<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 QUARTER ENDED AUGUST 31, 1998

                                      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                           (Zip Code)
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, par value
$0.01 per share, as of October 15, 1998 was 1,000.



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


<PAGE>


ATC GROUP SERVICES INC. AND SUBSIDIARIES

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED AUGUST 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                   Page
                                                                  ------
PART I - FINANCIAL INFORMATION:

Item 1 - Unaudited Financial Statements:

<S>                                                               <C>
Condensed Consolidated Balance Sheets
 February 28, 1998 and August 31, 1998 (Unaudited)...............   F-3

Condensed Consolidated Statements of Operations
 Three and Six months ended August 31, 1997 and 1998 (Unaudited).   F-4

Condensed Consolidated Statements of Stockholders' Equity
 Six months ended August 31, 1997 and 1998 (Unaudited)...........   F-5

Condensed Consolidated Statements of Cash Flows
 Six months ended August 31, 1997 and 1998 (Unaudited)...........   F-6

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

Item 2 - Management's Discussion and Analysis of Financial
 Condition and Results of Operations.............................   F-20

PART II - OTHER INFORMATION:

Items 1-6........................................................   F-25


Signatures.......................................................   F-27
</TABLE>


                                      F-2
<PAGE>

ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1998 AND AUGUST 31, 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                   FEBRUARY 28,        August 31,
                                                                                      1998              1998
                                                                                   ------------      -----------

<S>                                                                                <C>               <C>
ASSETS
------
CURRENT ASSETS:
 Cash and cash equivalents....................................................... $  5,268,708         $ 1,113,030
 Trade accounts receivable, less allowance for doubtful accounts
  ($3,077,829 at February 28, 1998 and $5,030,896 at August 31, 1998)............   39,934,302          46,107,699
 Unbilled receivables............................................................   10,196,397           7,682,111
 Prepaid expenses and other current assets.......................................    2,422,523             954,974
 Deferred income taxes...........................................................    2,041,200           2,041,200
 Refundable income taxes.........................................................    4,232,505           4,232,505
                                                                                  ------------        ------------
  Total current assets...........................................................   64,095,635          62,131,519

PROPERTY AND EQUIPMENT, Net (Note C).............................................    5,793,928           5,943,738

GOODWILL, net of accumulated amortization 
 ($3,261,108 at February 28, 1998 and $4,837,237 at August 31, 1998)(Note B).....  106,829,231         113,322,111
COVENANTS NOT TO COMPETE, net of accumulated amortization
 ($774,589 at February 28, 1998 and $1,630,837 at August 31, 1998)(Note B).......    5,162,911           4,386,532
DEBT ISSUANCE COSTS, net of accumulated amortization
 ($107,570 at February 28, 1998 and $598,124 at August 31, 1998)(Note B).........    5,808,246           6,913,263
OTHER ASSETS.....................................................................    1,365,056           3,709,328
                                                                                  ------------        ------------
                                                                                  $189,055,007        $196,406,491
                                                                                  ------------        ------------
                                                                                  ------------        ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
 Short-term debt................................................................. $    300,000        $    479,000
 Current maturities of long-term debt............................................    1,420,816           3,000,213
 Accounts payable................................................................    7,738,433          13,985,707
 Accrued compensation............................................................    5,096,880           4,973,406
 Tender Offer liability (Note B).................................................   14,278,838           3,368,524
 Accrued interest expense.........................................................   1,266,011           1,989,893
 Other accrued expenses..........................................................    4,554,179           9,245,690
                                                                                  ------------        ------------
  Total current liabilities......................................................   34,655,157          37,042,433

LONG-TERM DEBT, less current maturities (Note D).................................  120,419,684         130,469,685
OTHER LIABILITIES, including non-current payment obligations (Note B)............    2,737,185           1,623,640
DEFERRED INCOME TAXES............................................................    4,606,800           4,606,800
                                                                                  ------------        ------------
  Total liabilities..............................................................  162,418,826         173,742,558
                                                                                  ------------        ------------
COMMITMENTS AND CONTINGENCIES (Notes B and E)

STOCKHOLDERS' EQUITY:
 Common stock, par value $.01 per share; authorized 10,000 shares;
  issued and outstanding 1,000 shares at February 28, 1998 and August 31, 1998...           10                  10
 Additional paid-in capital......................................................   28,425,589          28,425,589
 Additional paid-in capital - Holdings restricted Common Stock, 
  net of deferred executive compensation.........................................         --               101,688
 Retained (Deficit)..............................................................   (1,789,418)         (5,863,354)
                                                                                  ------------        ------------
   Total stockholders' equity....................................................   26,636,181          22,663,933
                                                                                  ------------        ------------
                                                                                  $189,055,007        $196,406,491
                                                                                  ------------        ------------
                                                                                  ------------        ------------
</TABLE>
See notes to condensed consolidated financial statements.
                                      F-3
<PAGE>


ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED AUGUST 31, 1997 AND 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                 Three Months Ended                     Six Months Ended
                                                     August 31,                            August 31,
                                          ---------------------------------        -----------------------------
                                          Predecessor            Successor         Predecessor         Successor
                                              1997                 1998                1997               1998
                                          -----------           -----------        -----------        -----------

<S>                                       <C>                   <C>               <C>               <C>
REVENUES...............................   $34,722,201          $39,912,560         $66,096,867       $80,195,474
 Reimbursable Costs....................     5,905,664            6,788,950          10,361,497        12,558,632
                                          -----------          -----------         -----------       -----------

NET REVENUES...........................    28,816,537           33,123,610          55,735,370        67,636,842

COST OF NET REVENUES...................    15,751,062           19,302,401          30,412,683        38,121,307
                                          -----------          -----------         -----------       -----------

  Gross profit.........................    13,065,475           13,821,209          25,322,687        29,515,535

OPERATING EXPENSES:
 Selling...............................     1,039,462            1,477,609           2,039,457         2,885,882
 General and administrative............     8,951,861           12,954,733          17,429,197        23,869,809
 Provision for bad debts...............       366,945              710,116             744,384         1,081,108
                                          -----------          -----------         -----------       -----------
                                           10,358,268           15,142,458          20,213,038        27,836,799
                                          -----------          -----------         -----------       -----------

  Operating income (loss)..............     2,707,207           (1,321,249)          5,109,649         1,678,736

NONOPERATING EXPENSE (INCOME):
 Interest expense......................       763,501            3,908,112           1,261,909         7,704,046
 Interest income.......................       (97,121)              (1,268)           (148,904)           (7,060)
 Other.................................       (22,212)               1,332             (12,711)             (314)
                                          -----------          -----------         -----------       -----------
                                              644,168            3,908,176           1,100,294         7,696,672
                                          -----------          -----------         -----------       -----------

  Income (loss) before income taxes....     2,063,039           (5,229,425)          4,009,355        (6,017,936)

INCOME TAX EXPENSE (BENEFIT)...........       815,000           (1,858,000)          1,585,000        (1,944,000)
                                          -----------          -----------         -----------       -----------

NET INCOME (LOSS)......................   $ 1,248,039          $(3,371,425)        $ 2,424,355       $(4,073,936)
                                          -----------          -----------         -----------       -----------
                                          -----------          -----------         -----------       -----------
</TABLE>


See notes to condensed consolidated financial statements.


                                      F-4
<PAGE>


ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED AUGUST 31, 1997 AND 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                 1997                                             
                                         -----------------------------------------------------------------------------------------
                                                 Common Stock              Additional    Holdings        Retained
                                             --------------------          Paid-in       Restricted      Earnings
                                             Shares        Amount          Capital       Stock-Net       (Deficit)         Total
                                         -------------  ------------   ---------------   ----------     --------------- ------------

<S>                                       <C>              <C>            <C>               <C>          <C>            <C>
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............       5,220             52             36,098            -                -        36,150
Continuing registration costs applied
 against additional paid in capital....           -              -            (33,984)           -                -       (33,984)
Net income of predecessor..............           -              -                  -            -        2,424,355     2,424,355
                                         -------------  ------------   ---------------   ----------    --------------  ------------
BALANCE, August 31, 1997..................7,805,407        $78,054        $28,998,741     $      -      $18,789,029   $47,865,824
                                         -------------  ------------   ---------------   ----------    --------------  ------------
                                         -------------  ------------   ---------------   ----------    --------------  ------------
</TABLE>


<TABLE>

                                                                                          1998
                                         -----------------------------------------------------------------------------------------
<S>                                      <C>             <C>            <C>               <C>         <C>             <C>
BALANCE, February 28, 1998.............       1,000         $    10        $28,425,589    $       -    $(1,789,418)   $26,636,181

Amortization of deferred
 compensation costs....................           -               -                  -      101,688              -        101,688
Net loss of successor................             -               -                  -            -     (4,073,936)    (4,073,936)
                                         -------------   ------------   ---------------   ----------  --------------  ------------
BALANCE, August 31, 1998...............       1,000         $    10        $28,425,589    $ 101,688    $(5,863,354)   $22,663,933
                                         -------------   ------------   ---------------   ----------  --------------  ------------
                                         -------------   ------------   ---------------   ----------  --------------  ------------
</TABLE>


See notes to condensed consolidated financial statements.


                                      F-5
<PAGE>

ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED AUGUST 31, 1997 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                       Six Months Ended
                                                                                                           August 31,
                                                                                                 ----------------------------------
                                                                                                     Predecessor        Successor  
                                                                                                      1997               1998     
                                                                                                 --------------      --------------
<S>                                                                                              <C>               <C>            
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                             
                                                                                                                                  
  Net income (loss)............................................................................. $ 2,424,355         $ (4,073,936)
  Adjustments to reconcile net income (loss) to net cash from operating activities:                                               
   Depreciation and leasehold amortization......................................................     503,855              857,022
   Amortization of goodwill and covenants.......................................................     920,368            2,682,377
   Provision for bad debts......................................................................     744,384            1,081,108
   Other........................................................................................  (1,077,567)             580,594
   Changes in operating assets and liabilities, net of amounts acquired in                                                       
     acquisitions:                                                                                                               
      Receivables...............................................................................  (5,100,710)          (6,688,139)
      Prepaid expenses and other assets.........................................................  (1,149,515)          (1,366,857)
      Accounts payable and other liabilities....................................................     332,285            5,723,523
      Income taxes payable......................................................................     554,241                   --
                                                                                                  ----------          -----------
   Net cash flows from operating activities.....................................................  (1,848,304)          (1,204,308)
                                                                                                  ----------          -----------
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                           
  Purchase of On-Site Technologies, Inc.........................................................           -              (59,000)
  Purchase of Aerovironment Environmental Services, Inc.........................................           -             (100,000)
  Purchase of BCM Engineers, Inc. ..............................................................  (5,425,539)                   -
  Purchase of American Testing and Engineering Corp, net of cash acquired.......................  (2,420,766)                   -
  Purchase of property and equipment............................................................    (667,393)          (1,187,782)
  Other.........................................................................................      60,302              394,110
                                                                                                  ----------          -----------
   Net cash flows from investing activities.....................................................  (8,453,396)            (952,672)
                                                                                                  ----------          -----------
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                           
  Net proceeds from issuance of long-term debt and notes payable, net of issuance costs.........  38,500,000           10,260,525
  Proceeds from issuance of common stock, net of expenses.......................................      36,150                    -
  Payment of Tender Offer obligations...........................................................           -          (12,017,174)
  Principal payments on long-term debt.......................................................... (22,310,891)            (242,049)
  Other capital transactions....................................................................     (33,984)                   -
                                                                                                  ----------          -----------
   Net cash flows from financing activities.....................................................  16,191,275           (1,998,698)
                                                                                                 ----------          ------------
   Net change in cash and cash equivalents......................................................   5,889,575           (4,155,678)

CASH AND CASH EQUIVALENTS, Beginning of period..................................................   2,003,890            5,268,708
                                                                                                  ----------          -----------
CASH AND CASH EQUIVALENTS, End of period........................................................  $7,893,465          $ 1,113,030
                                                                                                  ----------          -----------
                                                                                                  ----------          -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash payments for:
   Interest.....................................................................................  $  557,486          $ 6,609,605
                                                                                                  ----------          -----------
                                                                                                  ----------          -----------
   Income taxes.................................................................................  $  489,187          $    31,596
                                                                                                  ----------          -----------
                                                                                                  ----------          -----------
</TABLE>


See notes to condensed consolidated financial statements.


                                       F-6
<PAGE>

ATC GROUP SERVICES INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 31, 1998
--------------------------------------------------------------------------------

A.  GENERAL

    ACQUISITION OF THE COMPANY BY ACQUISITION HOLDINGS, INC.--ATC Group 
Services Inc. and subsidiaries ("ATC" or the "Company") became a wholly owned 
subsidiary of Acquisition Holdings, Inc. ("Holdings") effective February 5, 
1998 (the "Merger Date") upon the merger of the Company with Acquisition 
Corp., a wholly owned subsidiary of Holdings, with ATC being the surviving 
corporation (the "Merger"). Holdings, through Acquisition Corp., completed an 
offer to purchase the outstanding common stock of ATC at $12.00 per share 
using the proceeds from the issuance of 12% senior subordinated notes (the 
"Notes"), bank borrowings (the "Bank Credit Facilities") and new equity 
investments. The accompanying financial statements for the Company from 
February 5, 1998 and subsequent thereto (the "Successor Period"), are 
attributable to operations of the Company under the successor ownership of 
Holdings. The predecessor financial statements, representing the period prior 
to February 5, 1998 (the "Predecessor Period"), relate to the previous 
ownership of the Company.

    PRINCIPALS OF CONSOLIDATION--The consolidated financial statements include 
the accounts of ATC Group Services Inc. and its wholly owned subsidiaries. 
All significant inter-company accounts and transactions have been eliminated.

    In the opinion of the Company, the accompanying unaudited condensed 
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 
notes to the consolidated financial statements for the fiscal year ended 
February 28, 1998, which are included in the Company's Annual Report on 
Form 10-K and amendments thereto.

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

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

B.  MERGER AND BUSINESS ACQUISITIONS

    MERGER, NOTE OFFERING, AND TENDER OFFER TRANSACTIONS--Acquisition Holdings,
Inc. ("Holdings" or "Parent") and its wholly owned subsidiary, Acquisition Corp.
("Issuer"), were organized to effect the acquisition of the Company under the
terms and conditions of a Merger Agreement dated November 26, 1997 (the "Merger
Agreement").

                                     F-7

<PAGE>

    Pursuant to the Merger Agreement, the Issuer 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. The Tender Offer was conditioned upon Issuer
issuing $100,000,000 of Senior Subordinated Notes (the "Notes"; see Note D) and
obtaining sufficient bank financing necessary to consummate the Tender Offer.
Effective February 5, 1998, (the "Merger Date") upon satisfaction of the
necessary conditions, the Issuer was merged into ATC, with ATC being the
surviving corporation (the "Merger").

     The Merger Agreement followed the execution of a stockholders agreement 
(the "Stockholders Agreement") with George Rubin and Morry F. Rubin 
(collectively the "Stockholders") requiring the Stockholders to vote 14.8% of 
their interest in the Company in favor of the Merger. In connection with the 
Stockholders Agreement, the Stockholders each agreed to and entered into 
Severance Consulting and Non-Competition Agreements (the "Severance 
Agreements"). Under these agreements, the Stockholders resigned from their 
officer positions, agreed to provide certain consulting services as requested 
by the Company for a period of three years following the consummation of the 
transactions, and agreed to restrict the Stockholders from competing with the 
Company's business and restricting certain other activities for a period 
ranging from three to four years from the effective date of the Merger. In 
consideration of the Severance Agreements, the Company paid the Stockholders 
$3.1 million on the Merger Date and will pay $553,430 on each of the next six 
succeeding quarters commencing April 1, 1998.

    In connection with the Merger and Tender Offer, the Company, through the 
Issuer, entered into a new bank credit agreement which provided for a 
$20,000,000 Term Loan and $30,000,000 Revolving Credit Facility (collectively 
the "Bank Credit Facilities"). The proceeds of the Term Loan along with the 
proceeds of the Notes and equity investments in Holdings were used to finance 
the Tender Offer, repay certain indebtedness including related accrued 
interest and prepayment penalties, pay a portion of the Severance Agreement 
consideration, and to pay financing costs and expenses.

    The acquisition of the Company by Holdings has been accounted for as a 
purchase. The excess of the purchase cost over the historical book value of 
the net assets acquired was allocated to the Severance Agreements and the 
remainder, to goodwill, is being amortized over 30 years.

    The accompanying consolidated balance sheet reflects the following 
sources and uses of funds related to the Tender Offer, Merger, Stockholders 
Agreement and the Bank Credit Facilities (collectively the "Transactions").

<TABLE>

   <S>                                                             <C>
   Sources of Funds:
     Notes........................................................ $100,000,000
     Bank Term Loan...............................................   20,000,000
     Equity investment from Holdings..............................   30,714,639
     Tender Offer obligations to be funded from cash on hand and
      revolving credit borrowings. (The outstanding balance at
      May 31, 1998 was $3,681,818)................................   16,082,850
                                                                   ------------
                                                                   $166,797,489
                                                                   ------------
                                                                   ------------
   Uses of Funds:
     Purchase of common stock, warrants and stock options......... $105,473,603
     Repay existing debt:
       Principal..................................................   42,076,461
       Accrued interest...........................................      577,345
       Accrued ATEC obligations...................................      754,250
     Shareholder Agreement Consideration:
       Amount paid at Merger Date.................................    3,100,002
       Amounts payable in quarterly installments..................    3,320,578
       Financing costs and expenses, including debt prepayment
         penalty..................................................   11,495,250
                                                                   ------------
                                                                   $166,797,489
                                                                   ------------
                                                                   ------------
</TABLE>

                                      F-8
<PAGE>

    The total consideration paid in connection with the Transactions and 
allocation of the consideration to the historical book value of assets, 
covenant not to compete and goodwill is as follows:

<TABLE>

   <S>                                                                 <C>
   Consideration:
     Purchase price of common stock, warrants, and stock options.      $ 105,473,603
     Severance Agreements consideration............................        6,420,580
     Financing costs and expenses net of amount related to debt
      issuance.....................................................        4,828,614
                                                                       -------------
                                                                         116,722,797
   Allocation of Consideration:
     Net assets acquired...........................................       51,214,836
       Fair value adjustments:
         Non-compete agreement.....................................        4,700,000
         Other.....................................................         (301,537)
                                                                       -------------
     Excess purchase consideration.................................       61,109,498
     Predecessor basis adjustment..................................       (2,289,050)
                                                                       -------------
   Goodwill........................................................    $  58,820,448
                                                                       -------------
                                                                       -------------
</TABLE>
    Holdings is not engaged in any activities other than those related to its 
ownership interest in ATC. A majority interest in Holdings is owned by 
affiliates of Weiss, Peck & Greer, L.L.C. ("Weiss Peck"), who was also a 
party to the Merger Agreement. Other actual and beneficial owners of Holdings 
include ATC management and employees who made equity contributions or elected 
to receive options to purchase common stock of Holdings in replacement of 
their "in-the-money" ATC stock options.

    Weiss Peck is a private investment firm, founded in 1970, which manages 
in excess of $14 billion in public equities and fixed-income securities for 
institutional and individual clients worldwide. In addition to its money 
management activities, the firm has a twenty-seven year history as an 
investor of equity capital in over 200 venture capital and private equity 
transactions. Investments of its Private Equity Group are made through 
affiliated funds with $230 million of committed capital.

    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 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 1999

    AEROVIRONMENT ENVIRONMENTAL SERVICES INC.--On July 31, 1998 ATC acquired 
certain assets and assumed certain liabilities of AeroVironmental 
Environmental Services, Inc. ("AVES"), a regional provider of engineering and 
technical consulting services, with emphasis on the air quality and pollution 
fields. AVES is located in Monrovia, CA. During its fiscal year ended April 
30, 1998, AVES reported $2.3 million in revenues. ATC paid $591,000, $100,000 
of which was cash paid at closing, $312,000 in assumed liabilities and 
transaction costs, and $179,000 in a noninterest bearing note, payable six 
months from the date of purchase. Assets purchased included work in progress, 
property and equipment, certain intangible assets, and an ownership interest 
in AeroVironment/NESA LLC, a subsidiary of AVES.

    ON-SITE TECHNOLOGIES, INC--On July 10, 1998 ATC acquired certain assets 
and assumed certain liabilities of On-Site Technologies, Inc. ("OST"), a 
remediation engineering services company based in Hayward, CA. OST reported 
revenues of approximately $1.2 million for its year ended December 31, 1997. 
ATC acquired property and intangible assets including customer contracts. The 
consideration paid totaled $204,000 consisting of $59,000 in cash paid at 
closing and $145,000 in assumed liabilities and transaction costs.

                                    F-9
<PAGE>
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>
    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:
<TABLE>
     <S>                                                             <C>       
     Cash........................................................... $  163,680
     Accounts receivable, net.......................................  2,292,191
     Unbilled receivables...........................................      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
                                                                     ----------
                                                                     ----------
</TABLE>

    ENVIRONMENTAL WARRANTY, INC.--On November 4, 1997, ATC purchased 90.9% 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:

<TABLE>
     <S>                                                             <C>
     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
                                                                     ----------
                                                                     ----------
</TABLE>
                                      F-10

<PAGE>
    The notes payable are due in three annual installments commencing November 
1998 and are subject to certain setoffs. The payment commitments are due in 
four installments. The first two installments were paid in connection with 
the closing and the final two installments are due in November 1999 and 
November 2000. ATC issued 33,000 shares of restricted common stock valued at 
11 1/16 per share.

    The preliminary purchase price allocation is as follows:
<TABLE>

     <S>                                                             <C>       
     Cash........................................................... $  169,350
     Receivables....................................................    158,391
     Prepaid and other current assets...............................      2,875
     Property and other.............................................     15,384
     Goodwill.......................................................  1,366,297
                                                                     ----------
                                                                     $1,712,297
                                                                     ----------
                                                                     ----------
</TABLE>
    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, 
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:
<TABLE>
     <S>                                                            <C>
     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)
                                                                    -----------
                                                                      8,175,539
     Liabilities assumed:
       Current liabilities.........................................   2,833,665
       Non current liabilities.....................................   1,356,151
       Direct expenses related to acquisition......................     112,133
                                                                    -----------
                                                                    $12,477,488
                                                                     ----------
                                                                     ----------
</TABLE>
    Notes payable includes a $200,000 note which became due September 20, 
1997 and was 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 offset 
the $200,000 in full. In addition, based on unrealized unbilled receivables 
warranted by the seller and other claims, an additional $2,750,000 has been 
reflected as an offset of 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
     Unbilled receivables...........................................   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>

                                    F-11

<PAGE>

    Prior Acquisitions

    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 Senior Secured Notes on May 29, 1997 (since 
repaid), 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. In connection with the issuance of the 12% Senior 
Subordinated Notes and Tender Offer transactions, the Company paid $754,250 
on January 29, 1998 and is obligated to make monthly payments through 
February 1999. Additionally, the Company has the option to purchase certain 
properties from the seller for $1,700,000 in fiscal 2002.

    As a result of sellers warranties of purchased trade receivables and 
unbilled receivables 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. The set-off amount is included in other assets in the 
accompanying consolidated balance sheets.

    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.

     PRO FORMA FINANCIAL INFORMATION (UNAUDITED) - The following unaudited pro
forma information sets forth the results of operations of ATC as if the Merger
and Tender Offer and ATC's purchases of BCM, EWI and Bing Yen had occurred on
March 1, 1997:

<TABLE>
<CAPTION>

                                                                        PRO FORMA
                                                             THREE MONTHS ENDED AUGUST 31,     SIX MONTHS ENDED AUGUST 31,
                                                             -----------------------------     ---------------------------
                                                                1997            1998               1997         1998
                                                             ------------    ------------      -----------   -------------

     <S>                                                     <C>             <C>               <C>           <C>
     Revenues..............................................  $42,724,968     $39,912,560         84,274,545    $80,195,474
     Operating Income......................................    2,339,866      (1,321,249)         4,204,241      1,678,736
     Net income (loss).....................................  $   422,014     $(3,371,425)           451,257    $(4,073,936)
</TABLE>



                                      F-12
<PAGE>


C.   PROPERTY AND EQUIPMENT

     Property and equipment is comprised of the following:

<TABLE>
<CAPTION>

                                                                 FEBRUARY 28,        AUGUST 31,
                                                                     1998              1998
                                                                 ------------      ------------

      <S>                                                        <C>               <C>        
      Office equipment.........................................  $ 5,345,109       $ 6,185,395
      Laboratory and field equipment...........................    3,967,605         3,711,232
      Transportation equipment.................................      582,524           591,677
      Leasehold improvements...................................    1,111,823         1,133,126
                                                                 ------------      ------------
                                                                  11,007,061        11,624,430
      Less accumulated depreciation............................   (5,213,133)       (5,682,692)
                                                                 ------------      ------------
      Property and Equipment, net..............................  $ 5,793,928       $ 5,943,738
                                                                 ------------      ------------
                                                                 ------------      ------------
</TABLE>


D. DEBT AND CREDIT AGREEMENTS

   BANK CREDIT FACILITIES--On January 29, 1998, a credit facility with various
lending institutions was established providing the Company senior secured credit
facilities consisting of a $20 million Term Loan and a $30 million Revolving
Credit Facility (the "Bank Credit Facilities").

   The Revolving Credit Facility available to the Company for working capital 
and general corporate purposes totals $15 million, with the remainder available
for certain permitted acquisitions. Revolving loans mature on January 29, 
2003. At the Company's option, revolving loans will accrue interest at either 
(a) an adjusted rate based on the Eurodollar rate plus a margin of 2.25% or 
(b) the base rate (effectively the prime rate) plus a margin of 1.25%. The 
loan margins are subject to quarterly decreases based upon improvements in 
the Company's leverage ratio. Interest is payable monthly and the Company 
pays a revolving loan commitment fee of 1/2 of 1% on a quarterly basis.

   The Term Loan amortizes quarterly commencing in February 1999 initially at 
$750,000 per quarter, increasing to $1,000,000 per quarter in February 2000, 
$1,500,000 per quarter in February 2001 and $1,750,000 per quarter in 
February 2002 with the final loan maturity on January 29, 2003.

   The Bank Credit Facilities require the Company to meet certain financial 
tests, including minimum interest coverage and maximum leverage ratios 
beginning as of and for the quarter ended May 31, 1998. The Bank Credit 
Facilities also contain covenants which, among other things, limit the 
ability of the Company to incur additional indebtedness, pay dividends, enter 
into transactions with affiliates, form subsidiaries, enter into 
sale-leaseback transactions, make capital expenditures, loans, investments or 
lease payments, merge, consolidate or acquire or dispose of assets, voluntarily 
prepay or amend other indebtedness, incur liens and encumbrances and other 
matters customarily restricted in loan agreements of this type.

   For the quarters ended May 31, 1998, and August 31, 1998 the Company was in 
default of certain financial covenants. The Company's lenders have provided 
an interim waiver with respect to the defaults. Under the waiver, the Company 
has approximately $5.1 million of availability under its revolving line of 
credit as of October 20, 1998.


                                      F-13
<PAGE>


   The Company is in discussion with its lenders and believes the covenant 
provisions of the credit agreement will be amended. Accordingly, the Company 
continues to classify its outstanding debt as long term in accordance with 
the existing loan maturity dates. The final classification of the Company's 
outstanding bank debt and 12% Senior Subordinated Notes, will be in 
accordance with the terms of any final credit agreement.

   The Bank Credit Facilities also contain customary events of default, 
including payment defaults, breach of representations and warranties, 
covenant defaults, cross defaults, certain events of bankruptcy and 
insolvency, ERISA, judgement defaults, failure of any guarantee or security 
agreement supporting the Company's obligations under the Bank Credit 
Facilities to be in full force and effect, and a change of control of the 
Company's Parent or the Company.

   The obligations of the Company under the Bank Credit Facilities are 
unconditionally guaranteed by the Company's Parent and any direct or indirect 
subsidiaries of the Company. In addition, the obligations of the Company 
under the Bank Credit Facilities are secured by substantially all of the 
assets of the Company.

   12% SENIOR SUBORDINATED NOTES DUE 2008--The 12% Senior Subordinated Notes 
due 2008 were issued January 29, 1998 pursuant to an indenture agreement and 
became obligations of the Company as of the Merger Date. Interest accrues at 
12% per annum and is payable semiannually in arrears on each January 15 and 
July 15, commencing July 15, 1998. The Notes are unsecured obligations of the 
Company, ranking subordinate in right of payment to all senior indebtedness 
(as defined), and ranking pari passu in right of payment with any future 
senior subordinated indebtedness and senior in right of payment to all other 
subordinated obligations of the Company. The Notes will be redeemable, in 
whole of in part, at the Company's option on or after January 15, 2003 at 
redemption prices set forth in the indenture agreement. Up to 35% of the 
aggregate principal amount of the Notes may be redeemed on or prior to 
January 15, 2001 with the net cash proceeds of a public offering at 
redemption prices and terms in accordance with the Note indenture agreement. 
The Note indenture agreement provides noteholders the option to have their 
notes purchased in the event of a change in control. In addition, the Note 
indenture contains covenants restricting the incurrence of additional 
indebtedness, payment of dividends, sales of assets, incurrence of liens, 
mergers and acquisitions and conduct of the business to existing businesses.

   8.18% SENIOR SECURED NOTES--On May 29, 1997, the Company issued 
$32,500,000 of 8.18% Senior Secured Notes to a group of financial 
institutions. The proceeds were used in part to repay the Company's bridge 
credit facility outstanding as of February 28, 1997. In connection with the 
issuance of the 8.18% Senior Secured Notes, the Company had entered into a 
bank credit agreement providing a $15,000,000 revolving line of credit. 
Amounts outstanding under the bank revolver and the 8.18% Senior Secured 
Notes were repaid in full using proceeds of the 12% Senior Subordinated Notes 
due 2008 and the Bank Credit Facilities.


                                      F-14
<PAGE>

E. COMMITMENTS AND CONTINGENCIES

   Joseph I. Peters v. George Rubin, et al, Civ. Action No. 16026-NC, Court 
of Chancery, New Castle County, Delaware. On or about November 12, 1997, a 
summons and complaint were filed in the Delaware Court on behalf of Joseph I. 
Peters, as plaintiff. On or about December 18, 1997, an amended complaint was 
filed (the "Amended Complaint"). The Amended Complaint names the Company, the 
members of the Company's board of directors, Weiss, Peck & Greer ("Weiss 
Peck") and the WPG Corporate Development Associates V, L.P., a Weiss Peck 
affiliate, as defendants. The Amended Complaint challenges the Tender Offer 
and Merger. The Amended Complaint seeks class action status on behalf of the 
stockholders of the Company. The plaintiff in the action claims that the 
offer price for the Company's Common Stock is inadequate and that the 
defendants have breached their fiduciary duties to the plaintiff and other 
stockholders of the Company. The plaintiff seeks unspecified damages. On 
January 7, 1998, a motion to dismiss was filed by Weiss Peck and WPG 
Corporate Development Associates V, L.P. On January 13, 1998, answers to the 
complaint were filed by the Company and the remaining defendants. The parties 
to the action are currently conducting discovery. The Company believes the 
allegations contained in the Amended Complaint are without merit and intends 
to defend the action vigorously.

   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 held security interests in the assets and 
that Hill was 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 and 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 claims are based (i) 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 and (ii) on a letter alleged 
to contain defamatory statements which was sent to an account debtor of the 
Company by an employee. In its answer, the Company both denies that it made 
defamatory statements and asserts that the defamation allegations fail to 
state legally valid claims. 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 any such rights were forfeited or suspended 
by the Richters in any case as a result of their conduct in connection with 
the asset purchase. ATC also disputes that the Richters sustained damages on 
the grounds, among others, that the options were non-transferable and because 
ATC's stock price never exceeded the exercise price at any point where the 
options would have been exercisable. In January, 1997, the plaintiff banks 
dismissed their claim against ATC. The remaining claims are subject to a stay 
pending the federal action described below.

    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 Irwin 
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 securities claims. The case is currently in the 
discovery and pretrial motion phase. It does not create a risk of double 
recovery. 
                                   F-15
<PAGE>


   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. ATC's position is that it did 
not commit any error or omission in this case, that ATC made no 
representation to the contractors or material supplier and had no privity 
with them and that Dennison's opinion concerning short term, during- 
construction health effects of the off-gassing could not be justifiably 
relied upon with respect to the long-term performance and health effects of 
the product or its installation. This case is in the discovery phase. At this 
point, ATC considers the case to be without merit, and ATC intends to 
vigorously defend the action. 

   Barrett-Moeller et al. v. ATC Associates Inc., Civ. Action No. 97-01037D, 
Superior Court of Middlesex County, Massachusetts. This is an action arising 
out of the same set of occurrences as gave rise to Commonwealth of 
Massachusetts v. TLT Construction, Corp. described above. The action was 
brought by a group of 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 suit seeks damages for personal injury in an unspecified 
amount. Notice of this claim has been made to ATC's professional liability 
insurer. 

   Joan Spencer v. TLT Construction et al., Civ. Action No. 97-4161C, 
Superior Court of Middlesex County, Massachusetts. This is an action arising 
out of the same set of occurrences as gave rise to Commonwealth of 
Massachusetts v. TLT Construction, Corp. described above. The action was 
brought by an employee who worked in the Suffolk County Courthouse during the 
period in which the off-gassing of harmful vapors was alleged to have 
occurred. The suit seeks damages for personal injury in an unspecified 
amount. 

    Notice of the related Commonwealth of Massachusetts, Barrett-Moeller and 
Spencer claims (the "Suffolk County" claims) has been made to ATC's 
professional liability insurer. At the time that notice of Suffolk County 
claims was filed, the Company had in effect a professional liability insurance 
policy in the amount of $10.0 million with a deductible of $250,000.

   Cambridge Housing Authority v. CON-TEST, Inc. and ATC Group Services Inc., 
Superior Court of Middlesex County, Massachusetts. This action was brought on 
October 1, 1997 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 was joined as a party on the theory of 
continuous business enterprise successor liability. ATC has filed an answer 
denying that it was a successor to Con-Test under Massachusetts's law and 
asserting that it should therefore have no liability for Con-Test's alleged 
acts or omissions. The Company believes that the case is without merit 
because ATC does not meet the criteria for a finding of successor liability 
in the State of Massachusetts. ATC has filed a notice of claim with 
Con-Test's insurance company which has assumed the defense of the action.

   Professional Service Industries, Inc. v. ATC Group Services Inc. and 
Thomas Bowker, Superior Court, Norfolk County, Massachusetts, June 19, 1997, 
Civ. No. 97-01146. The complaint alleges that ATC interfered with a 
non-competition agreement between Mr. Bowker, an ATC employee, and PSI. An 
injunction has been issued by the court against ATC and Mr. Bowker 
prohibiting them from competitive acts within certain geographic areas. The 
case is currently on hold pending mediation between the parties in an attempt 
to settle the case. If settlement is not achieved through the mediation 
process, ATC intends to continue to vigorously defend the claim.


                                     F-16
<PAGE>


   Etzel Place II, L.P. v. ATC Environmental Inc. Action No. 982-01473, 
Missouri Circuit Court, Twenty-Second Judicial Circuit (St. Louis City). This 
action was brought on June 2, 1998 and alleges that ATC breached its contract 
with the plaintiff and was negligent in performing asbestos survey services 
in connection with an asbestos removal project. Plaintiff requests damages in 
the amount of $241,062.40. ATC is currently engaged in settlement discussions 
with plaintiff. Notice of this claim has been made under ATC's professional 
liability and pollution liability insurance policy. The insurance policy is 
subject to a $150,000 self-insured retention amount. 

   1100 Airport North Partnership v. ATC Group Services Inc., Cause No. 
02D01-9804-CP-813, Superior Court of Allen County Indiana. This action was 
filed on May 1, 1998 and arises out of ATC's lease of office space in Fort 
Wayne, Indiana. The Plaintiff seeks damages and attorneys fees for ATC's 
alleged breach of the lease. On July 1, 1998, a default judgment was entered 
against ATC in the amounts of $302,116.13 and $1,443.00 for damages and 
attorneys fees, respectively. ATC has initiated settlement discussions and 
will proceed to have the judgement overturned to continue to dispute the 
claim if necessary.

PROBABLE CLAIMS

   One Parkway Project. ATC has received notice of related claims by R.M. 
Shoemaker Co., a Pennsylvania construction firm, and four of its workers 
arising out of ATC's performance of asbestos abatement survey, design and 
project monitoring services. The services were performed by ATC's Burlington, 
New Jersey office on a project known as the One Parkway Project. 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 ATC'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.

   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.

   Bob Moore Construction/Garden Ridge, Inc. ATC received notice of a claim 
arising out of ATC's performance of soil compaction testing for Bob Moore 
Construction, Inc., the general contractor on a retaining wall construction 
project for Garden Ridge, Inc., a garden supply chain, in Norcross, Georgia.
ATC settled this claim for $88,000 during the three months ended August 31, 
1998.

   Argosy Casino, Lawrenceburg, Indiana. ATC has received notice of claim 
arising out of geotechnical analyses for which American Testing and 
Engineering Corporation originally provided the geotechnical analyses and on 
which ATC subsequently performed the design of a Tensar/soil stabilized earth 
slope. A tentative settlement reached among the parties to this claim would 
result in ATC's payment of $266,000 in corrective costs, of which ATC expects 
contribution from other parties in an amount of up to $80,000. The Company 
has previously recorded a reserve of the minimum expected loss in the 
accompanying consolidated balance sheet. Notice of this claim has been made 
under ATC's professional liability insurance policy. The professional 
liability insurance is subject to a $250,000 deductible. 


                                      F-17
<PAGE>


    TG Kentucky, Lebanon, Kentucky. The potential claim arises out of a 
contract to perform preliminary geotechnical investigations at the TG 
Kentucky Facility, Lebanon, Kentucky, for James M. Gray Construction Company 
("Gray"). ATC issued geotechnical engineering reports based on its 
investigations. Gray alleges that it encountered differing site conditions 
from those identified in ATC's geotechnical reports. Gray asserts it could 
incur over $500,000 in additional costs to finish the project considering 
these alleged unexpected conditions. Allegations have been made against ATC 
for costs over budget. ATC believed it performed all services properly and 
that it should incur no liability. Notice has been given to ATC's 
professional liability insurer. The policy is subject to the $150,000 
self-insured retention amount.

   Marina Bay Development Group. On October 7, 1998, ATC received a notice of 
claim from Marina Bay Development Group, LLC and related parties alleging a 
breach of contract and negligence by ATC or its subcontractor in the 
performance of geophysical survey and environmental assessment services on a 
property in Quincy, Massachusetts. The claimants allege that ATC failed to 
disclose the existence of truck washing operations formerly conducted on the 
site and that ATC's subcontractor failed to locate an underground storage 
tank. The claimants have alleged damages in an amount ranging from $100,000 
to $250,000. ATC has entered into settlement negotiations with the claimants. 
ATC has served a notice of claim regarding this matter on its professional 
liability insurance policy, which is subject to a $150,000 self-insured 
retention.

   Smith Technology Acquisition Claims. ATC has filed two claims for 
recoupment against Smith Technology Corporation ("Smith") arising out of the 
Agreement for Sale and Purchase of Business Assets of August 19, 1997, 
between ATC and Smith ("the Agreement"). The first claim asserted a 
recoupment against the full amount of the $200,000 30-day note and a return 
of conditionally assumed liabilities in the total amount of $135,000. These 
remedies were asserted to partially recoup a deficiency in the Adjusted 
Equity Value as stated on Smith's closing Engineering Division Balance Sheet 
from that warranted in the purchase agreement.

   On March 27, 1998, ATC asserted a second set of recoupment claims arising 
under the Agreement for various value, liability, and loss issues in the 
amount of $5,127,859 against the $2,750,000 note payable to Smith which had 
been assigned to Chase Manhattan Bank. On April 13, 1998, ATC served a 
corrective amendment to this claim asserting an additional claim amount of 
$21,475. This resulted in a total claim amount of $5,149,334. 

   On May 22, 1998, ATC filed notice to Smith and Chase Bank of Smith's 
breach of the covenants of the Agreement in failing to turn over $606,604.39 
of ATC's cash receipts. Smith and Chase have thus far refused to turn over 
these funds on the basis of their allegation that a dispute between Smith and 
ATC exists concerning certain payments and recoupment claims under the 
Agreement as described above. Although ATC believes it is entitled to these 
funds under the Agreement, the release of such funds will not be obtained 
without legal action or settlement of the matters in dispute.

   On August 21, 1998, ATC filed a claim in the case entitled Plymouth Nine 
Hundred, Inc./DE f/k/a BCM Engineers, Inc. of Delaware, Case No. 97-2066 
(HSB), U.S. Bankruptcy Court for the District of Delaware, asserting claims 
against Smith in the aggregate amount of $5,287,727. Since the filing of this 
original claim, status changes in certain of the claim items has reduced the 
claim amount to $4,745,906. ATC has made a settlement offer to Smith and 
Chase Bank, assignee of the Smith notes, in the amount of $477,913 to resolve 
the parties respective claims arising out of the notes, the purchase 
agreement and the related joint services agreement. During the three months 
ended August 31, 1998, ATC recorded additional reserves relating to the 
outstanding disputes and liabilities arising out of the purchase transaction 
with a corresponding charge to goodwill.

   ATC has recorded reserves which the Company believes are appropriate, 
representing actual or estimated losses arising from the above claims, or 
revisions to litigation reserves previously established. The ultimate 
outcomes of the above matters can not be assured, and accordingly, the actual 
costs may differ from recorded estimates.

                                      F-18
<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
                                                ---------------  ---------------  ---------------  ---------------
FISCAL 1999
-----------

     Quarter Ended August 31, 1998
     -----------------------------
<S>                                               <C>               <C>            <C>              <C>         
     Revenues.............................        $ 38,485,397       $2,223,417     $  (796,254)     $ 39,912,560
     Operating income.....................          (1,470,525)         149,276               -        (1,321,249)
     Depreciation and amortization........             410,068           17,988               -           428,056
     Capital expenditures.................             463,581           50,929               -           514,510

     Six Months-Ended August 31, 1998
     --------------------------------
     Revenues.............................        $ 76,234,783       $4,948,153     $  (987,462)     $ 80,195,474
     Operating income.....................           1,188,434          490,302               -         1,678,736
     Depreciation and amortization........             822,519           34,503               -           857,022
     Capital expenditures.................           1,135,746           52,036               -         1,187,782

     Identifiable Assets as of August 31, 1998    $194,251,387       $5,868,973     $(3,713,869)     $196,406,491
     -----------------------------------------

Fiscal 1998
-----------

     Quarter Ended August 31, 1997
     -----------------------------
     Revenues..............................       $ 32,852,171     $  1,945,894     $   (75,864)     $ 34,722,201
     Operating income......................          2,653,929           53,279               -         2,707,208
     Depreciation and amortization.........            253,450           10,825               -           264,275
     Capital expenditures..................            390,515           20,125               -           410,640

     Six Months Ended August 31, 1997
     --------------------------------
     Revenues..............................       $ 62,214,082     $  4,186,193     $  (303,408)     $ 66,096,867
     Operating income......................          4,885,372          224,227               -         5,109,649
     Depreciation and amortization.........            484,185           19,670               -           503,855
     Capital expenditures..................            626,781           40,612               -           667,393

     Identifiable Assets as of August 31, 1997    $117,701,868     $  5,363,196     $(3,235,800)     $119,829,264
     -----------------------------------------
</TABLE>


                                     F-19
<PAGE>

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

RECENT DEVELOPMENTS

  During the three months ended August 31, 1998, the Company completed two 
acquisitions. On July 31, 1998, ATC acquired certain assets and assumed 
certain liabilities of AeroVironmental Environmental Services, Inc. ("AVES"); 
a southern California provider of engineering and technical consulting 
services. On July 10, 1998, ATC acquired certain assets and assumed certain 
liabilities of On-Site Technologies, Inc. ("OST"), a remediation engineering 
services company headquartered in Hayward, California. AVES and OST reported 
revenues of $2.3 million and $1.2 million, respectively for their latest 
fiscal years.

Fiscal 1998

  Tender Offer and Merger. The Company became a wholly owned subsidiary of 
Acquisition Holdings, Inc. ("Holdings") upon the merger of ATC with 
Acquisition Corp., a wholly owned subsidiary of Holdings, with ATC being the 
surviving corporation (the "Merger"). Acquisition Corp. offered (the "Tender 
Offer") and completed the purchase of the issued and outstanding shares of 
the Company's Common Stock at a price of $12.00 per share. The Tender Offer 
was consummated using the proceeds from the issuance of $100,000,000 of 12% 
Senior Subordinated Notes (the "Notes"), borrowings under a new bank credit 
facility (the "Bank Credit Facilities") and equity investments in Holdings. 
The accompanying financial statements for the Company from February 5, 1998 
(the "Successor Period") are attributable to operations of the Company under 
the successor ownership of Holdings. The predecessor financial statements, 
representing the period prior to February 5, 1998 (the "Predecessor Period"), 
relates to the previous ownership of the Company. Prior to the Tender Offer 
and Merger, the Company had entered into two separate Severance, Consulting 
and Noncompetition Agreements (the "Severance Agreements") with two officers 
of the Company. The Severance Agreements provided for the resignation of the 
officers upon completion of the Merger and the terms of a non-compete 
agreement. The Tender Offer and Merger, issuance of the Notes, execution of 
the Bank Credit Facilities and Severance Agreements, are collectively 
referred to as the "Transactions".

  As a result of the Merger, the consolidated financial statements for the 
Successor Period are presented on a different basis of accounting than that 
of the Predecessor Period and are therefore not directly comparable.

  Through fiscal 1998 the Company acquired twelve businesses since 1993. 
Three acquisitions include: (i) the purchase by the Company of all of the 
stock of Bing Yen & Associates, Inc. ("Bing Yen") on November 26, 1997; (ii) 
the purchase by the Company of substantially all of the stock of 
Environmental Warranty, Inc. ("EWI") on November 4, 1997; and (iii) the 
purchase by the Company of certain assets and the assumption by the Company 
of certain liabilities on August 20, 1997 of the Engineering Division of 
Smith Technology Corporation which operated primarily as BCM Engineers Inc. 
("BCM").

OVERVIEW

  General. ATC is a leading national provider of professional consulting, 
engineering and testing services within the environmental and construction 
materials industries. Management believes the Company is also a leading 
provider of integrated environmental information management technology 
services. The Company provides a broad range of services to a diverse client 
base of over 8,000 customers. The Company provides its services through a 
network of 74 branch offices located in 35 states covering every major market 
of the United States.

  The Company's rapid growth is primarily attributable to the acquisition of 
assets of American Testing and Engineering Corporation ("ATEC") in May 1996 
and the acquisition of assets of BCM in August 1997. ATEC, with its large 
network of regional and branch offices, positioned the Company as a national 
provider of professional environmental consulting, testing and engineering 
services. As a result of the BCM acquisition, ATC has become a high-quality 
provider of consulting, engineering and design services in water supply and 
treatment, wastewater systems, air quality management, traditional 
environmental site investigations, site assessments and storage tank 
management services. Subsequent to each acquisition that it has made, the 
Company has implemented cost reduction measures, including integration of 
offices, introduction of flexible staffing programs and reduction of 
duplicative corporate overhead costs.


                                     F-20
<PAGE>
RESULTS OF OPERATIONS

Three Months Ended August 31, 1998 Compared with Three Months Ended August 
31, 1997 
------------------------------------------------------------------------------ 

    Revenues in the three months ended August 31, 1998 increased 15.0% to 
$39,912,560, compared with $34,722,201 in the three months ended August 31, 
1997. This increase was primarily attributable to revenues associated with 
the BCM acquisition which was consummated on August 20, 1997 and the 
acquisitions of EWI and Bing Yen which were completed in November 1997 and 
the acquisition of OST and AVES which were completed in July 1998. The 
revenue increases from acquisitions were partially offset by charges to revenues
related to an increased reserve for unbilled receivables at August 31, 1998 
and other revenue reductions for estimated cost overruns and billing 
adjustments. These charges to revenues were approximately $1.7 million for 
the three months ended August 31, 1998. Revenues in the three months ended 
August 31, 1998 from ATC's branch offices having comparable operations in the 
three months ended August 31, 1997 decreased 3.4% to $32,804,443, compared 
with $33,950,934 in the three months ended August 31, 1997. Excluding the 
revenue charges of $1.7 million discussed above, revenue from branch offices 
having comparable operations increased 1.6% during the quarter ended August 
31, 1998. Revenues in the three months ended August 31, 1998 attributable to 
the acquisition of BCM totaled $5,560,422. Revenues attributable to the 
acquisition of EWI, Bing Yen, OST and AVES totaled $1,547,695 million or 3.9% 
of revenues in the three months ended August 31, 1998. Revenues were not 
affected by the Transactions.

     Reimbursable costs represent direct project expenses billed to 
environmental and engineering segment clients. For the three months ended 
August 31, 1998, reimbursable costs increased 15.0% to $6,788,950, compared 
with $5,905,664 in the three months ended August 31, 1997. Reimbursable costs 
as a percentage of revenues remained the same, 17.0% in the three months 
ended August 31, 1998 and 1997. Reimbursable costs were not affected by the 
Transactions.

     Cost of net revenues in the three months ended August 31, 1998 increased 
by $3,551,339 or 22.5% to $19,302,401 compared with $15,751,062 in the three 
months ended August 31, 1997. Cost of net revenues as a percentage of net 
revenues increased to 58.3% in the three months ended August 31, 1998 
compared to 54.7% in the three months ended August 31, 1997. The increase in 
cost of net revenues as a percentage of net revenues for the three months 
ended August 31, 1998 over the prior year's comparable period was principally 
impacted by the revenue charges of $1.7 million discussed above and the 
Company's sales mix during the three months ended August 31, 1998.

     Gross profit in the three months ended August 31, 1998 increased 5.8% to 
$13,821,209, compared with $13,065,475 in the three months ended August 31, 
1997. Gross margin decreased to 41.7% in the three months ended August 31, 
1998, compared to 45.3% in the three months ended August 31,1997. The 
reduction in the gross margin percentage of 3.6% for the three months ended 
August 31, 1998 was principally caused by the additional reserves recorded 
during the period.

     Operating expenses in the three months ended August 31, 1998 increased 
46.2% to $15,142,458, compared with $10,358,268 in the three months ended 
August 31, 1997. Operating expenses increased as a percentage of net revenues 
to 45.7% in the three months ended August 31, 1998, compared with 35.9% in 
the three months ended August 31, 1997. Employee costs increased 86.0% to 
$6,542,134, or 19.8% of net revenues in the three months ended August 31, 
1998 compared with $3,517,889, or 12.2% of net revenues, in the three months 
ended August 31, 1997. 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 from the growth in operations, increased employee levels and certain 
one-time adjustments to other expenses of approximately $1.1 million, a 
portion of which related to the relocation of the Company's corporate 
administrative group, new accounting system installation and increase in 
allowance for doubtful accounts. Additionally, in the three months ended 
August 31, 1998, amortization of goodwill and intangibles increased to 
$1,362,271, compared with $494,769 in the three months ended August 31, 1997 
reflecting the additional goodwill amortization resulting from acquisitions 
and the Transactions.

     Operating loss in the three months ended August 31, 1998 totaled 
($1,321,249) compared with operating income of $2,707,207 in the three months 
ended August 31, 1997. Operating income decreased as a percentage of net 
revenues to (4.0)% in the three months ended August 31, 1998, compared with 
9.4% in the three months ended August 31, 1997.

                               F-21

<PAGE>

     Non-operating expense in the three months ended August 31, 1998 
increased to $3,908,176 compared with of $644,168 in the three months ended 
August 31, 1997. The increase in non-operating expense is attributable to 
increased interest expense related to the 12% Senior Subordinated Notes and 
bank debt outstanding during the quarter.

     Income tax (benefit) expense in the three months ended August 31, 1998 
was $(1,858,000), compared with $815,000 in the three months ended August 31, 
1997. During the three months ended August 31, 1998 and 1997, the Company's 
effective tax rates were 35.5% and 39.5%, respectively. The lower effective 
tax rate for the three months ended August 31, 1998 is due to non deductible 
goodwill amortization related to the Transactions.

     As a result of the foregoing, the Company incurred a net loss of 
$3,371,425 compared with net income of $1,248,039 in the three months ended 
August 31, 1997. Net income (loss) decreased as a percentage of net revenues 
to (10.2)% in the three months ended August 31, 1998 compared with 4.3% in 
the three months ended August 31, 1997. 


Six Months Ended August 31, 1998 Compared with Six Months Ended August 31, 
1997 
------------------------------------------------------------------------------ 
   Revenues in the six months ended August 31, 1998 increased 21.3% to 
$80,195,474, compared with $66,096,867 in the six months ended August 31, 
1997. This increase was primarily attributable to revenues associated with 
the BCM acquisition which was consummated on August 20, 1997 and the 
acquisitions of EWI and Bing Yen which were completed in November 1997 and 
the acquisition of OST and AVES in July and August 1998, respectively. 
Revenues for the six months ended August 31, 1998 reflected certain one-time 
adjustments to revenue related to unbilled receivables reserves, cost 
overruns and billing adjustments. Revenues in the six months ended August 31, 
1998 from ATC's branch offices having comparable operations in the six months 
ended August 31, 1997 decreased 0.3% (but increased 1.5% after excluding the 
revenue charges recorded during the period) to $65,108,290, compared with 
$65,325,600 in the six months ended August 31, 1997. Revenues in the six 
months ended August 31, 1998 attributable to the acquisition of BCM totaled 
$11,893,616. Revenues attributable to the acquisition of EWI, Bing Yen, AVES 
and OST totaled $3,193,568 million or 4.0% of revenues in the six months 
ended August 31, 1998. Revenues were not affected by the Transactions.

     Reimbursable costs represent direct project expenses billed to 
environmental and engineering segment clients. For the six months ended 
August 31, 1998, reimbursable costs increased 21.2% to $12,558,632, compared 
with $10,361,497 in the six months ended August 31, 1997. Reimbursable costs 
as a percentage of revenues remained the same, 15.7% for the six months ended 
August 31, 1998 and 1997. Reimbursable costs were not affected by the 
Transactions.

     Cost of net revenues in the six months ended August 31, 1998 increased 
by $7,708,624 or 25.3% to $38,121,307 compared with $30,412,683 in the six 
months ended August 31, 1997. Cost of net revenues as a percentage of net 
revenues increased to 56.4% in the six months ended August 31, 1998 compared 
to 54.6% in the six months ended August 31, 1997.

     Gross profit in the six months ended August 31, 1998 increased 16.6% to 
$29,515,535, compared with $25,322,687 in the six months ended August 31, 
1997. Gross margin decreased to 43.6% in the six months ended August 31, 1998 
compared to 45.4% in the six months ended August 31, 1997. The decrease in 
gross profit percentage was principally impacted by both one-time adjustments 
to revenue and the Company's sales mix during the 1998 six month period.

     Operating expenses in the six months ended August 31, 1998 increased 
37.7% to $27,836,799, compared with $20,213,038 in the six months ended 
August 31, 1997. Operating expenses increased as a percentage of net revenues 
to 41.2% in the six months ended August 31, 1998, compared with 36.3% in the 
six months ended August 31, 1997. Employee costs increased 38.7% to 
$12,469,775, or 18.4% of net revenues, in the six months ended August 31, 
1998 compared with $8,992,507, or 16.1% of net revenues, in the six months 
ended August 31, 1997. 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 and increase allowance for doubtful accounts. Additionally, in the six 
months ended August 31, 1998, amortization of goodwill and intangibles 
increased to $2,682,377, compared with $920,368 in the six months ended 
August 31, 1997 reflecting the additional goodwill amortization resulting 
from acquisitions and the Transactions.

     Operating income in the six months ended August 31, 1998 decreased 67.1% 
to $1,678,736 compared with $5,109,649 in the six months ended August 31, 
1997. Operating income decreased as a percentage of net revenues to 2.5% in 
the six months ended August 31, 1998, compared with 9.2% in the six months 
ended August 31, 1997.

                                      F-22
<PAGE>


     Non-operating expense in the six months ended August 31, 1998 increased 
to $7,696,672 compared with of $1,100,294 in the six months ended August 31, 
1997. The increase in non-operating expense is attributable to increased 
interest expense related to the 12% Senior Subordinated Notes and bank debt 
outstanding during the period.

     Income tax (benefit) expense in the six months ended August 31, 1998 was 
$(1,944,000), compared with $1,585,000 in the six months ended August 31, 
1997. During the six months ended August 31, 1998 and 1997, the Company's 
effective tax rates were 32.3% and 39.5%, respectively. The lower effective 
tax rate for the six months ended August 31, 1998 is due to non deductible 
goodwill amortization related to the Transactions.

     As a result of the foregoing, the Company incurred a net loss of 
$4,073,936 compared with net income of $2,424,355 in the six months ended 
August 31, 1997. Net income (loss) decreased as a percentage of net revenues 
to (6.0)% in the six months ended August 31, 1998 compared with 4.3% in the 
six months ended August 31, 1997.

SEASONALITY

    ATC typically experiences a slow down in business activities during the 
winter months and an increase in business activities during the summer 
months. This is due to seasonal fluctuations in construction and remediation 
activities. As a result, operating results may vary from period to period. 
For fiscal 1998, comparable quarterly revenues as a percentage of relevant 
annual revenues were 24.6%, 26.6%, 25.0% and 23.8%.

LIQUIDITY AND CAPITAL RESOURCES

    The Company's principal sources of liquidity are cash flow from 
operations and available borrowings under a Revolving Credit Facility 
established under the Bank Credit Facilities. The Revolving Credit Facility 
of $30.0 million provides the Company with an aggregate of up to $15.0      
million of senior secured financing to be used for working capital and 
general corporate purposes with $15.0 million available for permitted 
acquisitions. It is expected that the Company's principal uses of liquidity 
will be to provide working capital, finance capital expenditures, fund costs 
associated with acquisitions and meet debt service requirements. As a result 
of the consummation of the Transactions, the Company is highly leveraged. 
Except to the extent set forth below, there will be no mandatory payments of 
principal on the Notes scheduled prior to their maturity. Based upon current 
operations, anticipated cost savings and future growth, the Company believes 
that its cash flow from operations, together with existing cash balances), 
available borrowings under the Revolving Credit Facility and receipt of 
approximately $4 million in income tax refunds will be adequate to meet its 
anticipated requirements for working capital, capital expenditures and 
scheduled principal and interest payments, although the Company believes that 
its ability to repay the Notes and amounts outstanding under its Bank Credit 
Facilities at maturity will require additional financing. There can be no 
assurance, however, that any such additional financing will be available at 
such time to the Company, or that any such available financing will be on 
terms favorable to the Company. Furthermore, there can be no assurance that 
the Company's business will continue to generate cash flow at or above 
current levels or that estimated cost savings or growth can be achieved.

    The Notes impose certain limitations on the ability of the Company 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 Company and its subsidiaries. In addition, the New Credit 
Facility contains other and more restrictive covenants effectively 
prohibiting the Company from prepaying the Notes. The Bank Credit Facility 
also requires the Company to maintain specified financial ratios and satisfy 
certain financial tests. The Company's ability to meet such financial ratios 
and tests may be affected by events beyond its control; there can be no 
assurance that the Company will be able to meet such tests.


                                      F-23
<PAGE>


    For the quarters ended May 31, 1998 and August 31, 1998, the Company was 
in default of certain financial covenants. The Company's lenders have 
provided an interim waiver with respect to the defaults. Under the waiver, 
the Company has approximately $5.1 million of availability under its 
revolving line of credit as of October 20, 1998.

    The Company is in discussion with its lenders and believes the covenant 
provisions of the credit agreement will be amended. Accordingly, the Company 
continues to classify its outstanding debt as long term in accordance with 
the existing loan maturity dates. The final classification of the Company's 
outstanding bank debt and 12% Senior Subordinated Notes, will be in 
accordance with the terms of any final credit agreement.

    The Company conducts part of its operations through its subsidiaries. As 
a result, the Company relies, in part, upon payment from its subsidiaries for 
the funds necessary to meet its obligations, including the payment of 
interest on and principal of the Notes. The ability of the subsidiaries to 
make such payments will be subject to, among other things, applicable state 
laws. Claims of creditors of the Company's subsidiaries will generally have 
priority as to the assets of such subsidiaries over the claims of the Company.

    The Company has historically financed its operations through internally 
generated funds, public and private equity and debt financings and borrowings 
under its credit facilities. As of August 31, 1998, working capital was $24.7 
million, compared with working capital of $29.4 million at February 28, 1998, 
an increase of $4.7 million. The decrease in working capital was primarily 
due to allowances for doubtful accounts and unbilled receivables reserve, 
increased litigation reserves and expenditures relating to the Transactions. 
As a result of the Tender Offer and Merger and the Company's prior 
acquisitions, the Company has a negative tangible net worth, primarily as a 
result of goodwill amounts recognized in connection with these transactions.

    During the six months ended August 31, 1998, net cash flows used in 
operating activities were $1,204,308 primarily due to operating income offset 
by interest expense on the 12% Senior Subordinated Notes, the Bank Term Loan 
and the Revolving Credit Facility. Net cash flows used in investing 
activities were $952,672, resulting from purchases of property and equipment, 
the acquisition of OST and AVE less the proceeds from the sale of certain 
assets relating to a laboratory operation. Net cash flows used by financing 
activities were $1,998,698, primarily representing payments of Tender Offer 
obligations and net bank borrowings under the Company's Revolving Credit 
Facility.

    During the six months ended August 31, 1997, net cash flows used in 
operating activities were $1,848,304, primarily due to the increase in billed 
and unbilled receivables. Net cash flows used in investing activities were 
$8,453,396, resulting from the acquisitions of BCM and ATEC and purchases of 
property and equipment.  Net cash flows provided by financing activities were 
$16,191,275, 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.

QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES

    The market risk exposure inherent in the Company's financial instruments 
and consolidated financial position represents the potential losses arising 
from adverse changes in interest rates. The Company is exposed to such 
interest rate risk primarily in the use of fixed and variable rate debt.

    The Company utilizes both fixed and variable rate debt to fund its 
operations. At August 31, 1998, the carrying value and estimated fair value 
of the Company's fixed rate debt was approximately $101.9 million. The 
Company also had approximately $31.6 million of variable rate borrowings 
outstanding, which amount approximated fair value. Market risk for the fixed 
rate borrowings is estimated as the potential change in the fair value of the 
debt resulting from a hypothetical 10% adverse change in interest rates, which 
would have approximated $5.4 million at August 31, 1998. The effect of a 
similar hypothetical change in interest rates on the Company's variable rate 
debt would have had a negative impact on the Company's consolidated interest 
expense of approximately $85,000 for the quarter ended August 31, 1998.

    For additional information about the Company's financial instruments, see 
Notes to Consolidated Financial Statements in the Company's annual report on 
Form 10-K for the year ended February 28, 1998.

INFORMATION SYSTEMS AND THE YEAR 2000

    The Company is in the process of addressing Year 2000 issues. The Company 
is currently engaged in a comprehensive project to convert its accounting and 
management information system to a system consisting of new hardware and 
packaged software recently purchased from a large vendor who has represented 
that these systems are Year 2000 compliant. The Company's information 
technology segment, which provides information system support services to 
both the Company and the Company's clients, is currently operating on systems 
that are Year 2000 compliant. ATC's remaining operations are generally 
dependent only on personal computers and off-the-shelf commercial word 
processing, drafting, spreadsheet and engineering software. Year 2000 
compliant versions of these systems are currently available, and the Company 
will convert to these compliant systems over the next year and a half as the 
Company upgrades its operational personal computer systems in the ordinary 
course to the most recently issued software releases.

                                     F-24
<PAGE>


                          PART II - OTHER INFORMATION
Item 1.  LEGAL PROCEEDINGS:

   LITIGATION--Joseph I. Peters v. George Rubin, et al, Civ. Action No. 
16026-NC, Court of Chancery, New Castle County, Delaware. On or about 
November 12, 1997, a summons and complaint were filed in the Delaware Court 
on behalf of Joseph I. Peters, as plaintiff. On or about December 18, 1997, 
an amended complaint was filed (the "Amended Complaint"). The Amended 
Complaint names the Company, the members of the Company's board of directors, 
Weiss, Peck & Greer ("Weiss Peck") and the WPG Corporate Development 
Associates V, L.P., a Weiss Peck affiliate, as defendants. The Amended 
Complaint challenges the Tender Offer and Merger. The Amended Complaint seeks 
class action status on behalf of the stockholders of the Company. The 
plaintiff in the action claims that the offer price for the Company's Common 
Stock is inadequate and that the defendants have breached their fiduciary 
duties to the plaintiff and other stockholders of the Company. The plaintiff 
seeks unspecified damages. On January 7, 1998, a motion to dismiss was filed 
by Weiss Peck and WPG Corporate Development Associates V, L.P. On January 13, 
1998, answers to the complaint were filed by the Company and the remaining 
defendants. The parties to the action are currently conducting discovery. The 
Company believes the allegations contained in the Amended Complaint are 
without merit and intends to defend the action vigorously.

   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 held security interests in the assets and 
that Hill was 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 and 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 claims are based (i) 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 and (ii) on a letter alleged 
to contain defamatory statements which was sent to an account debtor of the 
Company by an employee. In its answer, the Company both denies that it made 
defamatory statements and asserts that the defamation allegations fail to 
state legally valid claims. 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 any such rights were forfeited or suspended 
by the Richters in any case as a result of their conduct in connection with 
the asset purchase. ATC also disputes that the Richters sustained damages on 
the grounds, among others, that the options were non-transferable and because 
ATC's stock price never exceeded the exercise price at any point where the 
options would have been exercisable. In January, 1997, the plaintiff banks 
dismissed their claim against ATC. The remaining claims are subject to a stay 
pending the federal action described below.

    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 Irwin 
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 securities claims. The case is currently in the 
discovery and pretrial motion phase. It does not create a risk of double 
recovery. 
                                   F-25
<PAGE>


   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. ATC's position is that it did 
not commit any error or omission in this case, that ATC made no 
representation to the contractors or material supplier and had no privity 
with them and that Dennison's opinion concerning short term, during- 
construction health effects of the off-gassing could not be justifiably 
relied upon with respect to the long-term performance and health effects of 
the product or its installation. This case is in the discovery phase. At this 
point, ATC considers the case to be without merit, and ATC intends to 
vigorously defend the action. 


ITEM 2.  CHANGES IN SECURITIES:
         Not Applicable

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES:


         For the quarters ended May 31, 1998 and August 31, 1998, the Company 
     was in default of certain financial covenants. The Company's lenders 
     have provided an interim waiver with respect to the defaults. Under the 
     waiver, the Company has approximately $5.1 million of availability under 
     its revolving line of credit as of October 20, 1998.

         The Company is in discussion with its lenders and believes the 
     covenant provisions of the credit agreement will be amended. 
     Accordingly, the Company continues to classify its outstanding debt as 
     long term in accordance with the existing loan maturity dates. The final 
     classification of the Company's outstanding bank debt and 12% Senior 
     Secured Notes, will be in accordance with the terms of any final credit 
     agreement.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
         Not Applicable

ITEM 5.  OTHER INFORMATION:
         On September 22, 1998, Ron H. Danenberg, a principal at Weiss, Peck 
     & Greer and a director of the Company was named Chairman of the Board of 
     Directors and replaced Nick Malino as ATC's Chief Executive Officer, Mr. 
     Danenberg will serve as Interim Chief Executive Officer pending the 
     appointment of a permanent Chief Executive Officer. Chris Vincze, ATC's 
     Chief Operating Officer and Paul Grillo, the Company's Chief Financial 
     Officer, will report to Mr. Danenberg.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K:
     (a)  Exhibits:
             Not applicable

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


                                     F-26
<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: October 20, 1998                 /s/ Christopher Vincze
-----------------------                 -----------------------------------
                                            Christopher Vincze
                                            Executive Vice President and
                                            Chief Operations Officer
                                            (Principal Operating Officer)


Dated: October 20, 1998                 /s/ Paul Grillo
-----------------------                 -----------------------------------
                                            Paul Grillo
                                            Executive Vice President and
                                            Chief Financial Officer
                                            (Principal Financial Officer)


Dated: October 20, 1998                 /s/ Rachel Trant
-----------------------                 -----------------------------------
                                            Rachel Trant
                                            Controller
                                            (Principal Accounting Officer)


                                     F-27