<PAGE>

                                         UNITED STATES
                            SECURITIES AND EXCHANGE COMMISSION
                                  Washington, D.C. 20549

                                         FORM 10-Q

                 [X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                     For the Quarterly Period Ended November 30, 1996

                                            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                                     10010
        New York, New York
  --------------------------------           ------------------------------
       (Address of principal                          (Zip Code)
        executive offices)

        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
6, 1997 was 7,799,937.

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

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1996

PART I - FINANCIAL INFORMATION:

   Item 1 - Financial Statements:

        Consolidated Balance Sheets
          February 29, 1996 and November 30, 1996 (Unaudited).............. F-3

        Consolidated Statements of Operations
          Three months and nine months ended November 30, 1995 and 1996    
          (Unaudited)...................................................... F-4

        Consolidated Statements of Stockholders' Equity
          Nine months ended November 30, 1995 and 1996 (Unaudited)......... F-5

        Consolidated Statements of Cash Flows
          Nine months ended November 30, 1995 and 1996 (Unaudited)......... F-6

        Notes to Consolidated Financial Statements
          Three months and nine months ended November 30, 1996 (Unaudited). F-7

    Item 2 - Management's Discussion and Analysis of Financial Condition and 
     Results of Operations................................................. F-13

  PART II - OTHER INFORMATION:

    Items 1-6.............................................................. F-18

    Signatures............................................................. F-19

    Exhibit 11 - Computation of Earnings Per Share
                  Three months and nine months ended November 30, 1995 and 1996
                  (Unaudited).............................................. F-20

    Exhibit 27 - Financial Data Schedule
                  November 30, 1996 (Unaudited)............................ F-21

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

CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, 1996 AND NOVEMBER 30, 1996 (Unaudited)
<TABLE>
<CAPTION>

                                                                                  February 29,              November 30,
                                                                                     1996                       1996
                                                                           ---------------------     --------------------
<S>                                                                        <C>                       <C>
ASSETS                                                                                                        (Unaudited)
CURRENT ASSETS:
    Cash and cash equivalents..............................................  $       13,469,443        $        2,714,709
    Trade accounts receivable, less allowance for doubtful accounts
        ($383,220 at February 29, 1996 and 1,284,925 at November 30, 1996).          14,161,774                35,212,157
    Costs in excess of billings on uncompleted contracts...................           2,333,835                 6,439,405
    Prepaid expenses and other current assets..............................             906,289                 2,764,651
    Deferred income taxes .................................................             440,600                   440,600
                                                                           --------------------     ---------------------
        Total current assets...............................................          31,311,941                47,571,522

PROPERTY AND EQUIPMENT, Net (Note C).......................................           3,606,755                 3,930,679

GOODWILL, net of accumulated amortization (Note B)
    ($453,646 at February 29, 1996 and 1,188,477 at November 30, 1996).....          11,375,399                34,910,499
COVENANTS NOT TO COMPETE, net of accumulated amortization (Note B)
    ($258,099 at February 29, 1996 and 410,573 at November 30, 1996).......             274,401                   676,927
OTHER ASSETS...............................................................             116,104                 1,438,425
                                                                           --------------------      --------------------
                                                                           $         46,684,600      $         88,528,052
                                                                           ====================      ====================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
    Short-term debt........................................................$          1,122,552      $            305,000
    Current maturities of long-term debt...................................             354,858                 1,972,668
    Accounts payable.......................................................           2,231,175                 8,382,843
    Income taxes payable...................................................              42,500                   267,937
    Accrued compensation...................................................           1,421,330                 4,425,458
    Accrued payment obligations - ATEC acquisition (Note B)................                  -                  2,923,511
    Other accrued expenses ................................................           1,162,210                 3,679,664
                                                                           --------------------      --------------------
        Total current liabilities..........................................           6,334,625                21,957,081

LONG-TERM DEBT, less current maturities (Note A)...........................             361,944                21,599,058
OTHER LIABILITIES..........................................................             598,817                   295,289
DEFERRED INCOME TAXES......................................................             196,800                   196,800
                                                                           --------------------      --------------------
        Total liabilities..................................................           7,492,186                44,048,228
                                                                           --------------------      --------------------

COMMITMENTS AND CONTINGENCIES (Notes B and E)                              
STOCKHOLDERS' EQUITY (Note D):
    Common stock, par value $.01 per share; authorized 20,000,000 shares;
       issued and outstanding: 7,796,577 shares at February 29, 1996 and
       7,797,937 shares at November 30, 1996...............................              77,966                    77,979
    Additional paid-in capital.............................................          29,030,189                29,018,831
    Notes receivable - common stock........................................             (45,000)                       -
    Retained earnings......................................................          10,129,259                15,383,014
                                                                           --------------------       -------------------

        Total stockholders' equity.........................................          39,192,414                44,479,824
                                                                           --------------------       -------------------
                                                                           $         46,684,600       $        88,528,052
                                                                           ====================       ===================

</TABLE>
See notes to consolidated financial statements.

                                F-3

PAGE
<PAGE>

 ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 30, 1995 AND 1996 (Unaudited)


<TABLE>
<CAPTION>

                                           Three Months Ended           Nine Months Ended
                                               November 30,                November 30,
                                       --------------------------   --------------------------
                                            1995         1996            1995         1996
                                       ------------  ------------   ------------  ------------
<S>
                                       <C>           <C>            <C>           <C>
REVENUES.............................. $ 11,223,139  $ 32,848,840   $ 33,687,570  $ 83,416,851

REIMBURSABLE COSTS....................    1,150,943     5,655,772      3,399,809    13,354,833
                                       ------------  ------------   ------------  ------------

NET REVENUES..........................   10,072,196    27,193,068     30,287,761    70,062,018


COST OF NET REVENUES..................    4,729,573    15,905,505     14,146,180    38,962,629
                                       ------------  ------------   ------------  ------------

           Gross Profit...............    5,342,623    11,287,563     16,141,581    31,099,389


 OPERATING EXPENSE:
   Selling............................      392,631       887,098      1,106,824     2,180,498
   General and administration.........    3,083,198     7,201,702      9,435,809    18,779,916
   Provision for bad debts............       78,300       283,680        197,515       624,981
                                       ------------  ------------   ------------  ------------
                                          3,554,129     8,372,480     10,740,148    21,585,395
                                       ------------  ------------   ------------  ------------
           Operating income...........    1,788,494     2,915,083      5,401,433     9,513,994
                                       ------------  ------------   ------------  ------------

NONOPERATING EXPENSE (INCOME):
   Interest expense...................       86,443       510,118        335,910     1,080,217
   Interest income....................     (106,064)      (25,668)      (153,637)     (221,115)
   Other..............................       (3,560)       (2,645)        23,240       (36,182)
                                       ------------  ------------  -------------  ------------
                                            (23,181)      481,805        205,513       822,920
                                       ------------  ------------  -------------  ------------

           Income before income taxes.    1,811,675     2,433,278      5,195,920     8,691,074

INCOME TAX EXPENSE (Note B)...........      707,000       927,000      1,677,000     3,365,000
                                       ------------  ------------  -------------  ------------

NET INCOME............................ $  1,104,675  $  1,506,278  $   3,518,920  $  5,326,074
                                       ============  ============  =============  ============

                                       

EARNINGS PER COMMON SHARE
  AND DILUTIVE COMMON
  EQUIVALENT SHARE:
        Primary (Note D) (1).......... $        .15  $        .18  $         .52  $        .62
                                       ============  ============  =============  ============
        Fully diluted (Note D) (1).... $        .15  $        .18  $         .52  $        .62
                                       ============  ============  =============  ============        


WEIGHTED AVERAGE NUMBER OF
  SHARES OUTSTANDING:
        Primary.......................    7,542,528     8,454,151      6,735,948     8,537,271
                                       ============  ============  =============  ============
        Fully diluted.................    7,542,528     8,454,151      6,735,948     8,570,170
                                       ============  ============  =============  ============


</TABLE>
 (1) Includes a one-time tax benefit of $.05 per share related to the merger of
     Aurora Environmental Inc. for the nine months ended November 30, 1995
     (Note B).


See notes to consolidated financial statements.


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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED NOVEMBER 30, 1995 AND 1996 (Unaudited)

<TABLE>
<CAPTION>
                                                                                         1995                           
                                                ----------------------------------------------------------------------------------
<S>                                             <C>            <C>           <C>           <C>           <C>           <C>
                                                                                             Notes 
                                                                             Additional    Receivable
                                                   Common        Stock        Paid-in       -Common       Retained
                                                   Shares        Amount       Capital        Stock        Earnings       Total
                                                ------------   ----------   -----------   ------------   -----------   -----------

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

   Issuance of common  stock in
      public offering at $12.00 per
      share, less expenses (Note D) .........      1,970,000       19,700    21,608,289             -             -     21,627,989
   Sale of common stock at $1.83 to
      $10.00 per  share, upon exercise of
      stock options and warrants.............         33,600          336        64,503             -             -         64,839
   Net issuance of common stock and
      adjustments in connection with the
      merger of Aurora Environmental
      Inc. into ATC (Note B)..................        83,452          835        61,719        (30,000)           -         32,554
   Continuing registration costs applied     
      against additional paid-in capital......            -            -        (88,827)            -             -        (88,827)
   Common  stock recovered in
      connection with the Con-Test,
      Inc. acquisition........................       (33,130)        (331)     (139,682)            -             -       (140,013)
   Other capital transactions.................         2,920           29        22,471             -             -         22,500
   Net income.................................            -            -             -              -      3,518,920     3,518,920
                                                ------------   ----------   -----------   ------------   -----------   -----------

BALANCE, November 30, 1995.........                7,794,860   $   77,949   $29,012,926   $    (45,000)  $ 9,805,281   $38,851,156
                                                ============   ==========   ===========   ============   ===========   ===========

</TABLE>


<TABLE>
<CAPTION>
                                                                                         1996                           
                                                ----------------------------------------------------------------------------------
<S>                                             <C>            <C>           <C>           <C>           <C>           <C>
                                                                                             Notes 
                                                                             Additional    Receivable
                                                   Common        Stock        Paid-in       -Common       Retained
                                                   Shares        Amount       Capital        Stock        Earnings       Total
                                                ------------   ----------   -----------   ------------   -----------   -----------
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 ofassets...........................       (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
                                                ============   ===========  ===========   ============  ===========    ===========
</TABLE>
See notes to consolidated financial statements.

                                F-5

PAGE
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED NOVEMBER 30, 1995 AND 1996 (Unaudited)

<TABLE>
<CAPTION>
                                                                                       Nine Months Ended
                                                                                           November 30,
                                                                                     1995                       1996
                                                                           ---------------------     --------------------
<S>                                                                        <C>                       <C>
 CASH FLOWS FROM OPERATING ACTIVITIES
 Net income............................................................... $         3,518,920       $          5,326,074
             
 Adjustments to reconcile net income to net cash from operating activities:
   Depreciation and leasehold amortization  ..............................             543,991                    642,779
   Amortization of goodwill and covenants  ...............................             304,450                    887,305
   Provision for bad debts  ..............................................             197,515                    624,981
   Deferred income taxes  ................................................            (206,559)                        -
   Other .................................................................            (293,620)                  (130,586)
   Changes in  operating  assets and liabilities,  net ofamounts acquired
    in acquisitions:
     Accounts receivable and costs in excess of billings on uncompleted
       contracts .........................................................          (3,712,216)                (5,400,578)
     Prepaid expenses and other assets....................................            (550,843)                  (448,876)
     Accounts payable and accrued liabilities ............................          (1,020,947)                (7,316,178)
     Income taxes payable.................................................            (113,248)                   225,455
                                                                           -------------------       --------------------
       Net cash flows from operating activities ..........................          (1,332,557)                (5,589,624)
                                                                           -------------------       --------------------

 CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of American Testing and Engineering Corp., net of cash
    acquired  ............................................................                  -                  (8,965,952)
   Purchase of 3D Information Services, Inc., net of cash acquired........                  -                  (2,926,681)
   Purchase of Hill International, Inc. subsidiaries .....................          (2,517,950)                        -
   Purchase of BSE Management, Inc. ......................................            (207,990)                        -
   Purchase of Con-Test, Inc. ............................................            (169,044)                        -
   Purchase of R.E. Blattert and Associates ..............................             (34,375)                        -
   Purchase of property and equipment.....................................            (711,031)                (1,123,416)
   Other..................................................................             (29,639)                    (1,353)
                                                                           -------------------       --------------------
       Net cash flows from investing activities...........................          (3,670,029)               (13,017,402)
                                                                           -------------------       --------------------

 CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of long-term debt and notes payable.............           2,585,125                 21,403,572
   Proceeds from issuance of common stock, net of expenses................          21,755,382                     69,338
   Principal payments on long-term debt and notes payable,
       including capital lease obligations  ..............................          (6,467,167)               (13,592,048)
   Payments for continuing registration costs ............................             (88,827)                   (28,570)
                                                                           -------------------       --------------------

       Net cash flows from financing activities ..........................          17,784,513                  7,852,292
                                                                           -------------------       --------------------

       Net change in cash and cash equivalents ...........................          12,781,927                (10,754,734)

 CASH AND CASH EQUIVALENTS, Beginning of period ..........................           1,377,862                 13,469,443
                                                                           -------------------       --------------------
                                                                           

 CASH AND CASH EQUIVALENTS, End of period ................................ $        14,159,789       $          2,714,709
                                                                           ===================       ====================


 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash payments for:
     Interest  ........................................................... $           332,797       $            967,711
                                                                           ===================       ====================

     Income taxes......................................................... $         1,646,957       $          3,139,546
                                                                           ===================       ====================
</TABLE>


See notes to consolidated financial statements.

                                F-6

PAGE
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 30, 1996 (Unaudited)


A.  GENERAL

            Name  Change -  Effective  October 8,  1996,  the  Company  received
shareholder  approval  to change its name to "ATC Group  Services  Inc." from it
former name, ATC Environmental Inc. The change was made to reflect the Company's
expanded operations which extend beyond environmental consulting and now include
information technology consulting services.

            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 29, 1996,  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   and  geotechnical   engineering   services,
architectural   engineering   services,   construction   materials  testing  and
analytical  testing.  The Company's  information  technology  consulting segment
provides analysis and design services and system programming  services to assist
clients in building new or modifying  existing computer  systems.  This business
unit also provides support to clients in maintaining computer systems.

            Credit  Facility  - On May  24,  1996  the  Company  entered  into a
$20,000,000  bridge credit  facility  with The Chase  Manhattan  Bank  (formerly
Chemical  Bank) and  Atlantic  Bank of New York.  Under the terms of the  credit
agreement,  the  Company  may  borrow  up to the  amount of the  facility,  with
interest  payable  monthly at 1.75% above the adjusted  Eurodollar  rate (for an
effective  interest rate of 7.31% at November 30, 1996). The agreement  contains
certain  restrictive  covenants  which are consistent for this type of facility,
including  restrictions  on dividend  payments.  Pursuant to an  amendment,  the
facility was increased to $23,000,000 and amounts borrowed are due May 30, 1997.
The Company is currently negotiating and anticipates entering into a longer term
agreement with the banks prior to the maturity date of the credit agreement.  As
a result of the Company's intent and ability to secure long term financing,  the
amounts  borrowed under the bridge credit  facility have been classified as long
term debt in the accompanying consolidated balance sheet.

            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 has not had a material effect on the Company's
financial statements.

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

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

                                F-7

PAGE
<PAGE>
B.  BUSINESS ACQUISITIONS AND MERGER

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

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

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

            The payment  obligations to  seller/majority  owner are payable
monthly or quarterly and are included in accrued  payment  obligations - ATEC
acquisition in the accompanying consolidated balance sheet at November 30,1996.

            The Company is contingently  liable to ATEC for additional  purchase
consideration  up to  $10,750,000 if certain net revenue levels are achieved and
certain other conditions are met. The maximum amounts payable,  if fully earned,
would be paid as follows:  $3,883,333 in fiscal 1998, $3,873,333 in fiscal 1999,
$1,293,334 in fiscal 2000 and $1,700,000 in fiscal 2002.

            The initial purchase price allocation is summarized as follows:

            Accounts receivable and work in process, net of
              allowances  ........................................ $  18,957,768
            Other current assets..................................     2,023,996
            Other assets..........................................       548,301
            Covenants not to compete..............................       430,000
            Goodwill    ..........................................    19,661,449
                                                                   -------------
                                                                   $  41,621,514

            The Company may set-off  against  certain  payment  obligations  the
amount  of any  uncollected  accounts  receivable  and work in  process,  net of
recorded allowances, not collected within one year.

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

            Amounts paid to seller:
                    Cash.......................................... $   3,000,000
                    Note payable..................................     2,500,000
            Assumed liabilities...................................       175,724
            Direct expenses related to acquisition................        23,149
                                                                   -------------
                                                                   $   5,698,873

                                F-8

PAGE
<PAGE>


            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    ..........................................     4,000,904
                                                                   -------------
                                                                   $   5,698,873

Fiscal 1996
            Hill Businesses - In November 1995, ATC purchased certain assets and
assumed  certain  liabilities  of  Kaselaan & D'Angelo  Associates,  Inc.,  Hill
Environmental,  Inc. (formerly the environmental division of Gibbs & Hill, Inc.)
and Particle Diagnostics, Inc., wholly owned subsidiaries of Hill International,
Inc. (collectively the "Hill Businesses").

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

            Amounts paid to seller:
                   Cash .......................................... $   2,517,949
                     Letter of credit, net of imputed interest....       700,000
                     Note payable at 8.75% interest...............       300,000
            Liabilities assumed...................................       414,544
            Direct expenses related to acquisition................       885,538
                                                                   -------------
                                                                   $   4,818,031

            In addition,  the Company issued to certain selling  shareholders,
50,000 stock options to purchase restricted common stock at $13.875 per share
as consideration for non compete agreements.

            The purchase price allocation is summarized as follows:

            Costs in excess of billings on uncompleted contracts, net of
              unrealizable amounts................................ $     620,000
            Property and equipment................................       175,000
            Covenants not to compete..............................        37,500
            Other assets..........................................        30,572
            Goodwill..............................................     3,954,959
                                                                   -------------
                                                                   $   4,818,031

            The Company is contingently  liable to reimburse up to $150,000
of certain  facility lease costs.  Hill  International,  Inc. has requested
reimbursement  of the full amount of the facility lease costs, however,
the Company is disputing the reimbursement based on its counter-claims.

            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:

            Cash to seller........................................ $     147,546
            Cash to secured creditors of seller...................       441,514
            Liabilities assumed...................................       225,538
            Direct expenses related to acquisition................        31,246
                                                                   -------------
                                                                   $     845,844

                                F-9

PAGE
<PAGE>
            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  agreement.  At November 30,
1996, no contingent amounts had been earned.

            The initial purchase price allocation is summarized as follows:

            Accounts receivable, net.............................. $     474,973
            Property and equipment................................       115,060
            Covenants not to compete..............................        30,000
            Goodwill..............................................       225,811
                                                                   -------------
                                                                   $     845,844


            Merger of Aurora  Environmental  Inc. - ATC and its  parent,  Aurora
Environmental Inc.  ("Aurora") were merged pursuant to an agreement (the "Merger
Agreement")  approved by a majority of  shareholders of each company on June 29,
1995, with ATC being the surviving corporation.  Under the Merger Agreement, ATC
exchanged  .545 of a share of ATC Common  Stock for each of  Aurora's  6,131,104
shares of stock  outstanding.  ATC's  common  shares held by Aurora of 3,258,000
were canceled.  Actual common shares outstanding increased by 83,356 shares. The
merger has been  accounted  for in a manner  similar to a pooling of  interests.
Under this method of accounting,  recorded assets and liabilities of Aurora were
combined  with those of ATC and the results of operations of ATC and Aurora were
combined as of the effective date of the merger.  In addition,  the intercompany
balance  between ATC and Aurora was  forgiven.  As a result of the  merger,  ATC
utilized  Aurora's net operating loss  carryforward to reduce its taxable income
and  accordingly  recorded  a  one-time  reduction  in  income  tax  expense  of
approximately $350,000 ($.05 per share) in the second quarter of fiscal 1996.

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


<TABLE>
<CAPTION>
                                                                               PRO FORMA
                                                     ------------------------------------------------------------
                                                            Three Months Ended            Six Months Ended
                                                              November 30,                  November 30,
                                                          1995           1996             1995           1996
                                                     -------------   -------------   ------------   -------------
<S>                                                  <C>             <C>             <C>             <C>
Revenues.........................................    $  38,823,591   $  32,848,840   $115,314,350   $ 104,892,835
Net income.......................................    $   3,114,536   $   1,506,278   $  8,618,438   $   6,451,246
Earnings per share (fully diluted)...............    $         .41   $         .18   $       1.23   $         .75
Weighted average shares (fully diluted)..........        7,542,528       8,454,151      7,003,329       8,570,170 

</TABLE>


            Reductions of pro forma revenues,  net income and earnings per share
from  1995 to 1996 are  attributable  to  declining  revenue  levels of the Hill
Businesses  and ATEC in the  periods  preceding  their  purchase  by ATC and the
increased weighted average shares resulting from the common stock offering.


C.  PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>

                                                        February 29,    November 30,
                                                           1996            1996
                                                        ----------      ----------
     <S>                                                <C>             <C>
     Office equipment...............................    $2,645,325      $3,065,973
     Laboratory and field.equiptment................     3,528,410       3,560,901
     Transportation equipment.......................       267,304         269,084
     Leasehold improvements.........................       633,595         839,905
                                                        ----------      ----------
                                                         7,074,634       7,735,863
    Less accumulated depreciation...................    (3,467,879)     (3,805,184)
                                                        ----------      ----------
                                                        $3,606,755      $3,930,679
                                                        ==========      ==========
</TABLE>                                                               

                                F-10
PAGE
<PAGE>
D.  COMMON STOCK OFFERING

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

E.  CONTINGENCIES

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


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


            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 State has made
a routine request for information to which the Company has responded.


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

                                F-11
PAGE
<PAGE>
F.  INDUSTRY SEGMENT DATA

            The Company provides services through its  environmental  consulting
and engineering segment and its information technology consulting segment. Prior
year  segment  data  is  not  presented  as the  Company  only  operated  in the
environmental and engineering segment.


<TABLE>
<CAPTION>
                                                     Environmental   Information     Adjustments &  
Industry Segment Data                                & Engineering   Technology      Elimination's   Total 
                                                     -------------   -------------   -------------   -------------
Quarter Ended November 30, 1996
-------------------------------
<S>                                                  <C>             <C>             <C>             <C>
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
-----------------------------------
<S>                                                  <C>             <C>             <C>             <C>
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-12
PAGES
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES

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


Recent Developments

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.  For its year
ended  December 31, 1995,  ATEC had  revenues of  $85,020,000  and a net loss of
($1,820,000).

           The  acquisition  has been  accounted  for as a purchase.  The assets
acquired include certain tangible assets consisting of accounts receivable, work
in process and customer and certain other deposits.  Additionally,  ATC executed
an agreement to lease substantially all of ATEC's equipment and executed several
sublease   agreements   for  premises   leased  by  ATEC.   ATC  also   obtained
non-competition  agreements  with  ATEC,  a  non-acquired  subsidiary,  and  the
majority shareholder of ATEC.

            The purchase  price  consideration  consisted of  $9,000,000 of cash
paid at closing and property and facility lease payments and non-compete payment
obligations of $6,001,000  payable during the first year following the purchase.
The  Company  also  assumed  liability  for  ATEC's  bank  debt,   approximately
$10,750,000,  its accounts payable, and certain other recorded liabilities.  The
Company is contingently liable to ATEC for additional purchase  consideration up
to  $10,750,000  if certain net revenue  levels are achieved  and certain  other
conditions are met. The maximum amounts payable, if fully earned,  would be paid
as follows;  $3,883,333 in fiscal 1998, $3,873,333 in fiscal 1999, $1,293,334 in
fiscal 2000 and $1,700,000 in fiscal 2002.

            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.  3D
reported  revenues  and net  income of  approximately  $10,360,000  and  $85,000
respectively, for its year ended December 31, 1995.

            The  acquisition  has  been  accounted  for  as a  purchase.  Assets
purchased  include  customer  contract  rights,  customer lists,  order backlog,
customer  records,  employee  contracts and tangible assets  including  accounts
receivable,   work   in    process, field   and  office supplies, and equipment.
Consideration paid consisted of $3,000,000 of cash at closing and a note payable
for $2,500,000. In addition,  ATC assumed certain liabilities  of  approximately
  $175,724.  ATC also entered into a three year non-compete  agreement  with the
  majority stockholder.

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.

                                F-13
PAGE
<PAGE>


Common Stock Offering

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

Merger of Aurora into ATC

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

Results of Operations

Three Months Ended November 30, 1996 Compared with Three Months Ended
November 30, 1995

            Revenues in the three months ended  November 30, 1996 increased 193%
to $32,848,840, compared with $11,223,139 in the three months ended November 30,
1995. This increase was primarily attributable to the acquisition of ATEC and 3D
in May 1996 and from the  acquisitions  of the Hill Businesses and AGI completed
during the second half of fiscal 1996.

            Revenues  in the three  months  ended  November  30, 1996 from ATC's
branch offices having  comparable  operations in the three months ended November
30, 1995 decreased 1.4% to $10,275,049,  compared with  $10,422,581 in the three
months ended November 30, 1995.  Revenues  attributable  to the  acquisitions of
certain assets of the Hill Businesses,  AGI, ATEC and 3D totaled  $22,573,791 or
68.7% of revenues, for the three months ended November 30, 1996.  Revenues  from
branch operations sold or discontinued contributed $325,108 for the three months
ended November 30, 1995.
            Reimbursable  costs  represent  direct  project  expenses  billed to
environmental  and  engineering  segment  clients.  For the three  months  ended
November 30, 1996, reimbursable costs increased 391% to $5,655,772 compared with
$1,150,943, in the three months ended November 30, 1995. Reimbursable costs as a
percentage of revenues increased to 17.2% in the three months ended November 30,
1996  compared  with 10.3% in the three months ended  November 30, 1995.  ATEC's
traditional consulting services,  consisting of drilling,  materials testing and
engineering  services,  utilize  higher  amounts of outside  services and direct
project expenses  compared to those consulting  services being provided prior to
the acquisition. For its year ended December 31, 1995, ATEC's reimbursable costs
were  approximately 21% of revenues,  compared to ATC's fiscal 1996 reimbursable
costs which were approximately 11% of revenues.

            Gross profit in the three months ended  November 30, 1996  increased
111% to $11,287,563, compared with $5,342,623 in the three months ended November
30, 1995. Gross profit as a percentage of net revenue  decreased to 41.5% in the
three months ended  November 30, 1996,  compared  with 53.0% in the three months
ended  November 30, 1995. The gross profit  percentage  decrease is due to lower
margins earned 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.  In addition, the gross profit
percentage  for the prior year was at a record  high due to higher  than  normal
profitability level of certain large projects.

                                F-14
PAGE
<PAGE>


            Operating  expenses  in the three  months  ended  November  30, 1996
increased 136% to $8,372,480, compared with $3,554,129 in the three months ended
November 30, 1995.  Operating expenses decreased as a percentage of net revenues
to 30.8% in the three months ended  November 30, 1996 compared with 35.3% in the
three months ended  November 30, 1995.  The decrease in operating  expenses as a
percentage of net revenue is the result of the  additional  net revenue from the
ATEC and  other  acquisitions  without  corresponding  increases  in  fixed  and
administrative  costs.  Employee costs increased 67% to $3,132,501,  or 11.5% of
net  revenues  in the  three  months  ended  November  30,  1996  compared  with
$1,873,895,  or 18.6% of net  revenues,  in the three months ended  November 30,
1995.  These  increases in total cost were due to employees  hired in connection
with the expansion of ATC's  operations.  Other increases in operating  expenses
resulted from higher facility costs and  administrative  expenses resulting from
the growth in operations and increased  employee  levels.  Additionally,  in the
three months ended November 30, 1996,  amortization  of goodwill and intangibles
increased to $482,231, compared with $110,413 in the three months ended November
30,  1995  reflecting  the  additional  goodwill  amortization   resulting  from
acquisitions.

            Operating  income  in the  three  months  ended  November  30,  1996
increased 63% to $2,915,083,  compared with $1,788,494 in the three months ended
November 30, 1995. Operating income decreased as a percentage of net revenues to
10.7% in the three months ended  November 30, 1996,  compared  with 17.8% in the
three months ended November 30, 1995.

            Nonoperating expense in the three months ended November 30, 1996 was
$481,805 compared with nonoperating  income of $23,181 in the three months ended
November 30, 1995. The change is primarily  attributable  to increased  interest
expense  due to the  bank  debt  incurred  in  connection  with  the ATEC and 3D
acquisitions.

            Income tax expense in the three months  ended  November 30, 1996 was
$927,000,  compared with  $707,000 in the three months ended  November 30, 1995.
During  the  three  months  ended  November  30,  1996 and 1995,  the  Company's
effective tax rates were 38.1% and 39.0%, respectively.

            As a result of the  foregoing,  net income in the three months ended
November  30, 1996  increased  36% to  $1,506,278,  or $.18 per share on a fully
diluted  basis,  compared  with  $1,104,675 or $.15 per share on a fully diluted
basis,  in the three months ended November 30, 1995. The fully diluted  weighted
average number of shares outstanding increased 12% to 8,454,151 shares primarily
due to an increase in shares  issued from the Common  Stock  Offering in October
1995. Net income  decreased as a percentage of net revenues to 5.5% in the three
months ended  November 30, 1996,  compared  with 11.0% in the three months ended
November 30, 1995.


Nine Months Ended November 30, 1996 Compared with Nine Months Ended November 30,
1995

            Revenues in the nine months ended  November 30, 1996  increased 148%
to $83,416,851,  compared with $33,687,570 in the nine months ended November 30,
1995. This increase was primarily attributable to the acquisition of ATEC and 3D
in May 1996 and from the positive  acquisitions  of the Hill  Businesses and AGI
during the second half of fiscal 1996.

            Revenues  in the nine  months  ended  November  30,  1996 from ATC's
branch  offices having  comparable  operations in the nine months ended November
30, 1995  increased 2.6% to  $32,821,516  compared with  $32,003,432 in the nine
months ended November 30, 1995.  Revenues  attributable  to the  acquisitions of
certain assets of the Hill Businesses,  AGI, ATEC and 3D totaled $50,567,847, or
60.6% of revenues,  for the nine months ended  November 30, 1996.  Revenues from
branch  operations  sold or discontinued  contributed  only $27,488 for the nine
months ended  November 30, 1996 compared to $1,208,688 for the nine months ended
November 30, 1995.

            Gross  profit in the nine months ended  November 30, 1996  increased
93% to $31,099,389,  compared with $16,141,581 in the nine months ended November
30, 1995. Gross profit as a percentage of net revenue  decreased to 44.4% in the
nine months  ended  November 30,  1996,  compared  with 53.3% in the nine months
ended  November 30, 1995. The gross profit  percentage  decrease is due to lower
margins earned 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.  In addition, the gross profit
percentage  for the prior year was higher than normal due to high  profitability
levels of certain large projects.



                                F-15
PAGE
<PAGE>
            Operating  expenses  in the nine  months  ended  November  30,  1996
increased  101% to  $21,585,395,  compared with  $10,740,148  in the nine months
ended  November 30, 1995.  Operating  expenses  decreased as a percentage of net
revenues to 30.8% in the nine months ended November 30, 1996 compared with 35.5%
in the nine months ended November 30, 1995.  The decrease in operating  expenses
as a percentage of net revenue is the result of the  additional net revenue from
the ATEC and other  acquisitions  without  corresponding  increases in fixed and
administrative costs. Employee costs increased 61.4% to $8,837,196,  or 12.6% of
net  revenues  in  the  nine  months  ended  November  30,  1996  compared  with
$5,474,121,  or 18.1% of net  revenues,  in the nine months  ended  November 30,
1995.  These  increases in total cost were due to employees  hired in connection
with the expansion of ATC's  operations.  Other increases in operating  expenses
resulted from higher facility costs and  administrative  expenses resulting from
the growth in operations and increased  employee  levels.  Additionally,  in the
nine months ended November 30, 1996,  amortization  of goodwill and  intangibles
increased to $887,305,  compared with $304,450 in the nine months ended November
30,  1995  reflecting  the  additional  goodwill  amortization   resulting  from
acquisitions.

            Operating  income  in  the  nine  months  ended  November  30,  1996
increased 76% to $9,513,994,  compared with  $5,401,433 in the nine months ended
November 30, 1995. Operating income decreased as a percentage of net revenues to
13.6% in the nine months ended  November 30,  1996,  compared  with 17.8% in the
nine months ended November 30, 1995.

            Nonoperating  expense in the nine  months  ended  November  30, 1996
increased to $822,920  compared with $205,513 in the nine months ended  November
30, 1995.  The increase in  nonoperating  expense is primarily  attributable  to
increased  interest expense due to bank debt outstanding since May 1996 when the
ATEC and 3D  acquisitions  were  completed,  offset in part by  higher  interest
income  earned  during the first three months of fiscal 1997 on the net proceeds
of the Common Stock  Offering  invested in short term  investments  prior to the
acquisitions.

            Income tax expense in the nine months  ended  November  30, 1996 was
$3,365,000, compared with $1,677,000 in the nine months ended November 30, 1995.
The income tax expense for the nine months ended  November  30, 1995  reflects a
one-time benefit of $350,000  resulting from the merger of Aurora into ATC which
allowed ATC to utilize  Aurora's net operating loss  carryforward  as offsets to
future taxable income.  During the nine months ended November 30, 1996 and 1995,
after adjusting for the one-time tax benefit,  the Company's effective tax rates
were 38.7% and 39.0%, respectively.

            As a result of the  foregoing,  net income in the nine months  ended
November 30, 1996  increased  51% to  $5,326,074,  or $ .62 per share on a fully
diluted  basis,  compared  with  $3,518,920 or $.52 per share on a fully diluted
basis,  in the nine months ended November 30, 1995.  Excluding the impact of the
one-time  tax benefit of  $350,000,  net income and fully  diluted  earnings per
share for the nine months ended November 30, 1995 would have been $3,168,920 and
$.47  respectively.   The  fully  diluted  weighted  average  number  of  shares
outstanding  increased 27% to 8,570,170  shares  primarily due to an increase in
shares  issued  from the Common  Stock  Offering  and from  shares,  options and
warrants  outstanding as a result of the Aurora merger  effective June 29, 1995.
Net income  decreased as a percentage of net revenues to 7.6% in the nine months
ended  November 30, 1996,  compared with 10.5% in the nine months ended November
30, 1995 after adjusting for the one-time tax benefit.

Liquidity and Capital Resources

            At November 30, 1996, working capital was $25,614,441  compared with
working  capital of  $24,977,316  at February 29, 1996, an increase of $637,125.
This increase in working  capital is primarily a result of the  acquisitions  of
ATEC and 3D and the  increases  from  purchased  accounts  receivable,  unbilled
receivables  and  prepaid  expenses  offset by assumed  acquisition  liabilities
including  accounts  payable and other current  liabilities  and future  payment
obligations  and cash paid to the sellers.  As a result of the Company's  recent
acquisitions  of ATEC and 3D, the  Company's  tangible  net worth  decreased  to
$8,892,398 at November 30, 1996 from $27,542,614 at February 29, 1996, primarily
as a result of goodwill and  non-compete  amounts  recognized in connection with
these transactions.

            During 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.

                                F-16
PAGE
<PAGE>
            During the nine months ended  November 30, 1995, net cash flows used
by  operating  activities  were  $1,332,557.  Net cash flows  used in  investing
activities were $3,670,029 consisting of the purchase of the Hill Businesses and
additional  acquisition  costs in connection with the Con-Test and R.E. Blattert
acquisitions plus contingent purchase  obligations related to the acquisition of
BSE Management Inc. and the purchase of property and equipment. Also during this
period,  net cash flows from financing  activities were  $17,784,513,  primarily
from  proceeds  from the Common  Stock  Offering  and  increased  bank debt less
principal payments on long-term debt and notes payable of $6,467,167. In October
1995 the Company sold 1,970,000  shares in a common stock offering.  The Company
utilized a portion of the net proceeds of the offering to repay outstanding bank
debt under its credit facilities.

            In May 1996, the Company  entered into a bridge credit facility with
The Chase  Manhattan  Bank  (formerly  Chemical  Bank) and  Atlantic  Bank which
provided  $20,000,000 of funds in connection  with the Company's  acquisition of
ATEC and 3D. The bridge credit  facility has been increased to  $23,000,000  and
borrowings  under the  agreement  are due May 30,  1997,  however,  the  Company
expects to complete a longer term agreement with the banks prior to the maturity
date of the bridge  facility.  The  Company  may also seek to obtain  additional
public or  private  debt or equity  financing  in the  future in order to reduce
certain existing bank debt and provide funds for future  acquisitions,  however,
no  assurance  can be given  as to the  Company's  ability  to  obtain  funds on
acceptable terms and conditions.

            Management  believes  that as a  result  of cash  on  hand,  current
working capital, the expected increase in available funds upon the completion of
the long-term bank credit facility,  and anticipated funds generated  internally
from operations will be sufficient to finance ATC's operations, to make payments
as they come due on ATC's completed  acquisitions  and to meet ATC's  short-term
and long-term liquidity requirements.


                                F-17
PAGE
<PAGE>

                         PART II - OTHER INFORMATION

Item 1.     Legal Proceedings:
                        First Fidelity Bank, N.A., et al v. Hill  International,
            Inc. et al, Superior Court of New Jersey,  Law Division,  Burlington
            County,  Docket No.  Bur-L-03400-95,  filed  December 19,  1995.  On
            December  19,  1995,  a second  amended  complaint  was filed in the
            above-entitled  action which  joined the Company as a defendant  and
            included a count  against  the Company  seeking  recovery of certain
            assets  purchased  from Hill  International,  Inc.  ("Hill")  on the
            grounds that plaintiff  banks hold security  interests in the assets
            and that Hill is in default  under the security  agreement  creating
            such alleged security  interests.  The plaintiffs in this action are
            First Fidelity Bank,  N.A. and United Jersey Bank,  N.A. The primary
            defendants  are Hill and  certain  of its  subsidiaries,  and  Irvin
            Richter,  David Richter,  Janice  Richter and William  Doyle.  Irvin
            Richter and David Richter are officers and  stockholders of Hill. In
            April 1996,  the Company  filed a cross-claim  against  Hill,  Irvin
            Richter and David Richter alleging breach of contract,  fraud, among
            other  allegations  and  seeking  unspecified   damages,   including
            punitive damages and equitable relief. In August, 1996, Hill and the
            Richters filed an answer  denying ATC's cross claims,  a cross-claim
            against ATC and a third party claim against certain members of ATC's
            management.  The cross claim and third party claim seek  unspecified
            damages,  including punitive damages, for defamation,  breach of the
            Richters'  non-competition  agreements  and  securities  fraud.  The
            defamation  claim is based on plaintiff  banks'  allegation of fraud
            against Hill and the Richters in their amended complaint, which Hill
            and the Richters  allege was based on defamatory  statements made by
            ATC in  settlement  discussions  with the  plaintiff  banks.  In its
            answer,  the Company both denies that it made defamatory  statements
            and asserts that the defamation  allegations fail to state a legally
            valid claim. The breach of contract and securities  claims are based
            on   allegations   that  ATC  made   representations   concerning  a
            registration  rights  agreement  to be provided in  connection  with
            options   issued  to  the  Richters  as   consideration   for  their
            non-competition  agreements.  In its answer, the Company denies that
            an  agreement  concerning  registration  rights was ever reached and
            asserts that the Richters forfeited any such rights in any case as a
            result of their conduct in connection with the asset purchase. These
            related  cases are in their early stages with  discovery yet to take
            place. In the Company's opinion, the outcome of this matter will not
            have a  significant  effect on the Company's  financial  position or
            future results of operations, although no assurances can be given in
            this regard.


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

Item 2.     Changes in Securities:
                        Not Applicable

Item 3.     Defaults Upon Senior Securities:
                        Not Applicable

                                F-18
PAGE
<PAGE>



Item 4.     Submission of Matters to a Vote of Security Holders:
                        On October 8, 1996,  the Company held its annual meeting
            of  shareholders   at  which  time  the  Company's   directors  were
            re-elected  and  amendments  to increase the number of shares in the
            1993 Incentive and Non-Qualified Stock Option Plan and to change the
            Company's  name  to  ATC  Group  Services  Inc.  were  approved,  as
            previously  reported  in the  Company's  prior  Form  10-Q  for  the
            quarterly period ended August 31, 1996.

Item 5.     Other Information:
                        Not Applicable

Item 6.     Exhibits and Reports on Form 8-K:
                        (a)  Exhibits:
                                    11 - Computation of Earnings Per Share -
                                           Three months and nine months ended
                                           November 30, 1995 and
                                           1996 (Unaudited)

                                    27 - Financial Data Schedule
                                           November 30, 1996 (Unaudited)

                        (b)  Reports on Form 8-K:
                                    Not Applicable

  
                               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, 1996            /s/ Morry F. Rubin
  ------------------------            -------------------------------------
                                      Morry F. Rubin,
                                      President and Chief Executive Officer
                                      
  Dated:  January 14, 1996            /s/ Richard L. Pruitt
  ------------------------            -------------------------------------
                                      Richard L. Pruitt,
                                      Vice President and Principal
                                      Accounting Officer

                                F-19
PAGES
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES                          EXHIBIT 11

COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 30, 1995 and 1996 (Unaudited)

<TABLE>
<CAPTION>
                                                                Three Months Ended           Nine Months Ended
                                                                 November 30, 1996            November 30, 1996
                                                           --------------------------    --------------------------
                                                               1995          1996            1995           1996
                                                           -----------    -----------    -----------    -----------
<S>                                                        <C>            <C>            <C>            <C>
Primary Earnings Per Share:
--------------------------
  Weighted averang numbe of shares of common stock
    outstanding........................................      6,738,257      7,792,964      6,091,458      7,789,104
  Additional shared assuming exercise of dilutive
    stock options and stock warrants...................        804,271        661,187        644,490        748,167
                                                           -----------    -----------    -----------    -----------
      Total average common and common equivalent shares
        outstanding....................................      7,542,528      8,454,151      6,735,948      8,537,271
                                                           ============   ===========    ===========    ===========

  Net Income...........................................    $ 1,104,675    $ 1,506,278    $ 3,518,920    $ 5,326,074
                                                           ============   ===========    ===========    ===========

  Earings per common and dilutive common equivalent
    share (1)..........................................    $       .15    $       .18    $       .52    $       .62
                                                           ============   ===========    ===========    ===========

Fully Diluted Earnings Per Share:
--------------------------------
  Weighted averang numbe of shares of common stock
    outstanding........................................      6,738,257      7,792,964      6,091,458      7,789,104
  Additional shared assuming exercise of dilutive
    stock options and stock warrants...................        804,271        661,187        644,490        781,066
                                                           -----------    -----------    -----------    -----------
      Total average common and common equivalent shares
        outstanding....................................      7,542,528      8,454,151      6,735,948      8,570,170
                                                           ============   ===========    ===========    ===========

  Net Income...........................................    $ 1,104,675    $ 1,506,278    $ 3,518,920    $ 5,326,074
                                                           ============   ===========    ===========    ===========

  Earings per common and dilutive common equivalent
    share (1)..........................................    $       .15    $       .18    $       .52    $       .62
                                                           ============   ===========    ===========    ===========

</TABLE>

(1)  Includes a one-time tax benefit of $.05 per share related to the merger
     of Aurora Environmental Inc. for the nine months ended November 30,
     1995 (Note B).

                                F-20
PAGE
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES                            EXHIBIT 27

FINANCIAL DATA SCHEDULE
NOVEMBER 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
                                                                                        As of
Item Number   Item Description                                                   November 30, 1996
                                                                               --------------------
<S>                                                                            <C>
5-02(1)       Cash and cash items............................................. $         2,714,709
5-02(2)       Marketable securities...........................................                  -
5-02(3)(a)(1) Notes and accounts receivable - trade...........................          36,497,082
5-02(4)       Allowances for doubtful accounts................................          (1,284,925)
5-02(6)       Inventory.......................................................                  -
5-02(9)       Total current assets............................................          47,571,522
5-02(13)      Property, plant and equipment...................................           7,735,863
5-02(14)      Accumulated depreciation........................................          (3,805,184)
5-02(18)      Total assets....................................................          88,528,052
5-02(21)      Total current liabilities.......................................          21,957,081
5-02(22)      Bonds, mortgages, and similar debt..............................          21,599,058
5-02(28)      Preferred stock - mandatory redemption..........................                  -
5-02(29)      Preferred stock - no mandatory redemption.......................                  -
5-02(30)      Common stock....................................................              77,979
5-02(31)      Other stockholders' equity......................................          44,401,845
5-02(32)      Total liabilities and stockholders' equity......................          88,528,052

                                                                                     Nine Months
                                                                                        Ended
                                                                                  November 30, 1996
                                                                               --------------------
5-03(b)1(a)   Net sales of tangible products.................................. $                -
5-03(b)1      Total revenues..................................................          83,416,851
5-03(b)2(a)   Cost of tangible goods sold.....................................                  -
5-03(b)2      Total costs and expenses applicable to sales and revenues.......          52,317,462
5-03(b)3      Other costs and expenses........................................          20,703,117
5-03(b)5      Provision for doubtful accounts and notes.......................             624,981
5-03(b)(8)    Interest and amortization of debt discount......................           1,080,217
5-03(b)(10)   Income before taxes and other items.............................           8,691,074
5-03(b)(11)   Income tax expense..............................................           3,365,000
5-03(b)(14)   Income/(loss) continuing operations.............................           5,326,074
5-03(b)(15)   Discontinued operations.........................................                  -
5-03(b)(17)   Extraordinary items.............................................                  -
5-03(b)(18)   Cumulative effect - changes in accounting principles............                  -
5-03(b)(19)   Net Income......................................................           5,326,074
5-03(b)(20)   Earnings per share - primary....................................                 .62
5-03(b)(20)   Earnings per share - fully diluted..............................                 .62
</TABLE>

                                F-21
PAGE
<PAGE>