<PAGE>
 
================================================================================
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q
                                   ---------

           [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

               FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1997
               ------------------------------------------------

                                       OR

          [_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                        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
------------------------------------------           ---------------------------
 (Address of principal executive offices)                     (Zip Code)


      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 outstanding of the Registrant's Common Stock as of 
January 12, 1998 was 7,942,327.

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

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1997 

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------

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

  Item 1 - Financial Statements:                                                                            
                                                                                                            
        Consolidated Balance Sheets                                                                         
         February 28, 1997 and November 30, 1997 (Uaudited).........................................  F-3   
                                                                                                            
        Consolidated Statements of Operations                                                               
         Three months and nine months ended November 30, 1996 and 1997 (Unaudited)..................  F-4   
                                                                                                            
        Consolidated Statements of Stockholders' Equity                                                     
         Nine months ended November 30, 1996 and 1997 (Unaudited)...................................  F-5   
                                                                                                            
        Consolidated Statements of Cash Flows                                                               
         Nine months ended November 30, 1996 and 1997 (Unaudited)...................................  F-6   
                                                                                                            
        Notes to Consolidated Financial Statements                                                          
         Three months and nine months ended November 30, 1997 (Unaudited)...........................  F-7   
                                                                                                            
  Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations....  F-14   
 
PART II - OTHER INFORMATION:
 
  Items 1-6.........................................................................................  F-21
 
  Signatures........................................................................................  F-24
 
  Exhibit 11 - Computation of Earnings Per Share
          Three months and nine months ended November 30, 1996 and 1997 (Unaudited).................  F-25
 
  Exhibit 27 - Financial Data Schedule
          November 30, 1997 (Unaudited).............................................................  F-26
 </TABLE>

                                      F-2
<PAGE>
 
ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1997 AND NOVEMBER 30, 1997 (Unaudited)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
 
                                                                                  February 28,    November 30,
                                                                                      1997           1997
                                                                                  -------------  -------------
ASSETS                                                                                            
------
<S>                                                                               <C>            <C>
CURRENT ASSETS:
  Cash and cash equivalents.....................................................   $ 2,003,890    $  5,839,819
  Trade accounts receivable, less allowance for doubtful accounts
         ($1,455,716 at February 28, 1997 and $2,464,031 at November 30, 1997)..    34,406,026      42,507,431
  Costs in excess of billings on uncompleted contracts..........................     5,191,569       9,291,883
  Prepaid expenses and other current assets.....................................     2,934,193       2,308,060
  Deferred income taxes.........................................................       790,400         790,400
  Refundable income taxes.......................................................       118,340               -
                                                                                   -----------    ------------
     Total current assets.......................................................    45,444,418      60,737,593
 
PROPERTY AND EQUIPMENT, Net (Note D)............................................     3,784,633       5,633,719
 
GOODWILL, net of accumulated amortization (Note C)
 ($1,478,876 at February 28, 1997 and $2,709,740 at November 30, 1997)..........    35,587,076      48,340,578
COVENANTS NOT TO COMPETE, net of accumulated amortization (Note C)
  ($455,316 at February 28, 1997 and $614,750 at November 30, 1997).............       632,184         622,750
OTHER ASSETS....................................................................       845,346       2,210,275
                                                                                   -----------    ------------
                                                                                   $86,293,657    $117,544,915
                                                                                   ===========    ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
  Short-term debt...............................................................   $   300,000    $  2,449,748
  Current maturities of long-term debt..........................................     1,986,730       1,343,007
  Accounts payable..............................................................     7,440,024       7,355,315
  Income taxes payable..........................................................             -         887,673
  Accrued compensation..........................................................     3,789,233       5,832,039
  Accrued payment obligations - ATEC acquisition (Note C).......................     1,721,594       1,748,500
  Other accrued expenses (Note C)...............................................     2,505,143       3,049,780
                                                                                   -----------    ------------
     Total current liabilities..................................................    17,742,724      22,666,062
 
LONG-TERM DEBT, less current maturities.........................................    22,123,344      42,153,196
OTHER LIABILITIES...............................................................       270,386       2,364,618
DEFERRED INCOME TAXES...........................................................       717,900         717,900
                                                                                   -----------    ------------
     Total liabilities..........................................................    40,854,354      67,901,776
                                                                                   -----------    ------------
 
COMMITMENTS AND CONTINGENCIES (Notes B, C and E)

STOCKHOLDERS' EQUITY:
  Common stock, par value $.01 per share; authorized 20,000,000 shares;
   issued and outstanding: 7,800,187 shares at February 28, 1997 and 7,930,107
   shares at November 30, 1997..................................................        78,002          79,301
  Additional paid-in capital....................................................    28,996,627      29,595,099       
  Retained earnings.............................................................    16,364,674      19,968,739
                                                                                   -----------    ------------
     Total stockholders' equity.................................................    45,439,303      49,643,139
                                                                                   -----------    ------------
                                                                                   $86,293,657    $117,544,915
                                                                                   ===========    ============
</TABLE>

See notes to consolidated financial statements.

                                      F-3
<PAGE>
 
ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 30, 1996 AND 1997 (Unaudited)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                               Three Months Ended                       Nine Months Ended
                                                   November 30,                            November 30,
                                        --------------------------------        --------------------------------
                                             1996              1997                  1996              1997
                                        --------------    --------------        --------------    --------------
<S>                                     <C>               <C>                   <C>               <C>
REVENUES.............................   $  32,848,840     $  38,166,478         $  83,416,851     $ 104,263,345
  Reimbursable Costs.................       5,655,772         5,512,841            13,354,833        15,874,338
                                        -------------     -------------         -------------     -------------

NET REVENUES.........................      27,193,068        32,653,637            70,062,018        88,389,007

COST OF NET REVENUES.................      15,905,505        17,527,861            38,962,629        47,940,544
                                        -------------     -------------         -------------     -------------

     Gross Profit....................      11,287,563        15,125,776            31,099,389        40,448,463                     

                                                                                                                                    

OPERATING EXPENSE:
  Selling............................         887,098         1,186,936             2,180,498         3,226,393
  General and administration.........       7,201,702        10,647,993            18,779,916        28,077,190
  Provision for bad debts............         283,680           416,145               624,981         1,160,529
                                        -------------     -------------         -------------     -------------
                                            8,372,480        12,251,074            21,585,395        32,464,112 
                                        -------------     -------------         -------------     -------------

     Operating income................       2,915,083         2,874,702             9,513,994         7,984,351

NONOPERATING EXPENSE (INCOME):
  Interest expense...................         510,118           901,639             1,080,217         2,163,548  
  Interest income....................         (25,668)          (15,960)             (221,115)         (164,864) 
  Other..............................          (2,645)          (31,687)              (36,182)          (44,398) 
                                        -------------     -------------         -------------     -------------
                                              481,805           853,992               822,920         1,954,286
                                        -------------     -------------         -------------     -------------

     Income before income taxes......       2,433,278         2,020,710             8,691,074         6,030,065

INCOME TAX EXPENSE...................         927,000           841,000             3,365,000         2,426,000
                                        -------------     -------------         -------------     -------------

NET INCOME...........................   $   1,506,278     $   1,179,710         $   5,326,074     $   3,604,065
                                        =============     =============         =============     =============

EARNINGS PER COMMON SHARE
  AND DILUTIVE COMMON
  EQUIVALENT SHARE:
     Primary.........................   $         .18     $         .14         $         .62     $         .42
                                        =============     =============         =============     =============
     Fully diluted...................   $         .18     $         .14         $         .62     $         .42
                                        =============     =============         =============     =============

WEIGHTED AVERAGE NUMBER OF
  SHARES OUTSTANDING:
     Primary.........................       8,454,151         8,574,553             8,537,271         8,503,018      
                                        =============     =============         =============     =============
     Fully diluted...................       8,454,151         8,592,981             8,570,170         8,548,252      
                                        =============     =============         =============     =============
</TABLE>

See notes to consolidated financial statements.

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED NOVEMBER 30, 1996 AND 1997 (Unaudited)
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION>
                                                                            1996
                                         ---------------------------------------------------------------------------
                                                                                 
                                                                                NOTES
                                             COMMON STOCK        ADDITIONAL   RECEIVABLE- 
                                             ------------         PAID-IN       COMMON      RETAINED
                                           SHARES     AMOUNT      CAPITAL       STOCK       EARNINGS       TOTAL
                                         ----------  ---------  ------------  ----------  ------------  ------------  
<S>                                      <C>         <C>        <C>           <C>         <C>           <C>
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 $2.50 to
 $10.00 per  share, upon exercise of
 stock options and warrants............     13,680        136        69,202           -             -        69,338
Stock received as consideration for
 sale of  assets.......................    (12,320)      (123)      (51,990)          -       (72,319)     (124,432)
Continuing registration costs applied
 against additional paid-in capital....          -          -       (28,570)          -             -       (28,570)
Other capital transactions.............          -          -             -      45,000             -        45,000
Net income.............................          -          -             -           -     5,326,074     5,326,074
                                         ---------   --------   -----------   ---------   -----------   -----------
 
BALANCE, November 30, 1996.............  7,797,937    $77,979   $29,018,831    $      -   $15,383,014   $44,479,824
                                         =========   ========   ===========   =========   ===========   ===========
 
 
                                                                            1997
                                         ---------------------------------------------------------------------------
                                                                                 
                                                                                 NOTES
                                             COMMON STOCK        ADDITIONAL    RECEIVABLE- 
                                             ------------         PAID-IN       COMMON      RETAINED
                                           SHARES     AMOUNT      CAPITAL       STOCK       EARNINGS       TOTAL
                                         ----------  ---------  ------------  ----------  ------------  ------------ 
BALANCE, February 28, 1997.............  7,800,187    $78,002   $28,996,627    $      -   $16,364,674   $45,439,303
 
Sale of common stock at $1.88 to
  $10.00 per share, upon exercise of
  stock options and warrants...........     96,920        969       288,973           -             -       289,942
Issuance of common stock in connection
  with the acquisition of Bing Yen & 
  Associates, Inc......................     33,000        330       364,733           -             -       365,063
Continuing registration costs applied
  against additional paid-in capital...          -          -       (55,234)          -             -       (55,234)
Net income.............................          -          -             -           -     3,604,065     3,604,065
                                         ---------   --------   -----------   ---------   -----------   -----------
 
BALANCE, November 30, 1997.............  7,930,107    $79,301   $29,595,099    $      -   $19,968,739   $49,643,139
                                         =========   ========   ===========   =========   ===========   ===========
</TABLE>

See notes to consolidated financial statements.

                                      F-5
<PAGE>
 
ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED NOVEMBER 30, 1996 AND 1997 (Unaudited)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                                   Nine Months Ended
                                                                                                     November 30,
                                                                                            -------------------------------
                                                                                                 1996             1997
                                                                                            -------------      ------------
<S>                                                                                         <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.....................................................................             $  5,326,074       $  3,604,065
Adjustments to reconcile net income to net cash from operating activities:
  Depreciation and leasehold amortization......................................                  642,779            888,629
  Amortization of goodwill and covenants.......................................                  887,305          1,392,196
  Provision for bad debts......................................................                  624,981          1,160,529
  Other liabilities............................................................                (130,586)         <2,230,060>
  Changes in operating assets and liabilities, net of amounts acquired in
  acquisitions:
    Accounts receivable and cost in excess of billings on uncompleted 
    contracts..................................................................               (5,400,578)        (2,725,157)
    Prepaid expenses and other assets..........................................                 (448,876)         1,990,786
    Accounts payable and other liabilities.....................................               (7,316,178)        (6,513,985)
    Income taxes payable.......................................................                  225,455            887,673
                                                                                           -------------       ------------
     Net cash flows from operating activities..................................               (5,589,624)        <1,545,322>
                                                                                           -------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of BCM Engineers, Inc., net, of cash acquired.......................                        -         (5,425,539)
  Purchase of Bing Yen & Associates, net of cash acquired......................                        -         (2,093,122)
  Purchase of Environment Warranty Inc, net cash acquired......................                        -             19,350
  Purchase of American Testing and Engineering Corp., net of cash acquired.....               (8,965,952)        (2,420,766)
  Purchase of 3D Information Services, Inc., net of cash acquired..............               (2,926,681)                 -
  Purchase of property and equipment...........................................               (1,123,416)        <1,502,618>
  Other........................................................................                   (1,353)            91,887
                                                                                           -------------       ------------
     Net cash flows from investing activities..................................              (13,017,402)       (11,330,808)
                                                                                           -------------       ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of long-term debt and notes payable...................               21,403,572         41,100,000
  Proceeds from issuance of common stock, net of expenses......................                   69,338            289,942
  Principal payments on long-term debt and notes payable,
    including capital lease obligations........................................              (13,592,048)       (24,622,649)
  Payments for continuing registration costs...................................                  (28,570)           (55,234)
                                                                                           -------------       ------------
     Net cash flows from financing activities..................................                7,852,292         16,712,059
                                                                                           -------------       ------------

     Net change in cash and cash equivalents...................................               10,754,734          3,835,929
                                                                                           -------------       ------------
CASH AND CASH EQUIVALENTS, Beginning of period.................................               13,469,443          2,003,890
                                                                                           -------------       ------------
CASH AND CASH EQUIVALENTS, End of period.......................................            $   2,714,709       $  5,839,819
                                                                                           =============       ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash payments for:
   Interest....................................................................            $    967,711         $   744,534
                                                                                          =============        ============
   Income taxes................................................................            $  3,139,546         $ 1,753,267
                                                                                          =============        ============
</TABLE>

See notes to consolidated financial statements.

                                      F-6

<PAGE>
 
ATC GROUP SERVICES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 30, 1997 (Unaudited)
--------------------------------------------------------------------------------
A. GENERAL

     PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of ATC Group Services 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, 1997,
which are included in the Company's Annual Report on Form 10-K.

     NATURE OF BUSINESS - ATC 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 engineering and consulting services including 
environmental assessments, industrial hygiene, water and wastewater management 
and lead services; construction materials testing and engineering services; and 
related services and products including environmental laboratory analytical 
services, environment insurance products, building surveys and construction 
management. The Company's information technology consulting segment provides
highly-trained technical personnel to supplement client's staffing for analysis,
design and system programming services to assist clients in building new or
modifying existing computer systems. This business unit also provides 
internet/intranet application development, outsourcing and environmental
information management services. 

     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 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.

     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.

     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.

     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
certain pronouncements, with basic and diluted earnings per share. Pro forma
basic earnings per share for the three months ended November 30, 1996 and 1997
are $.19 and .15 respectively. Pro forma diluted earnings per share for
the three months ended November 30, 1996 and 1997 are $.18 and $.14,
respectively. Pro forma basic earnings per share for the nine months ended
November 30, 1996 and 1997 are $.68 and $.46, respectively. Pro forma
diluted earnings per share for the nine months ended November 30, 1996 and 1997
are $.65 and $.44, respectively.


                                      F-7
<PAGE>
 

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

B.   MERGER, NOTE OFFERING AND TENDER OFFER TRANSACTION

     The Company has entered into a Merger Agreement with Acquisition Corp ("the
Issuer") and its parent, Acquisition Holdings, Inc. ("Holdings") a corporation
owned by affiliates of Weiss, Peck & Greer, L.L.C. ("Weiss Peck"), dated
November 26, 1997 (the "Merger Agreement").

     Pursuant to the Merger Agreement, the Issuer has offered (the "Tender 
Offer") to purchase all the issued and outstanding shares of the Company's 
Common Stock, at a price of $12.00 per share, subject to the terms and 
conditions of an Offer to Purchase dated December 4, 1997. The Issuer will issue
$100,000,000 aggregate principal amount of Senior Subordinated Notes (the 
"Notes") to fund the purchase of the Company's Common Stock in the Tender Offer.
The Merger Agreement provides that, as soon as is practicable after the purchase
of at least 50.1% of the Common Stock in the Tender Offer and the satisfaction 
of conditions contained therein, the Issuer will be merged into ATC, with ATC as
the surviving corporation (the "Merger").

     The Company and the holders of the Company's 8.18% Senior Secured Notes 
have entered into a waiver and prepayment agreement (the "Waiver and Prepayment 
Agreement") in connection with the consummation of the transactions contemplated
by the Merger Agreement.  Pursuant to the Waiver and Prepayment Agreement, the 
noteholders agreed to waive certain mandatory prepayment provisions including: 
(i) notice regarding a change of control until such time as more than 50% of the
outstanding shares have been accepted for payment by the Issuer in connection 
with the Tender Offer and (ii) their right to demand prepayment upon the date 
(the "Prepayment Date") which is prior to the earlier of (x) the effective date
of the Merger and (y) the date any event of default occurs as a result of the
Tender Offer, the Merger or any of the transactions contemplated by the Merger
Agreement.

     The Company, the agent and lenders under its existing credit agreement 
have entered into a consent and waiver (the "Consent and Waiver") in connection 
with the consummation of the transactions contemplated by the Merger Agreement. 
The execution of the Consent and Waiver was necessary because the acquisition by
the Issuer of more than 50% of the outstanding Common Stock of the Company in
connection with the Tender Offer constitutes an event of default under the
existing credit facility. The Consent and Waiver provides that the agent and the
lenders (i) consent to the acquisition of shares by the Issuer and (ii) waive,
until the earlier of (x) the date on which the Merger is consummated and (y) the
date which is nine months from the issuer date of the Notes, such event of
default.

C.   BUSINESS ACQUISITIONS 

     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. The preliminary purchase
price allocation for the fiscal 1998 acquisitions are subject to change when 
additional information concerning asset and liability valuations is obtained. 
Therefore, the final allocation may differ from the preliminary allocation.

Fiscal 1998
-----------
     Bing Yen & Associates, Inc. - On November 26, 1997 ATC purchased all of the
outstanding stock of Bing Yen & Associates, Inc. ("Bing Yen"). Bing Yen provides
geotechnical and structural forensic Services to a wide variety of clients in
the western United States and is located in Tustin, California.

     The purchase price was comprised of the following consideration:
<TABLE> 
     <S>                                                             <C>
     Amounts paid to seller:
        Cash........................................................ $ 2,200,000
        Note payable at 8% due January 2, 1998......................     550,000
        Notes payable at 8% due in three annual                     
          installments commencing January 1999......................   1,150,000
                                                                     -----------
                                                                       3,900,000
     Liabilities assumed:                                            
       Current liabilities..........................................     313,254
     Direct expenses of transaction.................................      50,000
                                                                     -----------
                                                                       4,263,254
                                                                     ===========
</TABLE> 

                                      F-8
<PAGE>
 
     In addition, a maximum aggregate principal amount of $1,500,000 in
unsecured contingent achievement promissory notes will be issued if certain
minimum net revenue levels are achieved, resulting in a maximum total
consideration to seller of $5,400,000.

     The notes payable of $1,150,000 are subject to setoffs if actual net assets
as of the closing date are below warranted amounts, for trade receivables not
collected within one year of the closing date and under certain other specified
conditions.

     The preliminary purchase price allocation is as follows:

     Cash.......................................................... $   163,680
     Accounts receivable - net.....................................   2,292,191
     Work in process...............................................       5,122
     Prepaid expense...............................................      10,746
     Property and equipment........................................     142,241
     Covenant not to compete.......................................      50,000
     Goodwill......................................................   1,595,324
     Other assets..................................................       3,950
                                                                    -----------
                                                                    $ 4,263,254
                                                                    ===========

     Environmental Warranty, Inc. - On November 4, 1997, ATC purchased 90.1% of
the outstanding stock of Environmental Warranty, Inc. ("E.W.I."), a property and
casualty insurance brokerage firm specializing in environmental insurance 
products.

     The purchase price was comprised of the following consideration:

     Amounts paid to sellers:                                       
       Cash........................................................ $   150,000
       Notes payable, net of imputed interest at 8.0%..............     582,424
       Payment commitments.........................................     275,000
       ATC Common Stock (33,000 shares)............................     365,062
                                                                    -----------
                                                                      1,372,486
     Liabilities assumed:                                           
        Current liabilities........................................     314,811
     Direct expenses of transaction................................      25,000
                                                                    -----------
                                                                    $ 1,712,297
                                                                    ===========

     The notes payable are due in three annual installments commencing November
1998 and are subject to certain setoffs. The payment commitments are also due in
three installments commencing November 1999. ATC issued 33,000 shares of
restricted common stock valued at 11 1/16 per share.

     The preliminary purchaser price allocation is as follows:

     Cash and equivalents.......................................... $   169,350
     Receivables...................................................     158,391
     Prepaid and other current assets..............................       2,875
     Property and other............................................      15,384
     Goodwill......................................................   1,366,297
                                                                    -----------
                                                                    $ 1,712,297
                                                                    ===========

     BCM Engineers, Inc. - On August 20, 1997 ATC purchased certain assets and
assumed certain liabilities of the environmental consulting and engineering
services division of the Smith Technology Corporation which operated
primarily as BCM Engineers, Inc. ("BCM").  BCM is a leading municipal water and
wastewater environmental engineering firm and provides services in water,
resource management, environmental compliance and site investigations, remedial
design and engineering, asbestos, and air quality management.  BCM serves major
industrial clients in the chemical, petrochemical, oil and gas manufacturing,
water supply, commercial development and utilities industries from multiple
locations in the east and Gulf Coast.

     The purchase price was comprised of the following consideration:

     Amounts paid to seller or to others on behalf of seller:
        Cash....................................................... $ 5,425,539
        Notes payable..............................................   2,950,000
        Less note payable offset...................................    (200,000)
     Liabilities assumed:                                          
        Current liabilities........................................   2,833,665
        Non current liabilities....................................   1,356,151
     Direct expenses related to acquisition........................     112,133
                                                                    -----------
                                                                    $12,477,488
                                                                    ===========

                                      F-9
<PAGE>
 

     Notes payable includes a $200,000 note which became due September 20, 1997
and is subject to offset for reductions in net assets and for unrecorded
liabilities arising through the closing date of the transaction. Based on the
closing balance sheet provided by the Seller, the Company will offset the
$200,000 in full. In addition, based on unrealized work in process warranted by
the seller, an additional offset of $1,172,471 has been reflected as an offset
to short term debt in the accompanying consolidated balance sheet.

     The preliminary purchase price allocation is summarized as follows:

<TABLE>
     <S>                                                            <C>
     Accounts receivable, net of allowance......................... $ 4,710,960
     Work in process...............................................   3,684,939
     Other current assets..........................................       7,357
     Other assets..................................................   1,327,270
     Covenants not to compete......................................     100,000
     Goodwill......................................................   2,646,962
                                                                    -----------
                                                                    $12,477,488
                                                                    ===========
</TABLE>

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.

     Under the original purchase agreement, the Company was contingently liable
to ATEC for additional purchase consideration up to $10,750,000 if certain
conditions were met. The seller since met certain of these contingent
consideration requirements in the quarter ended May 31, 1997 and the Company
began to amortize the associated goodwill in this period. In addition, in
connection with the issuance of the Senior Secured Notes on May 29, 1997, the
Company and the seller executed an amendment to the original purchase agreement
and agreed to remove or modify the remaining contingent consideration
requirements. As a result of the foregoing, the Company paid $2,420,766 on May
30, 1997 and is obligated to make monthly payments through February 1999. The
monthly payments due during the next year are included in short-term
liabilities. The non-current portion at August 31, 1997 of $1,721,500 is
included in Other Liabilities in the accompanying consolidated balance sheet.
Additionally, the Company has the option to purchase certain properties from the
seller for $1,700,000 in fiscal 2002.

     The purchase price as amended was comprised of the following consideration:

<TABLE>
<CAPTION>
     <S>                                                             <C>
     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
        Contingent/additional consideration under                               
          amended purchase agreement.............................      9,049,000
     Liabilities assumed:                                          
        Current liabilities......................................     15,731,076
        Bank debt................................................     10,750,000
     Direct expenses related to acquisition......................        139,438
                                                                     -----------
                                                                     $50,670,514
                                                                     ===========
                                                                   
     The purchase price allocation reflecting the                     
       additional consideration is summarized as follows:             
                                                                      
     Accounts receivable and work in process,                      
       net of allowances........................................    $18,957,768
     Other current assets.......................................      2,023,996
     Other assets...............................................      1,428,617
     Covenants not to compete...................................        430,000
     Goodwill...................................................     27,830,133
                                                                   ------------
                                                                    $50,670,514
                                                                   ============
</TABLE>

     As a result of sellers warranties of purchased trade receivables and work
in process that were not realized, the Company is entitled to set-offs of
$618,835 against the option price to acquire certain properties in fiscal 2002.
If the Company does not exercise its option, the set-offs will be refunded by
the seller. Amounts are included in other non-current assets in the accompanying
consolidated balance sheet.

     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 the purchase obligations in full. No
amounts have been drawn against the letter of credit.

                                     F-10
<PAGE>
 
     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:

<TABLE>
     <S>                                                             <C> 
     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
                                                                     ===========
</TABLE>                                                                       
                                                                               
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.                                                
                                                                               
<TABLE>                                                                        
     <S>                                                             <C>
     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
                                                                     ===========
</TABLE>

     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
D.  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:

<TABLE>
     <S>                                                             <C>
     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
                                                                     ===========
</TABLE>
 
     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 D).

                                     F-11
<PAGE>
 
     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.

<TABLE>
  <S>                                                               <C>
     Amount paid to seller or on behalf of seller:
            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..........................................   $474,973
     Property and equipment........................................   115,060
     Covenants not to compete......................................    30,000
     Goodwill......................................................   248,135
                                                                     --------
                                                                     $868,168
                                                                     ========
</TABLE>                                                                  

     PRO FORMA FINANCIAL INFORMATION (UNAUDITED) - The following unaudited pro
forma information sets forth the results of operations of ATC as if ATC's
purchase of significant subsidiaries including ATEC and 3D had occurred on March
1, 1996:

<TABLE>
<CAPTION>
                                                                          PRO FORMA
                                                                 -----------------------------
                                                                      Nine Months Ended       
                                                                         November 30,         
                                                                 -----------------------------
                                                                      1996             1997
                                                                 -------------    ------------
     <S>                                                         <C>              <C>  
     Revenues................................................... $ 101,538,984    $ 104,263,345
     Net income................................................. $   6,223,528    $   3,604,065
     Earnings per share (fully diluted)......................... $         .73    $         .42
     Weighted average shares (fully diluted)....................     8,570,170        8,548,252
</TABLE>                                                    
                                                            
D.  PROPERTY AND EQUIPMENT                                  
                                                            
     Property and equipment is comprised of the following:  

<TABLE>                                                     
<CAPTION>                                                   
                                                                  February 28,     November 30,      
                                                                      1997             1997    
                                                                  ------------     ------------
     <S>                                                         <C>              <C>         
     Office equipment........................................... $   3,339,049    $   4,867,987
     Laboratory and field equipment.............................     3,335,721        3,949,395
     Transportation equipment...................................       207,857          542,139
     Leasehold improvements.....................................       849,700        1,078,240
                                                                 -------------    -------------
                                                                     7,732,327       10,437,761
     Less accumulated depreciation..............................     3,947,694        4,804,042
                                                                 -------------    -------------
     Property and equipment, net................................ $   3,784,633    $   5,633,719
                                                                 =============    ============= 
</TABLE>

                                     F-12
<PAGE>
 
E.  CONTINGENCIES

     Executives Bonus Dispute - Two executives of the Company have
     ------------------------
indicated commitments for discretionary bonuses were made to them totalling $1.1
million. They claim bonuses were to consist of approximately $300,000 of cash
and $800,000 from the issuance of stock and stock options having exercise prices
below market trading prices. They claim commitments were made pursuant to an
oral agreement. The Company had discussions and negotiations concerning the
possibility of such bonuses, but no final determination had been made and no
bonus arrangements were presented to or approved by the Company's compensation
committee. If the pending Transactions are consummated, the Issuer's Board of
Directors, who have indicated their approval of such amounts, would become
members of the Company's Board of Directors, along with the executives making
the claim. Accordingly, the Company expects to record a charge against earnings
of approximately $1.1 million in the fourth quarter ending February 28, 1998.

     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 original plaintiffs in this action were 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 and an employee.  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 banks 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.  This action is entitled Irvin E. Richter et al. v. ATC Group Services,
et al., Civ. No. 96-5818(JBS), U.S. District. Court for the District of New
Jersey, December 6, 1996.  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.
The case is currently in the discovery phase.  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.

     Joseph I. Peters v. ATC Group Services Inc., et al., Court of Chancery of 
     ---------------------------------------------------
the State of Delaware, New Castle County, C.A. No. 16026-NC, November 12, 1997.
This action names ATC, ATC's board of directors, Weiss, Peck & Greer, LLC
("WPG") and WPG Corporate Development associates, V. L.P. ("WPG Fund") as
defendants. The suit challenges the announced offer for the acquisition of the
stock of the Company at $12 per share by a group led by certain members of
management of the Company and the WPG Fund (the "Offer"). The complaint seeks
class status on behalf of the stockholders of the Company and claims that the
offer price for the Company's common stock is inadequate and the defendants have
breached their fiduciary duties to the plaintiffs and the other stockholders of
the Company. The suit seeks, among other things, to enjoin the Offer and related
merger transaction; to set aside the transaction in the event that it is
consumated; and to recover compensatory damages in an unspecified amount. The 
Company believes the allegations contained in the Complaint is meritless and, to
the extent the actions proceed, intends to defend the action vigorously.

     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

                                     F-13
<PAGE>
 
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. This case is in the
discovery stage. 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. 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.

      Barrett-Moeller et al. v. ATC Associates Inc., Civ. Action No. 97-01037D,
-----------------------------------------------------------------------------
and Joan Spencer v. TLT Construction Et Al., Civ. Action No 97-4161C, Superior
-------------------------------------------
Court of Middlesex County, Massachusetts. These actions arise out of the same
set of occurrences as Commonwealth of Massachusetts v. TLT Construction, Inc.
described above. These are suits by employees who worked in the Suffolk County
Courthouse during the period in which the off-gassing of harmful vapors was
alleged to have occurred. The suits seek damages for personal injury in
unspecified amounts. Notices of these claims have been made to ATC's
professional liability insurer, and the claims should be covered by insurance,
subject to a $250,000 deductible.

     Cambridge Housing Authority v. Con-Test, Inc. and ATC Group Services Inc.,
     ------------------------------------------------------------------------
Superior Court of Middlesex County, Massachusetts; October 1, 1997.  This is a
claim for damages in excess of $1,000,000 alleging that Con-Test, Inc. breached
its contract with Cambridge Housing Authority and was negligent in performing
asbestos survey work preparatory to a housing project re-modernization project.
ATC is joined as a party on a successor liability theory, even though the
services giving rise to the claim occurred over two years prior to ATC's
purchase of business assets from Con-Test.  Although ATC has not yet answered
the complaint,  ATC intends to vigorously defend the claim on the grounds that
it is not a successor under any known precedent of Massachusetts law.  It is
therefore the opinion of the Company that the probability of material loss from
this claim is low.

     One Parkway Project. The Company has received notice of related potential
     -------------------
claims by R.M. Shoemaker Co., a Pennsylvania construction firm, and four of its
workers arising out of the Company's performance of asbestos abatement survey,
design and project monitoring services on a project known as the One Parkway
Project in Philadelphia. The claims allege that ATC: (i) failed to locate
certain asbestos-containing materials in a high rise building during its
inspection of the facility; (ii) failed to include these undiscovered materials
in the design specifications for an asbestos abatement project in connection
with a renovation project on the building; and (iii) failed to properly
clearance inspect and test the areas on which abatement had been performed prior
to demobilization of the asbestos abatement project. The claimants allege that
the Company's acts or omissions resulted in additional corrective actions
including remobilization of certain areas, delays of the renovation project and
exposure of construction workers to asbestos contamination. R.M. Shoemaker has
alleged that it sustained damages in the amount of $1,500,000 for additional
abatement costs plus additional damages for delay. The workers' exposure claims
have not been quantified. No suit has been filed.

     At this point, the Company believes that it was not responsible for the
alleged problems on this project. ATC's responsibilities on the project were
limited, and ATC believes that the alleged omissions which allegedly resulted in
the alleged losses were outside the scope of the Company's contractual
responsibilities. The Company has served notice of these claims upon its
professional liability insurer. This coverage is subject to a $250,000
deductible.

     Indiana Department of Environmental Management v. ATC Associates Inc. 
     ---------------------------------------------------------------------
ATC received a Notice of Violation and Proposed Agreed Order, EPA I.D. No.
IND004939765, dated June 9, 1997, on June 12, 1997. The Notice of Violation
seeks a penalty amount of $120,500 for alleged violations of the federal
hazardous waste regulations and Indiana hazardous waste regulations arising out
of the handling of hazardous wastes in ATC's Indianapolis laboratory. On January
7, 1998 ATC attended a second informal settlement conference with the Indiana
Department of Environmental Management ("IDEM"). As a result of this meeting, a
significant reduction in the penalty amount seems probable. American Testing and
Engineering Corporation will be responsible for a significant part of any
ultimate penalty. Accordingly, ATC does not believe this case will result in a
material loss.


     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-14
<PAGE>
 
F.  INDUSTRY SEGMENT DATA

     The Company provides services through its environmental consulting and
engineering segment and its information technology consulting segment.  Industry
segment data is as follows:

<TABLE>
<CAPTION>
                                                  Environmental  Information  Adjustments &
                                                  & Engineering  Technology   Elimination's       Total
                                                  -------------  -----------  --------------  -------------
<S>                                               <C>            <C>          <C>             <C>
Fiscal 1998
-----------
     Quarter Ended November 30, 1997
     -------------------------------
 
     Revenues................................      $ 35,872,792   $  2,293,686  $          -   $ 38,166,478
     Operating income........................         2,723,106        151,596             -      2,874,702 
     Depreciation and amortization...........           372,725         12,049             -        384,774 
     Capital expenditures....................           819,766         15,459             -        835,225 
                                                                                            
     Nine Months-Ended November 30, 1997                                                    
     -----------------------------------
                                                                                            
     Revenues................................      $ 98,086,874   $  6,479,879  $ (  303,408)  $104,263,345 
     Operating income........................         7,608,478        375,873             -      7,984,351 
     Depreciation and amortization...........           856,910         31,719             -        888,629 
     Capital expenditures....................         1,446,547         56,071             -      1,502,618 
 
     Identifiable Assets as of November 30, 1997   $114,456,031     $5,759,521  $ (2,670,637)  $117,544,915 
     ------------------------------------------- 
 
FISCAL 1997
-----------
     Quarter Ended November 30, 1996
     -------------------------------
 
     Revenues................................      $ 30,432,499     $2,416,341  $         -    $ 32,848,840
     Operating income........................         2,756,379        158,704            -       2,915,083
     Depreciation and amortization...........           233,633          4,072            -         237,705
     Capital expenditures....................           333,972          5,758            -         339,730
 
     Nine Months Ended November 30, 1996
     -----------------------------------
 
     Revenues................................      $ 78,332,311     $5,084,540  $         -    $ 83,416,851
     Operating income........................         9,179,261        334,733            -       9,513,994
     Depreciation and amortization...........           634,574          8,205            -         642,779
     Capital expenditures....................         1,071,339         52,077            -       1,123,416
 
     Identifiable Assets as of November 30, 1996   $ 84,594,843     $6,233,209  $(2,300,000)   $ 88,528,052
     -------------------------------------------
</TABLE>

                                     F-15
<PAGE>
 
ATC GROUP SERVICES INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

RECENT DEVELOPMENTS

FY 1998
-------
MERGER, NOTE OFFERING AND TENDER OFFER TRANSACTIONS

     The Company has entered into a Merger Agreement with Acquisition Corp ("the
issuer") and its parent, Acquisition Holdings, Inc. ("Holdings") a corporation
owned by affiliates of Weiss, Peck & Greer, L.L.C. ("Weiss Peck"), dated
November 26, 1997 (the "Merger Agreement").

     Pursuant to the Merger Agreement, the Issuer has offered (the "Tender 
Offer") to purchase all the issued and outstanding shares of the Company's 
Common Stock, at a price of $12.00 per share, subject to the terms and 
conditions of an Offer to Purchase dated December 4, 1997. The Issuer will issue
$100,000,000 aggregate principal amount of Senior Subordinated Notes (the 
"Notes") to fund the purchase of the Company's Common Stock in the Tender Offer.
The Merger Agreement provides that, as soon as is practicable after the purchase
of at least 50.1% of the Common Stock in the Tender Offer and the satisfaction 
of conditions contained therein, the Issuer will be merged into ATC, with ATC as
the surviving corporation (the "Merger").

     The Company and the holders of the Company's 8.18% Senior Secured Notes 
have entered into a waiver and prepayment agreement (the "Waiver and Prepayment 
Agreement") in connection with the consummation of the transactions contemplated
by the Merger Agreement.  Pursuant to the Waiver and Prepayment Agreement, the 
noteholders agreed to waive certain mandatory prepayment provisions including: 
(i) notice regarding a change of control until such time as more than 50% of the
outstanding shares have been accepted for payment by the Issuer in connection 
with Tender Offer and (ii) their right to demand prepayment upon the date (the 
"Prepayment Date") which is prior to the earlier of (x) the effective date of 
the Merger and (y) the date any event of default occurs as a result of the 
Tender Offer, the Merger or any of the transactions contemplated by the Merger 
Agreement.

     The Company, the agent and lenders under its existing credit agreement 
have entered into a consent and waiver (the "Consent and Waiver") in connection 
with the consummation of the transactions contemplated by the Merger Agreement. 
The execution of the Consent and Waiver was necessary because the acquisition by
the Issuer of more than 50% of the outstanding Common Stock of the Company in
connection with the Tender Offer constitutes an event of default under the
existing credit facility. The Consent and Waiver provides that the agent and the
lenders (i) consent to the acquisition of shares by the Issuer and (ii) waive,
until the earlier of (x) the date on which the Merger is consummated and (y) the
date which is nine months from the issuer date of the Notes, such event of
default.

ACQUISITIONS

      Acquisition of Bing Yen & Associates -- On November 26, 1997, the Company 
completed the purchase of all of the outstanding stock of Bing Yen & Associates,
Inc. ("Bing Yen").  Bing Yen provides geotechnical and structural forensic 
services to a wide variety of clients in the western United States.  The 
purchase price totaled $3.9 million, consisting of $2.2 million paid at closing,
$0.6 million in the form of a short-term, interest bearing promissory note, $1.2
million in unsecured, three-year, interest bearing notes.  In addition a 
maximum aggregate principal amount of $1.5 million in unsecured contingent 
achievement promissory notes will be issued if certain minimum net revenue 
levels are achieved resulting in a maximum purchase price of $5.4 million.

      Acquisition of Environmental Warranty, Inc. -- On November 4, 1997, the
Company purchased 90.1% of the outstanding stock of Environmental Warranty, Inc.
("EWI"), a property and casualty insurance brokerage firm specializing in
environmental insurance with property and casualty licenses, including excess
and surplus lines in 43 states and with license applications pending in an
additional five states. EWI sells insurance products covering environmental
liabilities to large property owners and municipal government clients. The
purchase price totaled approximately $14 million, consisting of $218,750 in cash
at closing, $586,041 (net of imputed interest) in contingent three-year non-
interest bearing notes (subject to certain set-offs), $206,250 of unconditional
payment commitments due in three annual installments and 33,000 shares of
unregistered Common Stock of the Company (valued at $11 1/16 per share).

      Acquisition of BCM Engineers, Inc.--On August 20, 1997, the Company
purchased certain assets and assumed certain liabilities of the Engineering
Division of Smith Technology Corporation ("Smith Technology") which operated
primarily as BCM Engineers, Inc. ("BCM"). BCM is a leading environmental
engineering and consulting firm that provides services in water and wastewater
treatment, natural resources management, environmental compliance and site
investigation, remedial design and engineering, asbestos and air quality
management. The acquisition of BCM was accounted for as a purchase and the
results of operations of BCM are included in the unaudited consolidated
statement of operations for the period ended August 31, 1997. The purchase price
totaled $12.5 million consisting of $5.4 million in cash, $2.8 million in short-
term notes payable that are subject to set-offs and assumed liabilities of $4.3
million, including working capital liabilities.

                                     F-16
<PAGE>
 

SENIOR DEBT OFFERING AND 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.

PRIOR YEAR ACQUISITIONS

FY 1997
-------
     Acquisition of 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.

     In the three months ended May 31, 1997, the seller met certain contingent
consideration requirements.  Additionally, in connection with the issuance of
the Senior Secured Notes, the Company and seller amended the original purchase
agreement.  As a result of these events, additional purchase consideration of
$9,049,000 was recorded (Note B).

     Acquisition of 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.  Its clients include major companies in
the telecommunications, financial services and pharmaceutical industries.

                                     F-17
<PAGE>
 
FY 1996
-------
     Acquisition of 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.

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

RESULTS OF OPERATIONS

Three Months Ended November 30, 1997 Compared with Three Months Ended November
------------------------------------------------------------------------------
30, 1996
--------

     Revenues in the three months ended November 30, 1997 increased 16.2% to
$38,166,478, compared with $32,848,840 in the three months ended November 30,
1996. This increase was primarily attributable to the acquisition of BCM
effective August 20, 1997.

     Revenues in the three months ended November 30, 1997 from ATC's branch
offices having comparable operations in the three months ended November 30, 1996
decreased 2.6% to $32,008,846, compared with $32,848,840 in the 
three months ended November 30, 1996. Revenues attributable to the acquisition 
of certain assets of BCM and EWI totaled $6,157,632, or 16.1% of revenues, for 
the three months ended November 30, 1997.

     Reimbursable costs represent direct project expenses billed to
environmental and engineering segment clients. For the three months ended
November 30, 1997, reimbursable costs decreased 2.5% to $5,512,841, compared
with $5,655,772, in the three months ended November 31, 1996. Reimbursable costs
as a percentage of revenues decreased to 14.4% in the three months ended 
November 30, 1997 compared with 17.2% in the three months ended November 30, 
1996. The Company's environmental management and traditional consulting 
services, consisting of drilling, materials testing and engineering services 
represented a lower portion of total revenues in the current period and these 
services utilize higher amounts of outside services and direct project expenses
resulting in the higher percentage of reimbursable costs in the prior period.

     Gross profit in the three months ended November 30, 1997 increased 34.0% to
$15,125,766, compared with $11,287,563 in the three months ended November 30,
1996.  Gross profit as a percentage of net revenue increased to 46.3% in the
three months ended November 30, 1997, compared with 41.5% in the three months
ended November 30, 1996.  The gross profit percentage increase is due to 
lower margins earned in the prior period on certain of ATEC's environmental 
services, the final project costs incurred to complete a large fixed-price 
contract which 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 the three months ended November 30, 1997 increased 
46.3% to $12,251,074, compared with $8,372,480 in the three months ended 
November 30, 1996.  Operating expenses increased as a percentage of net 
revenues to  37.5% in the three months ended November 30, 1997, compared with 
30.8% in the three months ended November 30, 1996.  The increase in operating 
expenses as a percentage of net revenue for the three months ended November 30, 
1997 fully reflects the ATEC service mix and integration of its operations, 
including additional general and administrative costs. The increase was due 
primarily to structural adjustments in ATC's operating infrastructure to 
accomodate the integration of ATEC's operations. The structural adjustments 
consisted primarily of the creation of a regional management infrastructure to 
manage the larger, more geographically and technically diverse business
resulting from the ATEC acquisition. Such structural investments required the
Company to add higher level operations management employees, including regional
management and financial personnel and sales personnel for its corporate sales
programs. As a result of the foregoing, employee costs increased 78.0% to
$5,575,620, or 17.1% of net revenues, in the three months ended November 30,
1997 compared with $3,132,501, or 11.5% of net revenues, in the three months
ended November 30, 1996. Other increases in operating expenses resulted from
legal expenses and administrative expenses resulting from the growth in
operations and increased employee levels. Additionally, in the three months
ended November 30, 1997, amortization of goodwill and intangibles increased to
$471,828, compared with $362,510 in the three months ended November 30, 1996
reflecting the additional goodwill amortization resulting from acquisitions.

                                      F-18
<PAGE>
 
     Operating income in the three months ended November 30, 1997 decreased 1.4%
to $2,874,702 compared with $2,915,083 in the three months ended November 30,
1996. Operating income decreased as a percentage of net revenues to 8.8% in the
three months ended November 30, 1997, compared with 10.7% in the three months
ended November 30, 1996.

     Nonoperating expense in the three months ended November 30, 1997 increased
to $853,992 compared with $481,805 in the three months ended November 30, 1996.
The increase is primarily attributable to increased interest expense on the
8.18%, Senior Secured Notes in excess of bank debt outstanding in the prior
period. Increases in interest expense were offset in part by interest income on
the net cash proceeds received from the Senior Secured Notes.

     Income tax expense in the three months ended November 30, 1997 was
$841,000, compared with $927,000 in the three months ended November 30, 1996.
During the three months ended November 30, 1997 and 1996, the Company's
effective tax rates were 41.6% and 38.1%, respectively.

     As a result of the foregoing, net income in the three months ended 
November 30, 1997 decreased 21.7% to $1,179,710, or $.14  per share on a fully
diluted basis, compared with $1,506,278 or $.18 per share on a fully diluted
basis, in the three months ended November 30, 1996.  The fully diluted weighted 
average number of shares outstanding remained approximately the same.  Net
income decreased as a percentage of net revenues to 3.6% in the three months
ended November 30, 1997, compared with 5.5% in the three months ended November
30, 1996.

Nine Months Ended November 30, 1997 Compared with Nine Months Ended November 
----------------------------------------------------------------------------
30, 1996
--------

     Revenues in the nine months ended November 30, 1997 increased 25.0% to
$104,263,345, compared with $83,416,851 in the nine months ended November 30,
1996. This increase was primarily attributable to the acquisition of BCM
effective August 20, 1997 and revenues from the ATEC and 3D acquisitions
completed in May 1996.

     Revenues in the nine months ended November 30, 1997 from ATC's branch
offices having comparable operations in the nine months ended November 30, 1996
decreased 2.9% to $77,824,713, compared with $80,167,610 in the nine months
ended November 30, 1996. Comparable revenues included revenues of ATEC and 3D
for the six months ended November 30, 1997 and 1996, respectively, but excluded
first quarter revenues on these acquisitions as they were made in the quarterly
period ended May 31, 1997. Comparable revenues decreased in part, due to a large
project which was completed in the first quarter of the prior year period.
Revenues attributable to the acquisition of certain assets of BCM and EWI
totaled $6,157,632, or 25.4% of revenues, for the nine months ended November 30,
1997.

     Reimbursable costs represent direct project expenses billed to
environmental and engineering segment clients. For the nine months ended
November 30, 1997, reimbursable costs increased 18.9% to $15,874,338 compared
with $13,354,833, in the nine months ended November 30, 1996. Reimbursable costs
as a percentage of revenues decreased to 15.2% in the nine months ended November
30, 1997 compared with 16.0% in the nine months ended November 30, 1996.

     Gross profit in the nine months ended November 30, 1997 increased 30.1% to
$40,448,463 compared with $31,099,389 in the nine months ended November 30, 
1996. Gross profit as a percentage of net revenue increased to 45.8% in the 
nine months ended November 30, 1997, compared with 44.4% in the nine months 
ended November 30, 1996. The gross profit percentage for the prior year period
was up slightly due to a highly profitable first quarter which benefited from
work previously delayed from adverse winter weather conditions.

     Operating expenses in the nine months ended November 30, 1997 increased
50.4% to $32,464,112, compared with $21,585,395 in the nine months ended 
November 30, 1996. Operating expenses increased as a percentage of net revenues 
to 36.7% in the nine months ended November 30, 1997, compared with 30.8% in the
nine months ended November 30, 1996. The increase in operating expenses as a
percentage of net revenue for the current nine month period fully reflects the
ATEC service mix and integration of its operations including additional labor
and administrative costs. The increase was due primarily to structural 
adjustments in ATC's operating infrastructure to accommodate the integration of 
ATEC's operations. The structural adjustments consisted primarily of the 
creation of a regional management infrastructure to manage the larger, more 
geographically and technically diverse business resulting from the ATEC 
acquisition. Such structural investments required the Company to add higher 
level operations management employees, including regional management and 
financial personnel and sales personnel for its corporate sales programs. In 
addition, executive and employee compensation levels increased during the latter
part of fiscal 1997 and certain additional bonuses to branch personnel were paid
during the quarterly period ended November 30, 1997 in excess of amounts
previously accrued. Employee costs increased 64.9% to $14,568,126, or 16.5% of
net revenues, in the nine months ended November 30, 1997 compared with
$8.837,196, or 12.6% of net revenues, in the nine months ended November 30,
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 legal expenses and administrative expenses resulting from


                                     F-19
<PAGE>
 
the growth in operations and increased employee levels. Additionally, in the
nine months ended November 30, 1997, amortization of goodwill and intangibles
increased to $1,392,196, compared with $887,305 in the nine months ended
November 30, 1996 reflecting the additional goodwill amortization resulting from
acquisitions.

     Operating income in the nine months ended November 30, 1997 decreased to
$7,984,351, compared with $9,513,994 in the nine months ended November 30, 1996.
Operating income decreased as a percentage of net revenues to 9.0% in the nine
months ended November 30, 1997, compared with 13.6% in the nine months ended
November 30, 1996.

     Nonoperating expense in the nine months ended November 30, 1997 increased
to $1,954,286 compared with $822,920 in the nine months ended November 30, 1996.
The increase in nonoperating expense is primarily attributable to increased
interest expense due to increased bank debt outstanding since May 1996 when the
ATEC and 3D acquisitions were completed, and the issuance of the Senior Secured
Notes in May 1997 in excess of previously outstanding bank debt.

     Income tax expense in the nine months ended November 30, 1997 was
$2,426,000, compared with $3,365,000 in the nine months ended November 30,
1996. During the nine months ended Novmeber 30, 1996 and 1995, the Company's
effective tax rates were 40.2% and 38.7%, respectively.

     As a result of the foregoing, net income in the nine months ended November
30, 1997 decreased 32.3% to $3,604,065, or $.42 per share on a fully diluted
basis, compared with $5,326,074 or $.62 per share on a fully diluted basis,
in the nine months ended November 30, 1996. Net income decreased as a percentage
of net revenues to 4.1% in the nine months ended November 30, 1997, compared
with 7.6% in the nine months ended November 30, 1996.

LIQUIDITY AND CAPITAL RESOURCES

     At November 30, 1997, working capital was $38,071,531 compared with working
capital of $27,701,694 at February 28, 1997, an increase of $10,369,857. This
increase in working capital is primarily a result of the net proceeds of the
Senior Secured Notes after repayment of bank debt and fees, and the purchase of
certain assets of BCM including accounts receivable and unbilled receivables. As
a result of the Company's acquisition of BCM and additional consideration
incurred in connection with the ATEC acquisition, the Company's tangible net
worth decreased to $679,811 at November 30, 1997 from $9,220,043 at February 28,
1997, primarily as a result of goodwill amounts recognized in connection with
these transactions.

     During the nine months ended November 30, 1997, net cash flows used in
operating activities were $ 1,545,322, primarily due to the increase in billed
and unbilled receivables and decreases in accounts payable and other
liabilities, representing payments of property facility rentals, non-compete
consideration and assumed liabilities of ATEC and other acquisitions.  Net cash
flows used in investing activities were $11,330,808, resulting from the
acquisitions of BCM and ATEC and purchases of property and equipment.  Net cash
flows provided by financing activities were $16,712,059, primarily representing
the proceeds of the Senior Secured Notes less repayment of outstanding bank debt
and a bank borrowing of $5,500,000 made in connection with the BCM acquisition.

     During the nine months ended November 30, 1996, net cash flows used in
operating activities were $5,589,624, primarily due to the decrease in accounts
payable and other liabilities, representing payments of property facility
rentals, non-compete consideration and assumed liabilities of ATEC and other
acquisitions, and an increase in billed and unbilled receivables. Net cash flows
used in investing activities were $13,017,402, resulting from the acquisitions
of ATEC and 3D and purchases of property and equipment. Net cash flows provided
by financing activities were $ 7,852,292, primarily representing the proceeds of
the bridge credit facility, less payments made on long-term debt and notes
payable assumed from ATEC.

     Management of the Company believes the cash on hand from the issuance of
the Senior Secured Notes after repayment of the bridge credit facility, funds
available from its unused 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.

     The Notes impose certain limitations on the ability of the Issuer and 
its subsidiaries to, among other things, incur additional indebtedness, incur 
liens, pay dividends or make certain other restricted payments, consummate 
certain asset sales, enter into certain transactions with affiliates, issue 
preferred stock, merge or consolidate with any other person or sell, assign, 
transfer, lease, convey or otherwise dispose of all or substantially all of the 
assets of the Issuer or its subsidiaries. 

   
                                     F-20
<PAGE>
 
 
                          PART II - OTHER INFORMATION

ITEM 1. CONTINGENCIES

     Executives Bonus Dispute - Two executives of the Company have
     ------------------------
indicated commitments for discretionary bonuses were made to them totalling $1.1
million. They claim bonuses were to consist of approximately $300,000 of cash
and $800,000 from the issuance of stock and stock options having exercise prices
below market trading prices. They claim commitments were made pursuant to an
oral agreement. The Company had discussions and negotiations concerning the
possibility of such bonuses, but no final determination had been made and no
bonus arrangements were presented to or approved by the Company's compensation
committee. If the pending Transactions are consummated, the Issuer's Board of
Directors, who have indicated their approval of such amounts, would become
members of the Company's Board of Directors, along with the executives making
the claim. Accordingly, the Company expects to record a charge against earnings
of approximately $1.1 million in the fourth quarter ending February 28, 1998.

     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 original plaintiffs in this action were 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 and an employee.  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 banks 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.  This action is entitled Irvin E. Richter et al. v. ATC Group Services,
et al., Civ. No. 96-5818(JBS), U.S. District. Court for the District of New
Jersey, December 6, 1996.  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.
The case is currently in the discovery phase.  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.

     Joseph I. Peters v. ATC Group Services Inc., et al., Court of Chancery of 
     ---------------------------------------------------
the State of Delaware, New Castle County, C.A. No. 16026-NC, November 12, 1997.
This action names ATC, ATC's board of directors, Weiss, Peck & Greer, LLC
("WPG") and WPG Corporate Development associates, V. L.P. ("WPG Fund") as
defendants. The suit challenges the announced offer for the acquisition of the
stock of the Company at $12 per share by a group led by certain members of
management of the Company and the WPG Fund (the "Offer"). The complaint seeks
class status on behalf of the stockholders of the Company and claims that the
offer price for the Company's common stock is inadequate and the defendants have
breached their fiduciary duties to the plaintiffs and the other stockholders of
the Company. The suit seeks, among other things, to enjoin the Offer and related
merger transaction; to set aside the transaction in the event that it is
consumated; and to recover compensatory damages in an unspecified amount.  The
Company believes the allegations contained in the Complaint is meritless and, to
the extent the actions proceed, intends to defend the action vigorously.

     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
 
                                     F-21
<PAGE>
 
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. This case is in the
discovery stage. 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. 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.

      Barrett-Moeller et al. v. ATC Associates Inc., Civ. Action No. 97-01037D,
-----------------------------------------------------------------------------
and Joan Spencer v. TLT Construction Et Al., Civ. Action No 97-4161C, Superior
-------------------------------------------
Court of Middlesex County, Massachusetts. These actions arise out of the same
set of occurrences as Commonwealth of Massachusetts v. TLT Construction, Inc.
described above. These are suits by employees who worked in the Suffolk County
Courthouse during the period in which the off-gassing of harmful vapors was
alleged to have occurred. The suits seek damages for personal injury in
unspecified amounts. Notices of these claims have been made to ATC's
professional liability insurer, and the claims should be covered by insurance,
subject to a $250,000 deductible.

     Cambridge Housing Authority v. Con-Test, Inc. and ATC Group Services Inc.,
     ------------------------------------------------------------------------
Superior Court of Middlesex County, Massachusetts; October 1, 1997.  This is a
claim for damages in excess of $1,000,000 alleging that Con-Test, Inc. breached
its contract with Cambridge Housing Authority and was negligent in performing
asbestos survey work preparatory to a housing project re-modernization project.
ATC is joined as a party on a successor liability theory, even though the
services giving rise to the claim occurred over two years prior to ATC's
purchase of business assets from Con-Test.  Although ATC has not yet answered
the complaint,  ATC intends to vigorously defend the claim on the grounds that
it is not a successor under any known precedent of Massachusetts law.  It is
therefore the opinion of the Company that the probability of material loss from
this claim is low.

     One Parkway Project. The Company has received notice of related potential
     -------------------
claims by R.M. Shoemaker Co., a Pennsylvania construction firm, and four of its
workers arising out of the Company's performance of asbestos abatement survey,
design and project monitoring services on a project known as the One Parkway
Project in Philadelphia. The claims allege that ATC: (i) failed to locate
certain asbestos-containing materials in a high rise building during its
inspection of the facility; (ii) failed to include these undiscovered materials
in the design specifications for an asbestos abatement project in connection
with a renovation project on the building; and (iii) failed to properly
clearance inspect and test the areas on which abatement had been performed prior
to demobilization of the asbestos abatement project. The claimants allege that
the Company's acts or omissions resulted in additional corrective actions
including remobilization of certain areas, delays of the renovation project and
exposure of construction workers to asbestos contamination. R.M. Shoemaker has
alleged that it sustained damages in the amount of $1,500,000 for additional
abatement costs plus additional damages for delay. The workers' exposure claims
have not been quantified. No suit has been filed.

     At this point, the Company believes that it was not responsible for the
alleged problems on this project. ATC's responsibilities on the project were
limited, and ATC believes that the alleged omissions which allegedly resulted in
the alleged losses were outside the scope of the Company's contractual
responsibilities. The Company has served notice of these claims upon its
professional liability insurer. This coverage is subject to a $250,000
deductible.

     Indiana Department of Environmental Management v. ATC Associates Inc. 
     ---------------------------------------------------------------------
ATC received a Notice of Violation and Proposed Agreed Order, EPA I.D. No.
IND004939765, dated June 9, 1997, on June 12, 1997. The Notice of Violation
seeks a penalty amount of $120,500 for alleged violations of the federal
hazardous waste regulations and Indiana hazardous waste regulations arising out
of the handling of hazardous wastes in ATC's Indianapolis laboratory. On January
7, 1998 ATC attended a second informal settlement conference with the Indiana
Department of Environmental Management ("IDEM"). As a result of this meeting, a
significant reduction in the penalty amount seems probable. American Testing and
Engineering Corporation will be responsible for a significant part of any
ultimate penalty. Accordingly, ATC does not believe this case will result in a
material loss.

     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.


                                      F-22
<PAGE>
 
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 October 10, 1997, the Company held its annual meeting of
         shareholders and re-elected its directors as previously reported in the
         Company's Form 10-Q for the quarterly period ended August 31, 1997.

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, 1996 and
                     1997 (Unaudited)

                27 - Financial Data Schedule
                     November 30, 1997 (Unaudited)

         (b)    Reports on Form 8-K:

                On October 20, 1997, the Company filed a report on Form 8-K
                disclosing receipt of an offer from WPG Corporate Development
                Associates V, L.P. for acquisition of the Company at $12.00 per
                share. (Note B)

                On November 20, 1997, the Company filed a report on Form 8-K
                disclosing certain litigation involving the Company. (Note E)

                On December 1, 1997, the Company filed a report of Form 8-K
                disclosing execution of the Merger Agreement. (Note B)

                                       F-23
<PAGE>
 
                                   SIGNATURES
                                        


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


                                          ATC GROUP SERVICES INC.
                                          -----------------------
                                               (Registrant)

 
 
Dated: January 14, 1997          /s/ Morry F. Rubin
-----------------------          -----------------------------------------------
                                 Morry F. Rubin,
                                 President and Chief Executive Officer
 
 
Dated: January 14, 1997          /s/ Richard L. Pruitt
-----------------------          -----------------------------------------------
                                 Richard L. Pruitt, 
                                 Vice President and Principal Accounting Officer

                                      F-24