable securities......................................             -                 26
   Accounts receivable, less allowance for doubtful
     accounts of $0 and $235  at March 31, 1995 and 1996.......         6,021            18,666
   Notes receivable, including $179 from related parties......             36               315
   Prepaid expenses and other current assets..................            186               770
                                                                   -------------    -------------
     Total current assets.....................................           6,503            34,351
                                                                   -------------    -------------
Property and equipment, net...................................             600            1,690
Deferred income taxes.........................................             165              247
Other assets..................................................               8              160
                                                                   =============    =============
     Total assets.............................................          $7,276       $   36,448
                                                                   =============    =============

              LIABILITIES AND STOCKHOLDERS' EQUITY 

Current liabilities:
   Short-term debt............................................       $  1,954         $   4,863
   Accounts payable...........................................            600               771
   Accrued compensation and related payroll liabilities.......          1,823             5,324
   Due to related parties.....................................            473               417
   Income taxes payable.......................................             56             1,243
   Deferred income taxes......................................             -                560
   Billings in excess of costs and estimated earnings on
        uncompleted contracts.................................            515                 -
   Other accrued liabilities..................................            261             1,696
                                                                   -------------    -------------
     Total current liabilities................................           5,682            14,874
                                                                   -------------    -------------
Long-term debt................................................             143              450
Other long-term liabilities...................................             549              942
                                                                   -------------    -------------
     Total liabilities........................................           6,374           16,266
                                                                   -------------    -------------
Commitments and contingencies.................................               -                -  
Stockholders' equity:
    Preferred stock, 500,000 authorized 0 shares outstanding..               -                -
    Common stock, $0.01 par value; 100,000,000 shares
      authorized 3,478,271 and  9,119,914 shares
      outstanding, respectively...............................              35               91
   Additional paid-in capital.................................             313           18,430
   Retained earnings..........................................             554            1,661
                                                                   -------------    -------------
     Total stockholders' equity...............................             902           20,182
                                                                   -------------    -------------
     Total liabilities and stockholders' equity...............     $      7,276      $   36,448
                                                                   =============    =============
The accompanying notes are an integral part of these financial statements
COTELLIGENT GROUP, INC.

                               CONSOLIDATED STATEMENT OF OPERATIONS
                        (In Thousands, Except Share and Per Share Amounts)
For the Year Ended March 31,
                                         --------------------------------------------
                                             1994            1995            1996
                                         -------------    ------------    -----------
Revenues..................................$   26,679        $ 33,264       $  52,786
Cost of services.......................       17,042          22,621          37,227
                                         -------------    ------------    -----------
        Gross margin...................        9,637          10,643          15,559
Selling, general and administrative
  expenses.............................        8,204          10,451          12,962
                                         -------------    ------------    -----------
Operating income.......................        1,433             192           2,597
Other (income) expense:
   Interest expense....................           74             119             321
   Interest income.....................           (5)            (15)            (75)
   Other...............................            5             (12)           (366)
                                         -------------    ------------    -----------
     Total other (income) expense......           74              92            (120)
                                         -------------    ------------    -----------

Income before income taxes.............        1,359             100           2,717
Provision (benefit) for income taxes...          162             (77)            199
                                         =============    ============    ===========
Net income.............................   $    1,197       $     177      $    2,518
                                         =============    ============    ===========
The accompanying notes are an integral part of these financial statements.
COTELLIGENT GROUP, INC.

              CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                    (In Thousands, Except Share Amounts)
Additional
                                                                            Paid In         Retained          Total
                                             -------------- ------------- -------------- ---------------- ---------------
                                                Shares         Amount       Capital         Earnings         Equity
                                             -------------- ------------- -------------- ---------------- ---------------
Balance at March 31, 1993.................      3,224,266             32            _      $       1,205   $      1,237
   Dividends to certain pooled companies..              -              -            -               (550)          (550)
   Issuance of common stock...............         97,124              1            91                 -             92
   Net income.............................               -            -             -              1,197          1,197
                                             -------------- ------------- -------------- ------------------- ------------

Balance at March 31, 1994.................       3,321,390           33             91            1,852        1,976
   Dividends to certain pooled companies..         -                  -              -          (1,269)       (1,269)
   Stock redemption.......................         -                  -              -            (206)         (206)
   Issuance of common stock...............        156,881             2            222                           224
   Net income.............................               -            -              -             177           177
                                              -------------- ------------- -------------- ------------------- -----------

Balance at March 31, 1995.................      3,478,271            35            313              554          902   
   Issuance of common stock prior to
     Offering.............................        120,478             1            381                 -         382
   Redemption of common stock prior to
     Offering.............................        (74,140)           (1)          (119)                -         (120)
   Dividends to certain pooled companies..                                                        (1,393)      (1,393)
   Reclassification of Founding
     Companies Equity.....................               -            -           4,307                 -       4,307
   Issuance of common stock net of cost...      5,595,305            56          16,903                        16,959
   Distribution to founding stockholders..               -            -          (3,492)                -      (3,492)
   Adjustments to conform year-ends of
    pooled companies:
         Capital Contribution.............               -            -            137                 -          137
         Net income.......................               -            -              -                270         270
         Dividends........................               -            -              -               (288)       (288)
   Net income.............................               -            -              -               2,518      2,518
                                             ============== ============= ============== ================== ============
Balance at March 31, 1996.................      9,119,914            91        18,430                1,661      20,182
                                             ============== ============= ============== ================== ============
The  accompanying  notes  are  an  integral  part  of  these
                               financial statements.
COTELLIGENT GROUP, INC.

                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (In Thousands)
For the Year Ended March 31,
                                                 -----------------------------------------
                                                    1994           1995           1996
                                                 -----------    -----------    -----------
Cash flows from operating activities:
   Net income..............................      $   1,197        $   177        $   2,518
   Adjustments to reconcile net income to
     net cash provided by (used in)
     operating activities..................
     Depreciation and amortization.........            174             221           308
     Loss (gain) on disposal of property
       and equipment.......................              3              42          (325)
     Provision for doubtful accounts.......              -               -           156
     Net change in deferred income taxes...            127                -         (539)
     Change in current assets and liabilities:
       (Increase) in accounts  receivable..           (674)         (2,680)       (2,743)
       (Increase) in prepaid expenses and
           other current assets............            (12)           (109)         (216)
       Increase in accounts payable and
           accrued liabilities.............             14           2,458           128
       Increase (decrease) in income taxes
         payable...........................             73             (29)          307
       Changes in other assets.............             34               4            19
                                                 -----------    -----------    -----------
         Net cash provided by (used in)
           operating activities............            936              84          (387)

Cash flows from investing activities:
   Proceeds on sale of assets..............             25              53           374
   Purchases of property and equipment.....           (139)           (420)         (652)
   Advances to stockholders................              8             -             (60)
   Net repayments from (advances to)
     related parties.......................            (45)            (25)           (3)
   Cash and cash equivalents of Founding
     Companies at date of acquisition......            -               -             525
                                                 -----------    -----------    -----------
         Net cash provided by (used in)
           investing activities............           (151)           (392)          184
                                                 -----------    -----------    -----------
The  accompanying  notes  are  an  integral  part  of  these
                         financial statements.
COTELLIGENT GROUP, INC.

             CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
                                 (In Thousands)
For the Year Ended March 31,
                                                  ----------------------------------------
                                                     1994           1995           1996
                                                  ------------    ----------    -----------
Cash flows from financing activities:
   Redemption of common stock...............             -            (206)         (120)
   Proceeds from long-term debt.............             -             168            64
   Principal payments of long-term debt.....             (11)          (47)          (19)
   Payments on capital lease obligations....             -             -             (49)
   Net borrowings (repayments) on short-
     term debt..............................             (11)          996           371
   Borrowings from related parties..........              51            10           848
   Payments on loans with related parties...             -             -            (700)
   Proceeds from issuance of common stock...              92           224        18,378
   Distribution to founding Companies
     former stockholders....................             -             -          (3,492)
   Dividends to certain pooled companies....            (550)       (1,269)       (1,303)
   Net change in cash due to conforming
     fiscal year-end of pooled companies....             -             -             539
                                                  ------------    ----------    -----------
         Net cash provided by (used in)
           financing activities.............            (429)         (124)       14,517
                                                  ------------    ----------    -----------

Net increase (decrease) in cash and cash
  equivalents...............................             356          (432)       14,314
Cash and cash equivalents beginning
  of period.................................             336           692           260
                                                  ============    ==========    ===========
Cash and cash equivalents end of period.....      $      692       $   260      $ 14,574
                                                  ============    ==========    ===========

Supplemental disclosures of cash flow information:
   Interest paid............................      $       57       $   122       $   355
                                                                  
   Income taxes paid........................      $      130       $    14       $   338
                                                                        
Non-cash investing and financing transactions:
   Capital lease obligations incurred.......       $       -       $    10       $   158
                                                                 
   Conversion of trade accounts receivable
     to note receivable.....................       $      -        $    -        $    53
The  accompanying  notes  are  an  integral  part  of  these
                             financial statements.
COTELLIGENT GROUP, INC.

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

Note 1 - Business Organization and Basis of Presentation

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

         The aggregate  consideration  paid by Cotelligent in these transactions
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 shares 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  interests in the
Company of the former stockholders of BFR, CAI, DASI, FDSI and Cotelligent,  the
Acquisitions were accounted for on a historical cost basis.

         As further discussed in Note 3, 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,  Inc. ("PBC").   (collectively   the "Pooled
Companies")   in   business   combinations   accounted   for  under  the
pooling-of-interests method.

         The accompanying  consolidated  financial statements have been restated
to give  effect  to the  mergers  of the  Pooled  Companies.  Additionally,  the
financial  statements  also  reflect  the  results of these  Founding  Companies
subsequent to the acquistions on February 20, 1996.

         The  following  presents the  unaudited  results of  operations  of the
Company for the fiscal  years  ended March 31, 1995 and 1996 as if the  Founding
Companies described above had been consummated as of April 1, 1994:
For the Fiscal Year
                                                                                Ended March 31,
                                                                        ------------- -- -------------
                                                                            1995             1996
                                                                        -------------    -------------
Revenues..........................................    $   83,292       $  108,531
                    Net Income........................................           419            3,191
Note 2 - Summary of Significant Accounting Policies

     Principles of Consolidation

         The  consolidated  financial  statements  include  the  accounts of the
Company  and  its  wholly  owned  subsidiaries.   All  significant  intercompany
transactions and accounts have been eliminated in consolidation.
COTELLIGENT GROUP, INC.

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

     Use of Estimates

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

     Cash and Cash Equivalents

         The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.

     Property and Equipment

         Property  and  equipment  are stated at cost.  Depreciation,  including
amortization of capitalized  leases, is provided over the estimated useful lives
of the  respective  assets  (generally  ranging  from  five to ten  years)  on a
straight-line or an accelerated basis. Leasehold improvements are amortized over
the shorter of the lease term or the  estimated  useful  life of the  respective
assets.

     Concentration of Credit Risk

         Financial   instruments  that   potentially   subject  the  Company  to
concentrations of credit risk consist principally of trade accounts  receivable.
Receivables arising from services provided to clients are not collateralized and
accordingly,  the Company performs ongoing credit  evaluations of its clients to
reduce the risk of loss.

     Revenue Recognition

         Revenue is recognized as services are performed.

         Prior to its sale,  PBC's MCS division  entered into contract  revenues
which were recognized on the percentage-of-completion  method of accounting. The
length of these MCS  contracts  varied  and were  typically  less than 1 year in
duration. Contract income was recognized based on the ratio of costs incurred to
estimated total costs.

         Costs and  estimated  earnings  in excess of  billings  on  uncompleted
contracts (the asset)  represent costs incurred plus gross profit  recognized in
excess of amounts  billed at March 31, 1995.  Conversely,  billings in excess of
costs and estimated earnings on uncompleted  contracts (the liability) represent
billings in excess of costs  incurred plus gross profit  recognized at March 31,
1995.

     Fair Value of Financial Instruments

         The Company's financial instruments primarily consist of cash, accounts
receivable  and  payables  for which  current  carrying  amounts are equal to or
approximate fair market value. Additionally,  interest rates on outstanding debt
are at rates which  approximate  market  rates for debt with  similar  terms and
maturities.

     Income Taxes

         The Company  accounts for income taxes in accordance  with Statement of
Financial  Accounting  Standards  No. 109,  "Accounting  for Income Taxes" (SFAS
109). The asset and liability approach used in SFAS 109 requires the recognition
of deferred tax assets and  liabilities  for the tax  consequences  of temporary
differences by applying  enacted  statutory tax rates applicable to future years
to  differences  between the financial  statement  carrying  amounts and the tax
bases of existing assets and liabilities.
COTELLIGENT GROUP, INC.

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

         PBC  previous  to the merger  elected  to be treated as an S  
corporation  for  federal  and state  income taxes.  Accordingly,  any tax  
liabilities  of the  Company  were  the  responsibility  of the  stockholders. 
This S corporation status terminated as a result of the merger with Cotelligent.

         Prior to the merger on June 28,  1996,  ESP elected to be taxed as an S
corporation  for federal and state  income tax  purposes.  Accordingly,  any tax
liabilities were the  responsibility of the ESP stockholder.  Additionally,  ISI
was a C  corporation  until January 1, 1995, at which time it also elected to be
taxed for federal income tax purposes as an S corporation,  and accordingly, any
tax liabilities were the responsibility of the ISI shareholder.

         Effective  June 28,  1996,  ESP's  and  ISI's S  corporation  elections
terminated as a result of the mergers with Cotelligent.  In connection with this
conversion,  approximately  $800  was  recorded  as  income  tax  expense  which
represents the net deferred tax  liabilities of ESP and ISI. This amount will be
paid on a pro rata basis over a four-year  period.  See Note 7 for unaudited pro
forma income tax information and further discussion.

         Effective January 1, 1996, JasTech of Florida, Inc. elected to be taxed
as an S corporation for federal and state income tax purposes.  Accordingly, any
tax  liabilities   subsequent  to  this  date  and  prior  to  the  merger  with
Cotelligent,  are the  responsibility  of the stockholder of JasTech of Florida,
Inc.

         Effective September 30, 1996, JasTech of Florida,  Inc.'s S corporation
status terminated as a result of the merger with Cotelligent.

     Earnings Per Share

         Historical  earnings per share for the three years ended March 31, 1996
have not been  presented  because it is not  considered  to be  meaningful  as a
result of the Acquisitions and the Offering as discussed in Note 1.

     SFAS 123 "Accounting for Stock Based Compensation"

         In October 1995, the Financial  Accounting  Standards Board issued SFAS
123,  "Accounting  for Stock Based  Compensation."  SFAS 123  establishes a fair
value based method of accounting for employee stock based compensation plans and
encourages companies to adopt that method.  However, it also allows companies to
continue to apply the intrinsic value based method  currently  prescribed  under
APB Opinion No. 25, provided certain pro forma disclosures are made. SFAS 123 is
not  required  to be adopted by the  Company  until  fiscal  1997.  The  Company
currently  intends to continue to apply the accounting  method prescribed by APB
Opinion 25 and,  accordingly,  the adoption of SFAS 123 will not have a material
impact on the Company's operating results.

Note 3 - Business Combinations Accounted for Under the Pooling-of-Interests 
         Method

         Effective June 28, 1996,  Cotelligent  acquired all of the  outstanding
common stock of ESP Software Services,  Inc. ("ESP") and INNOVA Solutions,  Inc.
("ISI") in exchange  for 534,919  shares of common  stock with a market value of
$9,000  and  521,390  shares  of common  stock  with a market  value of  $9,000,
respectively.  On September 30, 1996 Cotelligent acquired all of the outstanding
common stock of JasTech, Inc. and JasTech of Florida, Inc.  (collectively "JTI")
in exchange  for 644,826  shares of common  stock with a market value of $8,710.
Additionally,  on November 26, 1996 Cotelligent  acquired all of the outstanding
stock of Pittsburgh Business Consultants, Inc. ("PBC") in exchange for 1,202,474
shares of common stock with a market value of $21,000.  ESP, ISI and JTI and PBC
are herein referred to as the "Pooled Companies.".  These business  combinations
were  accounted  for as  poolings-of-interests  and  accordingly,  the Company's
financial  statements give retroactive  effect to the acquisitions of the Pooled
Companies for all periods presented.
COTELLIGENT GROUP, INC.

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

The results of these Pooled  Companies were  previously  reported on December 31
year ends.  The  accounts of these  companies  for the years ended  December 31,
1993,  1994 and 1995 have been combined with the accounts of Cotelligent for the
years ended March 31, 1994, 1995 and 1996, respectively.  Commencing on April 1,
1996, the year ends of these Companies were changed to March 31, resulting in an
increase to retained  earnings of $270 during fiscal year ending March 31, 1996.
Following  is a summary of the results  related to the  adjustments  to retained
earnings:
ESP             ISI              JTI             PBC            Total
                                ------------    -------------    ------------    ------------    ------------
Revenues...................      $   2,757        $   2,034       $  2,598        $  4,434         $  11,823
Costs and expenses.........          2,824            1,724          2,501           4,504            11,553
                                ============    =============    ============    ============    ============
                                 $     (67)       $     310       $      97        $   (70)         $    270
                                ============    =============    ============    ============    ============
The  separate  results  of  Cotelligent  and the Pooled  Companies  prior to the
acquisitions are as follows:
For the Year Ended March 31,
                                    ------------ -- ------------- - -------------
                                       1994             1995            1996
                                    ------------    -------------   -------------
Cotelligent:
  Revenues.....................      $     -          $       -      $    8,265
  Net income (loss)............           (167)            (201)             88

ESP:
  Revenues.....................          4,936            6,950          10,274
  Net income (loss)............            282             (219)            205

ISI:
  Revenues.....................          4,304            2,860           5,867
  Net income (loss)............            284              (79)            668

JasTech:
  Revenues.....................          6,674            7,670           8,698
  Net income...................             24               30             131

PBC:
  Revenues                              10,765          15,784           19,682
  Net income                               774             646            1,426

Combined:
  Revenues.....................         26,679           33,264          52,786
  Net income...................          1,197              177           2,518
COTELLIGENT GROUP, INC.

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

Note 4 - Allowance for Doubtful Accounts

Allowance for doubtful accounts activity is as follows:
Balance, March 31, 1994 and 1995..........................................................   $  60
Balance of Founding Companies allowance for doubtful accounts at acquisition..............      40
Charges to costs and expenses.............................................................     156
Write-offs................................................................................     (21)
                                                                                          =============
Balance at March 31, 1996.................................................................   $ 235
                                                                                          =============
Note 5 - Property and Equipment

Property and equipment is comprised of the following:
-----------------------------
                                                                   March 31,
                                                          -----------------------------
                                                              1995          1996
                                                          -------------- -----------
Automobiles.............................................  $         52   $      102
Computer and office equipment...........................           300        2,063
Furniture and fixtures..................................           956        1,325
Leasehold improvements..................................           -            326
                                                          -------------- -----------
                                                                 1,308        3,816
Less:  Accumulated depreciation.........................           708        2,126
                                                          ============== ===========
                                                          $        600    $   1,690
                                                          ============== ===========
Depreciation and  amortization  expense for the years ended March 31, 1994, 1995
and 1996 was $174, $221, and $308, respectively.
COTELLIGENT GROUP, INC.

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

Note 6 - Credit Facilities

Credit facilities consist of the following:

   Short-Term Debt
---------------------------
                                                                                                  March 31,
                                                                                     ---------------------------
                                                                                        1995           1996
                                                                                     -----------    ------------
Bank line of  credit,  with  borrowings  up to 80% of  PBC's  eligible  accounts
  receivable  or $1,900,  secured by accounts  receivable  and equipment of PBC,
  interest at prime plus 1 3/4% (9.5% at March 31, 1995) and 9.25% at
  March 31, 1996............................................................          $   1,136      $    883
Bank line of credit, with maximum borrowings of $1,250 secured by
  FDSI's accounts receivable,  property and equipment, and personally guaranteed
  by several Cotelligent stockholders who are also officers of FDSI, due May 28,
  1998. Interest at the prime rate plus 1.50% per annum
  (9.75% at March 31, 1996).................................................                  -         1,097
Bank line of credit, for borrowings up to the lesser of $1,300 or 70% of the
  DASI's eligible accounts receivable, secured by all assets of DASI, as
well
  as the personal guarantees of two Cotelligent stockholders who are also
  officers of DASI, due May 31, 1996.  Interest at 1.25% above the bank's                     -           809
  base lending rate (9.5% at March 31, 1996)................................
Bank line of  credit,  for  borrowings  of up to $1,500  secured by all of BFR's
  assets, due May 31, 1996. Interest at bank's prime rate of 8.25%
  at March 31, 1996.........................................................                  -           300
Bank line of credit, for borrowing up to $250, secured by accounts
  receivable and property and equipment and personally guaranteed by
  stockholder who is an officer of ISI.  Interest at prime plus 2.0%
(10.25%                                                                                       -           195
  at March 31, 1996)........................................................
Bank  line of  credit,  for  borrowings  up to  $1,000  in  combination  with an
  affiliated  organization,  personally  guaranteed by ESP stockholder who is an
  officer of ESP, secured by accounts  receivable and general tangible assets of
  combined companies. Interest at bank's base rate plus 1.25%
  (9.5% at March 31, 1996)..................................................                  -            824
Bank line of credit, with two separate banks for borrowing up to $900 and
  $300, secured by accounts receivable and fixed assets of JasTech.
Interest
  at prime rate plus 0.50% and 1.25% (8.75% and 9.50% at March 31, 1996)....                   590         408
Note payable for consulting services performed, which bears interest at
  the rate of 10% from June 1995, paid on completion of the Offering........                    52          -
Related party loans, due on demand, interest rates from 8.0% to 12.5%.......                   159          84
Capital lease obligations...................................................                     3         142
Current portion of long-term debt...........................................                    14         121
                                                                                          ----------- ------------
       Total short-term debt................................................               $ 1,954     $ 4,863
                                                                                          =========== ============
The lines of credit were executed  pursuant to agreements  that contain
various covenants that include,  among other things,  restrictions on additional
debt and  distributions,  and  maintenance of certain  financial  ratios and net
worth requirements. The Subsidiaries were in compliance with or obtained waivers
for all covenants as of March 31, 1996.
COTELLIGENT GROUP, INC.

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

Long-Term Debt:
March 31,
                                                                                  ----------------------------
                                                                                     1995             1996
                                                                                  -----------      ------------
Note payable to bank,  monthly payments of $6, including  interest at the bank's
  prime rate plus 2.25% (10.50% at March 31,1996) per annum;  maturing March 30,
  1998 and  secured  by FDSI's  assets  and the  personal  guarantee  of several
  Cotelligent stockholders who are also officers of
  FDSI.......................................................................           -            $   131

Note payable to bank,  monthly payments of $2, including  interest at the bank's
  prime rate plus 2.25%  (10.50% at March 31, 1996) per annum;  maturing May 29,
  1998 and  secured by FDSI's  assets  and the  personal  guarantees  of several
  Cotelligent stockholders who are also officers of
  FDSI.......................................................................           -                  56
Note payable to related party, quarterly installments of $7 plus interest at
  2% over bank index rate, due December 2001.................................           150               136
Capital lease obligations....................................................            10              390
                                                                                  -----------      ------------
                                                                                        160              713
Less:  Current maturities....................................................            17              263
                                                                                  -----------      ------------
        Total long-term debt.................................................        $  143           $  450
                                                                                  ===========      ============
Total maturities of long-term debt are as follows:

                                                       ------------------
                                                           Year Ending
                                                             March 31,
                                                               1996
                                                       ------------------

1997....................................................      $     263
1998....................................................            262
1999....................................................             77
2000....................................................             47
2001....................................................             32
Thereafter..............................................             32
                                                        ------------------
Total...................................................      $     713
                                                        ==================
COTELLIGENT GROUP, INC.

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

Note 7 - Income Taxes

         Cotelligent  will file a  consolidated  federal  income  tax return for
periods subsequent to the Acquisitions described in Note 2.

The provision (benefit) for income taxes is as follows:
Year Ended March 31
                                                              ----------------------------------
                                                                1994        1995         1996
                                                              ---------   ----------   ---------
Current:
  Federal..................................................     $  21       $  64       $  742
  State....................................................         2           2          134
                                                              ---------   ----------   ---------
                                                                   23          66          876
                                                              ---------   ----------   ---------
Deferred:
  Federal..................................................        82        (211)        (530)
  State....................................................       (10)        (12)        (107)
                                                              ---------   ----------   ---------
                                                                   72        (223)        (637)

Valuation allowance........................................        67          80          (40)
                                                              ---------   ----------   ---------

Total provision (benefit) for income taxes.................     $ 162      $  (77)      $  199
                                                              =========   ==========   =========
Deferred tax assets (liabilities) are comprised of the following.
March 31,
                                                                                -------------------------
                                                                                  1995           1996
                                                                                ----------     ----------
Allowance for doubtful accounts............................................      $  -           $    16
Accrued liabilities........................................................        165              406
Cash to accrual............................................................          -             (846)
Operating loss carry forward...............................................        147              317
Depreciation...............................................................          -              (19)
                                                                                ----------     ----------
     Deferred tax asset (liability)........................................        312             (126)
Valuation allowance........................................................       (147)            (187)
                                                                                ==========     ==========
     Net deferred tax assets (liabilities).................................      $ 165           $ (313)
                                                                                ==========     ==========
COTELLIGENT GROUP, INC.

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

     The Company's effective income tax rate varied from the U.S. federal 
statutory tax rate as follows:
Year Ended March 31,
                                                    -------------------------------------------
                                                       1994            1995            1996
                                                    -----------     -----------      ----------
U.S. federal statutory rate.........................     34.0%           34.0%           34.0%
Income of S corporation.............................    (27.0)         (160.0)          (28.2)
Conversion to S corporation........................       -             (34.0)            -
Valuation allowance against net operating loss...         4.9            80.0             1.5
                                                    ===========     ===========      ==========
     Effective tax rate.............................     11.9%         (80.0)%           7.3%
                                                    ===========     ===========      ==========
Prior to the  Acquisitions,  Cotelligent  Group, Inc. had established a
valuation  allowance  against the tax assets  associated  with the net operating
losses of previous years due to the  uncertainty  of realization  through future
income.  Subsequent to the  Acquisitions,  the Company reversed a portion of the
valuation  allowance as a result of the estimated  utilization  of the operating
losses against future taxable income.

         As discussed in Note 2, ISI was a C corporation until December 31, 1994
at which time ISI elected to be taxed as an S corporation,  and  therefore,  any
tax  liabilities  subsequent  to this  date  were  the  responsibility  of ISI's
shareholder.  Accordingly, net deferred tax liabilities of approximately $117 as
of December 31, 1994 were recognized in income upon the conversion in 1994.

         As a result of the merger with  Cotelligent on June 28, 1996, ISI's and
ESP's S corporation  elections  terminated.  Approximately  $800 of deferred tax
liabilities were recorded at this time and these federal and state taxes will be
paid ratably over the next four years.

         Effective January 1, 1996, JasTech of Florida,  Inc. also elected to be
taxed as an S corporation and therefore any tax  liabilities  subsequent to this
date and prior to the merger date with Cotelligent are the responsibility of the
stockholder of JasTech of Florida, Inc.

         Prior to the  merger,  PBC was also an S  corporation  for  federal and
state  income  tax  purposes,  and  accordingly  any tax  liabilities  were  the
responsibility of the PBC stockholders.

         The following  unaudited pro forma income tax  information is presented
in accordance  with  Statement of Financial  Accounting  Standards No. 109 as if
ESP,  ISI,  JTI and PBC had been C  corporations  subject to  federal  and state
income taxes for all periods presented.
For the Year Ended
                                                       March 31,
                                        --------------------------------------
                                            1994         1995         1996
                                        ------------ ------------  -----------
Income (loss) before provision for
  income taxes........................   $   1,359    $     100    $   2,717
Pro forma provision for income taxes..         585          126        1,077
                                        ============ ============  ===========
Pro forma net income (loss)...........   $     774    $    (26)    $   1,640
                                        ============ ============  ===========
COTELLIGENT GROUP, INC.

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

Note 8 - Lease Commitments

         Cotelligent  leases  various office space and certain  equipment  under
noncancellable lease agreements which expire at various dates.

Future minimum rental payments under such leases are as follows.
Years Ending
                                                                           March 31,
                                                              ------------------------------------
                                                                 Capital             Operating
                                                                 Leases                Leases
                                                              --------------       ---------------
1997..........................................................   $     192           $      1,334
1998..........................................................         163                  1,285
1999..........................................................          89                    997
2000..........................................................          32                    783
2001..........................................................         -                      312
Thereafter....................................................         -                       32
                                                              --------------        --------------
Total minimum lease payments..................................         476           $      4,743
                                                                                    ==============
Less:  Amounts representing interest..........................         (86)
                                                              --------------
Present value of net minimum lease payments...................     $   390
                                                              ==============
Rental  expense  under these leases was $389,  $489 and $640 for the 
years ended March 31, 1994,  1995 and 1996.

Note 9 - Related Parties

         The Company recognized $5 in revenue for providing computer  consulting
services to CyberSAFE (an entity owned in part by a few Cotelligent stockholders
who are also  officers of FDSI) for the period  subsequent  to the  Acquisitions
through  March 31,  1996,  all of which was included in accounts  receivable  at
March 31, 1996.

         In May 1994,  one of the  Founding  Companies  negotiated  a  perpetual
software marketing agreement with CyberSAFE to sublicense  CyberSAFE software in
exchange  for  royalty  payments  of 15% of the  purchase  price for every  copy
licensed.  For the period subsequent to the Acquisitions through March 31, 1996,
the Company paid no royalties to CyberSAFE.

         In addition, one of the Founding Companies has made short-term advances
to CyberSAFE. The balance due on these short-term advances,  bearing interest at
9% per annum at March 31, 1996 was $105.  Included in interest  income is $2 for
the  period  subsequent  to the  Acquisitions  through  March 31,  1996,  on the
advances.

         The Company leases general offices, and transportation  equipment under
operating leases,  occupied or used by BFR, from a third party,  which is mostly
owned by several  Cotelligent  stockholders who are also officers of BFR. Rental
expense under these leases was $20 for the period subsequent to the Acquisitions
through March 31, 1996. In addition, the Company leases certain office equipment
under capital  leases from the same entity.  Payments under these capital leases
for the period subsequent to the Acquisitions through March 31, 1996, were $6.

         The Company leases office space,  occupied by DASI, from the Strathmore
Realty Trust.  Two Cotelligent  stockholders,  one of whom is an officer of DASI
and a Director of the Company,  are the sole trustees and  beneficiaries  of the
Strathmore  Realty Trust.  Rental expense recorded for this office space was $12
for the period subsequent to the Acquisitions through March 31, 1996.
COTELLIGENT GROUP, INC.

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

         Prior to its acquisition by Cotelligent,  ESP was related to Electronic
Systems  Personnel,  Inc. through common  ownership.  ESP shares office space as
well as various administrative resources with Electronic Systems Personnel, Inc.
Additionally,  certain  ESP  employees  are  hired  through  Electronic  Systems
Personnel,   Inc.,  a  placement  firm.   Below  is  a  summary  of  significant
transactions and account balances for the two companies:
1996            1995
                                                                                -------------- ---------------
Due to Electronic Systems Personnel, Inc.....................................   $        6      $       209
Administrative expense.......................................................          164               73
Placement fee expense........................................................          527              526
At March 31, 1996,  ESP had a $94 note  receivable  from its  principal
stockholder due in five equal principal installments of $19 beginning January 1,
1997. Interest at 8% is due quarterly with the first payment on April 1, 1996.

         JTI  currently  leases  office  space  in Boca  Raton,  Florida  from a
shareholder of the Company. JTI leases the space on a month to month basis. Rent
expense  associated  with this lease  amounted  to $22 for each of the two years
ended March 31, 1995 and 1996.

         In January 1996, PBC entered into an agreement with Manutech  Services,
Inc. an affiliated  entity which provides for the Company to borrow from or lend
to the affiliate up to $500,000 at a rate of 9.25%. As of September 30, 1996 the
Company had $165 of outstanding  borrowings on this agreement.  The Company also
provides accounting and administrative  services for Manutech Service,  Inc. The
Company  charges $2 per month for these  services which is deemed to be the cost
of providing these services.

Note 10 - Employee Benefit Plans

         Certain  subsidiaries of the Company have various defined  contribution
plans which allow  employees  to  participate  upon  meeting  specified  service
requirements.   Additionally,   these  plans  also  provide  for   discretionary
contributions  by the respective  entities.  The  subsidiaries'  contribtions to
these plans for the fiscal  years ended March 31,  1994,  1995 and 1996 were $0,
$27 and $70, respectively.

         In September 1995,  Cotelligent's  Board of Directors and  stockholders
approved  Cotelligent's 1995 Long-Term Incentive Plan (the "Plan").  The purpose
of the Plan is to provide  directors,  officers,  key employees and  consultants
with  additional  incentives  by  increasing  their  ownership  interests in the
Company.

         Under the  provisions  of the Plan,  non-qualified  stock  options and
other  stock  awards are granted at prices not less than fair market value at 
the date of grant.  A summary of option transactions follows:
Option Price
                                                   Number          Range per          Expiration
                                                 of Shares           Share               Date
                                               ---------------    -------------      --------------
Outstanding at March 31, 1995..................            0            -                   -
    Granted....................................      479,102       2.70 - 10.25           2003
    Exercised..................................            0            -                   -
    Canceled...................................        2,400          9.00                2003
                                               ---------------    -------------      --------------
Outstanding at March 31, 1996.................       476,702       2.70 - 10.25           2003
Exercisable at March 31, 1996.................        87,072       2.70 - 10.00           2003
COTELLIGENT GROUP, INC.

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

         The Plan has a  provision  to  grant a total of  932,445  non-qualified
options. Non-qualified options are generally exercisable beginning one year from
the date of grant in cumulative yearly amounts of 25% of the shares under option
and generally expire seven years from the date of grant.

Note 11 - Commitments and Contingencies

     Employment Agreements

         Each  executive  officer  and  certain   principals  of  the  Company's
subsidiaries  have entered into  employment  agreements  with the Company  which
contain provisions for compensation upon termination without cause or changes in
control..  Pursuant to such employment agreements, each such officer is eligible
to earn bonus  compensation  payable out of a bonus pool determined by the Board
of Directors  or its  Compensation  Committee.  Bonuses  will be  determined  by
measuring,  among  other  objective  and  subjective  measures,  such  officer's
performance,  the  performance of the local operation for which such officer has
primary responsibility and the Company's performance against targets.

     ESP Stock Redemption

         On May 5, 1994, ESP entered into an agreement with a stockholder owning
a 47%  interest  in the Company to redeem all of the 953 shares held for him for
$206, of which $41 was paid at closing and the balance of $165 payable quarterly
over an eight year period with interest  accruing at the rate of 2% in excess of
the index rate  established  by National City Bank.  In addition,  the agreement
provided  for an  additional  payment for the stock in the event of a subsequent
sale of ESP. The balance  outstanding  on this  obligation at March 31, 1995 and
1996 was $150 and $136 respectively.

         In  conjunction  with  the  agreement  and plan of  reorganization  and
merger,  the remaining  principal  balance of the note payable above was paid in
full on June 28,  1996.  Additionally,  $552 was paid as a  distribution  to the
former  stockholder  in  accordance  with  the  terms  of the  stock  redemption
agreement.

     ESP Deferred Compensation Plan

         In connection with the stock redemption  agreement discussed above, ESP
entered into a salary  continuation  agreement  with the former  stockholder  in
recognition of his  contributions to the growth,  management and success of ESP.
The salary  continuation  agreement  provided  that the  stockholder  be paid an
annual sum of $45 for each of the years 1994 through 1997,  and an annual sum of
$93 for each of the years  1998  through  2005.  The  agreement  provides  for a
discount  rate  of 8% to  arrive  at the  present  value  of the  unpaid  salary
continuation  payments. The unpaid present value of this obligation at March 31,
1995 and 1996 was $548.

         In  conjunction  with  the  agreement  and plan of  reorganization  and
merger, the remaining principal balance of the deferred compensation was paid in
full on June 28, 1996.

     JTI Separation Agreement

         JTI was paying a former employee termination benefits amounts of $3 per
month starting in January 1992 continuing through June 2002 in accordance with a
separation agreement.  During July 1996 the Company cashed out the agreement for
the present value resulting in the payments of $235.
COTELLIGENT GROUP, INC.

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

     BFR Consulting Contract

         The Company  entered into a consulting  contract with a former employee
of BFR effective  February 19, 1996,  whereby the former employee is required to
perform certain  management  advisory services as required by and at the request
of the Company.  Payments under the contract are $8 per month,  continue through
December 2000 and have been fully recorded as an obligation of the Company as of
March 31, 1996.

     Legal Matters

         The Company is involved in various  legal  matters in the normal course
of business.  In the opinion  management,  these matters are not  anticipated to
have a  material  adverse  effect  on  the  financial  position  or  results  of
operations or cash flows of the Company.

Note 12 - Disposition of MCS Practice

         PBC  ceased  the  operations  of its  MCS  consulting  division  in two
transactions as described below.

         Under the terms of a purchase and sale agreement (the Agreement), dated
June 9, 1995 PBC sold,  to an  unrelated  third  party,  certain  furniture  and
equipment  with a net  book  value  of  $49,  seven  employment  contracts  with
professional  consulting  staff,  the right to enter into contracts with certain
customers in the health care  industry  that were in process,  the trade name of
its MCS division, and related goodwill for an adjusted cash sales price of $388.
The sale  resulted in a gain of $325 which is  included  in other  income in the
statement of operations.  The Agreement also provides,  among other things, that
PBC cannot own or have an equity  interest  in any data center  which  processes
transactions for the health care industry, and competes with the purchaser for a
period of 5 years.

         Additionally,  pursuant  to the terms of a sales  agreement  (the Sales
Agreement)  effective January 1, 1996, PBC sold its right, title and interest to
a consulting contract with a customer, to Manutech Services, Inc. (Manutech), an
entity  incorporated on February 12, 1996, and owned by the  stockholders of PBC
and the three children of its majority stockholder who are presently employed by
PBC. PBC  received a promissory  note in the amount of $25 to be paid in monthly
installments of $2 including interest at 6.4 percent through March 1, 1997.

         Additionally,  PBC sold, at net book value,  furniture and equipment to
Manutech  for a $73  promissory  note to be paid in monthly  installments  of $6
including interest at 9.25% through March 1, 1997.

         During the year ended  December 31,  1995,  contract  income,  from the
customer associated with the contract sold to Manutech accounted for 7% of PBC's
sales.

         The Sales  Agreement and the agreements  referred to in the preceding 
paragraph  violated the covenant in the PBC's Loan  Agreement  with respect to 
the transfer of assets or  conducting  business  with any  affiliate.  A waiver
was obtained from the lending bank for this violation.

Note 13 - Subsequent Events

         Cotelligent  and each of the Founding  Companies  had separate  banking
relationships through May 31, 1996. Effective June 1, 1996, the separate banking
relationships were consolidated into a single banking  relationship with a major
bank,  providing a more efficient means of managing operating  capital.  The new
relationship provided a credit facility in the amount of $10.0 million,  secured
by  accounts  receivable  and other  assets of the  company.  Borrowings  on the
facility bear interest at the bank's prime rate. In October 1996,  the amount of
the credit  facility was increased to $20.0 million.  The Pooled  Companies have
subsequently  terminated  their separate  banking  relationships  and have begun
participating in the Cotelligent banking relationship.
SIGNATURES
                             ----------

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

                                             COTELLIGENT GROUP, INC.
                                             -----------------------
                                                 (Registrant)

                                             /s/  Curtis J. Parker
                                             ------------------------
                                                  (Signature)
                                             Curtis J. Parker
                                             Vice President, Chief Accounting
                                                  Officer

Date:     March 18, 1997