<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-Q

               /X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

   
                    FOR THE QUARTER ENDED NOVEMBER 30, 1995
    

                                       OR

            / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER: 1-10583

                             ATC ENVIRONMENTAL INC.
             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                                        <C>
                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
(Address of principal executive offices)                         (Zip Code)
</TABLE>

              Registrant's telephone number, including area code:

                                 (212) 353-8280

                                      NONE
   (Former name, former address and former fiscal year if changed since last
                                    report)

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

   
The  number of shares issued of the Registrant's Common Stock, as of January 10,
1996  was  7,795,789  shares  of  Common  Stock  after  giving  effect  to   the
cancellation  of  33,130  shares  as  discussed  in  Note  B  to  the  financial
statements.
    

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
   
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 30, 1995
    
--------------------------------------------------------------------------------

   
<TABLE>
<CAPTION>
                                                                                                                          PAGE
                                                                                                                          ----

<S>                                                                                                                       <C>
PART I -- FINANCIAL INFORMATION:

  Item 1 -- Financial Statements:

    Consolidated Balance Sheets --
     February 28, 1995 and November 30, 1995 (unaudited)................................................................   F-3

    Consolidated Statements of Operations --
     Three months and nine months ended November 30, 1994 and 1995 (unaudited)..........................................   F-4

    Consolidated Statements of Stockholders' Equity --
     Nine months ended November 30, 1994 and 1995 (unaudited)...........................................................   F-5

    Consolidated Statements of Cash Flows --
     Nine months ended November 30, 1994 and 1995 (unaudited)...........................................................   F-6

    Notes to Consolidated Financial Statements (unaudited)..............................................................   F-7

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

PART II -- OTHER INFORMATION:

  Items 1-6.............................................................................................................  F-17

  Signatures............................................................................................................  F-18

  Exhibit 11 -- Computation of Earnings Per Share --
   Three months and nine months ended November 30, 1994 and 1995 (unaudited)............................................  F-19

  Exhibit 27 -- Financial Data Schedule --
   November 30, 1995 (unaudited)........................................................................................  F-20
</TABLE>
    

                                      F-2
<PAGE>
   
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1995 AND NOVEMBER 30, 1995 (UNAUDITED)
    
--------------------------------------------------------------------------------

   
<TABLE>
<CAPTION>
                                                                                            FEBRUARY 28,   NOVEMBER 30,
                                                                                                1995           1995
                                                                                            ------------   ------------
<S>                                                                                         <C>            <C>
                                                                                                           (UNAUDITED)
ASSETS

Current Assets:
  Cash and cash equivalents...............................................................  $  1,377,862   $ 14,159,789
  Trade accounts receivable, less allowance for doubtful accounts ($535,886 at February
   28, 1995 and $354,778 at November 30, 1995)............................................    11,859,991     13,089,323
  Costs in excess of billings on uncompleted contracts....................................       447,000      2,870,633
  Prepaid expenses and other current assets...............................................       431,791        856,583
  Deferred income taxes (Note D)..........................................................       132,700        339,259
                                                                                            ------------   ------------
      Total current assets................................................................    14,249,344     31,315,587
Property and equipment, net (Note C)......................................................     3,151,286      3,498,743
Goodwill, net of accumulated amortization (Note B)
 ($137,470 at February 28, 1995 and $357,038 at November 30, 1995)........................     7,166,998     10,976,055
Covenants not to compete, net of accumulated amortization (Note B)
 ($137,021 at February 28, 1995 and $221,904 at November 30, 1995)........................       317,979        280,596
Other assets..............................................................................       123,615        281,763
                                                                                            ------------   ------------
                                                                                            $ 25,009,222   $ 46,352,744
                                                                                            ------------   ------------
                                                                                            ------------   ------------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Short-term debt.........................................................................  $     88,720   $  1,154,612
  Current maturities of long-term debt....................................................       840,907        484,657
  Accounts payable........................................................................     1,963,484      1,613,753
  Income taxes payable....................................................................       128,250         15,002
  Due to related company (Note D).........................................................        39,969        --
  Accrued compensation....................................................................     2,053,797      1,934,268
  Other accrued expenses..................................................................     1,020,479      1,037,080
                                                                                            ------------   ------------
    Total current liabilities.............................................................     6,135,606      6,239,372
Long-term debt, less current maturities...................................................     3,892,766        381,186
Other liabilities.........................................................................     1,087,056        800,430
Deferred income taxes.....................................................................        80,600         80,600
                                                                                            ------------   ------------
    Total liabilities.....................................................................    11,196,028      7,501,588
                                                                                            ------------   ------------
Stockholders' Equity (Note D and F):
  Common stock, par value $.01 per share; authorized 20,000,000 shares; issued and
   outstanding 5,738,018 shares at February 28, 1995 and 7,794,860 shares at November 30,
   1995...................................................................................        57,380         77,949
  Additional paid-in capital..............................................................     7,484,453     29,012,926
  Notes receivable -- common stock........................................................       (15,000)       (45,000)
  Retained earnings.......................................................................     6,286,361      9,805,281
                                                                                            ------------   ------------
                                                                                              13,813,194     38,851,156
                                                                                            ------------   ------------
                                                                                            $ 25,009,222   $ 46,352,744
                                                                                            ------------   ------------
                                                                                            ------------   ------------
</TABLE>
    

                See notes to consolidated financial statements.

                                      F-3
<PAGE>
   
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 30, 1994 AND 1995 (UNAUDITED)
    
--------------------------------------------------------------------------------

   
<TABLE>
<CAPTION>
                                                                                  THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                                     NOVEMBER 30,              NOVEMBER 30,
                                                                                -----------------------  ------------------------
                                                                                   1994        1995         1994         1995
                                                                                ----------  -----------  -----------  -----------

<S>                                                                             <C>         <C>          <C>          <C>
Revenues......................................................................  $9,228,737  $11,223,139  $26,117,849  $33,687,570
Cost of revenues..............................................................   4,737,315    5,880,516   13,271,081   17,545,989
                                                                                ----------  -----------  -----------  -----------
      Gross profit............................................................   4,491,422    5,342,623   12,846,768   16,141,581
Operating expenses:
  Selling.....................................................................     250,653      392,631      768,558    1,106,824
  General and administrative..................................................   2,849,984    3,083,198    7,778,538    9,435,809
  Provision for bad debts.....................................................      46,475       78,300      131,825      197,515
                                                                                ----------  -----------  -----------  -----------
                                                                                 3,147,112    3,554,129    8,678,921   10,740,148
                                                                                ----------  -----------  -----------  -----------
      Operating income........................................................   1,344,310    1,788,494    4,167,847    5,401,433
                                                                                ----------  -----------  -----------  -----------
Nonoperating expense (income):
  Interest expense............................................................      64,325       86,443      194,364      335,910
  Interest income.............................................................      (8,807)    (106,064)     (31,023)    (153,637)
  Other.......................................................................      (9,251)      (3,560)     (10,059)      23,240
                                                                                ----------  -----------  -----------  -----------
                                                                                    46,267      (23,181)     153,282      205,513
                                                                                ----------  -----------  -----------  -----------
      Income before income taxes..............................................   1,298,043    1,811,675    4,014,565    5,195,920
Income tax expense (Note D and E).............................................     502,000      707,000    1,548,000    1,677,000
                                                                                ----------  -----------  -----------  -----------
Net income....................................................................  $  796,043  $ 1,104,675  $ 2,466,565  $ 3,518,920
                                                                                ----------  -----------  -----------  -----------
                                                                                ----------  -----------  -----------  -----------
Earnings per common share and dilutive common equivalent share:
  Primary (Notes D and E).....................................................  $     0.13  $      0.15  $      0.44  $      0.52
                                                                                ----------  -----------  -----------  -----------
                                                                                ----------  -----------  -----------  -----------
  Fully diluted (Notes D and E)...............................................  $     0.13  $      0.15  $      0.42  $      0.52
                                                                                ----------  -----------  -----------  -----------
                                                                                ----------  -----------  -----------  -----------
Weighted average number of shares outstanding:
  Primary.....................................................................   5,925,496    7,542,528    5,639,584    6,735,948
                                                                                ----------  -----------  -----------  -----------
                                                                                ----------  -----------  -----------  -----------
  Fully diluted...............................................................   6,139,228    7,542,528    5,939,713    6,735,948
                                                                                ----------  -----------  -----------  -----------
                                                                                ----------  -----------  -----------  -----------
</TABLE>
    

                See notes to consolidated financial statements.

                                      F-4
<PAGE>
   
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED NOVEMBER 30, 1994 AND 1995 (UNAUDITED)
    
--------------------------------------------------------------------------------

   
<TABLE>
<CAPTION>
                                                                                           1994
                                                            -------------------------------------------------------------------
                                                                                              NOTES
                                                               COMMON STOCK     ADDITIONAL  RECEIVABLE
                                                            ------------------   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 $1.88 to $5.00 per share, upon
   exercise of stock options and warrants.................     16,380      164      48,958     --           --           49,122
  Sale of common stock at $8.00 per share, upon exercise
   of Class B warrants....................................    284,803    2,848   2,275,576     --           --        2,278,424
  Issuance of common stock in connection with Con-Test,
   Inc. acquisition.......................................    116,526    1,165     491,740     --           --          492,905
  Continuing registration costs applied against additional
   paid-in capital........................................     --        --        (81,730)    --           --          (81,730)
  Other...................................................     --        --         --        19,250        --           19,250
  Net income..............................................     --        --         --         --        2,466,565    2,466,565
                                                            ---------  -------  ----------  ---------   ----------  -----------
Balance, November 30, 1994................................  5,721,061  $57,211  $7,345,404  $(15,000)   $5,496,406  $12,884,021
                                                            ---------  -------  ----------  ---------   ----------  -----------
                                                            ---------  -------  ----------  ---------   ----------  -----------
</TABLE>
    

   
<TABLE>
<CAPTION>
                                                                                            1995
                                                            --------------------------------------------------------------------
                                                                                               NOTES
                                                               COMMON STOCK     ADDITIONAL   RECEIVABLE
                                                            ------------------    PAID-IN    - COMMON     RETAINED
                                                             SHARES    AMOUNT     CAPITAL      STOCK      EARNINGS      TOTAL
                                                            ---------  -------  -----------  ---------   ----------  -----------

<S>                                                         <C>        <C>      <C>          <C>         <C>         <C>
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 (Note F)......................  1,970,000   19,700   21,608,289     --           --       21,627,989
  Sale of common stock at $1.83 to $10.00 per share, upon
   exercise of stock options and warrants.................     33,600      336       64,503     --           --           64,839
  Issuance of common stock in connection with asset
   purchase...............................................      2,920       29       22,471     --           --           22,500
  Net issuance of common stock and adjustments in
   connection with the merger of Aurora Environmental Inc.
   into ATC Environmental Inc. (Note D)...................     83,452      835       61,719   (30,000)       --           32,554
  Common stock recovered in connection with Con-Test, Inc.
   acquisition (Note B)...................................    (33,130)    (331)    (139,682)    --           --         (140,013)
  Continuing registration costs applied against additional
   paid-in capital........................................     --        --         (88,827)    --           --          (88,827)
  Net income..............................................     --        --         --          --        3,518,920    3,518,920
                                                            ---------  -------  -----------  ---------   ----------  -----------
Balance, November 30, 1995................................  7,794,860  $77,949  $29,012,926  $(45,000)   $9,805,281  $38,851,156
                                                            ---------  -------  -----------  ---------   ----------  -----------
                                                            ---------  -------  -----------  ---------   ----------  -----------
</TABLE>
    

                See notes to consolidated financial statements.

                                      F-5
<PAGE>
   
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED NOVEMBER 30, 1994 AND 1995 (UNAUDITED)
    
--------------------------------------------------------------------------------

   
<TABLE>
<CAPTION>
                                                                                                             1994        1995
                                                                                                          ----------  -----------

<S>                                                                                                       <C>         <C>
Cash Flows From Operating Activities:
  Net income............................................................................................  $2,466,565  $ 3,518,920
  Adjustments to reconcile net income to net cash from operating activities:
    Depreciation and leasehold amortization.............................................................     599,789      543,991
    Amortization of goodwill and covenants..............................................................     104,797      304,450
    Provision for bad debts.............................................................................     131,825      197,515
    Deferred income taxes...............................................................................      --         (206,559)
    Other liabilities...................................................................................      --         (281,522)
    Gain on disposal of fixed assets....................................................................      --          (12,098)
    Changes in operating assets and liabilities, net of amounts acquired in acquisitions:
      Accounts receivable and cost in excess of billings on uncompleted contracts.......................    (470,246)  (3,712,216)
      Prepaid expenses and other assets.................................................................    (243,935)    (550,843)
      Accounts payable and other liabilities............................................................     (39,117)  (1,020,947)
      Income taxes payable..............................................................................  (1,062,386)    (113,248)
                                                                                                          ----------  -----------
        Net cash flows from operating activities........................................................   1,487,292   (1,332,557)
                                                                                                          ----------  -----------
Cash Flows From Investing Activities:
  Purchase of Hill International, Inc. Subsidiaries.....................................................      --       (2,517,950)
  Purchase of BSE Management, Inc.......................................................................    (745,324)    (207,990)
  Purchase of Con-Test, Inc.............................................................................  (2,243,058)    (169,044)
  Purchase of R.E. Blattert and Associates..............................................................      --          (34,375)
  Purchase of property and equipment....................................................................    (579,085)    (711,031)
  Proceeds from sale of property and equipment..........................................................      --           13,681
  Other.................................................................................................      --          (43,320)
                                                                                                          ----------  -----------
        Net cash flows from investing activities........................................................  (3,567,467)  (3,670,029)
                                                                                                          ----------  -----------
Cash Flows From Financing Activities:
  Proceeds from issuance of long-term debt and notes payable............................................   2,225,000    2,585,125
  Proceeds from issuance of common stock, net of expenses...............................................   2,327,546   21,755,382
  Principal payments on long-term debt and notes payable, including capital lease obligations...........  (3,739,965)  (6,467,167)
  Payments for continuing registration costs............................................................     (81,730)     (88,827)
                                                                                                          ----------  -----------
        Net cash flows from financing activities........................................................     730,851   17,784,513
                                                                                                          ----------  -----------
          Net change in cash and cash equivalents.......................................................  (1,349,324)  12,781,927
Cash and Cash Equivalents, Beginning of period..........................................................   1,394,889    1,377,862
                                                                                                          ----------  -----------
Cash and Cash Equivalents, End of period................................................................  $   45,565  $14,159,789
                                                                                                          ----------  -----------
                                                                                                          ----------  -----------
Supplemental Disclosures of Cash Flow Information:
  Cash payments for:
    Interest............................................................................................  $  194,364  $   332,797
                                                                                                          ----------  -----------
                                                                                                          ----------  -----------
    Income taxes........................................................................................  $2,661,440  $ 1,646,957
                                                                                                          ----------  -----------
                                                                                                          ----------  -----------
</TABLE>
    

                See notes to consolidated financial statements.

                                      F-6
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------

NOTE A -- GENERAL

PRINCIPLES OF CONSOLIDATION

    The   consolidated  financial   statements  include  the   accounts  of  ATC
Environmental Inc. and its wholly-owned subsidiaries ("ATC" or the "Company").

   
    In the  opinion  of the  Company,  the accompanying  unaudited  consolidated
financial   statements  contain  all  adjustments  (consisting  only  of  normal
recurring accruals) necessary to present  fairly, in all material respects,  the
financial position, the results of operations and the cash flows for the periods
presented  herein. These results of operations are not necessarily indicative of
the results to be expected for the full year due to certain seasonality  factors
and the effects and timing of large service projects.
    

    Certain  information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting  principles
have  been  omitted.  These condensed  financial  statements should  be  read in
conjunction with the consolidated financial statements and the notes included in
the Company's financial statements for the fiscal year ended February 28,  1995,
which are included in the Company's Annual Report on Form 10-K.

NATURE OF BUSINESS

    ATC  is a national  environmental consulting and  engineering firm providing
assessment,  monitoring,  training,  analytical  and  management  services   for
environmental  projects.  These  services  are  provided  nation-wide  through a
network of regional offices.  Because the Company conducts  its operations in  a
single industry, segment information is not presented.

SIGNIFICANT CUSTOMERS

   
    Revenues  from two customers comprised  approximately 9.0% of total revenues
during the nine months ended November 30, 1995 as compared to 21.0% for the nine
months ended November 30, 1994.
    

CREDIT FACILITIES

   
    During the quarter ended  August 31, 1995, the  Company extended its  credit
facilities  with Atlantic Bank of New York ("Atlantic") to $5,500,000, which had
been borrowed by the  Company as of September  1995. All outstanding  borrowings
were  repaid from  proceeds of  the common stock  offering in  October 1995. The
Company did not renew its agreement with  Atlantic and is pursuing a new  credit
line with another bank.
    

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121

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

EARNINGS PER SHARE DATA

    Earnings  per common  share and dilutive  common equivalent  share have been
computed by using the weighted average number of shares outstanding during  each
period.  Outstanding dilutive  stock warrants  and options  are included  in the
computation of weighted average number of shares.

RECLASSIFICATIONS

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

                                      F-7
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
--------------------------------------------------------------------------------

NOTE B -- 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 sheet at fair value at  the date of purchase. The acquired
company's operations subsequent to acquisition are included in the  accompanying
consolidated statements of operations.
    

   
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.  Services  were  provided from
operating facilities  located in  New  York City,  Boston and  Willingboro,  New
Jersey. ATC will integrate these locations into existing, or new facilities.
    

   
    The purchase price was comprised of:
    

   
    Amounts Paid to Seller:
    

   
<TABLE>
<S>                             <C>
Cash..........................  $   2,571,950
Letter of credit, net of
 imputed interest, due April
 30, 1996.....................        700,000
Note payable at 8.75%
 interest, due April 30,
 1996.........................        300,000
Liabilities assumed...........        360,543
Direct expenses related to
 acquisition..................        113,775
                                -------------
                                $   4,046,268
                                -------------
                                -------------
</TABLE>
    

   
    In  addition,  the company  issued to  certain selling  shareholders, 50,000
stock options  to  purchase restricted  common  stock  at $13.25  per  share  as
consideration for non compete agreements.
    

   
    The  assets  and liabilities  of  the Hill  Businesses  are included  in the
accompanying consolidated balance sheet at fair  value at the date of  purchase.
The initial purchase price allocation is summarized as follows:
    

   
<TABLE>
<S>                             <C>
Costs in excess of billings on
 uncompleted contracts, net of
 unrealizable amounts.........  $     620,000
Property and equipment........        175,000
Covenants not to compete......         37,500
Other assets..................         30,572
Goodwill......................      3,183,196
                                -------------
                                $   4,046,268
                                -------------
                                -------------
</TABLE>
    

   
    The  company is contingently  liable to reimburse up  to $150,000 of certain
facility lease costs if incurred by Hill International, Inc.
    

   
    In November 1995, First  Fidelity Bank, N.A. and  United Jersey Bank,  N.A.,
(the  "Seller  Banks"),  filed a  lawsuit  against Hill  International  Inc. and
certain  selling  shareholders   (the  "Sellers"),   alleging  the   transaction
constituted  a default under  Seller's loan agreement with  the Seller Banks and
the transfer  of  consideration  proceeds  by  Seller  following  the  sale  was
unlawful.  In December 1995, the Seller Banks  named ATC a party to the lawsuit,
asserting that the  Seller Banks still  hold a security  interest in the  assets
purchased. The action filed seeks recovery of the assets sold to ATC.
    

                                      F-8
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
--------------------------------------------------------------------------------

   
    In  the Company's opinion, the 'replevin' action filed, is being used by the
Seller Banks to obtain a portion of  the sale proceeds direct from ATC. If  this
were  to occur, ATC would in  turn seek to cancel the  letter of credit and note
payable or otherwise  recover any  amounts paid from  Sellers. Additional  costs
incurred,  or expected to be incurred, if any, as a result of this action or the
contingent facility lease costs, are expected to be accounted for as  additional
purchase  consideration and  would not have  a material adverse  impact on ATC's
financial position or future results of operations.
    

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 and  engineering company  having branch  offices in  the New  England
states, New York and Pennsylvania.
    

   
    On  September  28, 1995,  the Company  served  the seller  with a  notice of
set-off pursuant to the  purchase agreement. Under  this set-off, ATC  recovered
33,130 shares of its Common Stock originally issued to the seller, valued at the
closing  price  of  the  stock at  the  date  of  the claim,  equal  to  the net
uncollected receivables  acquired  in  the purchase  plus  certain  other  costs
incurred by ATC.
    

   
    The  effect of  this transaction  on the  financial position  of ATC  was to
reduce the recorded net accounts receivable of $461,136, reduce Common Stock and
additional paid in capital by  a total of $140,013  and to increase goodwill  by
$321,123.
    

R.E. BLATTERT & ASSOCIATES

   
    On  January  13, 1995,  ATC  acquired substantially  all  of the  assets and
liabilities  of  R.E.  Blattert  &  Associates  ("Blattert"),  an  environmental
consulting  firm having  geologic, environmental engineering  and water resource
expertise with offices in  Indiana and Iowa. The  seller has guaranteed the  net
receivables  purchased.  In addition,  the purchase  agreement provides  for the
seller to receive additional purchase consideration up to a maximum of  $850,000
over  a four-year period based on  achieving agreed upon earnings targets. These
contingent payments  will be  recorded as  goodwill if  subsequently earned.  At
November 30, 1995, no additional purchase consideration had been earned.
    

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.  In
consideration,  MES  assigned  accounts  receivable  to  ATC.  ATC  additionally
purchased  certain field and  laboratory equipment from MES  and paid a finder's
fee to an unrelated party.
    

NOTE C -- PROPERTY AND EQUIPMENT

    Property and equipment is comprised of the following:

   
<TABLE>
<CAPTION>
                                                                     NOVEMBER
                                                     FEBRUARY 28,       30,
                                                         1995          1995
                                                     ------------   -----------
<S>                                                  <C>            <C>
Office equipment...................................  $  2,086,889   $ 2,672,326
Laboratory and field equipment.....................     3,007,651     3,217,224
Transportation equipment...........................       223,397       235,584
Leasehold improvements.............................       537,698       608,729
                                                     ------------   -----------
                                                        5,855,635     6,733,863
Less accumulated depreciation......................    (2,704,349)   (3,235,120)
                                                     ------------   -----------
                                                     $  3,151,286   $ 3,498,743
                                                     ------------   -----------
                                                     ------------   -----------
</TABLE>
    

                                      F-9
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
--------------------------------------------------------------------------------

NOTE D -- MERGER OF ATC AND AURORA

   
    ATC and  its  parent,  Aurora  Environmental  Inc.  ("Aurora")  were  merged
pursuant  to an  agreement (the  "Merger Agreement")  approved by  a majority of
shareholders of each  company on  June 29, 1995,  with ATC  being the  surviving
corporation.  Under the Merger Agreement,  ATC exchanged .545 of  a share of ATC
Common Stock for each of Aurora's  6,131,104 shares of stock outstanding.  ATC's
common  shares held by Aurora of  3,258,000 were cancelled. Actual common shares
outstanding increased by 83,452 shares. 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 those of ATC  and
the  results of operations of  ATC and Aurora were  combined as of the effective
date of the merger. In addition, the intercompany balance between ATC and Aurora
was forgiven.
    

   
    As a  result  of the  merger,  ATC will  be  able to  utilize  Aurora's  net
operating  loss carryforward, which  resulted in a  one-time reduction of income
tax expense of approximately  $350,000 ($0.05 per share)  that was reflected  in
the second quarter's operating results.
    

   
NOTE E -- PRO FORMA FINANCIAL INFORMATION
    

   
    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 Con-Test  and
the Hill Businesses had occurred on March 1, 1994:
    

   
<TABLE>
<CAPTION>
                                     PRO FORMA                 PRO FORMA
                                 THREE MONTHS ENDED        NINE MONTHS ENDED
                                    NOVEMBER 30,              NOVEMBER 30,
                              ------------------------  ------------------------
                                 1994         1995         1994         1995
                              -----------  -----------  -----------  -----------
<S>                           <C>          <C>          <C>          <C>
Revenues....................  $ 9,228,737  $11,223,139  $26,117,849  $33,687,570
Net income..................  $   460,590  $ 1,306,717  $ 2,556,976  $ 4,312,677
Earnings per share (fully
 diluted)...................  $      0.07  $      0.17  $      0.39  $      0.62
Weighted average shares
 (fully diluted)............    6,787,815    7,542,528    6,640,103    7,003,329
</TABLE>
    

   
NOTE F -- COMMON STOCK OFFERING
    

   
    On  October 10,  1995, the Company  filed a Registration  Statement with the
Securities and Exchange Commission  for the sale of  1,800,000 shares of  Common
Stock  of which 1,700,000 were sold by ATC,  while the remaining were sold by an
officer/director of ATC.  On October 30,  1995, the Company  sold an  additional
270,000  shares to cover over-allotments under  the same terms and conditions as
the public offering.
    

   
    The Company utilized a portion of the net proceeds of the public offering to
repay the debt outstanding under  its credit facilities. As  of the date of  the
offering,  $5,500,000  was  outstanding  under these  credit  facilities.  It is
anticipated that a  substantial portion  of the  remaining net  proceeds of  the
offering  will be utilized to expand  the Company's operations through strategic
acquisitions of companies with complementary services, products or technologies,
as well as  through internal  expansion. In addition,  the net  proceeds of  the
offering will be available for general working capital purposes.
    

                                      F-10
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

   
ACQUISITION OF ASSETS OF HILL INTERNATIONAL INC. 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 consideration  for this acquisition paid to
the Seller consisted of  $2,571,950 in cash,  $1,000,000 in payment  obligations
(net  of inputed interest) due April 1996 and 50,000 stock options. In addition,
the Company assumed liabilities of  $360,543 and incurred expenses of  $113,775.
ATC is also contingently liable for $150,000 of certain facility lease costs and
could incur other costs in connection with a dispute between Hill International,
Inc.  and its banks  (See Note B  to financial statements).  The Hill Businesses
operated from facilities located in New  York City, Boston and Willingboro,  New
Jersey. The Boston and New York offices will eventually be integrated with ATC's
existing operations, and ATC will benefit from other cost-saving measures taken,
including  the  elimination  of  certain  employees  previously  with  the  Hill
Businesses.
    

   
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  $21,628,000  net  of
underwriting  and other related  expenses. The Company  used $5,500,000 to repay
bank debt and will use the remainder to expand the Company's operations  through
acquisitions and internal growth and for general working capital purposes.
    

MERGER OF AURORA INTO ATC

   
    Effective  June 29,  1995, ATC  Environmental Inc.  ("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. In connection with the merger, each
outstanding share of Aurora  Common stock was exchanged  for .545 shares of  ATC
Common  Stock. ATC issued 3,341,452  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 cancelled. Actual common  shares outstanding increased by  83,452
shares.  As a result of the Aurora Merger,  ATC anticipates that it will be able
to utilize 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 the second quarter of fiscal 1996.
    

   
FY 1995 ACQUISITIONS
    

   
    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
    

                                      F-11
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
--------------------------------------------------------------------------------
   
a  line  of  environmental  facilities  management  software  used  by   several
industrial firms 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 agreed  to
assume  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.
    

   
RESULTS OF OPERATIONS
    

   
    THREE  MONTHS  ENDED  NOVEMBER 30,  1995  COMPARED WITH  THREE  MONTHS ENDED
NOVEMBER 30, 1994
    

   
    Revenues in the  three months  ended November  30, 1995  increased 21.6%  to
$11,223,139,  compared with  $9,228,737 in the  three months  ended November 30,
1994. 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. During  the three  months
ended  November 30,  1995, increased  revenues from  certain existing operations
were largely offset by lower revenues due to the completion of certain work  for
a significant customer.
    

   
    Revenues  in  the three  months ended  November 30,  1995 from  ATC's branch
offices having comparable operations in the three months ended November 30, 1994
increased 10.8%  to $8,302,979,  compared with  $7,496,764 in  the three  months
ended  November  30,  1994. 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 16.0%  to $7,213,089  in the  three months  ended November  30,  1995,
compared  with $6,217,144 in  the three months  ended November 30,  1994. In the
three months ended November  30, 1995, ATC continued  to penetrate its  existing
markets  and  benefitted from  the acquisitions  of certain  assets of  the Hill
Businesses, Con-Test, MES and R.E. Blattert. Revenues attributable to operations
resulting from these acquisitions totaled $2,920,160, or 26.0% of revenues,  for
the three months ended November 30, 1995.
    

   
    Revenues  in the three  months ended November 30,  1995 earned directly from
the New York City School Construction Authority (the "NYCSCA") decreased 4.3% to
$858,257, compared with $896,754 in the three months ended November 30, 1994. As
a percentage of  revenues, revenues  from the NYCSCA  decreased to  7.6% in  the
three  months ended November  30, 1995, compared  with 9.7% in  the three months
ended November 30, 1994.
    

   
    Revenues in the three months ended November 30, 1995 from the Army Corps  of
Engineers  (the "Corps") decreased 39.5% to  $231,633, compared with $382,866 in
the three months ended November 30, 1994. As a percentage of revenues,  revenues
from  the Corps decreased to  2.0% in the three  months ended November 30, 1995,
compared with 4.1% in  the three months ended  November 30, 1994. The  Company's
revenues  from  the Corps  relate to  certain  asbestos management  services and
decreased due to the completion of most phases of the current project during the
first nine  months of  fiscal 1996.  Revenues  from the  Corps are  expected  to
continue  at current levels  for the remainder  of fiscal 1996  and work on this
project is
    

                                      F-12
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
--------------------------------------------------------------------------------
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.

   
    Gross  profit in the three months ended November 30, 1995 increased 12.8% to
$5,342,623, compared  with $4,491,422  in the  three months  ended November  30,
1994.  Gross margin decreased  to 47.6% in  the three months  ended November 30,
1995, compared with  48.7% in the  three months ended  November 30, 1994.  ATC's
gross  margin decreased due  to higher subcontract and  project costs. The gross
margin for the quarter ended November 30, 1994 was higher than normal due to the
profitability level of several large, high margin projects.
    

   
    Operating expenses in  the three  months ended November  30, 1995  increased
12.9% to $3,554,129, compared with $3,147,112 in the three months ended November
30,  1994. Operating expenses decreased as a  percentage of revenues to 31.7% in
the three  months ended  November 30,  1995, compared  with 34.1%  in the  three
months  ended  November  30,  1994.  The decrease  in  operating  expenses  as a
percentage of revenue  is the  result of ATC's  ability to  service its  greater
revenue  levels  without  corresponding increases  in  fixed  and administrative
costs. Employee costs increased only 12.9% to $1,873,895, or 16.7% of  revenues,
in  the three months ended November 30,  1995 compared with $1,659,734, or 18.0%
of revenues, in  the three months  ended November 30,  1994. 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 the three months ended November 30,
1995, amortization of goodwill and  intangibles increased to $110,413,  compared
with  $42,695  in  the  three  months ended  November  30,  1994  reflecting the
additional goodwill amortization resulting from acquisitions.
    

   
    Operating income in the three months ended November 30, 1995 increased 33.0%
to $1,788,494, compared with $1,344,310 in  the three months ended November  30,
1994.  Operating income increased  as a percentage  of revenues to  15.9% in the
three months ended November  30, 1995, compared with  14.6% in the three  months
ended November 30, 1994.
    

   
    Nonoperating income in the three months ended November 30, 1995 increased to
$23,181 compared with nonoperating expenses of $46,267 in the three months ended
November  30, 1994. The  increase in nonoperating  expense (income) is primarily
attributable to interest income earned on the net offering proceeds invested  in
short  term  investments offset  partially by  higher  interest expenses  due to
increased borrowings existing prior to the common stock offering.
    

   
    Income tax expense in the three months ended November 30, 1995 was $707,000,
compared with $502,000 in the three  months ended November 30, 1994. During  the
three months ended November 30, 1995 and 1994, the Company's effective tax rates
were 39.0% and 38.7%, respectively.
    

   
    As  a result of the foregoing, net income in the three months ended November
30, 1995 increased 38.8% to  $1,104,675, or $0.15 per  share on a fully  diluted
basis,  compared with $796,043 or  $0.13 per share on  a fully diluted basis, in
the three months  ended November 30,  1994. The fully  diluted weighted  average
number  of  shares outstanding  increased 1,029,767  shares to  7,542,528 shares
primarily due to an increase in shares issued from the Common Stock Offering and
from 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 increased as a
percentage of revenues  to 9.8%  in the three  months ended  November 30,  1995,
compared with 8.6% in the three months ended November 30, 1994.
    

                                      F-13
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
--------------------------------------------------------------------------------

   
    NINE MONTHS ENDED NOVEMBER 30, 1995 COMPARED WITH NINE MONTHS ENDED NOVEMBER
30, 1994
    

   
    Revenues  in  the nine  months ended  November 30,  1995 increased  29.0% to
$33,687,570 compared  with $26,117,849  in the  nine months  ended November  30,
1994.  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. During the  nine months ended
November 30,  1995, 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.
    

   
    Revenues  in  the nine  months  ended November  30,  1995 from  ATC's branch
offices having comparable operations in the nine months ended November 30,  1994
increased  4.1% to  $25,395,765, compared  with $24,385,876  in the  nine months
ended November  30,  1994. 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  18.3%  to $22,352,317  in the  nine months  ended November  30, 1995,
compared with $18,890,467  in the nine  months ended November  30, 1994. In  the
nine  months ended  November 30, 1995,  ATC continued to  penetrate its existing
markets and benefitted from the acquisitions of certain assets of Con-Test,  MES
and  R.E.  Blattert. Revenues  attributable to  operations resulting  from these
acquisitions totaled $8,291,805, or 24.6% of revenues, for the nine months ended
November 30, 1995.
    

   
    Revenues in the nine months ended November 30, 1995 earned directly from the
NYCSCA decreased  24.2% to  $2,055,754,  compared with  $2,711,174 in  the  nine
months  ended November 30, 1994. As a  percentage of revenues, revenues from the
NYCSCA decreased to 6.1%  in the nine months  ended November 30, 1995,  compared
with  10.4% in the nine months ended November 30, 1994. 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 the nine months ended November 30, 1995 from the Corps decreased
64.5% to $987,694, compared  with $2,784,235 in the  nine months ended  November
30, 1994. As a percentage of revenues, revenues from the Corps decreased to 2.9%
in  the nine  months ended November  30, 1995,  compared with 10.7%  in the nine
months ended November 30, 1994. 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 the  nine months ended  November 30, 1994.
Revenues from  the Corps  are expected  to continue  at current  levels for  the
remainder  of  fiscal 1996  and work  on  this project  is 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.
    

   
    Gross  profit in the nine months ended  November 30, 1995 increased 25.6% to
$16,141,581, compared with  $12,846,768 in  the nine months  ended November  30,
1994.  Gross margin  decreased to  47.9% in the  nine months  ended November 30,
1995, compared with  49.2% in  the nine months  ended November  30, 1994.  ATC's
gross  margin decreased due  to higher subcontract and  project costs. The gross
margin for  the nine  months  ended November  30, 1994  was  higher due  to  the
profitability level of several high margin projects.
    

                                      F-14
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
--------------------------------------------------------------------------------

   
    Operating  expenses in  the nine  months ended  November 30,  1995 increased
23.7% to $10,740,148 compared with $8,678,921 in the nine months ended  November
30,  1994. Operating expenses decreased as a  percentage of revenues to 31.9% in
the nine months ended November 30, 1995, compared with 33.2% in the nine  months
ended  November 30, 1994. The decrease in  operating expenses as a percentage of
revenue is the result of ATC's ability to service greater revenue levels without
corresponding increases  in  fixed  and  administrative  costs.  Employee  costs
increased  22.4% to $5,474,121, or  16.2% of revenues, in  the nine months ended
November 30, 1995 compared  with $4,473,134, or 17.1%  of revenues, in the  nine
months  ended November 30, 1994.  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  the nine  months  ended November  30, 1995,
amortization of goodwill  and intangibles increased  to $304,450, compared  with
$104,797  in the nine months ended  November 30, 1994, reflecting the additional
goodwill amortization resulting from acquisitions.
    

   
    Operating income in the nine months ended November 30, 1995 increased  29.6%
to  $5,401,433, compared with  $4,167,847 in the nine  months ended November 30,
1994. Operating income as a percentage of revenues was 16.0% in the nine  months
ended November 30, 1995 and 1994.
    

   
    Nonoperating  expenses in the nine months  ended November 30, 1995 increased
34.1% to $205,513 compared with $153,282  in the nine months ended November  30,
1994.  The increase in nonoperating expenses is primarily attributable to higher
interest expenses  due  to increased  borrowings  offset partially  by  interest
income earned on the net offering proceeds invested in short term investments.
    

   
    Income  tax  expense  in  the  nine  months  ended  November  30,  1995  was
$1,677,000, compared with $1,548,000 in the nine months ended November 30, 1994.
The income tax expense  reflects a one-time benefit  of $350,000 resulting  from
the  merger of  Aurora into  ATC which  will allow  ATC to  utilize Aurora's net
operating loss carryforwards as offsets to its future taxable income. During the
nine months  ended November  30,  1995, after  adjusting  for the  one-time  tax
benefit,  and the nine  months ended November 30,  1994, the Company's effective
tax rates were 39.0% and 38.6%, respectively.
    

   
    As a result of the foregoing, net  income in the nine months ended  November
30,  1995 increased 42.7% to  $3,518,920, or $0.52 per  share on a fully diluted
basis, compared with $2,466,565 or $0.42 per share on a fully diluted basis,  in
the  nine months ended November  30, 1994. Excluding the  impact of the one-time
tax benefit of $350,000, net income  and fully diluted earnings per share  would
have been $3,168,920 and $0.47, respectively, for the nine months ended November
30,  1995.  The  fully diluted  weighted  average number  of  shares outstanding
increased 796,235 shares  to 6,735,948 shares  primarily due to  an increase  in
shares  issued  from the  Common  Stock Offering  and  from 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 revenues was 10.4% in
the nine months ended November 30, 1995,  compared with 9.4% in the nine  months
ended November 30, 1994.
    

LIQUIDITY AND CAPITAL RESOURCES

   
    At  November 30, 1995, working capital was $25,075,215 compared with working
capital of $8,113,738  at February 28,  1995, an increase  of $16,961,477.  This
increase  in working capital  is primarily a  result of the  net proceeds of the
Common Stock  Offering  after  repayment  of outstanding  bank  debt  and  ATC's
acquisitions of current assets of R.E. Blattert and MES, increases in billed and
unbilled  receivables and the  reduction of current  liabilities using long-term
borrowings under the Company's revolving credit facility with the Atlantic  Bank
of New York ("Atlantic").
    

   
    During  the nine  months ended  November 30,  1995, net  cash flows  used in
operating activities were $1,332,557, primarily due to an increase in billed and
unbilled  receivables.  Net  cash  flows  used  in  investing  activities   were
$3,670,029, resulting from the acquisitions of the Hill Businesses, Con-Test and
R.E. Blattert,
    

                                      F-15
<PAGE>
ATC ENVIRONMENTAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
--------------------------------------------------------------------------------
   
additional   contingent  purchase   obligations  in  connection   with  the  BSE
acquisition and purchases of property and equipment. Net cash flows provided  by
financing  activities were $17,784,513, primarily  representing the net offering
proceeds of  the Common  Stock  Offering plus  the  proceeds from  a  $2,585,125
increase  in debt,  primarily bank debt  under the  Company's credit facilities,
less payments made on long-term debt and notes payable of $6,467,167.
    

   
    During the nine months ended November  30, 1994, net cash flows provided  by
operating   activities  were  $1,487,292.  Net  cash  flows  used  in  investing
activities were $3,567,467 consisting  of the payment  to acquire Con-Test  plus
contingent  purchase  obligations  related to  the  acquisition of  BSE  and the
purchase of property and equipment. Also during this period, net cash flows from
financing activities were $730,851, primarily  from issuance of common stock  of
$2,327,546,  most arising from  the sale of  Class B warrants  and proceeds from
increased bank debt less principal payments on long-term debt and notes  payable
of $3,739,965.
    

   
    In fiscal 1995, ATC increased its revolving credit facility with Atlantic to
$5,500,000. The Company repaid its outstanding debt under its credit facilities.
The  credit  facilities  with  Atlantic  were  not  renewed  as  the  Company is
negotiating a new credit line. One bank has indicated an interest in extending a
$20,000,000 revolving credit facility and the Company is continuing  discussions
of possible terms and covenants.
    

   
    In  October  1995  the  Company  sold 1,970,000  shares  in  a  common stock
offering. The Company utilized a portion of the net proceeds of the offering  to
repay the debt outstanding under its credit facilities. It is anticipated that a
substantial  portion  of the  remaining  net proceeds  of  the offering  will be
utilized to expand  the Company's operations  through strategic acquisitions  of
companies  with  complementary services,  products or  technologies, as  well as
through internal expansion. In addition, the  net proceeds of the offering  will
be available for general working capital purposes.
    

   
    Management  believes that as a result of  the net proceeds received from the
Common Stock  Offering  and, upon  the  completion of  a  new bank  credit  line
agreement,  ATC's working  capital, and  anticipated funds  generated internally
from operations and the offering will be sufficient to finance ATC's anticipated
growth through acquisitions  and internal  expansion, to make  payments as  they
come  due  on ATC's  completed  acquisitions and  to  meet ATC's  short-term and
long-term liquidity requirements.
    

    ATC may  open additional  offices in  the future  at presently  undetermined
sites  based upon potential sales growth and  upon a determination of whether or
not an office can  meet management's profitability  objective. In addition,  ATC
has  added regional offices in the recent past  as a result of the completion of
certain acquisitions and may add additional offices through acquisitions in  the
future.

    On  March  1, 1996,  the  Company intends  to  adopt Statement  of Financial
Accounting  Standards  ("SFAS")  No.  121,  ACCOUNTING  FOR  THE  IMPAIRMENT  OF
LONG-LIVED  ASSETS  AND  FOR LONG-LIVED  ASSETS  TO BE  DISPOSED  OF. Management
anticipates the adoption of SFAS No. 121 will not have a material effect on  the
Company's financial statements.

                                      F-16
<PAGE>

                          PART II -- OTHER INFORMATION

   
<TABLE>
<S>    <C>  <C>
Item 1. 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. 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 which the company
       recently purchased from Hill
       International, Inc. 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 are Hill
       International, Inc. 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. The company has been
       involved since its joinder in
       discussions with the parties in
       an effort to settle this claim.
       The company believes that the
       action will in any case not have
       a material impact on the
       company's financial position or
       income for the reasons stated in
       Note B to the financial
       statements hereto.
Item 2. CHANGES IN SECURITIES:
       Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES:
       Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE
       OF SECURITY HOLDERS:
       On December 14, 1995, ATC held
       its annual meeting of
       stockholders at which time the
       following individuals were
       re-elected as directors by the
       votes indicated.
</TABLE>
    

   
<TABLE>
<CAPTION>
                           NAME                   VOTES FOR   VOTES AGAINST
           -------------------------------------  ----------  -------------
<S>        <C>                                    <C>         <C>            <C>
           George Rubin                            5,697,705       28,416
           Morry T. Rubin                          5,697,694       28,207
           Richard L. Pruitt                       5,697,594       28,203
           Richard S. Greenberg, Esq.              5,697,526       30,375
           Julia S. Heckman                        5,697,634       28,267
</TABLE>
    

   
<TABLE>
<S>    <C>  <C>
       In addition, ATC's stockholders
       approved an amendment to the 1933
       Incentive and Non- Qualified
       Stock Option Plan increasing the
       number of shares covered by the
       Plan from 200,000 shares to
       500,000 shares by a vote of
       5,566,781 in favor, 95,920
       against and 32,519 abstaining.
</TABLE>
    

   
<TABLE>
<S>    <C>  <C>
Item 5. OTHER INFORMATION:
       Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
       (a)  Exhibits:
            11 -- Computation of
            Earnings Per Share
                 Three months and nine
            months ended November 30,
            1995 (Unaudited)
            27 -- Financial Data
            Schedule
                 November 30, 1995
            (Unaudited)
       (b)  Reports on Form 8-K:
       A  Form  8-K  dated  November 10,
       1995 -  date  of  earliest  event
       reported  - was  filed during the
       three months  ended November  30,
       1995.
</TABLE>
    

                                      F-17
<PAGE>
                             ATC ENVIRONMENTAL INC.

                                   SIGNATURES

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

   
<TABLE>
<S>                 <C>
                    ATC ENVIRONMENTAL,
                    INC.
                    --------------------
                    (Registrant)

Dated: January 15,  /s/ MORRY F. RUBIN
 1996               --------------------
                    MORRY F. RUBIN,
                    PRESIDENT AND CHIEF
                    EXECUTIVE OFFICER

Dated: January 15,  /s/ RICHARD L.
 1996               PRUITT
                    --------------------
                    RICHARD L. PRUITT,
                    VICE PRESIDENT AND
                    PRINCIPAL ACCOUNTING
                    OFFICER
</TABLE>
    

                                      F-18
<PAGE>
                                                                      EXHIBIT 11

ATC ENVIRONMENTAL INC. AND SUBSIDIARIES

COMPUTATION OF EARNINGS PER SHARE
   
THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 30, 1995 (UNAUDITED)
    
--------------------------------------------------------------------------------

   
<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED          NINE MONTHS ENDED
                                                           --------------------------  --------------------------
                                                                  NOVEMBER 30,                NOVEMBER 30,
                                                           --------------------------  --------------------------
                                                               1994          1995          1994          1995
                                                           ------------  ------------  ------------  ------------
<S>                                                        <C>           <C>           <C>           <C>
PRIMARY EARNINGS PER SHARE:
  Weighted average number of shares of common stock
   outstanding...........................................     5,613,016     6,738,257     5,413,501     6,091,458
  Additional shares assuming exercise of dilutive stock
   options and stock warrants............................       312,480       804,271       226,083       644,490
                                                           ------------  ------------  ------------  ------------
      Total average common and common equivalent shares
       outstanding.......................................     5,925,496     7,542,528     5,639,584     6,735,948
                                                           ------------  ------------  ------------  ------------
                                                           ------------  ------------  ------------  ------------
Net income...............................................  $    796,043  $  1,104,675  $  2,466,565  $  3,518,920
                                                           ------------  ------------  ------------  ------------
                                                           ------------  ------------  ------------  ------------
Earnings per common and dilutive common equivalent
 share...................................................  $       0.13  $       0.15  $       0.44  $       0.52
                                                           ------------  ------------  ------------  ------------
                                                           ------------  ------------  ------------  ------------
FULLY DILUTED EARNINGS PER SHARE:
  Weighted average number of shares of common stock
   outstanding...........................................     5,613,016     6,738,527     5,413,501     6,091,458
  Additional shares assuming exercise of dilutive stock
   options and stock warrants............................       526,212       804,271       526,212       644,490
                                                           ------------  ------------  ------------  ------------
      Total average common and common equivalent shares
       outstanding.......................................     6,139,228     7,542,528     5,939,713     6,735,948
                                                           ------------  ------------  ------------  ------------
                                                           ------------  ------------  ------------  ------------
Net income...............................................  $    796,043  $  1,104,675  $  2,466,565  $  3,518,920
                                                           ------------  ------------  ------------  ------------
                                                           ------------  ------------  ------------  ------------
Earnings per common and dilutive common equivalent
 share...................................................  $       0.13  $       0.15  $       0.42  $       0.52
                                                           ------------  ------------  ------------  ------------
                                                           ------------  ------------  ------------  ------------
</TABLE>
    

                                      F-19