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                           UNITED STATES
                  SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C. 20549
                                   
                               FORM 10-K
                               ---------

   [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934  [FEE REQUIRED]
    
               For The Fiscal Year Ended February 28, 1997

                  Commission File Number:     1-10583

                        ATC GROUP SERVICES INC.
                        -----------------------
        (Exact name of Registrant as specified in its charter)

            Delaware                                         46-0399408
-------------------------------                          ------------------
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                           Identification No.)

104 East 25th Street, 10th Floor
     New York, New York                                         10010
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(Address of principal executive offices)                     (Zip Code)
                                   
   Registrant's telephone number, including area code:   (212)  353-8280
                                                         ---------------
      Securities registered pursuant to Section 12(b) of the Act:
                                 None
                                 ----
      Securities registered pursuant to Section 12(g) of the Act:
                     COMMON STOCK, $.01 PAR VALUE
                     ----------------------------
                           (Title of Class)

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

Indicate  by check mark if disclosure of delinquent filers pursuant  to
Item  405 of Regulation S-K ( 229.405 of this chapter) is not contained
herein,  and  will  not  be  contained, to  the  best  of  Registrant's
knowledge,  in definitive proxy or information statements  incorporated
by  reference  in Part III of this Form 10-K or any amendment  to  this
Form 10-K. [   ]

The  aggregate  market value of the voting stock held by non-affiliates
of  the  Registrant  as of May 28, 1997, was approximately  $54,890,000
representing approximately 5,047,362 shares of Common Stock at  $10.875
per  share,  the last reported sales price for the Registrant's  Common
Stock on such date.
                                   
The number of shares outstanding of the Registrant's Common Stock as of
May  28, 1997 was 7,802,987.

                     Documents Incorporated by Reference
                     -----------------------------------

The definitive Proxy Statement for the Annual Meeting  of  Stockholders
to be  held  in 1997 and to be filed with the Commission not later that
June 28, 1997 has  been  incorporated  by reference in whole or in part
in Item 11 of Part III,  hereof.
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                                                             PART 1

Item 1.  Business.

Overview

         ATC Group  Services  Inc.  ("ATC" or the  "Company")  is a  specialized
national  provider  of  technical  and project  management  services to a large,
diverse  customer  base of  Fortune  500  corporations,  other  businesses,  and
federal,  state and  government  agencies.  The Company's  technical and project
management   services  consist   primarily  of   environmental   and  consulting
engineering   services  (doing  business  as  ATC  Associates)  and  information
technology  services (doing business  through ATC's wholly owned  subsidiary ATC
InSys  Technology  Inc.).  These services are offered to national,  regional and
local clients  through 63 branch offices in 30 states.  The Company has grown in
recent  years  through  internal   expansion  and  through  the  acquisition  of
businesses primarily in the environmental engineering and consulting industries.
The acquisition of American Testing and Engineering  Corporation ("ATEC") and 3D
Information Services,  Inc. in May 1996 expanded the Company's service offerings
to the construction  material testing and engineering  areas and the information
technology consulting sector.

ATC has  focused on six areas of  specialization  within its  environmental  and
information technology segments as follows:

         (i)   Environmental engineering and consulting including  environmental
               audits,  site assessments,  remedial action planning and  design,
               and soil and  groundwater remediation management;
         (ii)  Industrial hygiene consulting including asbestos management,
               classical industrial hygiene and indoor air quality;
         (iii) Construction materials  engineering  and  testing  involving  the
               design and analysis of building materials used in the upgrade of
               the U.S. aging infrastructure and the needs of emerging industry
               sectors  such  as  those of the Personal Communications Services
               ("PCS")/Wireless communications industry;
         (iv)  Lead-based paint risk management;
         (v)   Health  and  safety  consulting,  including  health  and   safety
               training, hazardous materials site safety planning and industrial
               safety consulting; and
         (vi)  Information  technology  consulting  encompassing  system design,
               development, maintenance, and management services.

         These areas of specialization  contributed approximately 41%, 33%, 15%,
3%, 2%, and 6% respectively, of the Company's revenues in fiscal 1997.

         The Company has experienced  substantial  increases in revenues and net
income  over the past three  fiscal  years.  ATC's  revenues  were  $36,271,557,
$44,964,897,  and $113,855,364, respectively,  in its 1995, 1996 and 1997 fiscal
years,  representing  a compounded  annual  growth rate of 46% over this period.
Furthermore,  ATC's net  income  was  $3,256,520,  $3,865,998,  and  $6,307,734,
respectively, in such fiscal years, representing a compounded annual growth rate
of 25% over such periods.

ATC attributes these positive operating results to its integrated  strategy that
includes:

         (i)   Aggressive, but disciplined acquisitions program;
         (ii)  Enhancement of operations by integrating acquired businesses with
                the Company's  existing  operations;
         (iii) Enhancement  of  revenues  by  cross  selling  of  newly acquired
               services to existing  clients;
         (iv)  Focus on  certain  higher  growth  sectors  of the  environmental
               consulting  and  engineering  services market, and certain higher
               margin services such as policy development and decision support;
         (v)   Emphasis on basic  business  management  issues, such as employee
               utilization,  credit  and  collections  management,  and regional
               profit center   accountability;
         (vi)  Utilization of its position as one of the few national  providers
               in  a  market  typified  by  local  and regional firms to provide
               complete environmental management services  to major corporations
               with  national  and international  property management needs, and
         (vii) Development of an information  technology  consulting practice to
               extend the  Company's  services into a higher growth market while
               helping to differentiate  its  offerings  in  the   environmental
               consulting and engineering services markets.

         The  Company  intends to employ  this  strategy  as it seeks to further
penetrate the markets for its core services and expand its range of products and
services through strategic acquisitions and internal growth.

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Consulting and Services Industry

         Environmental Industry

         The public's concerns regarding exposure to contaminants  initiated the
push for  environmental  regulations  in the 1970's and 1980's that fueled rapid
growth in the industry. This growth slowed in the 1990's. Today, although public
concern for  environmental  issues  remains  high, a more  practical  risk-based
approach is emerging to direct limited  resources toward areas of greatest risk.
Increasingly,  the demand for environmental services is being driven by economic
and liability  management  considerations  rather than  regulation.  The Company
believes  that  this  shift  will  continue  to create  new and more  profitable
opportunities for serving major commercial clients.

         Generally,  the  environmental  consulting and engineering  industry is
viewed as having stabilized,  with declining demand in some sectors being offset
by  growth  in  others.   Two  independent  market   evaluations,   one  by  The
Environmental  Business  Journal  ("EBJ")  and  the  other  by  the  independent
marketing firm of Richard K. Miller & Associates,  Inc. ("RKM&A"),  estimate the
size of the environmental consulting and engineering services market for 1995 at
between $15 and $16  billion.  Annual  growth is projected at 2.8% to 5% through
the next three to four years.

         The Company  believes  that,  for the next few years,  growth in demand
from private sector clients and in certain service areas will exceed the average
growth rate of the overall industry.  These service areas include,  according to
independent market assessments,  lead-based paint management, indoor air quality
consulting  services,  occupational safety and industrial hygiene services,  and
risk  analysis  services.  In  addition,   new  market  sectors  are  constantly
developing  new segments  that could  develop into new sources of business.  The
Company is pursuing emerging opportunities in market segments for outsourcing of
environmental   services   to  clients   with  large   real   estate   holdings,
environmental,  geotechnical and construction related  assessments,  testing and
design for the  PCS/Wireless  industry,  and the  identification,  recovery  and
development of so-called Brownfield sites - environmentally  impaired properties
which can be returned  to the market  place with a "clean"  status  using a risk
based approach considering the end use of the property for determining the level
of clean up effort required.

         Industry  observers  believe that the asbestos  market will show little
growth and the hazardous  waste services  market will experience some decline in
the coming years. The estimated sizes of these markets in 1995, however,  are $3
billion and $6 billion,  respectively.  The Company  believes that, based on the
sizes of these  markets and current  clean up rates,  these  markets will remain
significant  for  the  next  several  years.  Furthermore,   while  governmental
expenditures  are  expected to evidence  slower  growth in the coming years as a
result  of  changes  in  political   priorities,   private  sector  spending  on
environmental services is expected to increase, particularly in certain sectors.

         Within the past three years,  regulations have been  promulgated  which
have  created  new  business   opportunities   within  certain  sectors  of  the
environmental consulting and engineering services industry.    In February 1994,
the United States Department of Labor  promulgated new asbestos  regulations for
the  construction   industry,   which  are  more  stringent  than  the  previous
regulations. Lead-based paint is another area of increasing regulatory activity,
partially in response to the  provisions of Title X of the Housing and Community
Development Act of 1992, and partially as a result of increasing concern arising
from evidence of the severe health effects of childhood lead poisoning.

         While the historical growth in environmental consulting and engineering
services has been  stimulated by  regulatory  compliance  concerns,  the Company
believes  that  future  growth  will,  in  large  part,  be  driven  by  private
litigation,  asset  preservation and productivity  considerations.  As companies
have become  increasingly  sensitive to the potential  adverse  consequences  of
environmental  problems and the potential impact of  environmental  liabilities,
they have taken an active approach to managing  environmental  health and safety
risks and liabilities,  whether or not the subject of regulations. This trend is
currently being observed in such areas as steel structure  repainting  projects,
real estate transactional assessments and indoor air quality initiatives.

         Bridge and tunnel  authorities  undertaking  the removal of  lead-based
paint from large steel structures are seeking to establish monitoring systems to
prevent the dispersion of lead dust into the  environment.  The Company believes
that  such  actions  are  motivated  in large  part by  concerns  regarding  the
potential liabilities  associated with lead contamination.  Similarly,  concerns
over  environmental  risks  have  made  environmental  assessments  an  integral
component of the due diligence  process for commercial  transactions.  Financial
institutions   frequently  require  environmental   assessments  prior  to  loan
origination,  refinancing, and foreclosure activities, while insurance companies
increasingly  require  environmental  assessments  before issuing  environmental
insurance liability policies.

         As a  result  of  the  ATEC  acquisition,  ATC  is now  able  to  offer
construction  materials engineering and construction materials testing services.
This is a stable market with some specific high growth segments.  These services
are  utilized  by  many  of  the  same   clients  who  purchase  the   Company's
environmental  services. Our materials engineering and testing services provides
systematic  testing of  construction  materials  to verify that  materials  meet
quality  specifications.  This specialty  engineering  service provides valuable
                         
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assistance during the construction of foundations,  highways,  bridges,  towers,
airports,  industrial plants,  water and sewage treatment  facilities,  and many
other construction projects.

         Within the environmental consulting and engineering industry there is a
tendency among larger national  clients to seek firms to whom they can outsource
their  environmental  issues.  During  the  fourth  quarter  of fiscal  1997 ATC
received three contracts from financial  institutions  to provide  environmental
services on an outsourcing basis. These contracts could generate annual revenues
exceeding $6 million per year,  although the ultimate  amount  realized  will be
dependent upon the timing and scope of individual  projects,  real estate market
factors, the effect of industry consolidation as well as regulatory matters. The
Company's  ability to provide  specialized  information  technology  services in
connection with these efforts was a significant  factor in  differentiating  its
service  offerings  from those of  competitors.  The Company  believes that this
trend  toward  outsourcing  will  continue  in  the  coming  years.  Independent
observers  estimate that this trend will favor larger,  national  companies that
can provide a broad range of services and secure the level of insurance coverage
required to protect their clients.

         Information Technology Industry

                  ATC's information  technology consulting services are provided
through its wholly owned subsidiary,  ATC InSys Technology Inc. ("InSys"). InSys
provides   high-level   programming,   systems  analysis,   project  management,
information  technology consulting and related computer services,  including web
site development and other Internet and  Intranet-related  consulting and design
services.  These  services  are  provided  in  conjunction  with  the  Company's
environmental and engineering services and as separate,  independent services to
clients  in  the  telecommunications,   financial  services  and  pharmaceutical
industries.  The level of involvement of the Company's  consultants  ranges from
meeting  the  client's  staffing  and needs for  programmers  and  analysts,  to
comprehensive   management  of  information   solutions,   outsourcing  and  the
implementation  of  leading  edge  information  technologies.  The  Company  has
developed  offerings in several niche areas,  including  help desk support,  the
design and implementation of  Internet-enabled  applications,  and Internet site
hosting  services.  It has  also  developed  specialized  applications  for  the
management  of  environmental  compliance  issues on a customized  basis for the
Company's environmental engineering clients and for internal use by the Company.

         The  increased  use of  technology  has led to a  dramatic  rise in the
demand  for  information  technology  consulting,   project  support,   software
development,  and other computer-related services. To meet their business needs,
companies  seek  relationships  with  consulting  firms for  technical  staff to
supplement internal resources,  as a source of specialized  expertise in leading
edge technologies, and for the management of complete projects.

         The information technology  professional services market grew by almost
25%, to a total of $24.7  billion,  during 1996  according to a special study by
Input IT Intelligence Services ("INPUT") conducted for The Updata Group, Inc. It
is  expected  to grow at an  annual  compounded  rate of 17.3% for the next five
years, to a total of $55 billion by the year 2001. In similar studies  conducted
since 1993,  actual  industry  growth has exceeded INPUT  estimates  every year.
INPUT  estimates  that in the consulting  segment of the industry,  which is the
primary segment in which InSys competes,  1996 revenues  increased 29.3% to $7.0
billion.  It forecasts  annual  compound growth at a rate of 21.1% over the next
five years to reach  aggregate  revenue of $18.3 billion by 2001. This estimated
growth  reflects both an overall growth in the need for  programmers  and system
analysts and an increased  reliance on outside  consulting firms as a source for
these staffing  needs.  The Bureau of Labor Services  estimates that the overall
need for computer  scientists  and systems  analysts will grow by 91% during the
period 1994-2005.

         The  Company  believes  that the  demand for  Internet/Intranet  system
development  services  will  grow at a much  faster  rate as  companies  use the
Internet to provide their business  partners with access to corporate data. This
is a specialized service area in which the Company has a growing expertise.

Strategy

         Environmental Industry

         The  Company's  integrated  strategy  focuses  on  increasing  revenues
through  acquisitions  and internal  growth by promoting  its core  services and
introducing   new  and   innovative   services   while   continuing  to  achieve
profitability in existing and acquired  operations through the implementation of
rigorous financial and operational controls. Through strategic acquisitions, the
Company  has been able to increase  the  variety of services  that it offers and
develop a  nationwide  network of offices and  facilities  capable of  servicing
national accounts.

         ATC's  acquisition  strategy  thus far has been to  develop a  national
infrastructure  of  offices  and to  diversify  its  service  mix to  produce an
engineering  organization  that has  significant  presence  in most  primary and
secondary  markets and can supply  services in several  specific  higher  growth
niche areas. Culminating with the ATEC acquisition,  this goal has substantially
been  achieved.  The Company's  strategy in the future will be to concentrate on
acquiring companies that can be "tucked-in" to existing operations or into which
acquired  operations  can be  merged  with  existing  offices.  These  types  of

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acquisitions  can provide  significant  economic  benefits.  In addition,  these
acquisitions can lead to  bi-directional  technology  transfer with the acquired
company's services offered to ATC's existing client base and ATC's core services
offered to clients of the acquired company.

         The  environmental  consulting and engineering  services market is very
fragmented,  with over 3,600 environmental  consulting and engineering companies
in the United States, of which approximately 40 have over $100 million in annual
revenues.  There are many  specific  service  specialties  and many  small-sized
companies. This provides a substantial pool of potential acquisition candidates.

         The  Company  operates  in  several  fast  growing  niche  areas of the
environmental  consulting and engineering  services  industry.  Lead-based paint
management,  occupational safety and industrial hygiene services, and indoor air
quality are growing at above average rates according to independent sources. The
Company's strategy is to focus on expanding its service revenues in these higher
growth areas.

         Two  market   segments  have  developed   into  potential   sources  of
significant  revenue  contribution  for the  future:  environmental  outsourcing
services and services to the growing PCS/Wireless industry. The Company believes
that it is  uniquely  positioned,  as a result  of  project  experience  and its
singular  capabilities  in the area of  information  technology  consulting,  to
respond to the growing  demand for  outsourcing of  environmental  services from
clients  with large real estate  holdings.  It is  estimated  that there will be
100,000 new antenna site  installations  over the next ten years to  accommodate
the growing demand for wireless services.  ATC is positioned to provide services
in the  industry  to assess  the  environmental  condition  of these  sites,  to
evaluate  their  suitability  for  that  type of  construction,  and to  perform
analysis of the materials used in this type of construction.

         As a result  of the  acquisition  of ATEC,  the  Company  has  acquired
capabilities in the fields of construction  materials  engineering  ("CME"), and
construction  materials  testing ("CMT").  These services are sold, for the most
part,  through  the  same  distribution  channels  as ATC's  core  environmental
engineering   services.   An  important   strategy  is  to  expand  the  revenue
contribution  from these new  services  by their  introduction  to our  existing
client base.

         The Company  believes  that its  positive  operating  results in recent
years are due, at least in part, to its  disciplined  approach to the management
of basic business fundamentals.  ATC's professional corporate staff monitors and
oversees the financial and administrative functions of the business. ATC strives
to  manage  profit  center  accountability  through a  combination  of goals and
incentives and performance monitoring.

         Information Technology Industry

         The Company's  services generally involve the provision of programmers,
systems analysts, and technical support staff to clients on a contract basis for
projects lasting from a few months to periods  exceeding one year. The Company's
information  technology  consultants typically work full-time at a client's work
site.  About 75% of the  Company's  staff are  directly  involved  in  providing
client-site  services on a fee/hour  basis.  Approximately  10% are  involved in
providing  outsourced or project based  services from the Company's  facilities.
The remaining staff are primarily  involved in managing and selling  information
technology services and in recruiting new staff to meet the demand for services.

         The  Company  believes  that  growth  in  the  demand  for  information
technology  consulting  services  will be  accompanied  by on-going  pressure on
profit  margins as salaries  paid for scarce staff  increase and clients seek to
control total  expenditures  by  outsourcing  responsibilities  for managing the
technical  staff  procurement  process.  To counter this  pressure,  while still
taking  advantage of the growth  opportunities  available in the  industry,  the
Company needs to offer a superior employment  environment to its consultants and
a clearly  differentiated  service capability for its clients.  To achieve these
objectives, the Company will:

(i)  Continue  to  build  specialized   service  offerings  in  the  design  and
     implementation  of  Internet/Intranet  applications on an outsourced basis.
     The Company  believes  that these  services  will permit it to leverage the
     existing database, application development and network management skills of
     its staff into higher margin activities.
(ii) Continue to develop and  implement  client  systems that  capitalize on the
     Company's  environmental  and engineering  capabilities,  as well as on the
     development of other service offerings that leverage its project management
     capabilities,  to increase operating margins. The Company believes that the
     combination of its strong  capabilities  in  environmental  and engineering
     services and its strong  capabilities  in  information  systems design have
     been important in securing a number of major client projects.
(iii)Use the  Company's  information  systems  consulting  staff as the  primary
     source of resources  for meeting its internal  information  systems  needs.
     This  provides  the  Company  with  access  to  state-of-the-art  technical
     resources at an advantageous  cost and provides an opportunity to use these
     projects to enhance  recruitment,  training and  retention  of  information
     technology  staff.
(iv) Increase the proportion of work performed on an outsourced  basis to obtain
     higher  margins and to improve the Company's  ability to use these projects
     to  recruit  and  retain   qualified   staff.

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(v)  Consider  acquisition  opportunities  where these strengthen and extend the
     Company's technical  capabilities in high margin/high growth areas, broaden
     the  Company's  penetration  of major  corporate  accounts,  or provide the
     Company with improved access to sources of qualified technical staff.

Services and Products

         Environmental Industry

         The Company  provides a range of specialized  environmental  consulting
and engineering  services,  including asbestos management,  classical industrial
hygiene,  construction materials engineering and testing,  lead-based paint risk
management,  health and safety training,  environmental audits,  remedial action
planning, design and management, and comprehensive environmental risk assessment
and management.  The Company's services are offered  individually or together as
part of the Company's full service approach to environmental consulting.  During
fiscal 1997,  ATC provided  services to over 10,000  clients  ranging from small
site investigations to large comprehensive assessment and remediation management
projects.

Environmental Management

         ATC's  environmental  management  services  range  from  real  property
investigations for environmental contamination,  to turn-key remediation.  These
services can include soil and ground water analysis,  installation of monitoring
wells, recovery system design,  regulatory permitting,  contractor selection and
remediation  oversight.  Financial  institutions,  as  well as  certain  states,
mandate pre-purchase or pre-loan real property  environmental  assessments prior
to property transfer, closure or sale. An environmental audit by ATC can help to
detect the presence of  pollutants  and, in some cases,  to determine  costs for
clean up.

         Groundwater  Assessments.  At sites where the quality of groundwater is
in  question,  due to a confirmed  or  suspected  spill or release of  hazardous
substances,  ATC performs  assessments  to identify  the depth to static  water,
define  pressure zones or confining  conditions,  determine  gradient and sample
groundwater.  Once  analytical  results  are  known  and  soil  and  groundwater
conditions established, ATC's hydrologists, geologists and engineers analyze the
data through the use of predictive tools such as groundwater models to determine
the movement and ultimate destination of the contaminants.

         Site   Assessments   and   Characterizations.   Site   assessment   and
characterization  investigations  involve  defining the  important  physical and
chemical  parameters  of a  contaminated  site.  A site  assessment  provides  a
baseline for  understanding  subsurface  conditions and is necessary  before any
clean up can be designed or implemented.

         Groundwater and Soil Remediation Management. ATC's services include the
management  and  oversight of clean up projects  through the use of a variety of
diverse traditional and innovative technologies including  bioremediation,  land
farming,  soil venting,  air  sparging,  pump and treat,  and thermal  oxidation
systems.   ATC's   management   services   can  include   testing,   scheduling,
coordination,  documentation and approval of progress payments,  and interaction
with regulatory agencies throughout the life of the project.

Industrial Hygiene

         The Company offers a variety of industrial hygiene services,  including
asbestos management,  classical industrial hygiene  investigations and analyses,
indoor air quality services and laboratory services.

         Asbestos Management.  ATC provides  comprehensive  asbestos testing and
consulting  services.  These  services may begin with a survey of  facilities to
determine  the  condition,  type,  quantity  and  location  of  asbestos.  After
gathering field samples, the Company utilizes polarized light microscopy,  phase
contrast  microscopy and  transmission  electron  microscopy to analyze asbestos
fibers. Other services include risk assessment,  remediation design for asbestos
abatement,  industrial  hygiene services  before,  during and after the asbestos
removal process, development of operations and maintenance training programs for
facilities  personnel,  development of operations and  maintenance  programs for
custodial and maintenance  personnel,  and providing asbestos awareness seminars
for client personnel.

         ATC's services are designed to enable  building owners and operators to
comply with  federal,  state and local  regulations  for  asbestos  control,  by
providing a comprehensive  approach for controlling or removing asbestos.  ATC's
technical  personnel  include  registered  architects,  professional  engineers,
certified  industrial  hygienists,  certified safety  professionals and asbestos
specialists,   with  extensive  experience  managing  hazardous  material.  Such
personnel are licensed and certified by federal, state and local agencies.

         Classical Industrial Hygiene. ATC evaluates potential health hazards in
occupational  settings,  including  physical  hazards and hazards  arising  from
exposure  to  chemical  or  biological  substances.  Potential  hazards  include
solvents,  corrosive chemicals,  gases, toxic dusts,  radiation,  lasers, noise,
lighting, heat, bacteria and molds. Evaluations determine the extent of exposure
to  potentially  hazardous  substances  and  methods  to  control  and  minimize
associated risks. Field measurements are evaluated to determine  compliance with

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governmental  regulations and other  standards.  After  corrective  measures are
designed and implemented,  ATC provides follow-up  monitoring designed to ensure
that workplace exposures have been minimized.

         Indoor Air  Quality.  Healthy  indoor air quality is  recognized  as an
essential factor in promoting comfort and welfare.  ATC provides  investigations
designed to identify (i) sources of indoor air pollution; (ii) route of exposure
to individuals; (iii) route of entry into the body; and (iv) possible effects on
occupants.  The investigatory process typically includes interviews of occupants
and air  monitoring  of indoor and  outdoor  ambient  environments  to  evaluate
exposures,  symptoms and  concerns.  A thorough  building  system  investigation
evaluates mechanical and ventilation systems that may impact habitable space. An
inventory of  chemicals,  air  contaminants,  office  equipment,  plants,  water
sources and other potentially harmful  sub-chemicals,  air contaminants,  office
equipment,  plants,  water  sources and other  potentially  harmful  substances,
process equipment and maintenance  practices may also be part of the evaluation.
After  completing  a facility  evaluation,  ATC  recommends  solutions  that are
customized to the specific facility and problem.

         Laboratory Services. ATC maintains analytical testing laboratories that
provide  detection  and  analysis  of a wide  variety  of  materials,  including
possible  asbestos-containing  material,  suspected lead-based paint substances,
industrial  and  municipal  waste  water,  and  certain   hazardous  wastes  and
substances in various media. These laboratories  mainly support ATC's consulting
and remediation  management services,  but they also provide services to outside
clients.  ATC's operations  incorporate  chain-of-custody  and quality assurance
procedures and professionally recognized laboratory practices.

Construction Materials Testing and Engineering

         Quality  control in  construction  and  industry is a major  concern to
owners and project participants. Systematic testing of construction materials is
the only way that the  architect  or engineer can be sure that  materials  being
used by the contractor are of the quality specified.  ATC is nationally known in
the area of Materials Engineering Testing and Inspection, a specialty within the
broad area of civil  engineering and materials  quality  control.  The Company's
quality control expertise  provides  valuable  assistance in the construction of
foundations,  highways,  railroads, dams, bridges, towers, buildings,  airports,
industrial plants, water supply facilities,  sewage treatment  facilities,  dock
and waterway facilities, power plants, and many other construction projects.

         ATC provides  complete  testing and inspection  services for all phases
and materials of the construction  industry.  These services may be conducted in
the laboratory, in the fabricating plant, or at the construction site.

         Geotechnical   Consulting  and  Engineering  -  Competent  geotechnical
services are important  through all phases of the design and  construction  of a
project, whether it is a high-rise building, manufacturing plant, dam, landfill,
bridge,  or any other  structure that is supported on or within the earth.  This
involves  sampling  earth  materials and analyzing  them in a soils  laboratory.
Using the compiled  data,  ATC helps  clients  avoid poor  foundation  design or
unnecessary construction delays.

Lead Risk Management

         Lead in paint, drinking water and soil is a major environmental problem
facing the United  States.  Lead has no known useful  function in the human body
and is known to be toxic to virtually all organs in the body, even at relatively
low doses.  In children,  excessive  exposure to lead can result in brain damage
leading  to  learning  disabilities  and,  in  some  cases,  retardation.  Adult
exposures to excessive amounts of lead can cause reproductive, hematological and
nervous system disorders.

         As the first  state-accredited  lead risk management training institute
in the nation,  ATC was one of the first companies to provide national lead risk
management  services.   Furthermore,   ATC  co-authored  and  edited  the  first
comprehensive  textbook  on lead risk  management.  ATC is a  co-founder  of the
National  Lead  Abatement  Council,  the first trade  organization  representing
contractors,  inspectors,  vendors,  attorneys and public  officials  engaged in
managing lead risks.  ATC maintains a high degree of visibility and  credibility
in the lead services arena through  participation  in professional and consensus
standard  setting   organizations  and  through  publishing  articles  in  trade
publications.

         Until recently,  lead risk management services were sought primarily to
establish  compliance with lead poisoning prevention  regulations.  However, the
market is now expanding as clients  increasingly  seek  voluntary risk reduction
programs and defend against a proliferation of lead poisoning lawsuits.

         Federal  law  requires  lead paint  testing of all  federally  assisted
public housing authority projects nationwide,  and the full lead paint abatement
of these  projects.  ATC has provided lead paint  testing and abatement  project
management services to numerous public housing authorities throughout the United
States. As this work proceeds, ATC is also pursuing opportunities created by two
new federally funded programs.  The first program  authorized  approximately $25
million of federal grants to public housing  authorities to conduct  specialized
lead  hazard  risk  assessments  and  develop  property  management  programs to
maintain  "lead-safe"  dwellings  until such time that lead paint can be abated.
The second program  authorized  approximately  $400 million of federal grants to

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state and local regulatory  agencies to conduct innovative lead paint inspection
and  abatement.  ATC has identified  and is  aggressively  marketing the grantee
agencies.

         Additional  opportunities  are presented by federal  regulations  under
Title X of the Housing and Community  Development Act of 1992 which, among other
things: (i) established a national requirement for training and certification of
all lead contractor workers and supervisors, inspectors, risk assessors, project
designers  and other  individuals  involved in lead paint  activities;  and (ii)
established new disclosure  requirements applicable to all property transactions
affecting residential properties built prior to 1978.

         ATC's  lead  management   services  are  broadly  categorized  as:  (i)
corporate lead risk  management  services;  (ii) steel  structure and industrial
compliance  services;  and (iii)  residential  lead paint  testing  and  project
management services.

         Corporate Lead Risk Management  Services.  ATC provides  corporate lead
risk   management   programs,   primarily   to  insurance   companies,   lending
institutions,  law firms and large real estate  managers.  ATC's services enable
corporations to effectively address  lead-related  liabilities by advising these
institutions  in their  development and  implementation  of lead risk management
policies and procedures.

         Policy development  typically entails an examination of a client's real
estate  with  respect  to  potential  lead  liabilities.  Working  closely  with
corporate legal and technical divisions,  ATC recommends policies and procedures
to ensure lead-safe management of properties and compliance with applicable lead
poisoning  prevention  regulations.  ATC also  designs  and  implements  special
studies or demonstration  programs to provide  empirical data for validating the
efficacy of property management guidelines. ATC's policy recommendations include
provisions for clients to anticipate,  guard against, and effectively respond to
lead poisoning complaints, regulatory violations and lawsuits.

         The Company's corporate lead risk management services include designing
and  implementing  compliance  training  seminars and workshops  tailored to the
needs of the different program  participants.  ATC's corporate training programs
are periodically revised to reflect changes in accepted work practices.

         ATC offers  lead  paint  litigation  support  services  exclusively  in
support of property owners,  managers,  lending institutions and insurers. These
services include case consultation, regulatory analysis, document and deposition
review, expert testimony, as well as site investigation and testing services.

         Steel  Structure  and  Industrial   Compliance  Services.   Nationwide,
hundreds of thousands of petroleum  storage tanks,  water tanks,  transportation
bridges and other major  structures  are made of steel and painted with coats of
lead-based  paints  and  leaded  primers.   These  structures  require  periodic
maintenance, including full removal of the leaded paints and primers followed by
re-painting to prevent them from corroding.

         ATC  provides   comprehensive   environmental   monitoring  of  surface
preparation  activities that include the removal of lead and associated coatings
from steel  structures.  ATC employs trained  engineers and has the expertise to
prepare abatement  specifications and guide agencies,  engineers and contractors
through lead removal activities in accordance with all federal,  state and local
regulations.  ATC prepares and has submitted numerous  environmental  monitoring
and sampling protocols to assist in protecting the public community, workers and
the  environment  from  potential  contamination  resulting  from  lead  removal
activities.

         Residential  Services.  ATC provides  residential  property  owners and
managers with services for the analysis of lead in paint, soil, air and drinking
water.  Consultation  services  include  surveys to identify lead  problems,  to
design  safe and  responsible  procedures  for the  removal of lead paint and to
control lead dust and  contaminated  debris while reducing  clean up costs.  ATC
provides  the  necessary  detailed  specifications  where  exterior and internal
surfaces  coated with lead paint must be abated.  ATC also designs worker health
and  safety  plans  for  lead  removal  activities,  and  provides  construction
monitoring of lead projects to prevent occupant, worker and third-party exposure
to lead dust.

Health and Safety

         The Company has  established  several  health and safety  training  and
advisory programs.

         Education and Training.  ATC operates  training  schools under the name
The  Environmental  Institute,  as well as under  ATC  Associates.  The  Company
develops and presents  public and private  training  courses each year for those
involved in environmental,  asbestos,  lead,  hazardous materials and safety and
health  issues.  "Right-to-Know"  programs in  accordance  with  mandates by the
federal  Occupational  Safety and Health  Administration  ("OSHA"),  the federal
Environmental  Protection Agency ("EPA") and some state regulations are designed
to  communicate  information  regarding  the hazards of chemicals to workers and
communities. Instructors present practical, comprehensive courses, many of which
feature "hands-on"  training.  ATC routinely customizes courses to meet specific
client needs.

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         Health  and  Safety  Consulting.  ATC  occupational  health  and safety
programs enable employers and property owners to meet or exceed the requirements
established  by  federal,   state  or  local   regulations,   particularly  OSHA
regulations.  A  review  of  work  practices  can  result  in  the  recognition,
evaluation and design of proper safe work policies and procedures to minimize or
eliminate work-related injuries and illnesses.

         Site Safety,  Health and  Emergency  Response  Plan.  ATC offers a full
range of technical support services for site-specific safety and health programs
required for  hazardous  waste  operations.  Employers  that are subject to OSHA
standards for hazardous waste  operations  utilize ATC to provide  assistance in
many areas.

         Information Technology Industry

         ATC's information  technology  consulting services encompass all phases
of information system design, development,  maintenance and management in client
server and  mainframe-based  environments.  The Company  provides  analysis  and
design services and system programming  services to help clients in building new
computer  systems and  modifying  existing  computer  systems.  The Company also
provides support to clients in maintaining computer systems and in areas such as
help  desk  management  and other  system  and  network  support  services.  The
Company's  information   technology  services  fall  into  the  following  broad
categories:

         General  Information  Technology  Consulting  Services.  The  Company's
general  information  technology  consulting  services  are  designed to provide
highly trained technical  personnel to meet the clients'  supplemental  staffing
needs.  Such  personnel  typically  provide  services  in the  areas of  design,
programming, testing, implementation, maintenance, support, data conversions and
the evaluation of networks, databases and operating systems on a fee/hour basis.

         Internet/Intranet   Applications  Development.   The  Company  provides
leading-edge technology design and implementation services to its clients in the
development  of dynamic  database  applications  that  operate over the clients'
Intranets or through the Internet.  These  services can include web site hosting
services  where  appropriate  to segregate  the  application  database  from the
client's internal data base systems.

         Outsourcing   Services.   The  Company  has  recently  begun  to  offer
outsourcing  services to provide  staffing and  management  of all aspects of an
information  technology project or service within guidelines  established by the
Company and the client. The Company's outsourcing service offerings include help
desk support,  remote  network  administration  and Internet  site  development,
hosting,  maintenance and support.  These services now constitute  approximately
10% of InSys revenues.

Clients and Marketing

         Environmental Industry

         The Company provides its environmental  engineering consulting services
to Fortune 500  companies,  small  companies,  real estate  property  owners and
managers  and  federal,  state  and local  governments.  The  Company  relies on
referrals from existing and former clients, architects and engineers for a large
portion of its contract leads. The Company's contracts are obtained by its sales
force through a bidding process and other forms of engagement.

         Consistent  with trends towards  focusing on litigation,  liability and
cost control management, there is an increasing tendency for companies to obtain
a greater share of their environmental  consulting and engineering services from
a smaller number of larger providers. RKM&A attributes this trend to the broader
services  offered,  the desire to reduce the number of consultants  used, and to
such issues as the greater  insurance  protection  and  indemnity  coverage that
larger  firms can  provide.  The  Company  believes  that this trend  presents a
significant  opportunity for firms, such as ATC, that have the technical skills,
branch office locations,  team mobilization capabilities and financial resources
to both perform the services and provide the insurance and indemnity  protection
demanded by large corporate and government clients.

         To take advantage of this trend,  ATC's overall marketing strategy is a
combined national and regional approach. National efforts are directed by senior
professionals  of the Company,  while  regional  efforts are typically  directed
either  by  a  regional  or  branch  manager,   or  by  a  sales  and  marketing
professional.  The Company's regional sales and marketing  departments  generate
leads, act as proposal  administrators,  perform technical writing and generally
support the Company's  sales efforts.  In addition,  senior  technical and sales
staff have been assigned to marketing  specific service sectors such as services
for the PCS/Wireless industry and Brownfields initiatives.

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         ATC presently  markets its  environmental  consulting  and  engineering
services through its network of branch offices located in thirty states.  Direct
marketing is  accomplished  by technical  sales  representatives,  technical and
management  personnel  who  call  on  prospective  clients.  ATC  also  utilizes
government and industry publications to identify potential services and requests
for  project   proposals  for  submission  of  competitive   bids,  direct  mail
solicitation,  and national  trade  advertising.  In  addition,  ATC markets its
services  through its  environmental  seminars and training courses for existing
and potential clients.

         Information Technology Industry

         The Company provides its information  technology consulting services to
Fortune   500   and   other   clients,   including   major   companies   in  the
telecommunications,   financial  services  and  pharmaceutical   industries.   A
significant majority of the Company's information technology services revenue is
derived from its existing  client base. The Company  obtains new clients through
personal sales  presentations,  telephone marketing calls,  referrals from other
clients, and referrals from current and former staff.

Competition

         The  environmental  engineering and information  technology  consulting
industries in which the Company operates are subject to intense competition.  In
addition to the thousands of small  environmental  consulting  and testing firms
operating   nationally,   ATC  competes  with  several  national   environmental
engineering  and consulting  firms  including Law  Engineering,  Inc., The Earth
Technology  Corporation  (a subsidiary  of Tyco  International,  Inc.),  Dames &
Moore,  Inc.  and  Professional  Service  Industries,  Inc.  In the  information
technology  consulting  market,  ATC competes  with many small and  medium-sized
information  technology  firms as well as large  temporary  staffing  companies,
including The Olsten  Corporation,  Corestaff,  Inc. and Accustaff  Incorporated
among others and large systems consulting firms.

         Many  of  ATC's  present  and  future   competitors  may  have  greater
financial,  technical  and personnel  resources  than ATC. It is not possible to
predict the extent of competition  that ATC will encounter in the near future as
the environmental  engineering and information  technology  consulting  services
industries  continue to mature and  consolidate.  Historically,  competition has
been based  primarily on the  quality,  timeliness  and costs of  services.  The
ability of ATC to compete  successfully will depend upon its marketing  efforts,
its ability to accurately  estimate costs,  the quality of the work it performs,
its  ability  to hire and train  qualified  personnel  and the  availability  of
insurance.

Governmental Regulation

         Most environmental laws and regulations are promulgated by Congress and
departments  and  agencies  of the  federal  government.  Many  of  the  federal
regulations contemplate enforcement by state agencies and adoption by the states
of similar  regulations  which must meet the minimum  federal  requirements.  In
areas of environmental  law where federal  regulation is silent,  the states may
adopt their own  environmental  laws.  Local  governments  such as countries and
municipalities may also enact and enforce  environmental laws that address local
concerns.

         Additionally,  in its operations,  ATC and its employees are subject to
various regulatory, certification and licensing requirements.

         Those federal agencies whose regulations,  guidelines or standards have
the greatest potential impact on ATC are:

         The United States Department of Labor - Occupational  Safety and Health
Administration, which requires particular work practices, sets limits for worker
exposure on the job,  requires  employers  to provide  employees  with  personal
protective  devices  such as  respirators,  and  requires  employers to maintain
records for periods of up to 30 years;

         The United States Environmental  Protection Agency,  which, through its
National Emissions  Standards for Hazardous Air Pollutants,  requires that it be
notified of asbestos  removal or  disturbance  during  renovation and demolition
projects and  requires  specific  work  practices  at such  projects,  and which
through  other  statutes  and  regulations  regulates  a very broad  spectrum of
industrial and commercial activities, including the disposal of hazardous waste;

         The United States Department of Housing and Urban Development  ("HUD"),
which sets the standards for the testing and remediation of lead-based  paint in
publicly funded housing,  and which provides funding for housing  rehabilitation
including lead-based paint remediation; and

         The  United  States  Department  of  Transportation,   which  regulates
packaging and  transportation  of hazardous  waste by all who transport or cause
the transport of hazardous waste.

         The EPA, OSHA and HUD have each published regulations and guidelines to
safeguard employees and public occupants from certain  environmental  exposures.
Federal  regulations  specify  work  practices  for removal of asbestos and lead

                         10
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containing  materials  from  buildings.  Federal  law  also  presently  requires
employers  to inform  workers,  and in some  places the general  public,  of the
dangers  connected with hazardous  chemicals in the workplace.  These  "Right-to
Know" laws  usually  require  employers to list all  hazardous  chemicals in the
workplace,  to instruct workers about safe work practices,  and to train workers
on how to  respond  in the  case of  exposure  to or  release  of the  hazardous
chemical.  OSHA's  Hazardous  Communication  Standard  requires all employers to
provide information and training regarding hazardous chemicals in the workplace.

         Most  states  and  local   governments   have  adopted   licensing  and
certification  requirements for workers engaged in the  environmental  industry,
which require workers to attend training classes. ATC is currently accredited by
the National Voluntary Laboratory Program and expects to continue to participate
in all future  National  Institute  of Standards  and  Technology  programs.  In
addition,  ATC maintains various licenses and  certifications  pertaining to its
laboratories and certain field testing equipment.  ATC has not experienced,  and
does not contemplate, any material difficulties in complying with regulatory and
licensing provisions applicable to its business. ATC has received citations from
governmental  authorities,  none of which have had a material  adverse effect on
the Company's business operations.

         The  Information  Technology  industry  is not  subject to  significant
government   regulation  or  certification   efforts.  It  is  affected  by  tax
regulations  concerning  the  definition  of  independent   contractors  and  by
regulations  governing the  immigration of non-US  technical staff who make up a
growing percentage of the staff available for consulting assignments.

Insurance

         ATC has secured a "claims made" professional liability insurance policy
covering a two year term, including  contractor's  pollution liability coverage,
with a two-year,  per-claim and aggregate  limit of $10,000,000 and a deductible
of  $250,000,  although  increased  limits  have  been  obtained  on a  specific
endorsement  basis to meet the  needs of  particular  clients  or  contracts.  A
"claims  made"  policy only  insures  against  claims filed during the period in
which the policy is in effect.  This policy covers both errors and omissions and
products/completed   operations.   ATC  also  carries  occurrence  form  general
liability  insurance in the amount of $1,000,000,  with a $10,000,000  umbrella.
ATC's policy has been renewed in each of the last several  years that the policy
has been in  effect.  The  relatively  low  dollar  amount of the  policy  limit
currently  offered,  the possible future  unavailability or modification of this
insurance or any significant increase in insurance rates could have a materially
adverse effect on ATC's operations.  Further, because customers may require that
ATC maintain  liability  insurance,  the possible future  unavailability of such
insurance  could  adversely  affect ATC's  ability to compete  effectively.  ATC
currently has two professional  liability claims pending. One of these claims is
the Commonwealth of  Massachusetts  v. TLT Construction  Corp. case described in
Legal  Proceedings  in Item 3 hereof.  The second claim  involves a minor matter
from which the risk of major loss is remote.  Although  various claims have been
made in the  past  against  the  Company's  professional  liability/contractor's
pollution policy, to date no such claim has ever resulted in an insured loss.

Personnel

         As of May  1997,  ATC  employed  1,630  employees,  1,384 of which  are
full-time employees. ATC's employees consist of 1,312 technical and professional
personnel,  47 sales and  marketing  persons  and 271  administrative  employees
inclusive  of  executive  officers.  The  backgrounds  of  ATC's  technical  and
professional staff include, among other disciplines,  environmental engineering,
information technology, industrial hygiene and hydrogeology,  chemistry, biology
and geology.  ATC from  time-to-time  hires additional  personnel on a temporary
basis.

         ATC believes  that it has been able to establish  and maintain a stable
work force of experienced personnel by paying competitive wages and by providing
standard  benefits.  ATC also pays the costs as they  arise to have its  workers
certified for its asbestos and environmental requirements,  including tuition at
a certified training program and fees for certification,  testing and licensing.
ATC believes that its own training school has helped to ensure the  availability
of a trained work force.  To help maintain and grow its  Information  Technology
staff,  ATC is moving to increase the  proportion  of work  performed in its own
facilities so that these projects may be used to provide  enhanced  training and
retention  opportunities  for staff  when they are not  engaged  in  client-site
consulting projects.

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Item 2.  Properties.

     ATC  leases  office  space,   laboratory   facilities,   temporary  housing
facilities  and  storage  space under  operating  lease  agreements,  which have
varying  dates of  expiration.  ATC utilizes all of its leased  facilities  near
maximum  capacity.  However,  ATC does not  foresee  any  difficulty  in leasing
adequate supplementary  facilities,  if necessary and therefore does not believe
any of its leases are material.  The Company's  leases include:  ATC's principal
executive,  administrative,  operations and laboratory  facilities,  aggregating
approximately  40,000 square feet are located at 104 East 25th Street, New York,
NY at a base rate of  $290,412  per annum with a term  ending on  September  30,
2001.  ATC and its Hygeia  subsidiary  have three  separate  lease and  sublease
agreements  which,  on an  aggregate  basis,  covers the  premises  housing  its
consulting  and  laboratory  operations  at  600  West  Cummings  Park,  Woburn,
Massachusetts,  comprising approximately 21,000 square feet at an aggregate base
rent of approximately $264,000, with lease terms generally expiring near the end
of the summer in 2001.  ATC  entered  into three  material  leases with the Mann
Realty  Company in connection  with its  acquisition  of the operations of ATEC.
These  leases are for  premises  in  Indianapolis,  Indiana,  Dallas,  Texas and
Atlanta,  Georgia,  covering  15,827 square feet,  12,150 square feet and 18,700
square feet, respectively,  at annual rents of $170,712,  $100,800 and $178,776,
respectively.  The terms of these  three  leases are ten years with an option to
terminate  after four years upon the  occurrence of certain  specified  business
conditions.  Although  the  Company  believes  it can lease  similar  space,  no
assurances  can be  given  that  the  Company  will  obtain  leases  at the same
locations and at the same lease rates.

         In addition,  in its business,  ATC utilizes various laboratory,  field
and computer  equipment which are owned or leased. ATC also rents equipment on a
project-by-project basis.

Item 3.  Legal Proceedings.

         First Fidelity  Bank,  N.A., et al v. Hill  International,  Inc. et al,
Superior  Court of New  Jersey,  Law  Division,  Burlington  County,  Docket No.
Bur-L-03400-95,  filed December 19, 1995.  Irvin E. Richter,  et al v. ATC Group
Services Inc., et al, United States District Court, District of New Jersey, Civ.
No. 96 CV 5818 (JBS) filed  December 6, 1996.  On December  19,  1995,  a second
amended  complaint  was filed in the  above-entitled  action  which  joined  the
Company as a defendant and included a count against the Company seeking recovery
of certain  assets  purchased  from Hill  International,  Inc.  ("Hill")  on the
grounds that plaintiff banks hold security interests in the assets and that Hill
is in default  under the  security  agreement  creating  such  alleged  security
interests.  The  plaintiffs  in this action are First  Fidelity  Bank,  N.A. and
United  Jersey Bank,  N.A. The primary  defendants  were Hill and certain of its
subsidiaries,  and Irvin  Richter,  David  Richter,  Janice  Richter and William
Doyle. Irvin Richter and David Richter are officers and stockholders of Hill. In
April 1996,  the Company  filed a cross-claim  against  Hill,  Irvin Richter and
David Richter alleging breach of contract,  fraud,  among other  allegations and
seeking unspecified damages, including punitive damages and equitable relief. In
August,  1996, Hill and the Richters filed an answer denying ATC's cross claims,
a  cross-claim  against ATC and a third party claim against  certain  members of
ATC's  management.  The cross  claim  and third  party  claim  seek  unspecified
damages,  including  punitive damages,  for defamation,  breach of the Richters'
non-competition  agreements and securities  fraud. The defamation claim is based
on plaintiff  banks'  allegation of fraud against Hill and the Richters in their
amended  complaint,  which Hill and the Richters  allege was based on defamatory
statements made by ATC in settlement  discussions  with the plaintiff  banks. In
its answer,  the Company  both denies  that it made  defamatory  statements  and
asserts that the defamation allegations fail to state a legally valid claim. The
breach of contract and securities  claims are based on allegations that ATC made
representations  concerning a  registration  rights  agreement to be provided in
connection  with  options  issued to the  Richters  as  consideration  for their
non-competition  agreements. In its answer, the Company denies that an agreement
concerning  registration  rights was ever  reached and asserts that the Richters
forfeited any such rights in any case as a result of their conduct in connection
with the asset  purchase.  These  related  cases are in their early  stages with
discovery yet to take place.  In January,  1997,  the plaintiff  bank  dismissed
their claim against ATC. On December 6, 1996, Hill and the Richters commenced an
action  against  ATC  and  the  same  officers  and  employees  of ATC  alleging
essentially  the same claims in federal  court as in the state  action.  ATC has
answered,  raising the same  defenses  and  additional  defenses  related to the
timeliness  of the  federal  claim.  This is  essentially  the same action as in
federal court as the pending  state action.  It does not create a risk of double
recovery.  In the Company's opinion,  the outcome of this matter will not have a
significant  effect on the  Company's  financial  position or future  results of
operations, although no assurances can be given in this regard.

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                  Commonwealth of Massachusetts v. TLT Construction Corp. et al,
Civ. Action No. 96-02281 F, Superior Court of Middlesex  County,  Massachusetts.
This is an action brought by the  Commonwealth of  Massachusetts  in April 1996,
against the architects and general  contractor on a renovation and  construction
project on the Suffolk  County  Courthouse  in  Massachusetts.  The basis of the
lawsuit is that one or more  damp-proofing  products  specified by the architect
defendants  and  installed by the  contractor  defendant  made  employees in the
courthouse  ill  because  of  the  off-gassing  of  harmful   vapors.   Dennison
Environmental  Services  Inc.,  ("Dennison")  an ATC  subsidiary,  was joined on
August 13, 1996, as a third party defendant by TLT Construction Corporation, the
general  contractor,  because Dennison performed some air quality testing of the
air  in  the  courthouse  for  the  Commonwealth  of  Massachusetts  during  the
construction  process. The contractor alleges that it acted in reliance on these
tests in continuing  to install the material  after the test report was given to
it by the state. Dennison has just recently been served and has not yet answered
the  complaint.  At this point,  ATC  considers  the case to be totally  without
merit, and ATC intends to vigorously  defend the action.  The Company  currently
has in force a professional  liability  insurance  policy covering this claim in
the amount of  $10,000,000  with a deductible  of $250,000.  Notice of claim has
been made  regarding  this  action  and the  insurer  has  agreed to assume  the
defense.  These  related  cases are in their early stages with  discovery yet to
take place. In the Company's opinion, the outcome of this matter will not have a
significant  effect on the  Company's  financial  position or future  results of
operations, although no assurances can be given in this regard.

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

          Not applicable.

                         13
<PAGE>
<PAGE>
                            PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

         The Company's  Common Stock and Class C Common Stock Purchase  Warrants
("Class C Warrants") are listed on the NASDAQ  National Market under the symbols
"ATCS" and "ATCSL," respectively. Prior to August 23, 1995, the Company's Common
Stock and Class C Warrants  were listed on the NASDAQ Small Cap Market under the
former  symbols  "ATCE" and  "ATCEL".  The Class C Warrants are  exercisable  at
$10.00 per share and expire April 30, 1998,  subject to the  Company's  right to
call such warrants on 30 day's prior notice. The following table sets forth, for
the quarters  indicated,  the high and low bid prices of the Company's  Stock on
the  NASDAQ  Small Cap  Market  and the high and low sales  prices on the NASDAQ
National Market, as applicable.
<TABLE>
<CAPTION>

                                                          Common Stock


<S>                                                                                                 <C>            <C>    

         Fiscal Year Ended February 29, 1996:                                                         HIGH            LOW
          -----------------------------------                                                       --------          ---
              First Quarter .....................................................................   $18-3/8        $  8-7/8
              Second Quarter (through August 22, 1995)...........................................    15-3/4          13-1/4
              Second Quarter (August 23 through August 31, 1995).................................    15-1/8          13-3/4
              Third Quarter......................................................................    17              12
              Fourth Quarter.....................................................................    13-1/2          10-1/2

         Fiscal Year Ended February 28, 1997:
          ----------------------------------- 
              First Quarter  ....................................................................   $15-7/8        $  11-7/8
              Second Quarter ....................................................................    15-3/8           12-1/4
              Third Quarter......................................................................    13-3/4           10-3/8
              Fourth Quarter.....................................................................    10-5/8            7-1/4

                                                        Class C Warrants

         Fiscal Year Ended February 29, 1996:                                                         HIGH            LOW
          -----------------------------------                                                         ----            ---
              First Quarter......................................................................   $ 8-1/2         $  3
              Second Quarter.....................................................................     7-5/8            5-1/2
              Third Quarter......................................................................     9-1/8            5-1/2
              Fourth Quarter.....................................................................     6-1/8            3

         Fiscal Year Ended February 28, 1997:
          ----------------------------------- 
              First Quarter......................................................................   $ 5-7/8        $   3-1/4
              Second Quarter.....................................................................     5-3/8            2-3/8
              Third Quarter......................................................................     4-1/2            2-1/4
              Fourth Quarter.....................................................................     2-1/2              7/8

</TABLE>


         The quotations in the tables above reflect  inter-dealer prices without
retail markups, markdowns or commissions.  In addition, for all periods prior to
August 23, 1995, they do not represent actual transactions.

     The  Company  had 639 record  holders as of May 28, 1997 as reported by its
transfer  agent   (American   Stock  Transfer  &  Trust  Company)   representing
approximately 6,600 beneficial holders of ATC's Common Stock.

         No cash dividends have been paid by ATC on its Common Stock and no such
payment is anticipated in the foreseeable future.

     On May 28, 1997,  the last reported  sales price for the  Company's  Common
Stock and Class C Warrants on the NASDAQ  National  Market were  $10-7/8 and $3,
respectively.

         The Company is in the process of preparing a registration  statement to
be filed with the Securities and Exchange Commission with regards to its Class C
Warrants.  Until such registration  statement is filed and declared effective by
the  Commission,  the Class C Warrants  cannot be exercised by the holders after
June 3, 1997.

                         14
<PAGE>
<PAGE>
Item 6.  Selected Financial Data.

         The  following  table  sets  forth,  for the  periods  and at the dates
indicated,  selected historical  consolidated financial data of the Company. The
selected  consolidated  historical  financial  data  has been  derived  from the
audited historical  consolidated  financial statements of the Company and should
be read in  conjunction  with such  financial  statements  and the notes thereto
included elsewhere in this Annual Report.

<TABLE>

<S>                                        <C>              <C>               <C>               <C>             <C>             

                                                                       Years Ended February 28 (29),
------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
                                                1993              1994             1995             1996              1997
Statement of Operations Data:                    (1)             (1)(2)             (3)            (4)(5)          (6)(7)(8)
------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------

Revenues                                       $16,539,254     $  26,664,385     $ 36,271,557     $ 44,964,897    $  113,855,364
------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Income before income taxes                         653,144         3,077,048        5,300,520        5,670,998        10,397,734
------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Net income                                         353,144         1,867,048        3,256,520        3,865,998         6,307,734
------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Earnings per common
   and dilutive common equivalent share:            
       Primary                                         .07               .35              .57              .54               .74  
       Fully diluted                                   .07               .35              .56              .54               .74
------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------

Cash dividends per share                               -0-               -0-              -0-              -0-               -0-
------------------------------------------ --------------------------------------------------------------------------------------

                                                                             February 28 (29),
------------------------------------------ --------------------------------------------------------------------------------------
                                                1993              1994             1995             1996              1997
Balance Sheet Data:                              (1)             (1)(2)             (3)         (4)(5)(6)(9)       (7)(8)(10)
------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Working capital                               $  3,342,527      $  6,049,013     $  8,113,738    $  24,977,316   $    27,701,694
------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Long-term debt, less current
    maturities                                   1,114,489         2,182,119        3,892,766          361,944        22,123,344
------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Total assets                                     9,335,227        14,156,887       25,009,222       46,684,600        86,293,657
------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------
Stockholders' equity                          $  5,812,901      $  7,659,485     $ 13,813,194     $ 39,192,414    $   45,439,303
------------------------------------------ ---------------- ----------------- ---------------- ---------------- -----------------

</TABLE>


(1)  ATC entered into an agreement to acquire Bio-West, Inc., effective June 10,
     1992.  This  transaction  was  rescinded  effective  May 31, 1993.  
(2)  ATC acquired  certain assets of BSE Management,  Inc.,  effective April 30,
     1993. 
(3)  ATC acquired certain assets of Con-Test, Inc., effective October 1, 1994.
(4)  ATC and its parent,  Aurora  Environmental Inc., were merged effective June
     29,  1995 with ATC as the  surviving  corporation.  Net  income  includes a
     one-time tax benefit of $350,000  ($0.05 per share) from the utilization of
     Aurora's net operating loss carryforward.
(5)  ATC  acquired  certain  assets of the  environmental  subsidiaries  of Hill
     International Inc., effective November 10, 1995.
(6)  ATC acquired certain assets of Applied Geosciences Inc., effective February
     29,  1996. 
(7)  ATC  acquired   certain   assets  of  American   Testing  and   Engineering
     Corporation effective  May 24, 1996. 
(8)  ATC acquired certain assets of 3D Information Services, Inc. effective  May
     28, 1996.
(9)  Working capital and stockholders' equity increased from net proceeds of the
     Common Stock Offering of $21,554,461.
(10) Long term debt increased due to bank borrowings made in connection with the
     acquisitions  of  American  Testing  and  Engineering  Corporation  and  3D
     Information Services, Inc.

                         15
<PAGE>
<PAGE>
Item 7. Management's  Discussion and Analysis of Financial Condition and Results
     of Operations.

Recent Developments

Senior  Debt  Offering & Bank  Credit  Agreement  - On May 29,  1997 the Company
issued  $32,500,000  of  8.18%  Senior  Secured  Notes  in a  private  placement
offering.  The notes are payable in five  installments  beginning  May 31, 2000;
interest is payable semi-annually  commencing November 30, 1997. The Company has
the right to prepay the loans at a premium over the  outstanding  principal.  In
connection with the note offering,  the Company executed a credit agreement with
the Chase  Manhattan  Bank and Atlantic Bank of New York.  The credit  agreement
provides for a  $15,000,000  revolving  line of credit  maturing on November 30,
1999. A portion of the proceeds of the Senior  Secured  Notes were used to repay
the outstanding borrowings of $21,350,000 as of May 29, 1997 under the Company's
bridge  credit  facility.  The bridge  facility was entered into in May, 1996 to
provide capital in connection with the Company's acquisition of American Testing
and Engineering Corporation and 3D Information Services, Inc.

Acquisitions

Fiscal 1997
         American  Testing and  Engineering  Corporation - On May 24, 1996,  ATC
  purchased  certain assets and assumed certain  liabilities of American Testing
  and Engineering  Corporation  ("ATEC"),  a national  environmental  consulting
  firm.  ATEC  provides   environmental   consulting  and  engineering  services
  including  risk  assessments,  compliance  audits,  environmental  remediation
  consulting, geotechnical, materials testing, industrial hygiene and analytical
  services through a large network of branch and regional offices.  For its year
  ended December 31, 1995,  ATEC had revenues of  $85,020,000  and a net loss of
  ($1,820,000).  However,  as a result of economies  and savings  realized,  the
  acquisition  was  immediately  accretive to earnings as well as benefiting the
  Company's  operations by expanding  both its service  offerings and geographic
  base.

         The assets acquired included  intangible and tangible assets consisting
of accounts receivable, work in process and customer and certain other deposits.
Additionally,  ATC  executed  an  agreement  to lease  substantially  all of the
sellers  equipment and executed several sublease  agreements for premises leased
by ATEC. ATC also obtained non-competition  agreements with ATEC, a non-acquired
subsidiary, and the majority shareholder of ATEC.

         3D Information  Services,  Inc. - Effective May 28, 1996, ATC purchased
certain  assets and assumed  certain  specified  liabilities  of 3D  Information
Services, Inc. ("3D"), a New Jersey based information services company providing
technical  information  system consulting  services in all phases of information
system  design,  development,  maintenance  and  management in client server and
mainframe  based  environments.  3D provides  analysis  and design  services and
system programming services to help clients in building new computer systems and
modifying  existing  computer  systems.  3D also provides  support to clients in
maintaining computer systems and in areas such as help desk management and other
system support services.  Employees of 3D typically work full-time at a client's
work site.  Its  clients  include  major  companies  in the  telecommunications,
financial services and pharmaceutical  industries.  3D reported revenues and net
income of  approximately  $10,360,000 and $135,000,  respectively,  for its year
ended December 31, 1995.

Fiscal 1996
         Hill  International Inc.  Environmental  Subsidiaries - On November 10,
1995,  ATC  purchased  certain  assets and assumed  certain  liabilities  of the
subsidiary  companies at Hill  International,  Inc. that provided  environmental
consulting and engineering services (collectively the "Hill Businesses").  These
services include asbestos management,  industrial hygiene and indoor air quality
consulting,  environmental  auditing and  permitting,  environmental  regulatory
compliance,   water  and  wastewater  engineering,   solid  waste  and  landfill
management,  hazardous waste management and analytical laboratory services.  The
Hill Businesses  operated from facilities  located in New York City,  Boston and
Willingboro,  New Jersey.  The Boston and New York offices have been  integrated
with ATC's existing  operations,  and ATC has benefited  from other  cost-saving
measures taken,  including the elimination of certain employees  previously with
the Hill Businesses.

         Applied Geosciences,  Inc. - Effective February 29, 1996, ATC purchased
certain  assets and assumed  certain  liabilities of Applied  Geosciences,  Inc.
("AGI").   AGI  services   included   environmental  and  hazardous  waste  site
assessments,  remediation  design,  air quality  management,  asbestos services,
litigation  support and  engineering  geology through its offices located in San
Diego, Tustin, and San Jose, California.

Fiscal  1995
         Con-Test,  Inc. -  Effective  October 1, 1994,  ATC  purchased  certain
assets  and  assumed  certain  liabilities  of  Con-Test,  Inc.  ("Con-Test")  a
Massachusetts-based environmental consulting and engineering company with branch
offices in  Massachusetts,  Connecticut,  Vermont,  Rhode  Island,  New York and
Pennsylvania.   Con-Test's   primary  services  included   industrial   hygiene,
environmental and industrial health and safety, and lead-based paint management.
It  also  maintained  an  analytical  laboratory  and  had  developed  a line of
environmental  facilities  management  software used by several industrial firms

                         16
PAGE
<PAGE>
and  federal  government  agencies.  Immediately  upon  acquiring  the assets of
Con-Test,  the Company instituted several  cost-saving  measures,  including the
elimination  of  certain  employees  and  facilities,   to  improve   Con-Test's
operations and integrate it with the existing operations of the Company.

         Microbial Environment Services,  Inc. - On January 4, 1995, ATC assumed
the  service  performance  obligations  under  certain  contracts  of  Microbial
Environmental  Services,  Inc.  ("MES").  MES was  engaged  in the  business  of
remediation  of  contaminated  soils  and  water  utilizing  enhanced  naturally
occurring  biological  processes.  The  services  provided by MES also  included
assessment  of  contaminated  properties,  design  of  bio-remediation  systems,
management of  bio-remediation  projects and monitoring of compliance with clean
up standards.

         R.E.  Blattert  and  Associates  - On January 13,  1995,  ATC  acquired
certain assets and assumed certain  specified  liabilities of R.E.  Blattert and
Associates  ("R.E.  Blattert").  R.E.  Blattert's  main area of expertise was in
groundwater resource management.

Common Stock Offering

Effective  October 1995, the Company sold 1,970,000 shares of common stock at an
offering price of $12.00 per share and received  $21,554,461 net of underwriting
and other related  expenses. 

Merger of Aurora into ATC

Effective  June  29,  1995,  ATC  and  its  parent,  Aurora  Environmental  Inc.
("Aurora"),  were merged  pursuant to an  agreement  approved by the majority of
shareholders of each company, with ATC as the surviving corporation (the "Aurora
Merger").  Prior to the Aurora Merger,  Aurora was a holding company which owned
approximately  57% of ATC's  outstanding  Common Stock and had  substantially no
other assets.  Under the terms of the merger,  each outstanding  share of Aurora
Common  stock was  exchanged  for .545  shares of ATC Common  Stock.  ATC issued
3,341,356  shares  of ATC  Common  Stock in  exchange  for  6,131,104  shares of
Aurora's  common stock,  and issued  options and warrants  entitling the holders
thereof to purchase up to 604,950  shares of ATC Common  Stock upon  exercise in
replacement of previously  outstanding options and warrants to purchase Aurora's
common  stock.  ATC common  shares held by Aurora of  3,258,000  were  canceled.
Actual common shares outstanding  increased by 83,356 shares. As a result of the
Aurora Merger,  ATC utilized  Aurora's net operating loss carryforward to reduce
its taxable income and accordingly  recorded a one-time  reduction in income tax
expense of approximately $350,000 ($.05 per share) in fiscal 1996.

                         17

<PAGE>
<PAGE>
Results of Operations

Fiscal Year Ended February 28, 1997 Compared with Fiscal Year Ended February 29,
     1996

         Revenues in fiscal 1997  increased 153% to  $113,855,364  compared with
$44,964,897  in fiscal 1996.  This  increase was primarily  attributable  to the
acquisitions  of ATEC and 3D in May  1996  and  reflects  a full  years  revenue
contribution  from the Hill and AGI acquisitions  completed in November 1995 and
February 1996, respectively.

     Revenues  in fiscal  1997,  from ATC's  branch  offices  having  comparable
operations  in  fiscal  1996,   increased  3.6%  to  $42,930,996  compared  with
$41,423,054 in fiscal 1996. Revenues attributable to the acquisitions of certain
assets of the Hill Businesses, AGI, ATEC and 3D totaled $70,896,880, or 62.3% of
revenues,  for fiscal 1997. Revenues from branch operations sold or discontinued
contributed only $27,488 for fiscal 1997 compared to $1,105,418 for fiscal 1996.

         Reimbursable   costs  represent   direct  project  expenses  billed  to
environmental  and engineering  segment clients.  For fiscal 1997,  reimbursable
costs  increased 270% to  $17,953,895,  compared with $4,851,206 in fiscal 1996.
Reimbursable  costs as a percentage  of revenues  increased to 15.8% fiscal 1997
compared  with 10.8% in fiscal 1996.  ATEC's  traditional  consulting  services,
consisting of drilling,  materials  testing and  engineering  services,  utilize
higher amounts of outside services and direct project expenses compared to those
consulting services being provided prior to the acquisition.  For its year ended
December 31, 1995, ATEC's reimbursable costs were approximately 21% of revenues.

         Gross profit in fiscal 1997  increased  106% to  $42,150,762,  compared
with  $20,449,723  in fiscal 1996.  Gross profit as a percentage of net revenues
decreased to 44.0% in fiscal 1997, compared with 51.0% in fiscal 1996. The gross
profit  percentage  decrease is due to lower margins earned on certain of ATEC's
environmental  services,  the final  project  cost  incurred to complete a large
fixed-price  contract with could not be billed to the client,  and the impact of
lower  net  revenues  in  certain  regions  where  costs  could  not be  reduced
proportionately.

     Operating  expenses in fiscal 1997 increased 108% to $30,439,729,  compared
with $14,654,261 in fiscal 1996. Operating expenses decreased as a percentage of
net revenues to 31.7% in fiscal 1997,  compared  with 36.5% in fiscal 1996.  The
decrease in operating expenses as a percentage  of net revenues is the result of
the  additional  net  revenues from  the  ATEC and  other  acquisitions  without
corresponding  increases  in fixed  and  administrative  costs.  Employee  costs
increased  66.8% to  $12,364,753,  or  12.9% of net  revenues  in  fiscal  1997,
compared  with  $7,413,551,  or 18.5% of net  revenues,  in fiscal  1996.  These
increases  in total  cost were due to  employees  hired in  connection  with the
expansion of ATC's  operations.  Other increases in operating  expenses resulted
from higher facility costs and administrative expenses resulting from the growth
in  operations  and increased  employee  levels.  Additionally,  in fiscal 1997,
amortization of goodwill and intangibles increased to $1,216,008,  compared with
$437,254  in  fiscal  1996,  reflecting  the  additional  goodwill  amortization
resulting from acquisitions.

         Operating income in fiscal 1997 increased 102% to $11,711,033, compared
with $5,795,462 in fiscal 1996.  Operating  income  decreased as a percentage of
net revenues to 12.2% in fiscal 1997, compared with 14.4% in the fiscal 1996.

         Nonoperating  expense in fiscal 1997,  increased to $1,313,299 compared
with $124,464 in fiscal 1996. The increase in nonoperating  expense is primarily
attributable to increased  interest expense on bank debt  outstanding  since May
1996, when the ATEC and 3D acquisitions were completed,  and from lower interest
income.

         Income  tax  expense  in  fiscal  1997 was  $4,090,000,  compared  with
$1,805,000  in fiscal  1996.  The income tax expense for fiscal 1996  reflects a
one-time benefit of $350,000  resulting from the merger of Aurora into ATC which
allowed ATC to utilize  Aurora's net operating loss  carryforward  as offsets to
future  taxable  income.  During fiscal 1997 and 1996,  after  adjusting for the
one-time tax benefit,  the  Company's  effective tax rates were 39.3% and 38.0%,
respectively.

         As a result of the  foregoing,  net income for fiscal  1997,  increased
63.2% to $6,307,734,  or $.74 per share on a fully diluted basis,  compared with
$3,865,998 or $.54 per share on a fully diluted basis, in fiscal 1996. Excluding
the impact of the one-time tax benefit of $350,000, net income and fully diluted
earnings  per  share for  fiscal  1996,  would  have  been  $3,515,998  and $.49
respectively.  The fully diluted weighted  average number of shares  outstanding
increased  18.5% to  8,508,061  shares  primarily  due to an  increase in shares
issued from the Common Stock  Offering in October 1995 and from shares,  options
and warrants  outstanding  as a result of the Aurora Merger  effective  June 29,
1995.
                         18
PAGE
<PAGE>
Fiscal Year Ended February 29, 1996 Compared with Fiscal Year Ended February 28,
     1995
         Revenues in fiscal 1996  increased  24% to  $44,964,897  compared  with
$36,271,557  in fiscal 1995.  This  increase was primarily  attributable  to the
positive effect of acquisitions  completed during the second half of fiscal 1995
and from the  acquisition  of the Hill  Businesses  in November  1995.  Revenues
attributable   to  operations   resulting   from  these   acquisitions   totaled
$12,034,346,  or 26.8%  of  revenues,  for  fiscal  1996.  During  fiscal  1996,
increased  revenues  from  certain  existing  operations  were  offset  by lower
revenues  from a  significant  customer  due to delays in  funding  for  certain
projects and the completion of certain work for another significant customer. In
addition,  revenues of ATC's largest offices located in the Mid-Atlantic and New
England regions were negatively impacted for the three months ended February 29,
1996, due to severe winter  weather  conditions  experienced.  Revenues in these
regions, excluding revenues of the acquired Hill Businesses, declined $1,751,618
or 27.5% in the fourth  quarter  ended  February 29, 1996  compared to the third
quarter  period ended November 30, 1995. In fiscal 1995,  where normal  seasonal
changes were  experienced,  the decrease for the comparable period was less than
3%. The Hill  Businesses were acquired just prior to the fourth quarter and were
also adversely affected by these weather conditions.

         In fiscal  1996,  ATC  continued to  penetrate  its  existing  markets.
Revenues in fiscal 1996 from ATC's branch offices having  comparable  operations
in fiscal 1995,  increased  2.6% to  $32,930,551,  compared with  $32,095,387 in
fiscal  1995.  If revenues  from  certain  large  projects  for two  significant
customers  discussed  below are  eliminated in each period,  ATC's revenues from
existing branch offices having comparable  operations would have increased 16.2%
to $29,069,202 in fiscal 1996, compared with $25,022,792 in fiscal 1995.

         Revenues in fiscal 1996 earned  directly  from the New York City School
Construction  Authority ("NYCSCA") decreased 30.2% to $2,693,169,  compared with
$3,859,595 in fiscal 1995. As a percentage of revenues, revenues from the NYCSCA
decreased to 6.0% in fiscal 1996, compared with 10.6% in fiscal 1995. During the
first  quarter of fiscal 1996,  delays in the  approval of the NYCSCA's  program
budget  and  funding  requests  for the New York City  school  construction  and
maintenance program resulted in diminished service levels in asbestos management
consulting and testing services and,  consequently,  lower revenues to ATC under
this program.  The NYCSCA's  construction and maintenance program is ongoing and
is expected to continue over a period of years.  ATC believes it has established
a strong  relationship  with the  NYCSCA  and  expects  to  continue  to provide
asbestos  and other  industrial  hygiene  services  to the NYCSCA  over the next
several  years;  however,  no  assurance  can be made  regarding  the  amount of
revenues,  if any,  that ATC will  receive  from the NYCSCA in the  future  once
current  projects are completed.  ATC's revenues under programs such as this one
are not predictable and will be dependent upon many factors such as the scope of
work  necessary at particular  sites,  budgeting  constraints  and the timing of
projects.

         Revenues in fiscal 1996 from the Army Corps of Engineers  (the "Corps")
decreased  63.6% to  $1,168,180,  compared with  $3,213,000 in fiscal 1995. As a
percentage  of  revenues,  revenues  from the Corps  decreased to 2.6% in fiscal
1996,  compared with 8.9% in fiscal 1995. The Company's  revenues from the Corps
relates  to  certain  asbestos  management  services  and  decreased  due to the
completion of the larger phases of the project during fiscal 1995. Revenues from
the Corps are  expected to  continue  through  1999 as part of the federal  Base
Realignment  and Closure  project.  However,  no assurance can be made as to the
amount of revenues,  if any,  that ATC will receive from the Corps in the future
once current projects are completed.

         Reimbursable  costs  represent  direct   project   expenses   billed to
environmental  and engineering  segment clients.  For fiscal 1996,  reimbursable
costs increased 61.6% to $4,851,206,  compared with $3,001,811,  in fiscal 1995.
Reimbursable  costs as a  percentage  of revenues  increased  to 10.8% in fiscal
1996,  compared with 8.3% in fiscal 1995. The increase in reimbursable costs and
reimbursable  costs as a percentage of net revenues is due to higher subcontract
and drilling costs related to the Company's geological and remediation services.
These services increased from the R.E. Blattert and MES acquisitions.

         Gross profit in fiscal 1996 increased  14.1% to  $20,449,723,  compared
with  $17,916,064  in fiscal 1995.  Gross profit as a percentage of net revenues
decreased to 51.0% in fiscal  1996,  compared  with 53.9% in fiscal 1995.  ATC's
gross profits decreased due to the severe weather conditions  experienced during
the three months  ended  February  29,  1996.  Gross  profit as a percentage  of
revenues for the nine months ended  November 30, 1995 was 47.9%.  For the fourth
quarter  ended  February 29,  1996,  gross profit  decreased  to  $4,308,142  on
revenues of  $11,277,327  or 38.2%.  Cost of  revenues  includes  the  Company's
full-time  professional field staff costs,  depreciation of field and laboratory
equipment, contract maintenance costs and other costs which are generally fixed.
These costs did not  decrease  proportionately  with the  decrease in  revenues.
Additionally,  gross margin for fiscal 1995 was higher due to the  profitability
level of several high margin projects.

                         19
PAGE
<PAGE>
      Operating expenses in fiscal 1996 increased 19.2% to $14,654,261, compared
with $12,291,465 in fiscal 1995. Operating expenses decreased as a percentage of
net revenues to 36.5% in fiscal 1996,  compared  with 36.9% in fiscal 1995.  The
decrease in operating  expenses as a percentage of net revenues is the result of
ATC's ability to service greater revenue levels without corresponding  increases
in fixed and administrative costs. Employee costs increased 18.0% to $7,413,551,
or 18.5% of net revenues,  in fiscal 1996 compared with $6,284,726,  or 18.9% of
net  revenues,  in fiscal 1995.  These  increases in employee  costs were due to
employees  hired in  connection  with the expansion of ATC's  operations.  Other
increases in operating expenses resulted from higher facility costs,  travel and
administrative expenses resulting from the growth in operations and increased
employee  levels.  Additionally,  in fiscal 1996,  amortization  of goodwill and
intangibles  increased  to  $437,254,  compared  with  $212,320 in fiscal  1995,
reflecting the additional goodwill amortization resulting from acquisitions.

         Operating income in fiscal 1996 increased 3.0% to $5,795,462,  compared
with $5,624,599 in fiscal 1995. Operating income as a percentage of net revenues
was 14.4% in fiscal 1996 and 16.9% in fiscal 1995.

         Non-operating  expenses  in fiscal  1996  decreased  61.6% to  $124,464
compared with $324,079 in fiscal 1995. The decrease in non-operating expenses is
primarily  attributable  to higher interest income earned on the net proceeds of
the Common Stock Offering invested in short term investments.

         Income  tax  expense  in  fiscal  1996 was  $1,805,000,  compared  with
$2,044,000 in fiscal 1995. The income tax expense reflects a one-time benefit of
$350,000  resulting  from the  merger of Aurora  into ATC which  allowed  ATC to
utilize  Aurora's  net  operating  loss  carryforwards  as offsets to its future
taxable income.  During fiscal 1996, excluding for the one-time tax benefit, and
fiscal  1995,   the  Company's   effective  tax  rates  were  38.0%  and  38.6%,
respectively.

         As a result of the foregoing, net income in fiscal 1996 increased 18.7%
to  $3,865,998,  or $.54  per  share on a fully  diluted  basis,  compared  with
$3,256,520 or $.56 per share on a fully diluted basis, in fiscal 1995. Excluding
the impact of the one-time tax benefit of $350,000, net income and fully diluted
earnings per share would have been $3,515,998 and $.49, respectively, for fiscal
1996. The fully diluted weighted average number of shares outstanding  increased
22.8% or 1,331,183  shares to 7,181,416  shares  primarily due to an increase in
shares issued from the Common Stock  Offering,  additional  shares,  options and
warrants  outstanding as a result of the Aurora Merger  effective June 29, 1995,
the exercise of Class B warrants and the issuance of shares in  connection  with
the acquisition of Con-Test. Net income as a percentage of net revenues was 8.8%
in fiscal 1996, after excluding the one-time tax benefit,  compared with 9.8% in
fiscal 1995.

Liquidity and Capital Resources

     On May 29, 1997, the Company issued $32,500,000 of Senior Secured Notes and
entered into a credit  agreement with the Chase Manhattan Bank and Atlantic Bank
of New York providing for a $15,000,000  revolving line of credit.  A portion of
the  proceeds  of the Senior  Secured  Notes were used to repay the  outstanding
borrowings of $21,350,000  as of May 29, 1997 under the bridge credit  facility.
The  Senior  Secured  Notes  and  borrowings   under  the  line  of  credit  are
collateralized by the Company's cash, accounts receivable,  work in process, and
intangible  assets.  Under  the  terms of the Note and  Credit  Agreements,  the
Company is required to comply with certain  financial  and  business  covenants,
including  maintaining minimum working capital levels, fixed charge and interest
coverage ratios and limitations on dividend payments.

         At February 28, 1997,  working  capital was  $27,701,694  compared with
working  capital of $24,977,316 at February 29, 1996, an increase of $2,724,378.
This increase in working  capital is primarily a result of the  acquisitions  of
ATEC  and 3D and the  increased  current  assets  including  purchased  accounts
receivable, unbilled receivables and prepaid expenses offset by cash paid to the
sellers and assumed acquisition liabilities including accounts payable,  accrued
liabilities  and  future  payment  obligations.  As a  result  of the  Company's
acquisitions  of ATEC and 3D, the  Company's  tangible  net worth  decreased  to
$9,220,043 at February 28, 1997 from $27,542,614 at February 29, 1996, primarily
as a result of goodwill and  non-compete  amounts  recognized in connection with
these transactions.

         During fiscal 1997,  net cash flows used in operating  activities  were
$6,684,689,  primarily due to income  generated  from  operations,  increases in
billed and unbilled  receivables  offset by reductions  of accounts  payable and
other liabilities,  including assumed liabilities  associated with acquisitions.
Net cash flows used in investing activities were $13,144,324, resulting from the
acquisitions  of ATEC and 3D and purchases of property and  equipment.  Net cash
flows provided by financing activities were $8,363,460,  primarily  representing
the proceeds of the bridge credit facility, less payments made on long-term debt
and notes payable assumed from ATEC.

         During fiscal 1996,  net cash flows used in operating  activities  were
$842,642,  primarily  due to  income  generated  from  operations  offset  by an
increase in billed and  unbilled  receivables.  Net cash flows used in investing
activities  were  $4,586,939,  resulting  from  the  acquisitions  of  the  Hill
Businesses,  AGI, Con-Test and R.E.  Blattert,  additional  contingent  purchase
obligations  in  connection  with the BSE and  R.E.  Blattert  acquisitions  and
purchases  of property  and  equipment.  Net cash flows  provided  by  financing
activities were $17,521,162, primarily representing the net offering proceeds of

                         20
<PAGE>
<PAGE>
the Common Stock Offering plus the proceeds from a $2,585,125  increase in debt,
primarily bank debt under the Company's prior credit  facilities,  less payments
made on long-term debt and notes payable of $6,663,581.

         During  fiscal 1995,  net cash flows  provided by operating  activities
were  $3,030,703.  Net cash flows used in investing  activities were $4,099,812,
consisting primarily of the purchase of certain assets of BSE, Con-Test and MES,
and property and equipment.  Also during this period, net cash flows provided by
financing activities were $1,052,082, primarily from the exercise of ATC's Class
B Warrants and borrowing  under the Company's  prior  revolving  credit facility
with Atlantic.  These sources of cash were reduced by principal debt repayments,
including payments of $1,961,000 with respect to bank debt assumed in connection
with the Con-Test and R.E. Blattert acquisitions.

         Management  of the Company  believes the proceeds  from the issuance of
the Senior Secured Notes after  repayment of the bridge credit  facility,  funds
available from its unused $15,000,000 bank line of credit and cash provided from
operations  are  adequate  to  fund  current  operations  including  liabilities
incurred in connection with the Company's acquisitions of ATEC and 3D.

         The  Company  may seek to obtain  additional  public or private  equity
financing in the future in order to expand operations,  provide funds for future
acquisitions  or  reduce  debt,  however  no  assurance  can be  given as to the
Company's ability to obtain funds on acceptable terms and conditions.

Item 8.  Financial Statements and Supplementary Data.

         The  information  required by Item 8 and an index  thereto,  appears on
page F-1 of this Annual  Report,  which follows this page.

Item 9.  Changes  in  and  Disagreements  With  Accountants  on  Accounting  and
     Financial Disclosure.

         Not applicable.

                         21
<PAGE>
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED FEBRUARY 28, 1997


                                                                            Page

INDEPENDENT AUDITORS' REPORT ..........................................     F-2

FINANCIAL STATEMENTS:
     Consolidated Balance Sheets
       February 28 (29), 1996 and 1997.................................     F-3

     Consolidated Statements of Operations
       For the Three Years Ended February 28, 1997.....................     F-4

     Consolidated Statements of Stockholders' Equity
       For the Three Years Ended February 28, 1997.....................     F-5

     Consolidated Statements of Cash Flows
        For the Three Years Ended February 28, 1997....................     F-6

     Notes to Consolidated Financial Statements........................     F-7

    All  financial   statement  schedules  are  omitted  because  they  are  not
applicable,  not  required,  or because  the  required  information  is included
elsewhere herein.

                         F-1
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT



Board of Directors and Stockholders
ATC Group Services Inc. and Subsidiaries

         We  have audited the  accompanying  consolidated  balance sheets of ATC
Group  Services Inc. and  subsidiaries  as of February 29, 1996 and February 28,
1997,  and the related  consolidated  statements  of  operations,  stockholders'
equity and cash flows for each of the three years in the period  ended  February
28, 1997.  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 in accordance with generally accepted auditing
standards.  Those standards 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.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We  believe  that  our  audits  provide  a  reasonable  basis  for our  opinion.

         In our opinion, such consolidated  financial statements present fairly,
in all material respects,  the financial position of ATC Group Services Inc. and
subsidiaries  as of February  29, 1996 and  February 28, 1997 and the results of
their  operations and their cash flows for each of the three years in the period
ended  February 28, 1997,  in  conformity  with  generally  accepted  accounting
principles.





DELOITTE & TOUCHE LLP

Omaha, Nebraska
May 22, 1997
(May 29, 1997 as to Notes B and D)

                         F-2
<PAGE>
<PAGE>


ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
FEBRUARY 28 (29),  1996 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                                    1996                 1997
                                                                                                -------------       ------------
<S>                                                                                             <C>                 <C>
ASSETS
  CURRENT ASSETS:
     Cash and cash equivalents...............................................................   $  13,469,443       $  2,003,890
     Trade accounts receivable, less allowance for doubtful accounts
        ($383,220 in 1996 and $1,455,716 in 1997) (Note K)...................................      14,161,774         34,406,026
     Costs in excess of billings on uncompleted contracts....................................       2,333,835          5,191,569
     Prepaid expenses and other current assets...............................................         906,289          2,934,193
     Deferred income taxes (Note H)..........................................................         440,600            790,400
     Refundable income taxes (Note H)........................................................               -            118,340
                                                                                                -------------       ------------  
              Total current assets...........................................................      31,311,941         45,444,418

  PROPERTY AND EQUIPMENT, Net (Note C) ......................................................       3,606,755          3,784,633

  GOODWILL, net of accumulated amortization
      ($453,646 in 1996 and $1,478,876 in 1997) (Note B) ....................................      11,375,399         35,587,076
  COVENANTS NOT TO COMPETE, net of accumulated amortization
      ($258,099 in 1996 and $455,316 in 1997) (Note B).......................................         274,401            632,184
  OTHER ASSETS...............................................................................         116,104            845,346
                                                                                                -------------       ------------
                                                                                                $  46,684,600       $ 86,293,657
                                                                                                =============       ============

LIABILITIES AND STOCKHOLDERS' EQUITY
  CURRENT LIABILITIES:
     Short-term debt (Note D)................................................................   $   1,122,552       $    300,000
     Current maturities of long-term debt (Note D) ..........................................         354,858          1,986,730
     Accounts payable........................................................................       2,231,175          7,440,024
     Income taxes payable (Note H) ..........................................................          42,500                 -
     Accrued compensation....................................................................       1,421,330          3,789,233
     Accrued payment obligations - ATEC acquisition (Note B).................................              -           1,721,594
     Other accrued expenses..................................................................       1,162,210          2,505,143
                                                                                              ---------------     --------------
              Total current liabilities......................................................       6,334,625         17,742,724

  LONG-TERM DEBT, less current maturities (Note D) ..........................................         361,944         22,123,344
  OTHER LIABILITIES  (Note E) ...............................................................         598,817            270,386
  DEFERRED INCOME TAXES (Note H) ............................................................         196,800            717,900
                                                                                              ---------------     --------------
              Total liabilities..............................................................       7,492,186         40,854,354
                                                                                              ---------------     --------------

  COMMITMENTS AND CONTINGENCIES (Notes B and E)

  STOCKHOLDERS' EQUITY (Notes B, D, F, and G):
     Common stock, par value $.01 per share; authorized 20,000,000 shares;
        issued and outstanding 7,796,577 shares in 1996 and 7,800,187 in 1997................          77,966             78,002
     Additional paid-in capital..............................................................      29,030,189         28,996,627
     Notes receivable - common stock ........................................................         (45,000)                -
     Retained earnings.......................................................................      10,129,259         16,364,674
                                                                                               --------------      -------------
              Total stockholders' equity.....................................................      39,192,414         45,439,303
                                                                                               --------------      -------------
                                                                                               $   46,684,600      $  86,293,657
                                                                                                 =============      ============
</TABLE>

See notes to consolidated financial statements.

                         F-3
<PAGE>
<PAGE>


ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED FEBRUARY 28, 1997
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                  1995                1996               1997
                                                                              -------------      -------------      --------------
<S>                                                                           <C>                <C>                <C> 
REVENUES...................................................................   $  36,271,557      $  44,964,897      $ 113,855,364
   Reimbursable Costs......................................................       3,001,811          4,851,206         17,953,895
                                                                              -------------    ---------------     --------------

NET REVENUES...............................................................      33,269,746         40,113,691         95,901,469

COST OF NET REVENUES.......................................................      15,353,682         19,663,968         53,750,707
                                                                              -------------     --------------     --------------

            Gross Profit...................................................      17,916,064         20,449,723         42,150,762
                                                                             --------------     --------------     --------------

OPERATING EXPENSES:
   Selling.................................................................       1,105,937          1,513,222          3,118,926
   General and administrative..............................................      10,996,709         12,850,874         26,299,172
   Provision for bad debts.................................................         188,819            290,165          1,021,631
                                                                             --------------     --------------     --------------
                                                                                 12,291,465         14,654,261         30,439,729
                                                                             --------------     --------------     --------------

           Operating Income................................................       5,624,599          5,795,462         11,711,033

NON-OPERATING EXPENSE (INCOME):
   Interest expense........................................................         285,570            376,621          1,569,043
   Interest income ........................................................         (34,073)          (272,463)          (230,610)
   Other ..................................................................          72,582             20,306            (25,134)
                                                                             --------------     --------------     --------------
                                                                                    324,079            124,464          1,313,299
                                                                             --------------     --------------     --------------

            Income before income taxes.....................................       5,300,520          5,670,998         10,397,734

INCOME TAX EXPENSE (Note H)................................................       2,044,000          1,805,000          4,090,000
                                                                             --------------     --------------     --------------

NET INCOME.................................................................  $    3,256,520      $   3,865,998      $   6,307,734
                                                                             ==============      =============      =============


EARNINGS PER COMMON SHARE AND
   DILUTIVE COMMON EQUIVALENT SHARE:
     Primary (Note H)......................................................  $          .57      $         .54      $         .74
                                                                             ==============      =============      =============
     Fully diluted (Note H)................................................  $          .56      $         .54      $         .74
                                                                             ==============      =============      =============


WEIGHTED AVERAGE NUMBER OF SHARES
   OUTSTANDING:
     Primary...............................................................       5,753,856          7,181,416          8,483,387
                                                                             ==============      =============      =============
     Fully diluted.........................................................       5,850,233          7,181,416          8,508,061
                                                                             ==============      =============      =============
</TABLE>

See notes to consolidated financial statements.

                         F-4
<PAGE>
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED FEBRUARY 28, 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                    Notes
                                                                       Additional   Receivable-
                                                     Common Stock      Paid-in      Common       Retained
                                                  Shares     Amount    Capital      Stock        Earnings      Total
<S>                                             <C>         <C>        <C>          <C>          <C>           <C>
                                                ----------  ---------  -----------  -----------  ------------  ------------ 
BALANCE, February 28, 1994                       5,303,352  $  53,034  $ 4,610,860  $   (34,250) $  3,029,841  $  7,659,485

Sale of common stock at $1.87 to
   $5.00 per share, upon exercise of
   stock options and warrants...........            16,980        170       51,354           -             -         51,524
Sale of common stock at $8.00 per
   share, upon exercise of Class B
   common stock purchase warrants.......           284,803      2,848    2,275,576           -             -      2,278,424
Issuance of common stock in
   connection with the purchase of
   Con-Test, Inc........................           116,556      1,165      491,740           -             -        492,905
Issuance of common stock in
   connection with the purchase of
   R.E. Blattert & Associates...........            16,327        163      112,340           -             -        112,503
Other capital transactions..............                -          -       (57,417)      19,250            -        (38,167)
Net income..............................                -          -            -            -      3,256,520     3,256,520
                                                ----------  ---------  -----------  -----------  ------------  ------------ 

BALANCE, February 28, 1995..............         5,738,018     57,380    7,484,453      (15,000)    6,286,361    13,813,194

Issuance of common stock in public
   offering at $12.00 per share less
   expenses.............................         1,970,000     19,700   21,534,761            -            -     21,554,461
Sale of common stock at $1.83 to
   $10.50 per share, upon exercise of
   stock options and warrants...........            39,613        396      100,223            -            -        100,619
Net issuance of common stock and
   adjustments in connection with the
   merger of Aurora Environmental
   Inc. into ATC (Note B)...............            83,356        834       60,283       (30,000)          -         31,117
Common stock recovered in
   connection with the Con-Test, Inc.
   acquisition (Note B).................           (33,130)      (331)    (139,682)          -            -        (140,013)
Other capital transactions..............            (1,280)       (13)      (9,849)          -        (23,100)      (32,962)
Net income..............................                -          -            -            -      3,865,998     3,865,998
                                                ----------  ---------  -----------  -----------  ------------  ------------ 

BALANCE, February 29, 1996..............         7,796,577     77,966   29,030,189      (45,000)   10,129,259    39,192,414

Sale of common stock at $1.85 to
   $10.00 per share, upon exercise of
   stock options and warrants...........            15,930        159       74,998           -             -         75,157
Common stock received as consideration
   for sale of assets...................           (12,320)      (123)     (51,990)          -        (72,319)     (124,432)
Other capital transactions..............                -          -       (56,570)      45,000            -        (11,570)
Net income..............................                -          -            -            -      6,307,734     6,307,734
                                                ----------  ---------  -----------  -----------  ------------  ------------ 

BALANCE, February 28, 1997..............         7,800,187  $  78,002  $28,996,627  $        -   $ 16,364,674  $ 45,439,303
                                                ==========  =========  ===========  ===========  ============  ============
</TABLE>

See notes to consolidated financial statements.

                         F-5
<PAGE>
<PAGE>

ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED FEBRUARY 28, 1997
--------------------------------------------------------------------------------
<TABLE>

<CAPTION>

                                                                                  1995              1996                1997
                                                                               ------------      ------------       ------------
<S>                                                                            <C>               <C>                <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income..............................................................   $  3,256,520      $   3,865,998      $   6,307,734
    Adjustments to reconcile net income to net cash from
        operating activities:
            Depreciation and leasehold amortization.........................        707,318            776,917            882,803
            Amortization of goodwill and covenants..........................        212,320            437,254          1,216,008
            Provision for bad debts.........................................        188,819            290,165          1,021,631
            Deferred income taxes...........................................         23,500           (191,700)           171,300
            Other...........................................................        (57,258)          (132,700)          (143,981)
            Changes in operating assets and liabilities, net of amounts acquired
                 in acquisitions:
                      Receivables...........................................       (348,459)        (4,168,658)        (3,861,601)
                      Prepaid expenses and other assets.....................        (22,269)          (434,890)          (143,679)
                      Accounts payable and other liabilities................         72,615         (1,199,278)       (12,210,762)
                      Income taxes refundable/payable.......................     (1,002,403)           (85,750)            75,858
                                                                             --------------    ---------------        -----------
                  Net cash flows from operating activities..................      3,030,703           (842,642)        (6,684,689)
                                                                             --------------    ---------------        -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of ATEC, net of cash acquired..................................             -                  -         (8,965,952)
    Purchase of 3D Information Services, Inc., net of cash acquired.........             -                  -         (2,926,681)
    Purchase of Hill Businesses.............................................             -          (2,517,949)                -
    Purchase of Applied Geosciences, Inc....................................             -            (589,060)           (22,324)
    Purchase of Con-Test, Inc., net of cash acquired........................     (2,230,551)          (169,038)                -
    Purchase of BSE Management, Inc. - contingent consideration.............       (887,325)          (207,990)                -
    Purchase of Microbial Environmental Services, Inc.......................       (250,000)           (45,307)                -
    Purchase of R.E. Blattert & Associates, net of cash acquired............         (9,541)          (134,376)                -
    Purchase of property and equipment......................................       (756,444)          (946,206)        (1,285,695)
    Proceeds from sale of property and equipment............................         34,049             22,987             56,328
                                                                             --------------    ---------------        -----------
                  Net cash flows from investing activities..................     (4,099,812)        (4,586,939)       (13,144,324)
                                                                             --------------    ---------------        -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of common stock, net of expenses.................      2,329,948         21,655,080             75,157
    Proceeds from issuance of long-term debt................................      1,580,318          2,585,125         22,270,297
    Principal payments on long-term debt, including capital lease obligations    (2,800,767)        (6,663,581)       (13,925,424)
    Other capital transactions..............................................        (57,417)           (55,462)           (56,570)
                                                                             --------------    ---------------        -----------
                  Net cash flows from financing activities..................      1,052,082         17,521,162          8,363,460
                                                                             --------------    ---------------        -----------
                  Net change in cash and cash equivalents...................        (17,027)        12,091,581        (11,465,553)

CASH AND CASH EQUIVALENTS, Beginning of year................................      1,394,889          1,377,862         13,469,443
                                                                             --------------     --------------     --------------

CASH AND CASH EQUIVALENTS, End of year......................................  $   1,377,862      $  13,469,443      $   2,003,890
                                                                              =============      =============      =============
</TABLE>

See notes to consolidated financial statements.

                         F6
<PAGE>
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED FEBRUARY 28, 1997

A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principals of  Consolidation - The  consolidated  financial  statements
include the accounts of ATC Group  Services  Inc.  (formerly  ATC  Environmental
Inc.) and its  wholly-owned  subsidiaries  ATC New England  Corp.,  ATC Blattert
Inc.,  Hygeia  Laboratories  Inc., ATC Management Inc. and ATC InSys  Technology
Inc.  All  significant   inter-company   accounts  and  transactions  have  been
eliminated.

         Nature of  Business  - ATC Group  Services  Inc.  and its  subsidiaries
("ATC"  or  the  "Company")  is a  national  business  services  firm  providing
technical and project management  services relating to environmental  consulting
(the  "environmental   consulting  and  engineering"  segment)  and  information
technology   consulting  services  (the  "information   technology   consulting"
segment).  The  Company's  environmental   consulting  and  engineering  segment
provides  environmental  and geotechnical  engineering  services,  architectural
engineering services, construction materials testing and analytical testing. The
Company's information technology consulting segment provides analysis and design
services and system  programming  services to assist  clients in building new or
modifying existing computer systems. This business unit also provides support to
clients in maintaining computer systems.

         Revenue  Recognition - The Company generally  contracts for services to
customers  on the  basis of a fixed fee per  procedure  or  services  performed.
Revenue is recognized as services are performed in accordance  with the terms of
the contract.

         Costs In Excess of Billings on Uncompleted  Contracts - Costs in excess
of  billings  on  uncompleted   contracts   represent   unbilled   services  and
reimbursable expenses associated with ongoing projects.

         Significant  Customer - In fiscal  1997 there were no  revenues  from a
single  customer  exceeding 5%. In fiscal 1996 and 1995,  revenues from a single
customer comprised approximately 6.0% and 10.6% of total revenues, respectively.

         Property and  Equipment - Property and  equipment  are carried at cost.
Depreciation is computed on either the straight-line or declining balance method
over the estimated useful lives of the assets, as follows:

         Office equipment............................................ 5 years
         Transportation equipment ................................. 4-5 years
         Laboratory and field equipment............................ 5-7 years
         Leasehold improvements............................ life of the lease

         Amortization  of Intangible  Assets - Goodwill,  which  represents  the
excess  of cost  over  the  fair  market  value of net  assets  acquired  in the
Company's  acquisitions,  is being amortized on a straight-line  basis over a 30
year period.  The carrying  value of goodwill is  periodically  evaluated on the
basis  of  management's   estimates  of  future  undiscounted  operating  income
associated with the acquired businesses.  The covenants not to compete are being
amortized over the terms of the agreements, which are 1 to 7 year periods.

     Statement of Financial Accounting Standards No. 121 - On March 1, 1996, the
Company adopted Statement of Financial  Accounting  Standards  ("SFAS") No. 121,
Accounting  for the  Impairment  of  Long-Lived  Assets to be  Disposed  Of. The
adoption  of SFAS  No.  121 did not  have a  material  effect  on the  Company's
financial statements.

     Income Taxes -  ATC and  its  wholly-owned subsidiaries file a consolidated
income tax return.  The liability method is used to measure deferred  tax assets
and liabilities  based on  temporary  differences  between financial and taxable
income  existing at each balance sheet date using enacted tax rates.

         Credit Risk and  Financial  Instruments - Financial  instruments  which
potentially  subject the Company to  concentrations of credit risk are primarily
temporary investments and accounts receivable.  The Company places its temporary
investments  in  highly  rated  financial   institutions  and  investment  grade
short-term  debt  instruments.  Concentrations  of credit  risk with  respect to
accounts  receivable  are  limited  due to the large  number of  customers,  the
proportion of receivables from  governmental  entities,  generally short payment
terms and dispersion across geographic areas.

         Fair  Values  of  Financial  Instruments  - Fair  values  of  financial
instruments  have been estimated  based on market prices of similar  instruments
and/or valuation  techniques using market assumptions.  The Company assumes that

                         F-7
PAGE
<PAGE>
the carrying amount of short-term financial instruments  approximates their fair
value.  For these  purposes,  short-term  is defined as any item that matures or
represents a cash transaction  between willing parties within six months or less
of the measurement  date.  Unless  otherwise noted, the carry value of financial
instruments approximates fair value.

         Earnings  Per  Common  Share and  Dilutive  Common  Equivalent  Share -
Earnings  per  common  share and  dilutive  common  equivalent  share  have been
computed by using the weighted average number of shares  outstanding  during the
year.  Outstanding dilutive stock warrants and stock options are included in the
computation of weighted average number of shares.

         In February 1997, the Financial  Accounting Standards Board issued SFAS
No. 128, Earnings Per Share. SFAS No. 128, which becomes effective for financial
statements  of the Company  issued for fiscal years  ending  after  December 15,
1997,  replaces primary and fully diluted earnings per share, as disclosed under
current  pronouncements,  with basic and diluted  earnings per share.  Pro forma
basic  earnings  per share for the fiscal years 1995,  1996,  and 1997 are $.59,
$.59,  and $.81,  respectively.  Pro forma  diluted  earnings  per share for the
fiscal years 1995, 1996, and 1997 are $.57, $.54 and $.74, respectively.

         Cash and Cash  Equivalents - For purposes of reporting cash flows,  the
Company considers all commercial  paper,  money market funds and certificates of
deposit  purchased  with a maturity of three months or less at acquisition to be
cash equivalents.

         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 revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

         New Accounting  Pronouncements - In June 1996, the Financial Accounting
Standards  Board issued SFAS No. 125,  Accounting for Transfers and Servicing of
Financial  Assets  and   Extinguishments   of  Liabilities,   which  established
accounting and reporting  standards for such  transfers.  The Company intends to
adopt SFAS No. 125 effective March 1, 1997, as required.  Management anticipates
that the  adoption  of SFAS No.  125 will not have a  significant  effect on the
Company's financial position and results of operations.

         Reclassifications  -  Certain  reclassifications  have been made to the
prior years' financial statements to conform to the current year's presentation.

B.  BUSINESS ACQUISITIONS AND MERGER

         Business Acquisitions - The following  acquisitions have been accounted
for as purchases.  The acquired company's assets and liabilities are included in
the  accompanying  consolidated  balance  sheets  at fair  value  at the date of
purchase.  The acquired company's  operations  subsequent to the acquisition are
included in the accompanying consolidated statements of operations.

Fiscal 1997
         American  Testing  and  Engineering  Corporation  - On May 24, 1996 ATC
purchased certain assets and assumed certain liabilities of American Testing and
Engineering Corporation ("ATEC"), a national environmental consulting firm. ATEC
provides  environmental  engineering  and  consulting  services  through a large
network of branch and regional offices.  The purchase price was comprised of the
following consideration:

         Amounts paid to seller and a majority owner:
               Cash............................................... $   9,000,000
               Payment obligations, for property and facility
                  rentals and non-compete consideration...........     6,001,000
         Liabilities assumed:
               Current liabilities................................    15,731,076
               Bank debt..........................................    10,750,000
         Direct expenses related to acquisition...................       139,438
                                                                 ---------------
                                                                    $ 41,621,514
                                                                 ===============

         The payment obligations to seller/majority owner are payable monthly or
quarterly and are included in accrued payment  obligations - ATEC acquisition in
the accompanying consolidated balance sheet.

     At  February  28, 1997, the  Company  is  contingently  liable  to ATEC for
additional  purchase  consideration  up to  $10,750,000  if certain  conditions 
are met. At February  28, 1997, the maximum  amounts  payable,  if fully earned,
would be paid as follows:  $3,883,333 in fiscal 1998, $3,873,333 in fiscal 1999,
$1,293,334 in fiscal 2000 and $1,700,000 in fiscal 2002. Subsequent to February
28,  1997  the  seller  has  met  the   contingent   consideration requirements
obligating the Company to the fiscal 1998 amount.

                        F-8
PAGE
<PAGE>
In addition, in connection  with the issuance of the Senior Secured Notes on May
29  1997,  as  discussed  in Note D,  the  Company  and seller  agreed to remove
certain contingent consideration  requirements;  and as a result, the Company is
obligated to pay  $2,420,766  and expects to be  obligated to pay the  remaining
contingent  consideration of $2,745,900 in fiscal 1999. Additionally The Company
has the option to purchase certain  properties from the seller for $1,700,000 in
fiscal 2002.

  The initial purchase price allocation is summarized as follows:

  Accounts receivable and work in process, net of allowances......  $ 18,957,768
  Other current assets............................................     2,023,996
  Other assets....................................................       548,301
  Covenants not to compete........................................       430,000
  Goodwill .......................................................    19,661,449
                                                                   -------------
                                                                    $ 41,621,514
                                                                    ============
 
         The Company may set-off against certain payment  obligations the amount
of any  uncollected  accounts  receivable  and work in process,  net of recorded
allowances, not collected within one year.

         In connection  with the purchase  agreement,  the Company has issued an
irrevocable  letter of credit in the amount of $500,000 to secure the  Company's
performance of its payment obligations. The letter of credit is renewable by the
seller until such time the Company has paid all of the purchase  obligations  in
full.  At February  28,  1997,  no amounts had been drawn  against the letter of
credit.

         3D Information Services,  Inc. - On May 28, 1996, ATC purchased certain
assets and assumed certain liabilities of 3D Information Services,  Inc. ("3D"),
a New Jersey based information services company providing technical  information
consulting  services in all phases of information  system  design,  development,
maintenance  and management in client server and mainframe  based  environments.
The purchase price was comprised of the following consideration:

  Amounts paid to seller:
        Cash...................................................... $   3,000,000
        Note payable..............................................     2,500,000
  Assumed liabilities.............................................       247,905
  Direct expenses related to acquisition..........................        23,149
                                                                 ---------------
                                                                    $  5,771,054
                                                                 ===============

         The initial purchase price allocation is summarized as follows:

  Accounts receivable............................................. $   1,163,981
  Work in process.................................................       279,047
  Property and equipment..........................................        77,381
  Other current assets............................................        77,560
  Covenant not to compete.........................................       100,000
  Goodwill .......................................................     4,073,085
                                                                    ------------
                                                                    $  5,771,054
                                                                    ============
Fiscal 1996
         Hill  Businesses - In November 1995,  ATC purchased  certain assets and
assumed  certain  liabilities  of  Kaselaan & D'Angelo  Associates,  Inc.,  Hill
Environmental,  Inc. (formerly the environmental division of Gibbs & Hill, Inc.)
and Particle Diagnostics, Inc., wholly owned subsidiaries of Hill International,
Inc. (collectively the "Hill Businesses").

         The Hill Businesses  provide  environmental  consulting and engineering
services,  including  asbestos  management,  industrial  hygiene  and indoor air
quality  consulting,   environmental  auditing  and  permitting,   environmental
regulatory compliance,  water and wastewater  engineering,  solid waste landfill
management and analytical laboratory services.  The purchase price was comprised
of the following consideration.

  Amounts paid to seller:
         Cash..................................................... $   2,517,949
              Letter of credit, net of imputed interest (Note E)..       700,000
              Note payable at 8.75% interest (Note E).............       300,000
  Liabilities assumed.............................................       907,884
  Direct expenses related to acquisition..........................       885,538
                                                                 ---------------
                                                                   $   5,311,371
                                                                 ===============

                         F-9
<PAGE>
<PAGE>

         Direct expenses related to acquisition includes costs incurred in order
to obtain  proper title to the assets from Sellers bank as described  further in
Note E. In addition, the Company issued to certain selling shareholders,  50,000
stock  options to  purchase  restricted  common  stock at  $13.875  per share as
consideration for non compete agreements.

  The purchase price allocation is summarized as follows:

  Costs in excess of billings on uncompleted  contracts,
      net of unrealizable  amounts................................ $     620,000
  Property and equipment..........................................       175,000
  Other assets....................................................        30,572
  Covenants not to compete........................................        37,500
  Goodwill........................................................     4,448,299
                                                                  --------------
                                                                   $   5,311,371
                                                                  ==============

         The  Company is  contingently  liable to  reimburse  up to  $150,000 of
certain facility lease costs if incurred by Hill International, Inc. The payment
of the contingent  liability,  which the Seller claims is now due, certain other
liabilities  and the $300,000 note is being withheld  pending the outcome of the
litigation (Note E).

         Applied Geosciences,  Inc. - Effective February 29, 1996, ATC purchased
certain  assets and assumed  certain  liabilities of Applied  Geosciences,  Inc.
("AGI"), a California based  environmental  consulting company having offices in
San Diego, Tustin and San Jose, California.  The purchase price was comprised of
the  following   consideration.   In  addition,   AGI  will  receive  contingent
consideration of up to $190,000  subject to actual  collections of the purchased
trade  receivables  in  excess  of  a  minimum  amount   established  under  the
agreements. As of February 28, 1997 $22,324 of contingent consideration had been
earned and paid.

  Cash to seller..................................................$      147,546
  Contingent consideration earned to date.........................        22,324
  Cash to secured creditors of seller.............................       441,514
  Liabilities assumed.............................................       225,538
  Direct expenses related to acquisition..........................        31,246
                                                                  --------------
                                                                  $      868,168
                                                                  ==============

         The purchase price allocation is summarized as follows:

  Accounts receivable, net.......................................$       474,973
  Property and equipment.........................................        115,060
  Covenants not to compete.......................................         30,000
  Goodwill.......................................................        248,135
                                                                  --------------
                                                                  $      868,168
                                                                  ==============

Other Acquisitions
         Con-Test,  Inc. - On October 1, 1994, ATC acquired substantially all of
the assets and liabilities of Con-Test, Inc. ("Con-Test"), a Massachusetts based
environmental  consulting  company  having  branch  offices  in the New  England
states,  New York and  Pennsylvania.  The seller  guaranteed the net receivables
purchased  resulting in the Company  reacquiring 33,130 shares of its restricted
common stock in fiscal 1996. Effective March 31, 1996, the Company sold its East
Longmeadow,  MA  laboratory,  originally  part of the  operations  acquired from
Con-Test,  back to the  Seller  in  exchange  for  cash,  12,320  shares  of the
Company's restricted common stock, and the assumption of certain liabilities and
facility  lease  obligations.  The assets sold included  property and equipment,
leasehold  improvements,   and  intangible  assets  including  contract  rights,
accreditation rights,  customer lists, and the use of the Con-Test business name
and logo.

         R.E.  Blattert  &  Associates  - On  January  13,  1995,  ATC  acquired
substantially  all of the assets and  liabilities of R.E.  Blattert & Associates
("R.E.   Blattert"),   an   environmental   consulting  firm  having   geologic,
environmental  engineering and water resource  expertise with offices in Indiana
and Iowa. In addition, the purchase agreement provides for the seller to receive
additional  purchase  consideration  based on  achieving  agreed  upon  earnings
targets. At February 28, 1997, $200,000 of additional purchase consideration had
been earned and recorded as goodwill.  The Company and Seller  agreed to certain
modifications   to  the  purchase   agreement   which   limits  the   contingent
consideration to amounts earned through February 28, 1997.

         Microbial  Environmental  Services,  Inc. - On  January  4,  1995,  ATC
acquired certain operations of Microbial  Environmental  Services, Inc. ("MES").
ATC agreed to assume service performance obligations under certain contracts and
a lease  obligation of MES and MES assigned its accounts  receivable to ATC. ATC
additionally  purchased certain field and laboratory equipment from MES and paid
a finder's fee to an unrelated party.

                         F-10
<PAGE>
<PAGE>
         BSE Management,  Inc. - In fiscal 1994, ATC acquired certain assets and
liabilities of BSE Management,  Inc. ("BSE"),  a California based  environmental
consulting   holding   company  and  those  of  its   subsidiaries,   Diagnostic
Environmental  Inc.,  Hygeia  Environmental  Laboratories and The  Environmental
Institute Inc. The acquisition was accomplished by purchasing certain BSE assets
at a foreclosure  sale,  acquiring  certain BSE unsecured  debt from its holder,
entering into  consulting and employment  contracts and  non-compete  agreements
with certain key BSE employees,  and assuming specified  liabilities of BSE. The
purchase agreement  provided for additional  purchase  consideration  contingent
upon  future  cash  receipts of the  ongoing  business  over five  years.  These
contingent payments totaled $1,355,165 and have been fully earned as of February
29, 1996 and recorded as goodwill.

         Aurora  Environmental  Inc.  Merger - Effective  June 29, 1995, ATC and
Aurora   Environmental  Inc.  ("Aurora")  merged,  with  ATC  as  the  surviving
corporation. ATC exchanged .545 of a share of ATC common stock for each share of
Aurora stock.  ATC common shares held by Aurora of 3,258,000 were canceled.  The
merger has been  accounted  for in a manner  similar to a pooling of  interests.
Under this method of accounting,  recorded assets and liabilities of Aurora were
combined  with ATC and the results of operations of ATC and Aurora were combined
on the date the merger became effective. As a result of the merger, ATC utilized
Aurora's net operating loss  carryforward,  which was $970,000 as of the date of
the merger.  In addition,  ATC's  liability to Aurora was canceled at the merger
date.

         Pro Forma Financial  Information  (Unaudited) - The following unaudited
pro forma  information  sets forth the  results of  operations  of ATC as if the
merger of Aurora and ATC's purchase of significant  subsidiaries including ATEC,
3D and the Hill  Businesses  had  occurred on March 1, 1995,  the  beginning  of
fiscal 1996.

<TABLE>
<CAPTION>
                                                                                                 PRO FORMA
                                                                                        Year Ended February 28 (29)
                                                                                       --------------------------------
                                                                                            1996               1997
                                                                                       -------------       ------------
<S>                                                                                    <C>                 <C>  
Revenues............................................................................   $149,025,093        $135,331,348
Net income..........................................................................      9,796,788           7,432,906
Earnings per share (fully diluted)..................................................   $       1.33        $        .87

Weighted average shares.............................................................      7,383,746           8,508,061

C.  PROPERTY AND EQUIPMENT

         Property and equipment as of February 28 (29) consists of:                         1996               1997
                                                                                       --------------      -------------

Office equipment....................................................................   $    2,645,325      $   3,339,049
Laboratory and field equipment......................................................        3,528,410          3,335,721
Transportation equipment............................................................          267,304            207,857
Leasehold improvements..............................................................          633,595            849,700
                                                                                            7,074,634          7,732,327
Less accumulated depreciation.......................................................        3,467,879          3,947,694

Property and equipment, net.........................................................   $    3,606,755      $   3,784,633
                                                                                       ==============      =============
</TABLE>

                         F-11
<PAGE>
<PAGE>
D.  DEBT AND CREDIT AGREEMENTS

         Short Term Debt - The February  28, 1997  balance  consists of a 8.75%,
$300,000 note payable  issued in connection  with the Company's  purchase of the
Hill  Businesses.  The  Company  has  withheld  payment on the note  pending the
outcome of the  litigation  with Hill as  discussed  in Note E. At February  29,
1996, the Company had short-term notes payable of $1,122,552 with interest rates
of 6.7% to 8.75%.

<TABLE>
<CAPTION>

         Long-Term Debt - Long term debt as of February (28) 29 consists of :
                                                                                                    1996               1997
<S>                                                                                           <C>                   <C> 
                                                                                              ----------------      -----------
         Borrowings from banks under the Company's $23,000,000 bridge credit
           facility.  Interest is payable monthly (7.3% at February 28, 1997)................  $           -        $20,850,000

         Note payable issued in connection with the purchase of 3D Information
           Services, Inc. with a fixed interest rate of 8.25%.  Interest and principal
           are payable quarterly through May, 1999...........................................              -          1,931,193

         Insurance premium financing obligation payable in fixed monthly
           installments of principal and interest through April, 1998.  Interest
           accrues at 6.4%...................................................................              -            781,188

         Note  payable  issued in  connection  with the  purchase  of  Con-Test,
           payable in three  annual  installments  through  September  30, 1997.
           Interest accrues at 8.5% and is payable quarterly.................................        356,667            178,333

         Notes payable issued in connection with other asset acquisitions due in
           installments  through May 1998.  Interest  rates range from the prime
           rate, (8.25% at February 28, 1997) to 9.0%........................................        123,121            146,272

         Note payable assumed in connection with the  purchase of ATEC.  Interest
           accrues at the prime rate plus 2% (10.25% at February 28, 1997).  Principal
           and interest are due  May 19, 1997................................................              -            127,095

         Notes payable issued in connection with the purchase of MES, with interest
           at prime (8.25% at February 28, 1997) payable through February, 1998..............        147,619             66,667

         Other notes with interest rates ranging from 7.25% to 12.4% due in  monthly
           installments through October, 2001................................................         89,395             29,326
                                                                                               -------------        -----------
                                                                                                     716,802         24,110,074
              Less current maturities......................................................          354,858          1,986,730
                                                                                               -------------       ------------
              Long-term debt, less current maturities......................................    $     361,944       $ 22,123,344
                                                                                               =============       ============
</TABLE>


         Senior Secured Notes - On May 29, 1997, the Company issued  $32,500,000
of 8.18% Senior  Secured Notes due in annual  installments  beginning May, 2000,
through May, 2004, to a group of financial institutions.  Interest on the Senior
Secured Notes is payable semi-annually on May 31, and November 30, commencing on
November 30,  1997.  The Senior  Secured  Notes are  collateralized  by accounts
receivable,  work-in-process,   intangible  assets  and  the  Company's  primary
depository  accounts.  The proceeds  from the Senior  Secured Notes have in part
been  utilized  to repay  the  Company's  outstanding  bridge  credit  facility.
Accordingly,  at February 28, 1997, the Company has  classified its  $20,850,000
outstanding  bridge credit  facility as long-term  debt. The bridge facility was
entered into in May, 1996, to provide  capital in connection  with the Company's
acquisition of American  Testing and Engineering  Corporation and 3D Information
Services, Inc.

     Bank  Credit  Agreement  - In  connection  with  the  Senior  Secured  Note
offering,  the Company executed a credit agreement with the Chase Manhattan Bank
and Atlantic Bank of New York. The credit  agreement  provides for a $15,000,000
revolving line of credit maturing on November 30, 1999. The borrowings under the
line of credit are  collateralized by the Company's cash,  accounts  receivable,
work in  process,  and  intangible  assets on a pari passu basis with the Senior
Secured Note  holders.  Under the terms of the Note and Credit  Agreements,  the
Company is required to comply with  certain  financial  and  business  covenants
including  maintaining minimum working capital levels, fixed charge and interest
ratios and restrictions on dividend payments.

     Aggregate  maturities  of  long-term  debt as of  February  28, 1997 are as
follows:  fiscal  1998 -  $1,986,730;  fiscal 1999 -  $1,028,877;  fiscal 2000 -
$236,692;  fiscal 2001 -  $4,174,561;  fiscal 2002 - $4,173,167  and  thereafter
$12,510,047.  Aggregate  maturities  of bank  debt are based on the terms of the
Senior Secured Notes.
                         F-12
<PAGE>
<PAGE>
E.  COMMITMENTS AND CONTINGENCIES

         Operating  Lease   Commitments  -  The  Company  leases  office  space,
laboratory  facilities,  temporary  housing  facilities  and  automobiles  under
operating lease agreements which expire at varying dates through September 2007.
The Company also rents  equipment on a job-by-job  basis.  Minimum annual rental
commitments  as of February 28, 1997 are as follows:  fiscal 1998 -  $4,188,850;
fiscal 1999 - $3,827,984;  fiscal 2000 -  $2,798,251;  fiscal 2001 - $1,584,226;
fiscal 2002 - $1,064,121 and thereafter $2,822,804 (total $16,286,236).

     Rental expense associated with facility and equipment  operating leases for
fiscal  years 1995,  1996 and 1997 was  $1,355,410,  $1,908,217  and  $4,937,752
respectively. 

     Other   Liabilities  -  Other   liabilities   consist  of  long-term  lease
commitments and other long-term  contractual  obligations  assumed in connection
with  business  acquisitions.   Contractual  obligations  representing  existing
liabilities  recorded  within the financial  statements  that are expected to be
realized during the next fiscal year are included within other accrued expenses.

    Litigation -  First   Fidelity Bank,   N.A.,  et  al v. Hill  International,
Inc. et al,  Superior  Court of New Jersey,  Law  Division,  Burlington  County,
Docket No.  Bur-L-03400-95,  filed December 19, 1995. Irvin E. Richter, et al v.
ATC Group Services Inc., et al, United States  District  Court,  District of New
Jersey,  Civ. No. 96 CV 5818 (JBS) filed December 6, 1996. On December 19, 1995,
a second amended complaint was filed in the  above-entitled  action which joined
the  Company as a defendant  and  included a count  against the Company  seeking
recovery of certain assets purchased from Hill  International,  Inc. ("Hill") on
the grounds that plaintiff banks hold security  interests in the assets and that
Hill is in default under the security  agreement  creating such alleged security
interests.  The  plaintiffs  in this action are First  Fidelity  Bank,  N.A. and
United  Jersey Bank,  N.A. The primary  defendants  were Hill and certain of its
subsidiaries,  and Irvin  Richter,  David  Richter,  Janice  Richter and William
Doyle. Irvin Richter and David Richter are officers and stockholders of Hill. In
April 1996,  the Company  filed a cross-claim  against  Hill,  Irvin Richter and
David Richter alleging breach of contract,  fraud,  among other  allegations and
seeking unspecified damages, including punitive damages and equitable relief. In
August,  1996, Hill and the Richters filed an answer denying ATC's cross claims,
a  cross-claim  against ATC and a third party claim against  certain  members of
ATC's  management.  The cross  claim  and third  party  claim  seek  unspecified
damages,  including  punitive damages,  for defamation,  breach of the Richters'
non-competition  agreements and securities  fraud. The defamation claim is based
on plaintiff  banks'  allegation of fraud against Hill and the Richters in their
amended  complaint,  which Hill and the Richters  allege was based on defamatory
statements made by ATC in settlement  discussions  with the plaintiff  banks. In
its answer,  the Company  both denies  that it made  defamatory  statements  and
asserts that the defamation allegations fail to state a legally valid claim. The
breach of contract and securities  claims are based on allegations that ATC made
representations  concerning a  registration  rights  agreement to be provided in
connection  with  options  issued to the  Richters  as  consideration  for their
non-competition  agreements. In its answer, the Company denies that an agreement
concerning  registration  rights was ever  reached and asserts that the Richters
forfeited any such rights in any case as a result of their conduct in connection
with the asset  purchase.  These  related  cases are in their early  stages with
discovery yet to take place.  In January,  1997,  the plaintiff  bank  dismissed
their claim against ATC. On December 6, 1996, Hill and the Richters commenced an
action  against  ATC  and  the  same  officers  and  employees  of ATC  alleging
essentially  the same claims in federal  court as in the state  action.  ATC has
answered,  raising the same  defenses  and  additional  defenses  related to the
timeliness  of the  federal  claim.  This is  essentially  the same action as in
federal court as the pending  state action.  It does not create a risk of double
recovery.  In the Company's opinion,  the outcome of this matter will not have a
significant  effect on the  Company's  financial  position or future  results of
operations, although no assurances can be given in this regard.

                  Commonwealth of Massachusetts v. TLT Construction Corp. et al,
Civ. Action No. 96-02281 F, Superior Court of Middlesex  County,  Massachusetts.
This is an action brought by the  Commonwealth of  Massachusetts  in April 1996,
against the architects and general  contractor on a renovation and  construction
project on the Suffolk  County  Courthouse  in  Massachusetts.  The basis of the
lawsuit is that one or more  damp-proofing  products  specified by the architect
defendants  and  installed by the  contractor  defendant  made  employees in the
courthouse  ill  because  of  the  off-gassing  of  harmful   vapors.   Dennison
Environmental  Services  Inc.,  ("Dennison")  an ATC  subsidiary,  was joined on
August 13, 1996, as a third party defendant by TLT Construction Corporation, the
general  contractor,  because Dennison performed some air quality testing of the
air  in  the  courthouse  for  the  Commonwealth  of  Massachusetts  during  the
construction  process. The contractor alleges that it acted in reliance on these
tests in continuing  to install the material  after the test report was given to
it by the state. Dennison has just recently been served and has not yet answered
the  complaint.  At this point,  ATC  considers  the case to be totally  without
merit, and ATC intends to vigorously  defend the action.  The Company  currently
has in force a professional  liability  insurance  policy covering this claim in
the amount of  $10,000,000  with a deductible  of $250,000.  Notice of claim has
been made  regarding  this  action  and the  insurer  has  agreed to assume  the
defense.  These  related  cases are in their early stages with  discovery yet to
take place. In the Company's opinion, the outcome of this matter will not have a
significant  effect on the  Company's  financial  position or future  results of
operations, although no assurances can be given in this regard.

                         F-13
PAGE
<PAGE>
         State of New York  Department  of Taxation and Finance- The Company has
received a notice of audit from the New York State  Department  of Taxation  and
Finance for the three fiscal years 1993,  1994, and 1995. The agent has issued a
preliminary  audit  report,  which  is  expected  to be the  basis  of a  formal
assessment estimated to be approximately  $200,000. The Company is disputing the
agents positions and intends to appeal any assessment if rendered. No assurances
can be given regarding the ultimate liability, if any, which may result.

         The  Company  has been named or has claims  pending  arising out of the
conduct  of its  business.  In the  opinion of  management,  these  matters  are
adequately covered by insurance, are without merit, or are not material.

F.  STOCK OPTIONS

         A stock option plan,  established in 1988,  (the "1988 Plan")  provides
for the granting of 200,000 options to employees for purchase of common stock at
prices which cannot be less than the fair market value at the time of the grant.
Options  generally become  exercisable at 20% per year, 50% per year for certain
participants, and expire within five years of the date of grant.

         In 1993,  the Board of Directors  approved an  additional  stock option
plan (the  "1993  Plan")  providing  for the  granting  of  200,000  options  to
employees  for purchase of common stock at prices which cannot be less than fair
market  value at the time of the  grant.  In  December  1995,  the 1993 Plan was
amended to increase the number of options to 500,000 shares and in October 1996,
the 1993 Plan was amended to increase the number of options to 1,000,000 shares.
Options  generally  become  exercisable at 20% per year and expire either within
five years or ten years of the date of grant.

         In  connection  with the  merger  of  Aurora  into  ATC,  the  Board of
Directors of ATC approved a stock option plan (the "1995 Plan") having identical
provisions  to Aurora's  1987 Stock Option Plan.  The 1995 Plan provides for the
granting of 81,750 options representing the previously  outstanding Aurora stock
options  after  adjustment  by the stock  exchange  rate of .545 as provided for
under the terms of the merger  agreement.  The 81,750 options were granted at an
exercise  price  of  $5.32  per  share  in  June  1995 to an  officer  of ATC in
replacement  of  previously  held  Aurora  options.   All  of  the  options  are
exercisable and expire within ten years of the date of grant.

         As of February 28, 1997, under the 1988, 1993 and 1995 Plans, 1,096,400
options have been granted, 40,410 options exercised, 335,650 options expired and
521,000  options  remain  available  for  grant.  In fiscal  1995,  the Board of
Directors approved the granting of 20,000 options to an unrelated consultant for
purchase  of  common  stock at $9.50  per share  (fair  market  value at date of
grant). These options were terminated in fiscal 1996.

         The  Financial  Accounting  Standards  Board has  issued  Statement  of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.
SFAS No. 123 defines a fair market  value based method of  accounting  for stock
based  employee  compensation  plans and  encourages  all entities to adopt that
method of accounting.  However,  it also allows an entity to continue to measure
compensation  cost for those plans  using the  intrinsic  value based  method of
accounting  in  accordance  with  Accounting  Principles  Board  Opinion No. 25,
Accounting for Stock Issued to Employees.

     The Company has  decided to  continue  to apply the  intrinsic  value based
method  of  accounting  for its  stock-based  employee  compensation  plans.  If
compensation  cost for the  Company's  stock-based  compensation  plans had been
determined based on the fair value at the grant dates for awards under the plans
consistent  with  the  method  of SFAS  No.  123,  Accounting  for  Stock  Based
Compensation,  the  Company's  net income and earnings per share would have been
reduced to the pro forma amounts indicated below:

                                          1996          1997
                                      -----------    -----------
Net Income:                      
           As reported                $ 3,865,998    $ 6,307,734
           Pro forma                  $ 3,759,532    $ 6,065,136

Primary Earnings Per Share:         
           As reported                       $.54           $.74
           Pro forma                         $.52           $.71

Fully Diluted Earnings Per Share:   
           As reported                       $.54           $.74
           Pro forma                         $.52           $.71


                         F-14
PAGE
<PAGE>
         The fair value for stock options was estimated using the  Black-Scholes
option pricing model with assumptions for the risk-free interest rate of 7.8% in
fiscal 1996 and 5.4% in fiscal 1997,  expected  volatility of 48% in fiscal 1996
and 1997, expected life of approximately 5 years in fiscal 1996 and 1997, and no
expected  dividends.  The weighted  average fair value of options granted during
fiscal 1996 and 1997 was $5.58 per option and $4.48 per option, respectively.

     The changes in the outstanding  stock options described above during fiscal
years 1995, 1996 and 1997 are summarized as follows:
                                                                   WEIGHTED
                                                                   AVERAGE
                                                                   PRICE PER
                                                      OPTIONS      SHARE
                                                      --------     -------
BALANCE, February 28, 1994........................     170,700     $  3.17
  Granted.........................................     132,350        9.76
  Exercised.......................................      (6,980)       2.90
  Expired.........................................      (4,650)       9.48
                                                      --------     

BALANCE, February 28, 1995........................     291,420        6.03
  Granted.........................................     334,500        9.44
  Exercised.......................................      (6,400)       5.56
  Expired.........................................     (34,800)      10.09
                                                      --------    

BALANCE, February 29, 1996........................     584,720        8.51
  Granted.........................................     407,400        9.85
  Exercised.......................................     (14,030)       4.00
  Expired.........................................    (257,750)      12.62
                                                      --------     

BALANCE, February 28, 1997........................     720,340     $  7.89
                                                      ========     =======
Options exercisable at:

February 28, 1995.................................     127,000
February 29, 1996.................................     307,950
February 28, 1997.................................     457,550

The following table summarizes  information about stock options  outstanding and
exercisable as of February 28, 1997:

          Options Outstanding                       Options Exercisable
--------------------------------------------------------------------------------
                                   Weighted    Weighted Average         Weighted
                                   Average     Remaining                 Average
 Range of             Number       Exercise    Contractual    Number    Exercise
 Exercise Price       Outstanding  Price       Life           Exercisable  Price
--------------------------------------------------------------------------------
 $ 1.88  -  $  5.99    223,720     $  3.84      0.1 years      217,340   $  3.81
   6.00  -    11.99    352,870        8.10      2.8 years      158,710      8.22
  12.00  -    17.99    143,750       13.66      2.2 years       81,500     13.73
--------------------------------------------------------------------------------
 $ 1.88  -   $17.99    720,340     $  7.89      1.8 years      457,550   $  7.11
================================================================================

G.  COMMON STOCK WARRANTS

         At February 28, 1997,  there are 568,207 Class C warrants  outstanding.
Each Class C warrant  entitles  the holder to purchase one share of common stock
at an exercise price of $10.00.  The Company has reserved common shares equal to
the outstanding warrants for issuance upon the exercise of the Class C warrants.
The expiration date of the Class C warrants is April 30, 1998.

         During the year ended February 28, 1995, 284,803 of 285,817 outstanding
Class B warrants  were  exercised  at an exercise  price of $8.00  allowing  the
holder to receive one share of common stock per warrant and one Class C warrant.
The Class B warrants not exercised expired as of September 30, 1994.

         In  connection  with  the  merger  of Aurora in fiscal 1996, ATC issued
common stock  purchase  warrants  for  the  purchase  of  523,200  shares of ATC
common stock at prices  ranging from $1.03 to $2.75 per share in  replacement of
previously outstanding Aurora warrants. During fiscal 1996, 32,700 warrants were
exercised at approximately  $1.83 per share. The remaining  warrants expire from
November 30, 2000 to January 10, 2004.

                         F-15
PAGE
<PAGE>
H.  INCOME TAXES

         Income tax expense  (benefit)  for the three years ended  February  28,
1997 consists of the following:
<TABLE>
<CAPTION>
                                                                          FEDERAL      STATE & LOCAL        TOTAL
                                                                     ---------------  ---------------   ---------------
<S>                                                                  <C>              <C>               <C>
1995:
  Current........................................................    $  1,725,000     $       295,500   $     2,020,500
  Deferred.......................................................          19,000               4,500            23,500
                                                                     ---------------  ---------------   ---------------
   Total.........................................................    $  1,744,000     $       300,000   $     2,044,000
                                                                     ===============  ===============   ===============

1996:
   Current........................................................   $   1,700,400    $       296,300   $     1,996,700
   Deferred.......................................................        (161,700)           (30,000)         (191,700)
                                                                     ---------------  ---------------   ---------------
    Total.........................................................   $   1,538,700    $       266,300   $     1,805,000
                                                                     ===============  ===============   ===============

1997:
   Current........................................................   $     3,207,100  $       711,600   $     3,918,700
   Deferred.......................................................           168,100            3,200           171,300
                                                                     ---------------  ---------------   ---------------
    Total.........................................................   $     3,375,200  $       714,800   $     4,090,000
                                                                     ===============  ===============   ===============
</TABLE>

         The Company  made  Federal and State  income tax payments of
approximately  $3,023,000,  $2,077,000,  and $ 4,062,000 in fiscal 1995,
1996 and 1997, respectively.

         A  reconciliation  of the statutory US Federal tax rate and
effective  tax rate for the three years ended  February 28, 1997 is as follows:
<TABLE>
<CAPTION>
                                                                                  1995               1996                 1997
                                                                             ---------------     --------------      -------------
<S>                                                                          <C>                 <C>                 <C>
         Statutory US Federal rate.......................................         34.0%              34.0%               34.0%
         State income taxes, net of federal benefit......................          4.1                4.3                 4.5
         Tax benefit of Aurora's net operating loss carryforward.........          -                 (6.2)                -
         Tax exempt interest income......................................          -                 (2.4)               (1.3)
         Non-deductible expenses.........................................          0.5                2.1                 2.1
                                                                             ---------------     --------------      -------------
                .........................................................         38.6%              31.8%               39.3%
                                                                             ===============     ===============     =============
</TABLE>

         The  tax  effects  of  temporary   differences  that  give  rise  to  a
significant portion of the deferred tax assets and liabilities as of February 28
(29) consist of the following:
                                                         1996          1997
                                                    ------------  -----------
Deferred tax assets:
   Nondeductible liabilities.......................  $    339,400  $   682,900
   Nondeductible bad debt reserve..................        76,900      453,800
   Aurora net operating loss carryforward..........       150,000           -
                                                     ------------  -----------
                                                          566,300    1,136,700
Deferred tax liabilities:
   Property and equipment..........................       108,000       95,800
   Prepaid expenses................................       125,800      346,400
   Intangible assets...............................        88,700      622,000
                                                     ------------  -----------
                                                          322,500    1,064,200
                                                     ------------  -----------
Net deferred tax asset ............................  $    243,800  $    72,500
                                                     ============  ===========

         The current portion of net deferred tax assets of $440,600 and $790,400
at February 28 (29),  1996 and 1997 is  classified in the  consolidated  balance
sheets in current assets.  The non-current  portion is classified in non-current
liabilities.

         During fiscal 1996,  ATC utilized a one-time tax benefit of $350,000 to
offset taxable income  relating to Aurora's net operating loss  carryforward  at
the time of the ATC and Aurora merger.

I.  EMPLOYEE BENEFIT PLANS

         The Company has an employee  savings  plan which  allows for  voluntary
contributions  into  designated  investment  funds by  eligible  employees.  The
Company  may,  at the  discretion  of its Board of  Directors,  make  additional
contributions  on behalf of the Plan's  participants.  No Company  contributions
were made in fiscal years 1995, 1996, and 1997.

                         F-16
<PAGE>
<PAGE>

J.  INDUSTRY SEGMENT DATA

         The Company provides services through its environmental  consulting and
engineering segment and its information  technology  consulting  segment.  Prior
year  segment  data  is  not  presented  as the  Company  only  operated  in the
environmental and engineering segment prior to the acquisition of 3D in May 1996
as discussed in Note B.

<TABLE>
<CAPTION>

Industry Segment Data:

                                                    Environmental     Information     Adjustments &
                                                    & Engineering     Technology      Elimination's   Total
                                                    -------------     -------------   -------------   -------------
<S>                                                 <C>               <C>             <C>             <C>


Year Ended February 28, 1997

Revenues..........................................  $ 106,661,312     $   7,228,755   $     (34,703)  $ 113,855,364
Operating income..................................     11,323,277           387,756              -       11,711,033
Depreciation and amortization.....................      1,949,711           149,100              -        2,098,811

Capital expenditures..............................  $   1,244,756     $      40,939              -        1,285,695

Identifiable assets as of
   February 28, 1997..............................  $  83,486,251     $   6,080,060   $  (3,390,994)  $  86,175,317

</TABLE>


K.  SUPPLEMENTAL INFORMATION

     Supplemental cash flow information - Supplemental cash flow information for
the years ended February 28 (29) is as follows:
<TABLE>
<CAPTION>


                                                                                     1995              1996               1997
                                                                                -------------      ------------       ------------
<S>                                                                             <C>                <C>                <C>   
         Cash paid for interest.............................................    $    276,658       $   374,466        $ 1,515,432

         Noncash investing and financing activities:
           Liabilities assumed in connection with business combinations.....       6,056,441           640,082         26,728,981
           Common stock issued in connection with business combinations.....         605,408                -                  -
           Common stock recovered in connection with the Con-Test, Inc.
               acquisition..................................................              -            140,013                 -
           Common stock issued in connection with the Aurora Merger.........              -             61,117                 -
           Common stock received as consideration for sale of assets........              -                 -             124,432
           Notes payable issued in connection with business combinations....         835,000         1,000,000          2,589,086


</TABLE>
         Supplemental analysis of valuation and qualifying accounts - Changes in
the allowance for doubtful  accounts for the three years ended February 28, 1997
are as follows:
<TABLE>
<CAPTION>

                                                                                     1995              1996               1997
                                                                                -------------      ------------       ------------
<S>                                                                             <C>                <C>                <C>   
         BALANCE, beginning of year.........................................    $     167,344      $    535,886       $    383,220
             Provision for bad debts........................................          188,819           290,165          1,021,631
             Amounts written-off, net of recoveries.........................         (136,350)         (309,932)          (452,836)
             Adjustment for allowance for doubtful accounts recorded on net
                 acquired (rescinded) accounts receivable...................          316,073          (132,899)           503,701
                                                                                -------------      ------------       ------------
         BALANCE, end of year...............................................    $     535,886      $    383,220       $  1,455,716
                                                                                =============      ============       ============
</TABLE>


                         F-17
<PAGE>
<PAGE>

L. QUARTERLY FINANCIAL DATA (Unaudited)

         The Company's unaudited quarterly results of operations for fiscal 1996
and 1997 are as follows:
<TABLE>
<CAPTION>

          Fiscal 1996                                                             Three Months Ended
                                                           May 31            August 31          November 30      February 29
                                                            1995              1995(1)            1995 (2)            1996
         -------------------------------------------- ------------------ ------------------- ------------------  --------------
<S>                                                   <C>                <C>                 <C>                 <C>
         Revenues...................................  $       10,814,953 $        11,649,478 $       11,223,139  $   11,277,327
         Gross profit...............................           5,269,542           5,529,416          5,342,623       4,308,142
         Income before income taxes.................           1,462,628           1,921,617          1,811,675         475,078
         Net income.................................             895,128           1,519,117          1,104,675         347,078

         Earnings per common share and dilutive
                   common equivalent share (4):
             Primary................................  $              .15 $               .23 $              .15   $         .04
             Fully diluted..........................  $              .15 $               .23 $              .15   $         .04


          Fiscal 1997                                                             Three Months Ended
                                                           May 31            August 31          November 30       February 28
                                                           1996(3)              1996               1996              1997
         -------------------------------------------- ------------------ ------------------- ------------------  --------------

         Revenues...................................  $       16,645,983 $        33,922,028 $       32,848,840  $   30,438,513
         Gross profit...............................           7,282,012          12,529,814         11,287,563      11,051,373
         Income before income taxes.................           2,772,303           3,485,493          2,433,278       1,706,660
         Net income.................................           1,718,303           2,101,493          1,506,278         981,660

         Earnings per common share and dilutive
                   common equivalent share:                             
             Primary................................  $              .20 $               .25 $              .18  $          .12
             Fully diluted..........................  $              .20 $               .25 $              .18  $          .12

</TABLE>

         The  Company's  operations  are  seasonal  in  nature,  with  a  larger
percentage of income earned in the second quarter.

     (1)  Reflects the merger of ATC and Aurora  effective June 29, 1995,  (Note
          B). Net income  includes a one-time tax benefit of $350,000  ($.05 per
          share) resulting from the merger of Aurora.

     (2)  Reflects the acquisition of the Hill Businesses effective November 10,
          1995, (Note B).

     (3)  Reflects  the   acquisition  of  American   Testing  and   Engineering
          Corporation and 3D Information  Services,  Inc. effective May 24, 1996
          and May 28, 1996, respectively.

     (4)  For fiscal 1996,  the sum of the quarterly  earnings per share is less
          than the reported  fiscal year earnings per share due to the averaging
          effect of the 1,970,000 shares issued in connection with the Company's
          stock offering in October 1995.



                         F-18
<PAGE>
<PAGE>
                                                            PART III

Item 10.  Directors and Executive Officers of the Registrant.

         The  following  table  sets forth  certain  information  regarding  the
Company's directors, executive officers and a key employee.
<TABLE>
<CAPTION>
              Name                            Age             Position

         Officers and Directors:
<S>                                           <C>             <C> 
            George Rubin..................     69             Chairman of the Board and Secretary; Director
            Morry F. Rubin................     37             President, Chief Executive Officer, Treasurer; Director
            Nicholas J. Malino............     47             Senior Vice President, Financial and General Operations
            Christopher P. Vincze.........     35             Senior Vice President, Financial and General Operations
            Donald W. Beck................     38             Senior Vice President
            John J. (Jeff) Goodwin........     48             President and Director of ATC InSys Technology Inc.
            Richard L. Pruitt.............     57             Vice President, Principal Accounting Officer; Director
            Wayne A. Crosby...............     43             Chief Financial Officer
            Richard S. Greenberg, Esq.....     47             Director
            Julia S. Heckman..............     47             Director

         Key Employee:

            John J. Smith.................     46             General Counsel
</TABLE>

         The business experience,  principal occupations and employment, as well
as the periods of service,  of each of the directors,  executive  officers and a
key  employee of the  Company  during at least the last five years are set forth
below. Officers of ATC Group Services Inc. also are officers of certain of ATC's
subsidiary companies.

     George Rubin has been Chairman of the Board of ATC since 1988. From 1961 to
1987, Mr. Rubin served as President, Treasurer and a director of Staff Builders,
Inc.  Staff  Builders  Inc.,  was a  publicly  held  corporation  engaged in the
business of  providing  temporary  personnel  primarily in the health care field
operating through approximately 100 offices and with revenues over $100 million.
Since  December  1986,  Mr.  Rubin has been a principal  stockholder,  executive
officer and a director of National Diversified  Services,  Inc., a publicly held
corporation which completed a public offering in December 1986 and currently has
no business operations. George Rubin is the father of Morry F. Rubin.

     Morry F. Rubin has been President, Chief Executive Officer, Treasurer and a
director  of ATC since  1988.  Mr.  Rubin was also  President,  Chief  Executive
Officer and  Treasurer of Aurora from May 1985 to June 1995,  and was a director
of Aurora from  September  1983 to June 1995.  Since 1986,  Mr. Rubin has been a
principal  stockholder and from 1986 to July 1995, Mr. Rubin was President and a
director of National  Diversified  Services,  Inc., a publicly held corporation,
which completed a public offering in December 1986 and currently has no business
operations. From 1981 to 1987, Mr. Rubin was employed in sales and as a director
of  acquisitions  for Staff  Builders,  Inc., a publicly held company engaged in
providing temporary personnel primarily in the health care field. Morry F. Rubin
is the son of George Rubin.

     Nicholas J. Malino has been Senior Vice  President,  Financial  and General
Operations  of ATC,  since July 1993 and an employee of ATC since  October 1992.
Mr.  Malino has over  fourteen  years of  experience  in  managing  professional
service organizations.  From February 1991 to September 1992, Mr. Malino was the
New York Regional Manager for Kemron Inc., a hazardous waste consulting  company
headquartered in McLean,  Virginia. From August 1989 to January 1991, he was the
Operations  Manager  for  the New  York  City  branch  of  Professional  Service
Industries, Inc.

     Christopher P. Vincze has been Senior Vice President, Financial and General
Operations of ATC since July 1993, a regional manager of ATC since July 1991 and
Vice  President of a subsidiary of ATC since 1992.  Mr.  Vincze joined  Dennison
Environmental,  Inc.  in 1984 as an  industrial  hygienist  and  served  as Vice
President of Marketing and Operations from 1987 to July 1991.

     Donald W. Beck has been Senior Vice  President  of ATC since April 1990 and
Vice  President  since January 1988.  Mr. Beck is  responsible  for managing the
operations  of certain  ATC  offices.  Mr. Beck also served as a director of ATC
Laboratories,  Inc., a  predecessor  company of ATC,  from  November  1985 until
January 1988,  President of ATC  Laboratories,  Inc. from May 1986 until January
1988 and as Vice  President of ATC  Laboratories,  Inc. from November 1985 until
May 1986.  Mr.  Beck has been a  full-time  employee  of ATC (and  formerly  ATC
Laboratories, Inc.) since May 1982.

                         22
<PAGE>
<PAGE>

     John J.  (Jeff)  Goodwin  has been  President  and a director  of ATC InSys
Technology  Inc. since it was formed in May 1996.  From September 1994 until May
1996, Mr. Goodwin  served as President of the Contest  Systems  Division of ATC,
providing clients with specialized systems for managing  environmental  hazards.
Prior to joining  ATC,  Mr.  Goodwin  directed a  national  information  systems
consulting  practice for  Datronics  Management  Inc.  from  December 1991 until
August 1994.  From April 1980 until  October 1991,  Mr.  Goodwin was employed by
Ernst & Young LLP, an  international  professional  services firm,  where he was
admitted as a Partner in 1984. In this capacity,  Mr. Goodwin  directed a public
sector and  environmental  services  consulting  practice and a decision support
systems  practice,  and was a client-service  partner in Ernst & Young's general
Information Technology consulting practice.

     Richard L. Pruitt is a Vice President, the Principal Accounting Officer and
a  director  of ATC.  Mr.  Pruitt  has  served  as Vice  President  of ATC since
September 1990, as Principal Accounting Officer of ATC since April 1988 and as a
director of ATC since  January 1988.  Mr.  Pruitt served as Principal  Financial
Officer of ATC from September 1989 to April 1992 and from May 1993 to July 1995.
Mr. Pruitt served as the  Principal  Financial  Officer and a director of Aurora
from May 1985 to June  1995 and  served as  Financial  Manager  of  Aurora  from
February 1982.

     Wayne A.  Crosby has been Chief  Financial  Officer of ATC since July 1995.
Prior to  joining  ATC,  Mr.  Crosby  was the  Chief  Financial  Officer  of BSE
Management,  Inc.  from  1991 to 1993 and  Chief  Financial  Officer  of  Compex
Systems,  Inc.  from  1986  through  1990.  Mr.  Crosby  is a  certified  public
accountant and was employed by Deloitte & Touche LLP (formerly  Deloitte Haskins
& Sells) for eight years.

     Richard S. Greenberg,  Esq. has been a director of ATC since July 1995. Mr.
Greenberg  has  been a  director  of  the  Environmental  Management  Consulting
Services Group at Coopers & Lybrand since October 1989.  Mr.  Greenberg has over
20 years of  experience  in the areas of  environmental  management  consulting,
environmental litigation support and legislative policy analysis.

     Julia S. Heckman has been a director of ATC since August 1995. Mrs. Heckman
has been a Managing director with Rodman & Renshaw,  Inc.'s  Investment  Banking
Group since April 1995 and had been a Managing  Director  with Mabon  Securities
Corp.'s  Investment  Banking Group since 1991. Prior to joining Mabon Securities
Corp.,  Mrs.  Heckman was a Managing  Director  with Paine  Webber  Group Inc.'s
Corporate Finance Department.  Mrs.  Heckman serves as a member of the Company's
Board of Directors  pursuant to the  Underwriting  Agreement  dated  October 10,
1995, between Rodman & Renshaw, Inc. and the Company.

     John J. Smith,  Esq. has been General  Counsel since August 1989 and served
as a Vice President of ATC from September 1990 through  December 1993.  Prior to
joining ATC, from 1986 to 1989,  Mr. Smith was the Secretary of the South Dakota
Department of Water and Natural Resources,  a cabinet level position responsible
for managing all of the State's  environmental and natural resources development
programs.

     The Board of Directors has an Audit Committee and a Compensation  Committee
consisting  of three  directors  including  Morry F.  Rubin and the  independent
directors,  Richard S.  Greenberg and Julia S. Heckman.  The Audit  Committee is
responsible,  among other things,  for approving  and  transactions  between the
Company and any of its  directors,  officers  or  affiliates.  The  Compensation
Committee is responsible for setting  compensation of the executive  officers of
the Company and for granting any further options to purchase Common Stock.

     All directors of ATC will hold offices until the next annual  stockholders'
meeting and until the election and qualification of their  successors.  Officers
hold their  respective  positions  until their  successors are duly qualified or
until they resign or are removed by the Board of Directors.

Item 11.  Executive Compensation.

         This information will be contained in the definitive proxy statement of
the  Company  for the 1997  Annual  Meeting of  Stockholders  under the  caption
"Compensation of Directors and Executive Officers" and is incorporated herein by
reference.

                         23
<PAGE>
<PAGE>


Item 12.  Security Ownership of Certain Beneficial Owners and Management.

         The  following  table sets forth  information  as of May 28,  1997 with
respect to the share  ownership by ATC's  directors  individually,  officers and
directors as a group, and for record and/or beneficial owners of more than 5% of
the outstanding  amount of such stock. For purposes of calculating the amount of
beneficial ownership and the respective percentages, the number of shares of ATC
Common Stock which may be acquired by a person upon the exercise of  outstanding
options, if any,  notwithstanding  the options vesting schedule,  are considered
outstanding  but are not deemed to be  outstanding  for the purpose of computing
the percentage of Common Stock owned by any other person.

<TABLE>
<CAPTION>


                                                                       Number of                 Approximate
Name and Address                        Position                       Shares Owned              Percent of Class
      (1)                                                                                            (2)
<S>                                     <C>                            <C>                       <C>
                                         Chairman of the Board and
                                                Secretary;
George Rubin             (3)                    Director                   1,512,542                   18.2

                                             President, Chief
                                         Executive Officer, Treasurer;
Morry F. Rubin           (4)                    Director                     800,489                   10.1

                                              Vice President,
                                         Principal Accounting Officer;
Richard L. Pruitt        (5)                    Director                      49,050                     *



Julia S. Heckman         (6)                     Director                     15,000                     *



Richard S. Greenberg, Esq.  (7)                  Director                     15,000                     *


All Officers and Directors of ATC
as a Group(11 persons)(8)                         Various                   2,600,114                  29.9



                                        Investment Advisor registered
Corbyn Investment Management, Inc.      under Section 8 of the Investment
et al         (9)                           Company Act of 1940             1,034,199                  13.3

                                        Investment Company under Section
                                        8 of the Investment Company Act
The Parnassus Fund    (10)                  of 1940                           595,000                   7.6


</TABLE>

*  Represents less than 1%.
------------

     (1)  Each person has sole voting power and investment power with respect to
          the number of shares indicated as owned.

     (2)  Based upon 7,802,987 shares of Common Stock  outstanding as of May 28,
          1997.

     (3)  Shares owned  include  warrants to purchase  490,500  shares of Common
          Stock. Address: 104 East 25th Street, 10th Floor, New York, NY 10010.

     (4)  Shares  owned  include  options to purchase  161,750  shares of Common
          Stock. Address: 104 East 25th Street, 10th Floor, New York, NY 10010

                         24
<PAGE>
<PAGE>

     (5)  Shares  owned  include  options to  purchase  10,800  shares of Common
          Stock. Address: 1515 East Tenth Street, Sioux Falls, SD 57103.

     (6)  Shares  owned  includes  options to purchase  15,000  shares of Common
          Stock. Address: Rodman & Renshaw, Inc., 2 World Financial Center, 30th
          Floor, New York, NY 10281.

     (7)  Shares  owned  include  options to  purchase  15,000  shares of Common
          Stock.  Address:  Coopers &  Lybrand,  370 17th  Street,  Suite  3300,
          Denver, CO 80202.

     (8)  Shares  owned  include  options to purchase  873,688  shares of Common
          Stock.

     (9)  As reported in Schedule 13G to the Securities and Exchange  Commission
          dated January 6, 1997.  Includes shares owned or beneficially owned by
          Corbyn Investment Management, Inc. and Greenspring Fund, Inc. Address:
          2330 West Joppa Road, Suite 108, Lutherville, MD 21093

     (10) As reported in Schedule 13G to the Securities and Exchange  Commission
          dated February 10, 1997.  Address:  One Market,  Stewart Tower,  Suite
          1600, San Francisco, CA 94105

         ATC does not know of any  arrangement  or pledge of its  securities  by
persons  now  considered  in  control  of ATC that  might  result in a change of
control of ATC.

Item 13.  Certain Relationships and Related Transactions.

         Effective  June  29,  1995,  ATC and its  parent,  Aurora  were  merged
pursuant to an  agreement  approved  by the  majority  of  shareholders  of each
company, with ATC as the surviving  corporation (the "Aurora Merger").  Prior to
the Aurora Merger, Aurora was a holding company which owned approximately 57% of
ATC's outstanding Common Stock and had substantially no other assets.  Under the
terms of the merger, each outstanding share of Aurora Common stock was exchanged
for .545 shares of ATC Common Stock.  ATC issued  3,341,356 shares of ATC Common
Stock in exchange for  6,131,104  shares of Aurora's  common  stock,  and issued
options and  warrants  entitling  the holders  thereof to purchase up to 604,950
shares  of  ATC  Common  Stock  upon  exercise  in   replacement  of  previously
outstanding  options and warrants to purchase  Aurora's common stock. ATC common
shares  held  by  Aurora  of  3,258,000  were  canceled.  Actual  common  shares
outstanding  increased by 83,356 shares.  As a result of the Aurora Merger,  ATC
utilized  Aurora's net operating loss carry forward to reduce its taxable income
and  accordingly  recorded  a  one-time  reduction  in  income  tax  expense  of
approximately  $350,000  ($.05 per share) in fiscal 1996.  Certain  officers and
directors of ATC were stockholders of Aurora and participated in the merger on a
consistent basis with all Aurora security holders.

         ATC has in the past,  and may in the  future,  enter into  transactions
with  officers,  directors  and  other  affiliates  which  may be  deemed  to be
non-arms-length  transactions (i.e.  transactions between related parties).  Any
new  transactions  would be  approved by a majority  of  disinterested  Board of
Directors  and would be  expected to be made on terms no less  favorable  to ATC
than could be arranged with independent third parties. All material transactions
during the past three years between ATC and Aurora are set forth above.


                         25
<PAGE>
<PAGE>


                                                             PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form  8-K.

         (a) (1)  Financial Statements

         A list of the  financial  statements  filed  as a part  of this  Annual
Report is set forth in Item 8, and  appears  on Page F-1  herein;  which list is
incorporated herein by reference.

         (a) (2)  Financial Statement Schedules

         No financial  statement schedules are in this Annual Report because the
information  required is contained in the financial  statements  incorporated by
reference in (a) (1) above.

         (a) (3)  Exhibits

         A list of exhibits  required by Item 601 of Regulation S-K and an index
thereto appears on the following page of this Annual Report.

         (b)      Reports on Form 8-K

         No  reports  on Form 8-K were  filed  during  the  three  months  ended
February 28, 1997.

                         26
<PAGE>
<PAGE>


EXHIBIT INDEX


Exhibit         Description


2    Agreement  and Plan of Merger to  reincorporate  in Delaware  (contained in
     Exhibits 3(b) and 3(c), (1)

2(a) Agreement  and Plan of Merger  between ATC  Environmental  Inc.  and Aurora
     Environmental Inc. (5)

3(a) Certificate of Incorporation of Registrant (1)

3(b) Certificate of Ownership and Merger of Registrant (Delaware) (1)

3(c) By-Laws (1)

3(d) Certificate of Merger (Aurora  Environmental Inc. Merging with and into ATC
     Environmental Inc.) (8)

10   Employee Savings (401(k)) Plan (2)

10(a) New York City Lease (3)

10(b) Form of Indemnity Agreement (9)

10(c)Asset  Purchase  Agreement  between  ATC  Environmental  Inc.,  a  Delaware
     corporation, and Hill International Inc., a Delaware corporation,  executed
     on November 10, 1995 (4)

10(d)Six-Month  Promissory Note executed and delivered by ATC Environmental Inc.
     on November 10, 1995, payable to Hill International,  Inc. in the amount of
     $300,000 (4)

10(e)Irrevocable  Letter  of Credit  executed  by  Atlantic  Bank of New York on
     November 8, 1995, and delivered by ATC  Environmental  Inc. on November 10,
     1995, payable on or after May 1, 1996, to Hill  International,  Inc. in the
     amount of $730,625.00 (4)

10(f)Bill of Sale delivered on November 10, 1995, conveying assets referenced in
     assets   purchase   agreement   from  Hill   International,   Inc.  to  ATC
     Environmental Inc. (4)

10(g)Non-Competition  Agreement  of Irvin E. Richter to ATC  Environmental  Inc.
     Delivered on November 10, 1995 (4)

10(h)Non-Competition  Agreement  of David L. Richter to ATC  Environmental  Inc.
     Delivered on November 10, 1995 (4)

10(i)Agreement for Sale and Purchase of Business  Assets on May 24, 1996,  among
     ATC Environmental Inc., American Testing and Engineering  Corporation d/b/a
     ATEC Associates, Inc. and Gerald D. Mann. (10)

10(j)Assumption   of   Liabilities   Agreement  on  May  24,  1996,   among  ATC
     Environmental Inc., American Testing and Engineering Corporation and Gerald
     D. Mann. (10)

10(k)Master Equipment Lease Agreement on May 24, 1996, between ATC Environmental
     Inc. and American Testing and Engineering Corporation. (10)

10(l)Master Sublease  Agreement on May 24, 1996,  between ATC Environmental Inc.
     and American Testing and Engineering  Corporation  covering premises leases
     at Indianapolis, IN, Atlanta, GA and Dallas, TX. (10)

10(m)Non-Competition  Agreement on May 24, 1996,  between ATC Environmental Inc.
     and American Testing and Engineering Corporation. (10)

10(n)Mann  Non-Competition  Agreement on May 24, 1996, between ATC Environmental
     Inc. and Gerald D. Mann. (10)


                         27
<PAGE>
<PAGE>


EXHIBIT INDEX (continued)


Exhibit         Description


10(p)Security Agreement on May 24, 1996, among ATC Environmental  Inc., American
     Testing and Engineering Corporation and Gerald D. Mann. (10)

10(q)$500,000  Letter  of Credit  on May 24,  1996,  from  Chemical  Bank,  N.A.
     against the account of ATC Environmental  Inc. in favor of American Testing
     and Engineering Corporation. (10)

10(r)Agreement for Sale and Purchase of Business  Assets on May 28, 1996,  among
     ATC InSys Technology  Inc., 3D Information  Services Inc. and Ciro De Saro.
     (10)

10(s)Assumption of  Liabilities  Agreements  on May 28, 1996,  between ATC InSys
     Technology Inc., 3D Information Services Inc. and Ciro De Saro. (10)

10(t)Stockholders  Non-Competition  Agreement on May 28, 1996, between ATC InSys
     Technology Inc. and the stockholders of 3D Information Services Inc. (10)

10(u)Three-year,   $2,500,000   Promissory  Note  on  May  29,  1996,  from  ATC
     Environmental Inc. to 3D Information Services Inc. (10)

10(v)Employment  Agreement on May 29, 1996,  between ATC Environmental  Inc. and
     Ciro De Saro. (10)

11   Statements re:  Computation of per share earnings (*)

21   Subsidiaries of Registrant (**)

23   Independent Auditors' Consent-Deloitte & Touche LLP (*)

27   Financial Data Schedule (*)

99   1988 Stock Option Plan (6)

99(a)1993 Stock Option Plan (7)

99(b)Amendment to 1993 Stock Option Plan (*)

99(c)1995 Stock Option Plan (*)

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

*    Filed herewith.

**   During the fiscal year ended  February  28,  1997,  ATC had five  operating
     subsidiaries,  namely, Hygeia Laboratories Inc. ("Hygeia"),  ATC Management
     Inc.  ("Management  Co."), ATC New England Corp.  ("ATC New England"),  ATC
     Blattert Inc.  ("Blattert"),  and ATC InSys  Technology Inc. ("ATC InSys").
     Hygeia,  Management Co., ATC New England, Blattert and ATC InSys are formed
     under the laws of the States of Delaware,  South  Dakota,  Delaware,  South
     Dakota and Delaware, respectively.  Hygeia has done business under the name
     Hygeia ProScience Laboratories, Inc. Management Co. does business under the
     name ATC  Management  Inc. ATC New England does business under its own name
     and Con-Test. Blattert has done business under the names ATC Blattert Inc.,
     R.E. Blattert & Associates Inc. and Microbial  Environmental Services, Inc.
     ATC InSys does business  under the names ATC InSys  Technology  Inc. and 3D
     Information  Services  Inc.   Additionally,   ATC  Environmental  Inc.  was
     incorporated for the use in future operations.

                         28
<PAGE>
<PAGE>


EXHIBIT INDEX (continued)
--------------------------------------------------------------------------------

Exhibits  incorporated  by reference  from  previously  filed  documents  are as
follows:

(1)  Reference  is made to the  Registrant's  Registration  Statement  File  No.
     33-19889 on Form S-1,  which is  incorporated  by  reference  and  contains
     exhibits 2, 3(a), 3(b) and 3(c).

(2)  Reference is made to the  Registrant's  Form 10-K for the fiscal year ended
     February 28, 1990 which is incorporated  by reference and contains  Exhibit
     10.

(3)  Reference is made to the  Registrant's  Form 10-K for the fiscal year ended
     February 29, 1992 which is incorporated  by reference and contains  exhibit
     10(a).

(4)  Reference is made to the Registrant's  Form 8-K dated November 10, 1995, as
     amended,  which is incorporated  by reference and contains  Exhibits 10(c),
     10(d), 10(e), 10(f), 10(g) and 10(h).

(5)  Reference is made to the Registrant's Form S-4 Registration Statement, file
     No. 33-88380 which is incorporated by reference and contains Exhibit 2(a).

(6)  Reference is made to the Registrant's Form S-8 Registration Statement, file
     No. 33-55592 which is incorporated by reference and contains Exhibit 99.

(7)  Reference is made to the Registrant's Form S-8 Registration Statement, File
     No. 33-77578 which is incorporated by reference and contains Exhibit 99.1.

(8)  Reference is made to the  Registrant's  Form 10-Q for the quarter ended May
     31, 1995, which is incorporated by reference and contains Exhibit 3(d).

(9)  Reference is made to the  Registrant's  Form 10-K for its fiscal year ended
     February 28, 1995,  which is incorporated by reference and contains Exhibit
     10(b).

(10) Reference  is made to the  Registrant's  Form  8-K  dated  May 24,  1996 as
     amended,  which is incorporated  by reference and contains  Exhibits 10(i),
     10(j),  10(k),  10(l),  10(m),  10(n),  10(o),  10(p), 10(q), 10(r), 10(s),
     10(t), 10(u) and 10(v).


                         29
<PAGE>
<PAGE>


                                                           SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

      ATC GROUP SERVICES INC.
                 (Registrant)

      /s/  MORRY F. RUBIN                                           May 29, 1997
      ------------------------------------                          ------------
                                                                         (Dated)
      MORRY F. RUBIN
      President, Chief Executive Officer, Treasurer; Director

         Pursuant to the requirements of the Securities Act of 1934, this Report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.


      /s/  GEORGE RUBIN                                             May 29, 1997
      -----------------------------------                           ------------
      GEORGE RUBIN,                                                      (Dated)
      Chairman of the Board and Secretary


      /s/  MORRY F. RUBIN                                           May 29, 1997
      ------------------------------------                          ------------
                                                                         (Dated)
      MORRY F. RUBIN,
       President, Chief Executive Officer, Treasurer; Director


      /s/ RICHARD L. PRUITT                                         May 29, 1997
      ------------------------------------                          ------------
                                                                         (Dated)
      Richard L. Pruitt,
        Vice President and Principal Accounting Officer; Director


      /s/ WAYNE A. CROSBY                                           May 29, 1997
      ------------------------------------                          ------------
                                                                         (Dated)
      Wayne A. Crosby
      Chief Financial Officer


      /s/ RICHARD S. GREENBERG, ESQ.                                May 29, 1997
      ------------------------------------                          ------------
                                                                         (Dated)
      Richard S. Greenberg, Esq.
      Director


      /s/ JULIA S. HECKMAN                                          May 29, 1997
      ------------------------------------                          ------------
                                                                         (Dated)
      Julia S. Heckman
      Director

                         30
<PAGE>
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES                              EXHIBIT 11

COMPUTATION OF EARNINGS PER SHARE
THREE YEARS ENDED FEBRUARY 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
                                                                                      1995              1996              1997
                                                                                  ------------      ------------      ------------
<S>                                                                               <C>               <C>               <C> 
 Primary earnings per share:
      Weighted average number of shares of common stock outstanding.........        5,492,657          6,517,500         7,791,506

       Additional shares assuming exercise of dilutive stock options
            and stock warrants..............................................          261,199            663,916           691,881
                                                                                  ------------      ------------      ------------
               Total average common and common equivalent shares
                outstanding.................................................         5,753,856         7,181,416         8,483,387
                                                                                  ============      ============      ============

      Net income............................................................      $  3,256,520      $  3,865,998      $  6,307,734
                                                                                  ============      ============      ============
      Earnings per common and dilutive common equivalent share..............      $       0.57      $       0.54      $       0.74
                                                                                  ============      ============      ============

 Fully diluted earnings per share:
     Weighted average number of shares of common stock outstanding..........         5,492,657         6,517,500         7,791,506

      Additional shares assuming exercise of dilutive stock options
             and stock warrants.............................................           357,576           663,916           716,555
                                                                                  ------------      ------------      ------------
               Total average common and common equivalent shares
                outstanding.................................................         5,850,233         7,181,416         8,508,061
                                                                                  ============      ============      ============

     Net income............................................................       $  3,256,520      $  3,865,998      $  6,307,734
                                                                                  ============      ============      ============

     Earnings per common and dilutive common equivalent share..............       $       0.56      $       0.54      $       0.74
                                                                                  ============      ============      ============

</TABLE>


                         31
<PAGE>
<PAGE>

INDEPENDENT AUDITORS' CONSENT                                         EXHIBIT 23



     We consent to the incorporation by reference in Registration Statements No.
33-55592,  No. 33-73578 and No. 333-10547 of ATC Group Services Inc. on Form S-8
of our report dated May 22, 1997,  (May 29, 1997 as to Notes B and D)  appearing
in this Annual Report on Form 10-K of ATC Group Services Inc. for the year ended
February 28, 1997.




DELOITTE & TOUCHE  LLP

Omaha, Nebraska
May 29, 1997





                         32
<PAGE>
<PAGE>


ATC GROUP SERVICES INC. AND SUBSIDIARIES                              EXHIBIT 27

FINANCIAL DATA SCHEDULE
FEBRUARY 28, 1997 (Unaudited)
<TABLE>
<CAPTION>

                                                                                                                   As of
 Item Number                    Item Description                                                             February 28, 1997
 <S>                            <C>                                                                          <C>
     5-02(1)                    Cash and cash items                                                            $     2,003,890
     5-02(2)                    Marketable securities and short-term investments                                             -
     5-02(3)(a)(1)              Notes and accounts receivable - trade                                               35,861,742
     5-02(4)                    Allowances for doubtful accounts                                                     1,455,716
     5-02(6)                    Inventory                                                                                    -
     5-02(9)                    Total current assets                                                                45,444,418
     5-02(13)                   Property, plant and equipment                                                        7,732,327
     5-02(14)                   Accumulated depreciation                                                             3,947,694
     5-02(18)                   Total assets                                                                        86,293,657
     5-02(21)                   Total current liabilities                                                           17,742,724
     5-02(22)                   Bonds, mortgages and similar debt                                                   24,410,074
     5-02(28)                   Preferred stock - mandatory redemption                                                       -
     5-02(29)                   Preferred stock - no mandatory redemption                                                    -
     5-02(30)                   Common stock                                                                            78,002
     5-02(31)                   Other stockholders' equity                                                          45,361,301
     5-02(32)                   Total liabilities and stockholders' equity                                          86,293,657


                                                                                                          Year ended February
                                                                                                                28, 1997

     5-03(b)1(a)                Net sales of tangible products                                                  $
     5-03(b)1                   Total revenues                                                                     113,855,364
     5-03(b)2(a)                Costs of tangible goods sold                                                                 -
     5-03(b)2                   Total costs and expenses applicable to sales and revenues                           71,704,602
     5-03(b)3                   Other costs and expenses                                                            29,162,354
     5-03(b)5                   Provision for doubtful accounts and notes                                            1,021,631
     5-03(b)(8)                 Interest and amortization of debt discount                                           1,569,043
     5-03(b)(10)                Income before taxes and other items                                                 10,397,734
     5-03(b)(11)                Income tax expense                                                                   4,090,000
     5-03(b)(14)                Income (loss) continuing operations                                                  6,307,734
     5-03(b)(15)                Discontinued operations                                                                      -
     5-03(b)(17)                Extraordinary items                                                                          -
     5-03(b)(18)                Cumulative effect - changes in accounting principles                                         -
     5-03(b)(19)                Net income (loss)                                                                    6,307,734
     5-03(b)(20)                Earnings per share - primary                                                               .74
     5-03(b)(20)                Earnings per share - fully diluted                                                         .74
</TABLE>


                         33
<PAGE>
<PAGE>
AMENDMENT TO 1993 STOCK OPTION PLAN

     Section 3 of the 1993  Incentive  and  Non-Statutory  Stock  Option Plan is
amended to read as follows:

        3.      Stock Subject to Plan.
                ---------------------

     Subject to the  provisions of paragraph 12 hereof,  there shall be reserved
for issuance or transfer upon the exercise of Options to be granted from time to
time Under the Plan an  aggregate  of 1,000,000  shares of Common  Stock,  which
shares  may be in whole or in part,  as the Board of  Directors  of the  Company
shall from time to time  determine,  authorized  and  unissued  shares of Common
Stock or issued shares of Stock which shall have been reacquired by the Company.
If any Option  granted  under the Plan shall expire or terminate  for any reason
without having been exercised in full, the  unpurchased  shares subject  thereto
shall again be available for the purposes of the Plan.