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

                                  FORM 8-K/A #2

                                 CURRENT REPORT

                     PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                 Date of Earliest Event Reported - May 24, 1996

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


   Delaware                             1-10583                       46-0399408
 -------------------------------      --------------         -------------------
 (State or other jurisdiction of       (Commission              (I.R.S. Employer
 incorporation or organization)        File Number)          Identification No.)

 104 East 25th Street, 10th Floor
 New York, New York                                                        10010
 ----------------------------------------------- -------------------------------
 (Address of principal executive offices)                             (Zip Code)

       Registrant's telephone number, including area code: (212) 353-8280

<PAGE>
Item 7.       Exhibits and Financial Statements

     (a)(1)  Included  are the  American  Testing  and  Engineering  Corporation
financial  statements  as of December  31, 1995 and 1994 and for the Years Ended
December 31, 1995 and 1994,  the Three  Months  Ended  December 31, 1993 and the
Year Ended September 30, 1993 and Independent Auditors' Report dated January 31,
1997  (June 25,  1997 as to Note 11)  issued by  Deloitte  & Touche  LLP.  These
financial  statements  are  being  filed  in  replacement  of  previously  filed
financial statements of American Testing and Engineering Corporation for similar
periods audited by Coopers & Lybrand LLP. The reported  amounts of total assets,
liabilities and shareholders' equity and of earnings and loss for each period do
not differ from those reported in the previous filing.


<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 hereunto duly authorized.


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



July 22, 1997                                       By:  /s/ RICHARD L. PRUITT
-------------                                       ----------------------------
(Dated)                                             RICHARD L. PRUITT
                                                    Vice President and
                                                    Principal Accounting Officer


<PAGE>

AMERICAN TESTING AND
ENGINEERING CORPORATION

Financial  Statements  as of December  31, 1995 and 1994 and for the Years Ended
December 31, 1995 and 1994,  the Three  Months  Ended  December 31, 1993 and the
Year Ended September 30, 1993 and Independent Auditors' Report


<PAGE>



INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Shareholders
American Testing and Engineering Corporation

We have  audited  the  accompanying  balance  sheets  of  American  Testing  and
Engineering  Corporation (the Company) as of December 31, 1995 and 1994, and the
related  statements of operations,  shareholders'  equity and cash flows for the
years ended December 31, 1995 and 1994, the three months ended December 31, 1993
and the year ended  September  30,  1993.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the  financial  position of the  Company as of December  31, 1995 and
1994,  and the results of its  operations and its cash flows for the years ended
December 31, 1995 and 1994,  the three  months  ended  December 31, 1993 and the
year ended September 30, 1993 in conformity with generally  accepted  accounting
principles.






/s/  Deloitte & Touche LLP
--------------------------
Omaha, Nebraska
January 31, 1997
(June 25, 1997 as to Note 11)



<PAGE>
AMERICAN TESTING AND ENGINEERING CORPORATION

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S>                                                                                           <C>                      <C>
ASSETS ...........................................................................            1995                     1994

Current assets:
  Cash ...........................................................................            $     46,693             $     62,285
  Receivables:
    Trade accounts receivable ....................................................              20,282,027               20,732,006
    Unbilled revenue on work in progress .........................................               6,795,912                6,395,647
                                                                                              ------------             ------------
                                                                                                27,077,939               27,127,653
    Less allowance for doubtful accounts .........................................                (690,500)                (814,600)
                                                                                              ------------             ------------
                                                                                                26,387,439               26,313,053
  Collateral bonds ...............................................................                 801,430                1,110,652
  Other current assets ...........................................................                 779,722                  825,214
                                                                                              ------------             ------------
           Total current assets ..................................................              28,015,284               28,311,204

Property and equipment, net (Note 3) .............................................               5,901,641                9,041,493

Other Assets:
  Cash surrender value of life insurance .........................................               1,824,437                1,872,902
  Advances to related parties (Note 4) ...........................................                 156,712                  114,141
  Other ..........................................................................                 428,621                  324,125
                                                                                              ------------             ------------
                                                                                                 2,409,770                2,311,168
                                                                                              ------------             ------------
           Total assets ..........................................................            $ 36,326,695             $ 39,663,865
                                                                                              ============             ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Working capital loans (Note 5) .................................................            $  1,679,756             $    632,235
  Current portion of long-term debt (Note 5) .....................................              11,043,881                3,548,168
  Accounts payable, trade ........................................................               7,804,426                7,211,534
  Accrued salaries, wages and other compensation .................................               3,948,186                4,774,441
  Accrued legal liabilities (Note 11) ............................................               1,288,265                1,391,875
  Other accrued expenses .........................................................               2,914,423                2,918,901
                                                                                              ------------             ------------
           Total current liabilities .............................................              28,678,937               20,477,154

Long-term debt (Note 5) ..........................................................                 877,095               10,255,382
Performance share obligation (Notes 2 and 7) .....................................                 688,147                1,139,894
Lease and revenue reserve ........................................................                 187,739                   76,190
Minority interest ................................................................                   7,173                    5,011

Commitments and contingencies (Notes 5, 7 and 11)

Shareholders' equity:
  Common stock, no par value, 2,000,000 shares authorized;
    1,585,000 shares issued and outstanding ......................................                  79,250                   79,250
  Additional paid-in capital .....................................................                 633,131                  633,131
  Advances to shareholders (Note 4) ..............................................                 (21,266)                 (17,947)
  Retained earnings ..............................................................               5,196,489                7,015,800
                                                                                              ------------             ------------
           Total shareholders' equity ............................................               5,887,604                7,710,234
                                                                                              ------------             ------------
           Total liabilities and shareholders' equity ............................            $ 36,326,695             $ 39,663,865
                                                                                              ============             ============

</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                       2

<PAGE>
AMERICAN TESTING AND ENGINEERING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED DECEMBER 31, 1993
AND THE YEAR ENDED SEPTEMBER 30, 1993
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                            Three
                                                                  Years Ended             Months Ended      Year Ended
                                                                  December 31,            December 31,      September 30,
                                                        ------------------------------    -------------    -------------
                                                             1995             1994             1993            1993
<S>                                                     <C>              <C>              <C>               <C> 
Revenues:
  Service revenue ...................................   $  95,130,122      102,253,268    $  28,354,269    $ 117,609,574
  Cost of service revenue (Note 2) ..................      26,926,568       30,116,429       11,832,987       38,794,916
                                                        -------------    -------------    -------------    -------------  

           Net service revenue ......................      68,203,554       72,136,839       16,521,282       78,814,658
                                                        -------------    -------------    -------------    -------------  
Cost and expenses:
  Engineering and consulting costs ..................      31,064,366       31,189,662       11,122,048       35,075,967
  General and administrative expenses ...............      37,291,935       38,760,752       10,726,126       46,082,281
  Interest expense ..................................       1,664,066        1,539,513          398,232        1,485,275
  Legal judgment (Note 11) ..........................            --               --            704,375             --
                                                        -------------    -------------    -------------    -------------  

           Total costs and expenses .................      70,020,367       71,489,927       22,950,781       82,643,523
                                                        -------------    -------------    -------------    -------------  

           Income (loss) before cumulative effect of
             change in accounting method ............      (1,816,813)         646,912       (6,429,499)      (3,828,865)

Cumulative effect of change in accounting
  method (Note 2) ...................................            --            470,611             --               --
                                                        -------------    -------------    -------------    -------------  

           Net income (loss) before minority interest      (1,816,813)       1,117,523       (6,429,499)      (3,828,865)

Minority interest ...................................           2,162           (3,904)          (5,814)           3,751
                                                        -------------    -------------    -------------    -------------  


           Net income (loss) ........................   $  (1,818,975)   $   1,121,427    $  (6,423,685)   $  (3,832,616)
                                                        =============    =============    =============    =============
</TABLE>
  

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.



                                       3

<PAGE>
AMERICAN TESTING AND ENGINEERING CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED DECEMBER 31, 1993
AND THE YEAR ENDED SEPTEMBER 30, 1993
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>



                                                                 Additional      Advances                          Total
                                                    Common        Paid-in           to           Retained      Shareholders'
                                                     Stock        Capital      Shareholders      Earnings         Equity
<S>                                              <C>            <C>            <C>            <C>              <C> 
                                                 ------------   ------------   ------------   ------------     ------------
Balance, September 30, 1992 ..................   $     79,250   $    384,240   $       --     $ 15,911,335     $ 16,374,825
  Distributions to shareholders ..............           --             --             --          (391,157)       (391,157)
  Advances to shareholders ...................           --             --          (70,048)           --           (70,048)
  Reclassification of shareholder distribution
    (Note 4) .................................           --             --         (630,496)        630,496            --
  Net loss ...................................           --             --             --        (3,832,616)     (3,832,616)
                                                 ------------   ------------   ------------   ------------     ------------

Balance, September 30, 1993 ..................         79,250        384,240       (700,544)     12,318,058      12,081,004
  Advances to shareholder ....................           --             --          (11,376)           --           (11,376)
  Net loss ...................................           --             --             --        (6,423,685)     (6,423,685)
                                                 ------------   ------------   ------------    ------------    ------------

Balance, December 31, 1993 ...................         79,250        384,240       (711,920)      5,894,373       5,645,943
  Shareholder contribution ...................           --          248,891           --              --           248,891
  Repayment of shareholder advances ..........           --             --          693,973            --           693,973
  Net income .................................           --             --             --         1,121,427       1,121,427
                                                 ------------   ------------   ------------    ------------    ------------

Balance, December 31, 1994 ...................         79,250        633,131        (17,947)      7,015,800       7,710,234
  Distributions to shareholders ..............           --             --             --              (336)           (336)
  Advance to shareholder .....................           --             --           (3,319)           --            (3,319)
  Net loss ...................................           --             --             --        (1,818,975)     (1,818,975)
                                                 ------------   ------------   ------------    ------------    ------------

Balance, December 31, 1995 ...................   $     79,250   $    633,131   $    (21,266)   $  5,196,489    $  5,887,604
                                                 ============   ============   ============    ============    ============

</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                       4

<PAGE>
AMERICAN TESTING AND ENGINEERING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED DECEMBER 31, 1993
AND THE YEAR ENDED SEPTEMBER 30, 1993
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                       Three Months
                                                                                  Years Ended              Ended       Year Ended
                                                                                 December 31,          December 31,    September 30,
<S>                                                                   <C>              <C>             <C>             <C> 
                                                                      ------------     ------------    ------------    ------------
                                                                           1995            1994            1993            1993
Cash flows from operating activities:                                          --              --              --              --   
  Net income (loss)                                                    $ (1,818,975)   $  1,121,427    $ (6,423,685)   $ (3,832,616)
  Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:
      Depreciation and amortization                                       3,913,346       4,311,092       1,174,178       5,076,527
      Revenue and lease reservations                                        111,549          76,190            --              --
      Provision for doubtful accounts                                      (124,049)     (1,154,000)        288,600         281,000
      (Gain) loss on sale of property and equipment                         221,749         (76,446)        (17,090)        176,382
      Appreciation (depreciation) in performance share value               (126,608)        217,433            --              --
      Cumulative effect of change in accounting method                         --          (470,611)           --              --
      Appreciation of performance shares redeemed by issuance of
        note payable                                                           --              --              --           134,511
      Changes in assets and liabilities:
        Trade accounts receivable                                           449,979       2,095,995       3,480,946       2,756,359
        Unbilled revenue on work in progress                               (400,316)      2,452,964      (2,502,053)     (2,658,219)
        Accounts payable                                                    175,131       1,691,361      (4,736,242)      2,256,065
        Accrued salaries and expenses                                      (779,940)     (5,277,894)      7,235,340       1,206,256
        Collateral bonds                                                    309,222         477,656         412,304        (847,024)
        Other, net                                                          (60,949)        427,311         107,265      (1,144,252)
                                                                      ------------     ------------    ------------    ------------
           Net cash provided by operating activities                      1,870,139       5,892,478        (980,437)      3,404,989
                                                                      ------------     ------------    ------------    ------------

Cash flows from investing activities:
  Purchase of property and equipment                                     (1,310,662)     (1,869,058)       (474,064)     (2,198,370)
  Proceeds from sale of property and equipment                              325,418         295,010          53,063         346,603
                                                                       ------------    ------------    ------------    ------------
           Net cash used in investing activities                           (985,244)     (1,574,048)       (421,001)     (1,851,767)
                                                                       ------------    ------------    ------------    ------------

Cash flows from financing activities:
  Net (deposits) borrowings (to) from cash collateral account             1,047,521      (1,767,190)           --              --
  Proceeds from obligations to banks and notes payable                    2,059,189       7,175,000      11,015,000      23,765,000
  Payments on obligations to banks and notes payable                     (3,941,762)     (8,565,195)    (10,823,825)    (24,545,218)
  Advances and distributions to shareholders                                 (3,655)           --           (11,376)       (391,157)
  Performance shares redeemed                                              (479,542)        (43,159)        (14,517)       (128,477)
  Change in cash overdraft                                                  417,762      (2,058,354)      1,215,597        (236,671)
  Shareholder contribution                                                     --           248,891            --              --
  Proceeds from repayment of shareholder advances                              --           693,973            --              --
                                                                       ------------    ------------    ------------    ------------
           Net cash used in financing activities                           (900,487)     (4,316,034)      1,380,879      (1,536,523)
                                                                       ------------    ------------    ------------    ------------

           Increase (decrease) in cash                                      (15,592)          2,396         (20,559)         16,699

Cash, beginning of period                                                    62,285          59,889          80,448          63,749
                                                                       ------------    ------------    ------------    ------------

Cash, end of period                                                    $     46,693          62,285    $     59,889          80,448
                                                                       ============    ============    ============    ============
Supplemental  disclosures  of cash flow  information:
 Cash paid during the year
  for:
    Interest                                                           $  1,554,879       1,489,863    $    376,429       1,487,936
                                                                       ============    ============    ============    ============

    Income taxes (Note 2)                                              $       --      $       --      $       --           577,043
                                                                       ============    ============    ============    ============
</TABLE>

During the year ended  September  30,  1993,  the Company  redeemed  performance
  shares with a recorded value of $194,726,  a redemption value of $493,856,  by
  issuance of a note payable of $329,237  and a cash  payment for the  residual.
  The  difference  between the  recorded  and  redemption  value was recorded as
  compensation expense and is included in general and administrative expenses.

During the year ended  December  31, 1995,  the three months ended  December 31,
  1993 and the year ended September 30, 1993, performance shares with a value of
  $154,403, $120,757 and $72,634,  respectively,  were issued in lieu of accrued
  bonuses.

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
                                       5
<PAGE>
AMERICAN TESTING AND ENGINEERING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED
DECEMBER 31, 1993 AND THE YEAR ENDED SEPTEMBER 30, 1993
-------------------------------------------------------------------------------

1.    SUBSEQUENT EVENT

      Effective  May  23,  1996,  the   shareholders  of  American  Testing  and
      Engineering    Corporation   (the   Company)   or   ("ATEC")   transferred
      substantially all of the Company's tangible and intangible business assets
      to ATC Environmental,  Inc. ("ATC"), an unrelated company. The assets sold
      included cash,  accounts  receivable,  unbilled work in progress,  prepaid
      expenses,  goodwill,  customer  contract  rights and  customer  lists.  In
      addition,  the Company  leased to ATC  substantially  all of its property,
      plant and equipment  under annually  renewable  leases  expiring six years
      from the date of the closing.  ATC  additionally has the right to purchase
      all fixed assets leased at the end of such period.  Assets retained by the
      Company  include  all  nonleased  fixed  assets,   intercompany   accounts
      receivable/payable,  certain land,  cash surrender value of life insurance
      policies,   and  the  investment  in  Waste  Abatement  Technology,   L.P.
      ("WATEC").

      As consideration for the sale, ATC assumed essentially all of the recorded
      liabilities  exclusive of bank debt which was repaid  concurrent  with the
      sale of ATEC. In addition,  at closing the Company received  $6,000,000 in
      cash and will receive, an additional $16,750,000 in lease payments, rents,
      and consideration for covenants not to compete over the next six years. In
      connection  with  this  transaction,   the  Company  recorded  a  gain  of
      approximately $4.9 million at the closing date, and additional  contingent
      gains  approximating  $12.5 million are expected to be recorded as certain
      defined contingencies lapse.

      The Company's credit agreement with Bank One (Note 5) expired on April 30,
      1996.  In  anticipation  of the sale of the Company,  the bank amended and
      extended the credit agreement  through July 31, 1996. All amounts due Bank
      One in connection with the credit agreement, exclusive of WATEC borrowings
      of  approximately  $360,000 and  contingent  amounts due under  letters of
      credit,  were  paid on May  24,  1996,  concurrent  with  the  sale of the
      Company's business operations to ATC.

      In connection with the sale, the Company recorded  additional 1996 expense
      of approximately  $2.2 million  associated with the performance shares and
      performance  share  options  (see  Notes 7 and 8) in  accordance  with the
      Performance  Share and Performance  Share Option Plans.  During the period
      from January 1, 1996 through May 23, 1996, 94,830  additional  performance
      share options were granted at an option price of $7.41 per share.

      These  financial  statements  are  presented  on the  historical  basis of
      accounting  and are not  presented on the basis of a  liquidation,  nor do
      they reflect fair value accounting principles.

2.    SIGNIFICANT ACCOUNTING POLICIES

      General  -  ATEC  engages  in  four  principal  lines  of  business  which
      contribute to gross  revenues.  They include  traditional  services  which
      consist of engineering  and materials  testing,  environmental,  hazardous
      waste, and chemical testing laboratories.  The geographic concentration of
      the 40 plus  offices  is in the  eastern  half of the United  States.  The
      concentration  of  revenue  by  client  is  largely  industrial  and small
      business with  approximately  25% of its revenue  generated  from federal,
      state and local governmental agencies.
                                        6
<PAGE>
      Use of Estimates - The  preparation of financial  statements in conformity
      with generally  accepted  accounting  principles  requires that management
      make estimates and  assumptions  affecting the reported  amounts of assets
      and  liabilities,  the disclosure of contingent  assets and liabilities at
      the date of the financial  statements and the reported  amounts of revenue
      and expenses during the reporting period. Actual amounts and results could
      differ from the estimated amounts and results.

      Consolidation  Principles  and Financial  Statement  Presentation  - These
      consolidated  financial statements include the accounts of ATEC and WATEC,
      a limited partnership in which the Company holds a 99% interest (together,
      the   "Company").   All  significant   intercompany   accounts  have  been
      eliminated.

      Property and  Equipment - Property and  equipment are recorded at cost and
      are depreciated  using the  straight-line  method.  Estimated useful lives
      range  from  three  to ten  years  for  machinery,  equipment  and  office
      furniture  and three to seven years for vehicles.  Leasehold  improvements
      are  generally   amortized  over  the  term  of  the  respective   leases.
      Expenditures  for normal repair and  maintenance are charged to expense as
      incurred. Cost and accumulated depreciation of assets disposed are removed
      from the accounts, and any resulting gain or loss is included in income.

      Income Taxes - Effective October 1, 1991, the Company elected status as an
      S  Corporation   under  the  provisions  of  the  Internal  Revenue  Code.
      Accordingly, it is generally not subject to federal or state income taxes,
      and the income or loss of the Company is reflected in the personal  income
      tax returns of its shareholders.

      Revenue  and  Cost  Recognition  - The  Company's  principal  business  is
      providing   professional   engineering   and  consulting   services  under
      cost-plus-fee  and fixed-price  contracts.  Revenues  attributable to such
      contracts  and claims for revenue on  additional  contract  revisions  are
      accounted for under the percentage-of-completion  (cost-to-cost) method of
      accounting  and are recorded  equivalent to costs incurred plus a pro rata
      portion of estimated profits expected to be realized on the contracts.

      Profits  expected to be realized on contracts are based on total  contract
      value and management's  estimates of costs at completion.  These estimates
      are  reviewed  and  revised  periodically  throughout  the  lives  of  the
      contracts,  and  adjustments to profits  resulting from such revisions are
      recorded  in the  accounting  period  in which  the  revisions  are  made.
      Provisions  for  estimated  losses on contracts are recorded when they are
      identified.

      Costs of service include all direct material and  subcontract  costs,  and
      those indirect costs related to contract performance.

      Change in  Accounting  Method -  Performance  Share  Obligation  - Amounts
      contributed by participants  to the Performance  Share Plan are recognized
      as compensation expense when earned. Prior to January 1, 1994, the Company
      recognized additional expense (appreciation of performance share value) or
      other income  (diminution of performance share value) upon election by the
      participant to redeem units in accordance with the plan's  provisions.  To
      more directly  relate the periodic  results of its operations with related
      changes in the valuation of performance  shares,  the Company  changed its
      method of  accounting  for changes in the  appreciation  or  diminution of
      performance  share value.  As part of this  change,  during the year ended
      December 31, 1994, the Company recorded a one-time  cumulative  benefit of
      $470,611,  which recognizes the cumulative  difference in expense recorded
      under the two methods from the  inception  of the plan through  January 1,
      1994.
                                       7
<PAGE>
      Reclassification   -  Certain  amounts  in  the  prior  year's   financial
      statements have been reclassified to conform to the 1995 presentation.

3.    PROPERTY AND EQUIPMENT

      Property and equipment is summarized as follows:

                                                         December 31,
                                                     1995                1994

Machinery and equipment                        $ 11,584,942        $ 12,102,895
Vehicles                                          6,285,807           6,828,868
Office furniture and equipment                    9,059,094           8,508,533
Leasehold improvements                            3,256,232           3,660,734
Building                                            291,220             291,220
Land                                                276,480             276,480
Construction in progress                            102,221             427,241
                                               ------------        ------------
                                                 30,855,996          32,095,971
Less accumulated depreciation                   (24,954,355)        (23,054,478)
                                               ------------        ------------
                                               $  5,901,641        $  9,041,493
                                               ============        ============


4.    RELATED PARTY TRANSACTIONS

      Advances to related parties are summarized as follows:


                                                           December 31
                                                     1995               1994

Mann Realty Co.                                $    108,212        $     68,913
Mann Technology, Inc.                                 7,085               3,813
ATEC International                                   41,415              41,415
                                               ------------        ------------
                                               $    156,712        $    114,141



      The  Company  has  entered  into  certain  noncancelable  operating  lease
      agreements  for office space with Mann Realty Co., a partnership  in which
      the Company's  president is a partner.  Minimum annual rental  commitments
      under  these  leases  are  included  in  Note  9 and  aggregate  $464,959,
      $323,471,  $208,884, $100,800, $100,800, and $756,000 for the years ending
      December 31, 1996, 1997,  1998, 1999, 2000, and thereafter,  respectively.
      Rents paid to Mann  Realty Co. for the years ended  December  31, 1995 and
      1994 and the three  months  ended  December  31,  1993 and the year  ended
      September  30,  1993  were  $607,913,  $546,544,  $193,230  and  $615,144,
      respectively.  The Company  also has  $125,000 on deposit with Mann Realty
      Co.  pursuant to lease  agreements  on certain  locations.  No interest is
      earned  on  advances,  and there are no  agreements  identifying  specific
      repayment terms.
                                       8
<PAGE>
      The Company's  president is an officer and shareholder of Mann Technology,
      Inc., which serves as the corporate  general partner and one-percent owner
      of WATEC. Mann Technology,  Inc.'s 1% interest and earnings therefrom have
      been reflected as minority interest on the Company's  consolidated balance
      sheets and statements of operations.  Two  shareholders of the Company are
      also shareholders in ATEC  International.  Advances to Mann Technology and
      ATEC  International  bear  no  interest,   and  there  are  no  agreements
      identifying specific repayment terms.

      The Company's  interim  distributions to shareholders for estimated income
      taxes have been  determined by the Company's  management to be advances to
      shareholders  until  such  time as the  actual  liability  is  calculated.
      Advances to shareholders were $21,266 and $17,947 at December 31, 1995 and
      1994,  respectively.   The  Company  reports  shareholder  advances  as  a
      reduction of shareholders' equity. The Company's Credit Agreement (Note 5)
      requires that any such  shareholder  advances in excess of the related tax
      liability be repaid to the Company when corresponding refunds are received
      from taxing authorities.

5.    LONG-TERM DEBT AND CREDIT AGREEMENTS

      Long-term debt and credit agreements are summarized as follows:

                                                            December 31,
                                                       1995            1994
Credit agreement:
  Working capital loan - ATEC                      $  1,345,739    $    332,810
  Working capital loan - WATEC                          344,017         299,425
                                                   ------------    ------------
           Borrowings under working capital loans  $  1,689,756    $    632,235
                                                   ============    ============
Term loan one                                      $  5,214,793    $  6,907,321
Term loan two                                         1,572,648       2,715,048
Term loan three                                       1,240,313       1,791,563
Term loan four                                        1,709,033       1,475,000
Equipment acquisition loan                            1,180,000            --
                                                   ------------    ------------

           Borrowings under term loans               10,916,787      12,888,932

Notes payable                                         1,004,189         914,618
                                                   ------------    ------------
                                                     11,920,976      13,803,550
Less current portion                                (11,043,881)     (3,548,168)
                                                   ------------    ------------
           Total long-term debt                    $    877,095    $ 10,255,382
                                                   ============    ============
          

      Credit Agreement - Under the Company's credit agreement (the  "Agreement")
      with Bank One, Indianapolis,  N.A. ("Bank One"),  substantially all assets
      have been pledged as  collateral.  The  Agreement  also  contains  certain
      financial covenants which require the Company to meet financial ratios and
      tests, including a minimum current ratio, a minimum tangible capital test,
      a maximum  debt to tangible  capital  ratio,  and a minimum  debt  service
      coverage ratio. The Company was in default of substantially  all financial
      ratio covenants as of December 31, 1995.

      On April 30,  1996,  the Company and Bank One  amended  and  extended  the
      Agreement (the "Amended Agreement"). The Amended Agreement established new
      financial ratios and tests which the Company is required to maintain. Bank
      One may, at its sole  discretion,  extend the maturity date of the working
      capital  loans.  The  Amended  Agreement  provides  for the  revision of a
      previously  established  cash  collateral  account,  whereby  the  Company
      deposits all cash into the account to pay down working  capital  loans and
      then draws funds to meet current operating requirements.

                                       9
<PAGE>
      Under the Amended  Agreement,  the working  capital  loans bear  interest,
      payable monthly,  at Bank One's prime rate, which was 8.5% at December 31,
      1995, plus .75%, and mature on July 31, 1996. ATEC and WATEC may borrow up
      to $3,000,000  and  $1,000,000,  respectively,  under the working  capital
      loans.   Additionally,   the  Agreement  provides  for  annual  short-term
      equipment  acquisition  loans.  On April  30,  1996,  the due date for the
      equipment  acquisition  loan was extended to July 31, 1996.  The equipment
      acquisition loan bears interest at Bank One's prime rate plus 1%.

      Term loan one is due in consecutive monthly principal payments of $116,500
      plus interest,  with the remaining  unpaid principal plus accrued interest
      due March 1, 1998.  The loan bears  interest at Bank One's prime rate plus
      1%.  Term loan two is due in  consecutive  monthly  principal  payments of
      $95,200  plus  interest,  with the  remaining  balances of  principal  and
      interest due on June 1, 1997. The loan bears interest at an annual rate of
      9.51%  through  February  28,  1996 and at Bank  One's  prime rate plus 1%
      thereafter.  Term  loan  three  is due in  consecutive  monthly  principal
      payments of $45,938 plus interest, with the remaining balance of principal
      and interest due on February  28,  1998.  The loan bears  interest at Bank
      One's  prime rate plus 1%.  Term loan four is due in  consecutive  monthly
      principal payments of $41,700 plus interest, with the remaining balance of
      principal and interest due March 15, 1999. The loan bears interest at Bank
      One's prime rate plus 1%.

      The Term loans  contain  provisions  which  permit the bank to  accelerate
      payment terms in the event of  non-compliance  with covenants  included in
      the working capital loan.

      A  $6,000,000  facility  for  letters  of  credit  is  provided  under the
      Agreement  with a 1.5% annual fee on  outstanding  letters of credit (Note
      6). In addition, up to a maximum of $5,000,000 of total indebtedness under
      the  credit  agreement  has been  guaranteed  by the  Company's  principle
      shareholder.

      Notes Payable - The Company's principal  shareholder  advanced the Company
      $750,000  in  September  1994.  The note bears  interest  at 12.0% and the
      principal  and accrued  interest are due on February 1, 1997.  The note is
      subordinated to the interest of Bank One.

      In  connection   with  the   retirement  of  certain   performance   share
      obligations,  a note with a principal  balance of  $254,189  was issued in
      1995.  The first payment of $127,094  plus accrued  interest is due in May
      1996, with the payment of the remaining $127,095 plus accrued interest due
      on May 19, 1997. Interest is payable at the prime rate of Bank One.

6.    LETTERS OF CREDIT

      The Company has  $5,904,353 in letters of credit  outstanding  at December
      31, 1995,  which  collateralize  performance  bonds required under certain
      contracts, certain litigation, and deductibles under workers' compensation
      insurance. They expire in various amounts through November 1996.

7.    PERFORMANCE SHARE OBLIGATION

      The Company  adopted a Performance  Share Plan ("Share Plan")  intended to
      operate for the benefit of key employees of the Company.  At the beginning
      of each fiscal year,  each Share Plan  participant  can elect to receive a
      portion of his bonus  payable under the ATEC  Incentive  Bonus Plan in the
      form of Performance Shares ("Shares"), for which the Company has agreed to
      later pay a formula value per Share,  subject to  adjustment  (see below).
      Except as otherwise determined by the Board, Shares issued in lieu of cash
      bonuses  were  initially  valued at twice the book  value of shares of the
      Company's common stock through  September 30, 1992 and at one and one-half
      times the book value of common stock, thereafter ("Purchase Price").

                                       10
<PAGE>
      The Company will satisfy the Performance Share Obligation by cash payments
      to  the  Share  Plan   participants   in  the  event  of  the  Share  Plan
      participant's  death,  total disability,  hardship or termination from the
      Company,   or  upon  sale  of  50%  of  the  Company's   common  stock  or
      substantially all of the assets of the Company.

      The value per unit and the right to receive  payment  for Shares held by a
      Share Plan participant are determined as follows:

        Event Causing Unit Redemption          Share Value Determined By

        Death, total disability, hardship      The Share Purchase Price plus or
        or termination                         minus the change in book value
                                               of the common stock of the 
                                               Company from the date of purchase
                                               to the end of the fiscal year
                                               immediately preceding the  event.

        Sale or transfer of more than 50% of   The payment received by the 
        the issued and  outstanding common     Company shareholders for each
        stock of the Company.                  share of the Company.

        Sale of substantially all of the       The payment received by the
        assets of the Company, or the          Company shareholders for each
        liquidation of the Company.            share of the Company.

      Activity in the years ended December 31, 1995 and 1994 and the three
      months ended December 31, 1993  and the
      year ended September 30, 1993 was as follows:


                                                       Performance
                                                       Shares        Obligations

Balance at September 30, 1992                            255,499    $ 1,580,560
  Issued                                                   3,721         72,634
  Redeemed                                               (55,343)      (323,203)
                                                      ----------     ---------- 

Balance at September 30, 1993                            203,877      1,329,991
  Issued                                                  10,677        120,757
  Redeemed                                                (1,061)       (14,517)
                                                      ----------     ---------- 

Balance at December 31, 1993                             213,493      1,436,231
  Cumulative effect of change in accounting method
     (Note 1)                                               --         (470,611)
  Issued                                                    --             --
  Redeemed                                                (6,558)       (43,159)
  Appreciation in share value                               --          217,433
                                                      ----------     ---------- 

Balance at December 31, 1994                             206,935      1,139,894
  Issued                                                  20,805        154,403
  Redeemed                                               (87,211)      (479,542)
  Depreciation in share value                               --         (126,608)
                                                      ----------     ---------- 

Balance at December 31, 1995                             140,529    $   688,147
                                                      ==========    ===========



8.    PERFORMANCE SHARE OPTION PLAN

      Effective May 3, 1995, the Company adopted a Performance Share Option Plan
      ("Option Plan") intended to offer incentives  beyond current  compensation
      to certain  officers and key  employees  responsible  for  furthering  the
      Company's long-term earnings growth.  Performance share options are issued
      at the sole discretion of the Performance Share Option Plan Committee (the
      "Committee").  Under the Plan,  200,000  option  shares are  available for
      grant.  The option price is  determined  by the Committee and for 1995 was
      set at $7.41 per share.  Options are exercisable only upon a "Transfer" of
      ownership  as defined in the Option Plan  agreement.  The options  have no
      stated  expiration date but will expire upon termination of the optionee's
      employment.  No compensation  expense was recorded during 1995,  since the
      options were  granted at fair market  value.  At December 31, 1995,  there
      were 77,250 shares under option at an option price of $7.41 per share.
<PAGE>
9.    LEASES

      Minimum annual rental commitments under noncancelable  operating leases at
      December 31, 1995 (primarily for office space) are as follows:


      1996                                                       $    2,642,509
      1997                                                            1,692,026
      1998                                                            1,060,172
      1999                                                              705,190
      2000                                                              302,074
      Thereafter                                                        822,097
                                                                 --------------
                                                                 $    7,224,068
                                                                 ==============

      Total rental expense for the year ended December 31, 1995 and 1994 and the
      three months ended December 31, 1993 and the year ended September 30, 1993
      was $3,404,000, $3,107,000, $775,000 and $3,216,000, respectively.

10.   401(k) PROFIT SHARING PLAN

      The Company  sponsors a defined  contribution  401(k) Profit  Sharing Plan
      ("Plan") covering  substantially all employees.  Annual contributions made
      by the Company to the Plan are strictly discretionary in nature and may be
      discontinued or temporarily  suspended for a definite or indefinite period
      of time. The Company's profit sharing  contributions  are allocated to the
      account  balance  of  each  participant   based  upon  the  ratio  of  the
      participant's  Plan year  compensation to the total Plan year compensation
      of all participants and vest over a six-year period.  There were no profit
      sharing contributions for any of the periods presented.

      During the year ended December 31, 1995, the Company contributed  $331,064
      to the 401(k) portion of the Plan, equivalent to 50% of employees' pre-tax
      contributions,  up to 3% of each employees' pay. These  contributions also
      vest over a six-year period.  Participant  forfeitures aggregating $49,460
      were retained.  The Company's contribution for the year ended December 31,
      1994 was $273,513 with forfeitures of $46,938. The Company's contributions
      to the Plan were $113,850 during the three months ended December 31, 1993.
      During the year ended September 30, 1993, participant forfeitures totaling
      $321,033 were retained to satisfy the Company's contribution to the Plan.
                                       12
<PAGE>
11.   LITIGATION

      A lawsuit was filed on April 24, 1991  against the Company in the Superior
      Court of Lake County,  Indiana.  The claim alleged  negligent and careless
      conduct on the part of the Company,  which resulted in permanent  personal
      injuries  being  suffered  by the  plaintiff  as a result of  exposure  to
      hazardous materials while operating equipment at a landfill.  On March 23,
      1995, a trial jury returned a verdict  against the Company and awarded the
      plaintiff  $704,375 in damages.  The Company filed a motion with the Court
      to correct  errors in May 1995 and,  as a result,  the Court  reduced  the
      judgment  against the Company by $70,000.  Since that time,  the plaintiff
      has accepted the  Company's  settlement  offer of $500,000 and such amount
      was paid subsequent to December 31, 1995. The Company has pursued recovery
      of the  settlement  amount  from its  insurance  carrier  and in June 1997
      reached  an  agreement  to recover  $550,000  from the  insurance  carrier
      related to this claim.

      On March 1, 1994,  the Company and another  party were named as defendants
      in a lawsuit  filed in the  Court of Common  Pleas,  Franklin,  Ohio.  The
      plaintiff alleges that the Company negligently  performed an environmental
      site assessment which failed to indicate environmental  contamination that
      has  made  a  mortgage  on  the  property  in the  amount  of $15  million
      worthless.  The Company believes it has a meritorious defense with respect
      to the  lawsuit  and intends to  vigorously  defend the action.  While the
      ultimate  outcome cannot be determined at this time,  management  does not
      believe it will have a material adverse effect on the Company's  financial
      statements.

      By letter  dated  December  12, 1993,  the Company  entered the  Voluntary
      Disclosure Program administered by the U.S. Department of Defense ("DoD").
      The bases of the  disclosure are  allegations  that certain former Company
      employees  paid  unlawful  gratuities  to a federal  government  inspector
      concerning a contract at a federal  government site.  Possible  violations
      involve  the  federal  Anti-Kickback  Act,  federal  criminal  law against
      bribery,  and the federal  civil False  Claims Act.  The Company  retained
      independent  legal  counsel to  undertake  internal  investigation  of the
      matter  and to  prepare a report  for  presentation  to the  Office of the
      Inspector General, DoD. The Company could be responsible for the repayment
      of  any  losses  suffered  by  the  federal   government  related  to  the
      gratuities, fraud or kickbacks. In January 1995, the Company submitted the
      internal  investigation  report to DoD in which it found that the  illegal
      gratuities  had been paid by a former Company  employee.  The Company paid
      the federal government the losses identified in the internal investigation
      report.  The  Company  does not  believe  it has any  additional  monetary
      obligation to the federal government as a result of the matters covered by
      the investigation; however, the federal government accepted the funds with
      the  express   reservation  that  the  acceptance  did  not  constitute  a
      limitation of the Company's liability.  The federal government conducted a
      compliance   audit  of  the  report  in  1995  and  requested   additional
      information  to determine if fines should be levied against the Company or
      if the Company should be suspended from participation in future government
      contracts.  As of June  25,  1997,  the  Company  is  negotiating  a final
      settlement agreement with the DoD which will include the withdrawal of the
      Company  from all federal  government  contracting  work.  The Company has
      historically  derived  approximately  10% of its net service revenues from
      federal government sources.
                                       13
<PAGE>
      A  complaint  was filed in December  1995  against the Company and another
      party in the Circuit Court of Dade County,  Florida. The plaintiff alleges
      that the  Company  failed to update its report on the  suitability  of the
      foundation material after a substitution in those materials was made. As a
      result of the plaintiff's  reliance on this report,  the materials used in
      the  foundation  were found to be inadequate and the building pad settled,
      resulting in damages.  The Company  believes it has a meritorious  defense
      with respect to the lawsuit and intends to  vigorously  defend the action.
      While the ultimate  outcome cannot be determined at this time,  management
      does not believe it will have a material  adverse  effect on the Company's
      financial statements.

      On December 5, 1996,  the  Company  received  notice of a claim by Western
      Capital  Corporation.  Western  Capital  Corporation's  claim  against the
      Company  arises  from a claim  made  by a third  party.  The  third  party
      allegedly   received   serious  bodily  injuries  during  the  removal  of
      underground storage tanks from Western Capital Corporation's property as a
      subcontracted  employee  of the  Company.  The  Company  believes it has a
      meritorious  defense with respect to the lawsuit and intends to vigorously
      defend the action. While the ultimate outcome cannot be determined at this
      time,  management does not believe it will have a material  adverse effect
      on the Company's financial statements.

      The  Company  has been  named or has  claims  pending  arising  out of the
      ordinary  conduct of its  business.  In the opinion of  management,  these
      matters are adequately covered by insurance, appropriately provided for in
      the accompanying financial statements,  without merit, or are not material
      to the Company's financial statements.

                                       14
<PAGE>
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UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 8-K/A #2

                                 CURRENT REPORT

                     PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                 Date of Earliest Event Reported - May 24, 1996

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

   Delaware                             1-10583                       46-0399408
 -------------------------------      --------------         -------------------
 (State or other jurisdiction of       (Commission              (I.R.S. Employer
 incorporation or organization)        File Number)          Identification No.)

 104 East 25th Street, 10th Floor
 New York, New York                                                        10010
 ----------------------------------------------- -------------------------------
 (Address of principal executive offices)                             (Zip Code)

       Registrant's telephone number, including area code: (212) 353-8280
Item 7.       Exhibits and Financial Statements

     (a)(1)  Included  are the  American  Testing  and  Engineering  Corporation
financial  statements  as of December  31, 1995 and 1994 and for the Years Ended
December 31, 1995 and 1994,  the Three  Months  Ended  December 31, 1993 and the
Year Ended September 30, 1993 and Independent Auditors' Report dated January 31,
1997  (June 25,  1997 as to Note 11)  issued by  Deloitte  & Touche  LLP.  These
financial  statements  are  being  filed  in  replacement  of  previously  filed
financial statements of American Testing and Engineering Corporation for similar
periods audited by Coopers & Lybrand LLP. The reported  amounts of total assets,
liabilities and shareholders' equity and of earnings and loss for each period do
not differ from those reported in the previous filing.
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 hereunto duly authorized.

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

July 22, 1997                                       By:  /s/ RICHARD L. PRUITT
-------------                                       ----------------------------
(Dated)                                             RICHARD L. PRUITT
                                                    Vice President and
                                                    Principal Accounting Officer
AMERICAN TESTING AND
ENGINEERING CORPORATION

Financial  Statements  as of December  31, 1995 and 1994 and for the Years Ended
December 31, 1995 and 1994,  the Three  Months  Ended  December 31, 1993 and the
Year Ended September 30, 1993 and Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
American Testing and Engineering Corporation

We have  audited  the  accompanying  balance  sheets  of  American  Testing  and
Engineering  Corporation (the Company) as of December 31, 1995 and 1994, and the
related  statements of operations,  shareholders'  equity and cash flows for the
years ended December 31, 1995 and 1994, the three months ended December 31, 1993
and the year ended  September  30,  1993.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the  financial  position of the  Company as of December  31, 1995 and
1994,  and the results of its  operations and its cash flows for the years ended
December 31, 1995 and 1994,  the three  months  ended  December 31, 1993 and the
year ended September 30, 1993 in conformity with generally  accepted  accounting
principles.

/s/  Deloitte & Touche LLP
--------------------------
Omaha, Nebraska
January 31, 1997
(June 25, 1997 as to Note 11)
AMERICAN TESTING AND ENGINEERING CORPORATION

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
-------------------------------------------------------------------------------
ASSETS ...........................................................................            1995                     1994

Current assets:
  Cash ...........................................................................            $     46,693             $     62,285
  Receivables:
    Trade accounts receivable ....................................................              20,282,027               20,732,006
    Unbilled revenue on work in progress .........................................               6,795,912                6,395,647
                                                                                              ------------             ------------
                                                                                                27,077,939               27,127,653
    Less allowance for doubtful accounts .........................................                (690,500)                (814,600)
                                                                                              ------------             ------------
                                                                                                26,387,439               26,313,053
  Collateral bonds ...............................................................                 801,430                1,110,652
  Other current assets ...........................................................                 779,722                  825,214
                                                                                              ------------             ------------
           Total current assets ..................................................              28,015,284               28,311,204

Property and equipment, net (Note 3) .............................................               5,901,641                9,041,493

Other Assets:
  Cash surrender value of life insurance .........................................               1,824,437                1,872,902
  Advances to related parties (Note 4) ...........................................                 156,712                  114,141
  Other ..........................................................................                 428,621                  324,125
                                                                                              ------------             ------------
                                                                                                 2,409,770                2,311,168
                                                                                              ------------             ------------
           Total assets ..........................................................            $ 36,326,695             $ 39,663,865
                                                                                              ============             ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Working capital loans (Note 5) .................................................            $  1,679,756             $    632,235
  Current portion of long-term debt (Note 5) .....................................              11,043,881                3,548,168
  Accounts payable, trade ........................................................               7,804,426                7,211,534
  Accrued salaries, wages and other compensation .................................               3,948,186                4,774,441
  Accrued legal liabilities (Note 11) ............................................               1,288,265                1,391,875
  Other accrued expenses .........................................................               2,914,423                2,918,901
                                                                                              ------------             ------------
           Total current liabilities .............................................              28,678,937               20,477,154

Long-term debt (Note 5) ..........................................................                 877,095               10,255,382
Performance share obligation (Notes 2 and 7) .....................................                 688,147                1,139,894
Lease and revenue reserve ........................................................                 187,739                   76,190
Minority interest ................................................................                   7,173                    5,011

Commitments and contingencies (Notes 5, 7 and 11)

Shareholders' equity:
  Common stock, no par value, 2,000,000 shares authorized;
    1,585,000 shares issued and outstanding ......................................                  79,250                   79,250
  Additional paid-in capital .....................................................                 633,131                  633,131
  Advances to shareholders (Note 4) ..............................................                 (21,266)                 (17,947)
  Retained earnings ..............................................................               5,196,489                7,015,800
                                                                                              ------------             ------------
           Total shareholders' equity ............................................               5,887,604                7,710,234
                                                                                              ------------             ------------
           Total liabilities and shareholders' equity ............................            $ 36,326,695             $ 39,663,865
                                                                                              ============             ============
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                       2
AMERICAN TESTING AND ENGINEERING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED DECEMBER 31, 1993
AND THE YEAR ENDED SEPTEMBER 30, 1993
-------------------------------------------------------------------------------
Three
                                                                  Years Ended             Months Ended      Year Ended
                                                                  December 31,            December 31,      September 30,
                                                        ------------------------------    -------------    -------------
                                                             1995             1994             1993            1993
Revenues:
  Service revenue ...................................   $  95,130,122      102,253,268    $  28,354,269    $ 117,609,574
  Cost of service revenue (Note 2) ..................      26,926,568       30,116,429       11,832,987       38,794,916
                                                        -------------    -------------    -------------    -------------  

           Net service revenue ......................      68,203,554       72,136,839       16,521,282       78,814,658
                                                        -------------    -------------    -------------    -------------  
Cost and expenses:
  Engineering and consulting costs ..................      31,064,366       31,189,662       11,122,048       35,075,967
  General and administrative expenses ...............      37,291,935       38,760,752       10,726,126       46,082,281
  Interest expense ..................................       1,664,066        1,539,513          398,232        1,485,275
  Legal judgment (Note 11) ..........................            --               --            704,375             --
                                                        -------------    -------------    -------------    -------------  

           Total costs and expenses .................      70,020,367       71,489,927       22,950,781       82,643,523
                                                        -------------    -------------    -------------    -------------  

           Income (loss) before cumulative effect of
             change in accounting method ............      (1,816,813)         646,912       (6,429,499)      (3,828,865)

Cumulative effect of change in accounting
  method (Note 2) ...................................            --            470,611             --               --
                                                        -------------    -------------    -------------    -------------  

           Net income (loss) before minority interest      (1,816,813)       1,117,523       (6,429,499)      (3,828,865)

Minority interest ...................................           2,162           (3,904)          (5,814)           3,751
                                                        -------------    -------------    -------------    -------------  

           Net income (loss) ........................   $  (1,818,975)   $   1,121,427    $  (6,423,685)   $  (3,832,616)
                                                        =============    =============    =============    =============
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                       3
AMERICAN TESTING AND ENGINEERING CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED DECEMBER 31, 1993
AND THE YEAR ENDED SEPTEMBER 30, 1993
-------------------------------------------------------------------------------
Additional      Advances                          Total
                                                    Common        Paid-in           to           Retained      Shareholders'
                                                     Stock        Capital      Shareholders      Earnings         Equity
------------   ------------   ------------   ------------     ------------
Balance, September 30, 1992 ..................   $     79,250   $    384,240   $       --     $ 15,911,335     $ 16,374,825
  Distributions to shareholders ..............           --             --             --          (391,157)       (391,157)
  Advances to shareholders ...................           --             --          (70,048)           --           (70,048)
  Reclassification of shareholder distribution
    (Note 4) .................................           --             --         (630,496)        630,496            --
  Net loss ...................................           --             --             --        (3,832,616)     (3,832,616)
                                                 ------------   ------------   ------------   ------------     ------------

Balance, September 30, 1993 ..................         79,250        384,240       (700,544)     12,318,058      12,081,004
  Advances to shareholder ....................           --             --          (11,376)           --           (11,376)
  Net loss ...................................           --             --             --        (6,423,685)     (6,423,685)
                                                 ------------   ------------   ------------    ------------    ------------

Balance, December 31, 1993 ...................         79,250        384,240       (711,920)      5,894,373       5,645,943
  Shareholder contribution ...................           --          248,891           --              --           248,891
  Repayment of shareholder advances ..........           --             --          693,973            --           693,973
  Net income .................................           --             --             --         1,121,427       1,121,427
                                                 ------------   ------------   ------------    ------------    ------------

Balance, December 31, 1994 ...................         79,250        633,131        (17,947)      7,015,800       7,710,234
  Distributions to shareholders ..............           --             --             --              (336)           (336)
  Advance to shareholder .....................           --             --           (3,319)           --            (3,319)
  Net loss ...................................           --             --             --        (1,818,975)     (1,818,975)
                                                 ------------   ------------   ------------    ------------    ------------

Balance, December 31, 1995 ...................   $     79,250   $    633,131   $    (21,266)   $  5,196,489    $  5,887,604
                                                 ============   ============   ============    ============    ============
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                       4
AMERICAN TESTING AND ENGINEERING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED DECEMBER 31, 1993
AND THE YEAR ENDED SEPTEMBER 30, 1993
-------------------------------------------------------------------------------
Three Months
                                                                                  Years Ended              Ended       Year Ended
                                                                                 December 31,          December 31,    September 30,
------------     ------------    ------------    ------------
                                                                           1995            1994            1993            1993
Cash flows from operating activities:                                          --              --              --              --   
  Net income (loss)                                                    $ (1,818,975)   $  1,121,427    $ (6,423,685)   $ (3,832,616)
  Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:
      Depreciation and amortization                                       3,913,346       4,311,092       1,174,178       5,076,527
      Revenue and lease reservations                                        111,549          76,190            --              --
      Provision for doubtful accounts                                      (124,049)     (1,154,000)        288,600         281,000
      (Gain) loss on sale of property and equipment                         221,749         (76,446)        (17,090)        176,382
      Appreciation (depreciation) in performance share value               (126,608)        217,433            --              --
      Cumulative effect of change in accounting method                         --          (470,611)           --              --
      Appreciation of performance shares redeemed by issuance of
        note payable                                                           --              --              --           134,511
      Changes in assets and liabilities:
        Trade accounts receivable                                           449,979       2,095,995       3,480,946       2,756,359
        Unbilled revenue on work in progress                               (400,316)      2,452,964      (2,502,053)     (2,658,219)
        Accounts payable                                                    175,131       1,691,361      (4,736,242)      2,256,065
        Accrued salaries and expenses                                      (779,940)     (5,277,894)      7,235,340       1,206,256
        Collateral bonds                                                    309,222         477,656         412,304        (847,024)
        Other, net                                                          (60,949)        427,311         107,265      (1,144,252)
                                                                      ------------     ------------    ------------    ------------
           Net cash provided by operating activities                      1,870,139       5,892,478        (980,437)      3,404,989
                                                                      ------------     ------------    ------------    ------------

Cash flows from investing activities:
  Purchase of property and equipment                                     (1,310,662)     (1,869,058)       (474,064)     (2,198,370)
  Proceeds from sale of property and equipment                              325,418         295,010          53,063         346,603
                                                                       ------------    ------------    ------------    ------------
           Net cash used in investing activities                           (985,244)     (1,574,048)       (421,001)     (1,851,767)
                                                                       ------------    ------------    ------------    ------------

Cash flows from financing activities:
  Net (deposits) borrowings (to) from cash collateral account             1,047,521      (1,767,190)           --              --
  Proceeds from obligations to banks and notes payable                    2,059,189       7,175,000      11,015,000      23,765,000
  Payments on obligations to banks and notes payable                     (3,941,762)     (8,565,195)    (10,823,825)    (24,545,218)
  Advances and distributions to shareholders                                 (3,655)           --           (11,376)       (391,157)
  Performance shares redeemed                                              (479,542)        (43,159)        (14,517)       (128,477)
  Change in cash overdraft                                                  417,762      (2,058,354)      1,215,597        (236,671)
  Shareholder contribution                                                     --           248,891            --              --
  Proceeds from repayment of shareholder advances                              --           693,973            --              --
                                                                       ------------    ------------    ------------    ------------
           Net cash used in financing activities                           (900,487)     (4,316,034)      1,380,879      (1,536,523)
                                                                       ------------    ------------    ------------    ------------

           Increase (decrease) in cash                                      (15,592)          2,396         (20,559)         16,699

Cash, beginning of period                                                    62,285          59,889          80,448          63,749
                                                                       ------------    ------------    ------------    ------------

Cash, end of period                                                    $     46,693          62,285    $     59,889          80,448
                                                                       ============    ============    ============    ============
Supplemental  disclosures  of cash flow  information:
 Cash paid during the year
  for:
    Interest                                                           $  1,554,879       1,489,863    $    376,429       1,487,936
                                                                       ============    ============    ============    ============

    Income taxes (Note 2)                                              $       --      $       --      $       --           577,043
                                                                       ============    ============    ============    ============
During the year ended  September  30,  1993,  the Company  redeemed  performance
  shares with a recorded value of $194,726,  a redemption value of $493,856,  by
  issuance of a note payable of $329,237  and a cash  payment for the  residual.
  The  difference  between the  recorded  and  redemption  value was recorded as
  compensation expense and is included in general and administrative expenses.

During the year ended  December  31, 1995,  the three months ended  December 31,
  1993 and the year ended September 30, 1993, performance shares with a value of
  $154,403, $120,757 and $72,634,  respectively,  were issued in lieu of accrued
  bonuses.

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
                                       5
AMERICAN TESTING AND ENGINEERING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994, THE THREE MONTHS ENDED
DECEMBER 31, 1993 AND THE YEAR ENDED SEPTEMBER 30, 1993
-------------------------------------------------------------------------------

1.    SUBSEQUENT EVENT

      Effective  May  23,  1996,  the   shareholders  of  American  Testing  and
      Engineering    Corporation   (the   Company)   or   ("ATEC")   transferred
      substantially all of the Company's tangible and intangible business assets
      to ATC Environmental,  Inc. ("ATC"), an unrelated company. The assets sold
      included cash,  accounts  receivable,  unbilled work in progress,  prepaid
      expenses,  goodwill,  customer  contract  rights and  customer  lists.  In
      addition,  the Company  leased to ATC  substantially  all of its property,
      plant and equipment  under annually  renewable  leases  expiring six years
      from the date of the closing.  ATC  additionally has the right to purchase
      all fixed assets leased at the end of such period.  Assets retained by the
      Company  include  all  nonleased  fixed  assets,   intercompany   accounts
      receivable/payable,  certain land,  cash surrender value of life insurance
      policies,   and  the  investment  in  Waste  Abatement  Technology,   L.P.
      ("WATEC").

      As consideration for the sale, ATC assumed essentially all of the recorded
      liabilities  exclusive of bank debt which was repaid  concurrent  with the
      sale of ATEC. In addition,  at closing the Company received  $6,000,000 in
      cash and will receive, an additional $16,750,000 in lease payments, rents,
      and consideration for covenants not to compete over the next six years. In
      connection  with  this  transaction,   the  Company  recorded  a  gain  of
      approximately $4.9 million at the closing date, and additional  contingent
      gains  approximating  $12.5 million are expected to be recorded as certain
      defined contingencies lapse.

      The Company's credit agreement with Bank One (Note 5) expired on April 30,
      1996.  In  anticipation  of the sale of the Company,  the bank amended and
      extended the credit agreement  through July 31, 1996. All amounts due Bank
      One in connection with the credit agreement, exclusive of WATEC borrowings
      of  approximately  $360,000 and  contingent  amounts due under  letters of
      credit,  were  paid on May  24,  1996,  concurrent  with  the  sale of the
      Company's business operations to ATC.

      In connection with the sale, the Company recorded  additional 1996 expense
      of approximately  $2.2 million  associated with the performance shares and
      performance  share  options  (see  Notes 7 and 8) in  accordance  with the
      Performance  Share and Performance  Share Option Plans.  During the period
      from January 1, 1996 through May 23, 1996, 94,830  additional  performance
      share options were granted at an option price of $7.41 per share.

      These  financial  statements  are  presented  on the  historical  basis of
      accounting  and are not  presented on the basis of a  liquidation,  nor do
      they reflect fair value accounting principles.

2.    SIGNIFICANT ACCOUNTING POLICIES

      General  -  ATEC  engages  in  four  principal  lines  of  business  which
      contribute to gross  revenues.  They include  traditional  services  which
      consist of engineering  and materials  testing,  environmental,  hazardous
      waste, and chemical testing laboratories.  The geographic concentration of
      the 40 plus  offices  is in the  eastern  half of the United  States.  The
      concentration  of  revenue  by  client  is  largely  industrial  and small
      business with  approximately  25% of its revenue  generated  from federal,
      state and local governmental agencies.
                                        6
Use of Estimates - The  preparation of financial  statements in conformity
      with generally  accepted  accounting  principles  requires that management
      make estimates and  assumptions  affecting the reported  amounts of assets
      and  liabilities,  the disclosure of contingent  assets and liabilities at
      the date of the financial  statements and the reported  amounts of revenue
      and expenses during the reporting period. Actual amounts and results could
      differ from the estimated amounts and results.

      Consolidation  Principles  and Financial  Statement  Presentation  - These
      consolidated  financial statements include the accounts of ATEC and WATEC,
      a limited partnership in which the Company holds a 99% interest (together,
      the   "Company").   All  significant   intercompany   accounts  have  been
      eliminated.

      Property and  Equipment - Property and  equipment are recorded at cost and
      are depreciated  using the  straight-line  method.  Estimated useful lives
      range  from  three  to ten  years  for  machinery,  equipment  and  office
      furniture  and three to seven years for vehicles.  Leasehold  improvements
      are  generally   amortized  over  the  term  of  the  respective   leases.
      Expenditures  for normal repair and  maintenance are charged to expense as
      incurred. Cost and accumulated depreciation of assets disposed are removed
      from the accounts, and any resulting gain or loss is included in income.

      Income Taxes - Effective October 1, 1991, the Company elected status as an
      S  Corporation   under  the  provisions  of  the  Internal  Revenue  Code.
      Accordingly, it is generally not subject to federal or state income taxes,
      and the income or loss of the Company is reflected in the personal  income
      tax returns of its shareholders.

      Revenue  and  Cost  Recognition  - The  Company's  principal  business  is
      providing   professional   engineering   and  consulting   services  under
      cost-plus-fee  and fixed-price  contracts.  Revenues  attributable to such
      contracts  and claims for revenue on  additional  contract  revisions  are
      accounted for under the percentage-of-completion  (cost-to-cost) method of
      accounting  and are recorded  equivalent to costs incurred plus a pro rata
      portion of estimated profits expected to be realized on the contracts.

      Profits  expected to be realized on contracts are based on total  contract
      value and management's  estimates of costs at completion.  These estimates
      are  reviewed  and  revised  periodically  throughout  the  lives  of  the
      contracts,  and  adjustments to profits  resulting from such revisions are
      recorded  in the  accounting  period  in which  the  revisions  are  made.
      Provisions  for  estimated  losses on contracts are recorded when they are
      identified.

      Costs of service include all direct material and  subcontract  costs,  and
      those indirect costs related to contract performance.

      Change in  Accounting  Method -  Performance  Share  Obligation  - Amounts
      contributed by participants  to the Performance  Share Plan are recognized
      as compensation expense when earned. Prior to January 1, 1994, the Company
      recognized additional expense (appreciation of performance share value) or
      other income  (diminution of performance share value) upon election by the
      participant to redeem units in accordance with the plan's  provisions.  To
      more directly  relate the periodic  results of its operations with related
      changes in the valuation of performance  shares,  the Company  changed its
      method of  accounting  for changes in the  appreciation  or  diminution of
      performance  share value.  As part of this  change,  during the year ended
      December 31, 1994, the Company recorded a one-time  cumulative  benefit of
      $470,611,  which recognizes the cumulative  difference in expense recorded
      under the two methods from the  inception  of the plan through  January 1,
      1994.
                                       7
Reclassification   -  Certain  amounts  in  the  prior  year's   financial
      statements have been reclassified to conform to the 1995 presentation.

3.    PROPERTY AND EQUIPMENT

      Property and equipment is summarized as follows:

                                                         December 31,
                                                     1995                1994

Machinery and equipment                        $ 11,584,942        $ 12,102,895
Vehicles                                          6,285,807           6,828,868
Office furniture and equipment                    9,059,094           8,508,533
Leasehold improvements                            3,256,232           3,660,734
Building                                            291,220             291,220
Land                                                276,480             276,480
Construction in progress                            102,221             427,241
                                               ------------        ------------
                                                 30,855,996          32,095,971
Less accumulated depreciation                   (24,954,355)        (23,054,478)
                                               ------------        ------------
                                               $  5,901,641        $  9,041,493
                                               ============        ============

4.    RELATED PARTY TRANSACTIONS

      Advances to related parties are summarized as follows:

                                                           December 31
                                                     1995               1994

Mann Realty Co.                                $    108,212        $     68,913
Mann Technology, Inc.                                 7,085               3,813
ATEC International                                   41,415              41,415
                                               ------------        ------------
                                               $    156,712        $    114,141

      The  Company  has  entered  into  certain  noncancelable  operating  lease
      agreements  for office space with Mann Realty Co., a partnership  in which
      the Company's  president is a partner.  Minimum annual rental  commitments
      under  these  leases  are  included  in  Note  9 and  aggregate  $464,959,
      $323,471,  $208,884, $100,800, $100,800, and $756,000 for the years ending
      December 31, 1996, 1997,  1998, 1999, 2000, and thereafter,  respectively.
      Rents paid to Mann  Realty Co. for the years ended  December  31, 1995 and
      1994 and the three  months  ended  December  31,  1993 and the year  ended
      September  30,  1993  were  $607,913,  $546,544,  $193,230  and  $615,144,
      respectively.  The Company  also has  $125,000 on deposit with Mann Realty
      Co.  pursuant to lease  agreements  on certain  locations.  No interest is
      earned  on  advances,  and there are no  agreements  identifying  specific
      repayment terms.
                                       8
The Company's  president is an officer and shareholder of Mann Technology,
      Inc., which serves as the corporate  general partner and one-percent owner
      of WATEC. Mann Technology,  Inc.'s 1% interest and earnings therefrom have
      been reflected as minority interest on the Company's  consolidated balance
      sheets and statements of operations.  Two  shareholders of the Company are
      also shareholders in ATEC  International.  Advances to Mann Technology and
      ATEC  International  bear  no  interest,   and  there  are  no  agreements
      identifying specific repayment terms.

      The Company's  interim  distributions to shareholders for estimated income
      taxes have been  determined by the Company's  management to be advances to
      shareholders  until  such  time as the  actual  liability  is  calculated.
      Advances to shareholders were $21,266 and $17,947 at December 31, 1995 and
      1994,  respectively.   The  Company  reports  shareholder  advances  as  a
      reduction of shareholders' equity. The Company's Credit Agreement (Note 5)
      requires that any such  shareholder  advances in excess of the related tax
      liability be repaid to the Company when corresponding refunds are received
      from taxing authorities.

5.    LONG-TERM DEBT AND CREDIT AGREEMENTS

      Long-term debt and credit agreements are summarized as follows:

                                                            December 31,
                                                       1995            1994
Credit agreement:
  Working capital loan - ATEC                      $  1,345,739    $    332,810
  Working capital loan - WATEC                          344,017         299,425
                                                   ------------    ------------
           Borrowings under working capital loans  $  1,689,756    $    632,235
                                                   ============    ============
Term loan one                                      $  5,214,793    $  6,907,321
Term loan two                                         1,572,648       2,715,048
Term loan three                                       1,240,313       1,791,563
Term loan four                                        1,709,033       1,475,000
Equipment acquisition loan                            1,180,000            --
                                                   ------------    ------------

           Borrowings under term loans               10,916,787      12,888,932

Notes payable                                         1,004,189         914,618
                                                   ------------    ------------
                                                     11,920,976      13,803,550
Less current portion                                (11,043,881)     (3,548,168)
                                                   ------------    ------------
           Total long-term debt                    $    877,095    $ 10,255,382
                                                   ============    ============
          

      Credit Agreement - Under the Company's credit agreement (the  "Agreement")
      with Bank One, Indianapolis,  N.A. ("Bank One"),  substantially all assets
      have been pledged as  collateral.  The  Agreement  also  contains  certain
      financial covenants which require the Company to meet financial ratios and
      tests, including a minimum current ratio, a minimum tangible capital test,
      a maximum  debt to tangible  capital  ratio,  and a minimum  debt  service
      coverage ratio. The Company was in default of substantially  all financial
      ratio covenants as of December 31, 1995.

      On April 30,  1996,  the Company and Bank One  amended  and  extended  the
      Agreement (the "Amended Agreement"). The Amended Agreement established new
      financial ratios and tests which the Company is required to maintain. Bank
      One may, at its sole  discretion,  extend the maturity date of the working
      capital  loans.  The  Amended  Agreement  provides  for the  revision of a
      previously  established  cash  collateral  account,  whereby  the  Company
      deposits all cash into the account to pay down working  capital  loans and
      then draws funds to meet current operating requirements.

                                       9
Under the Amended  Agreement,  the working  capital  loans bear  interest,
      payable monthly,  at Bank One's prime rate, which was 8.5% at December 31,
      1995, plus .75%, and mature on July 31, 1996. ATEC and WATEC may borrow up
      to $3,000,000  and  $1,000,000,  respectively,  under the working  capital
      loans.   Additionally,   the  Agreement  provides  for  annual  short-term
      equipment  acquisition  loans.  On April  30,  1996,  the due date for the
      equipment  acquisition  loan was extended to July 31, 1996.  The equipment
      acquisition loan bears interest at Bank One's prime rate plus 1%.

      Term loan one is due in consecutive monthly principal payments of $116,500
      plus interest,  with the remaining  unpaid principal plus accrued interest
      due March 1, 1998.  The loan bears  interest at Bank One's prime rate plus
      1%.  Term loan two is due in  consecutive  monthly  principal  payments of
      $95,200  plus  interest,  with the  remaining  balances of  principal  and
      interest due on June 1, 1997. The loan bears interest at an annual rate of
      9.51%  through  February  28,  1996 and at Bank  One's  prime rate plus 1%
      thereafter.  Term  loan  three  is due in  consecutive  monthly  principal
      payments of $45,938 plus interest, with the remaining balance of principal
      and interest due on February  28,  1998.  The loan bears  interest at Bank
      One's  prime rate plus 1%.  Term loan four is due in  consecutive  monthly
      principal payments of $41,700 plus interest, with the remaining balance of
      principal and interest due March 15, 1999. The loan bears interest at Bank
      One's prime rate plus 1%.

      The Term loans  contain  provisions  which  permit the bank to  accelerate
      payment terms in the event of  non-compliance  with covenants  included in
      the working capital loan.

      A  $6,000,000  facility  for  letters  of  credit  is  provided  under the
      Agreement  with a 1.5% annual fee on  outstanding  letters of credit (Note
      6). In addition, up to a maximum of $5,000,000 of total indebtedness under
      the  credit  agreement  has been  guaranteed  by the  Company's  principle
      shareholder.

      Notes Payable - The Company's principal  shareholder  advanced the Company
      $750,000  in  September  1994.  The note bears  interest  at 12.0% and the
      principal  and accrued  interest are due on February 1, 1997.  The note is
      subordinated to the interest of Bank One.

      In  connection   with  the   retirement  of  certain   performance   share
      obligations,  a note with a principal  balance of  $254,189  was issued in
      1995.  The first payment of $127,094  plus accrued  interest is due in May
      1996, with the payment of the remaining $127,095 plus accrued interest due
      on May 19, 1997. Interest is payable at the prime rate of Bank One.

6.    LETTERS OF CREDIT

      The Company has  $5,904,353 in letters of credit  outstanding  at December
      31, 1995,  which  collateralize  performance  bonds required under certain
      contracts, certain litigation, and deductibles under workers' compensation
      insurance. They expire in various amounts through November 1996.

7.    PERFORMANCE SHARE OBLIGATION

      The Company  adopted a Performance  Share Plan ("Share Plan")  intended to
      operate for the benefit of key employees of the Company.  At the beginning
      of each fiscal year,  each Share Plan  participant  can elect to receive a
      portion of his bonus  payable under the ATEC  Incentive  Bonus Plan in the
      form of Performance Shares ("Shares"), for which the Company has agreed to
      later pay a formula value per Share,  subject to  adjustment  (see below).
      Except as otherwise determined by the Board, Shares issued in lieu of cash
      bonuses  were  initially  valued at twice the book  value of shares of the
      Company's common stock through  September 30, 1992 and at one and one-half
      times the book value of common stock, thereafter ("Purchase Price").

                                       10
The Company will satisfy the Performance Share Obligation by cash payments
      to  the  Share  Plan   participants   in  the  event  of  the  Share  Plan
      participant's  death,  total disability,  hardship or termination from the
      Company,   or  upon  sale  of  50%  of  the  Company's   common  stock  or
      substantially all of the assets of the Company.

      The value per unit and the right to receive  payment  for Shares held by a
      Share Plan participant are determined as follows:

        Event Causing Unit Redemption          Share Value Determined By

        Death, total disability, hardship      The Share Purchase Price plus or
        or termination                         minus the change in book value
                                               of the common stock of the 
                                               Company from the date of purchase
                                               to the end of the fiscal year
                                               immediately preceding the  event.

        Sale or transfer of more than 50% of   The payment received by the 
        the issued and  outstanding common     Company shareholders for each
        stock of the Company.                  share of the Company.

        Sale of substantially all of the       The payment received by the
        assets of the Company, or the          Company shareholders for each
        liquidation of the Company.            share of the Company.

      Activity in the years ended December 31, 1995 and 1994 and the three
      months ended December 31, 1993  and the
      year ended September 30, 1993 was as follows:

                                                       Performance
                                                       Shares        Obligations

Balance at September 30, 1992                            255,499    $ 1,580,560
  Issued                                                   3,721         72,634
  Redeemed                                               (55,343)      (323,203)
                                                      ----------     ---------- 

Balance at September 30, 1993                            203,877      1,329,991
  Issued                                                  10,677        120,757
  Redeemed                                                (1,061)       (14,517)
                                                      ----------     ---------- 

Balance at December 31, 1993                             213,493      1,436,231
  Cumulative effect of change in accounting method
     (Note 1)                                               --         (470,611)
  Issued                                                    --             --
  Redeemed                                                (6,558)       (43,159)
  Appreciation in share value                               --          217,433
                                                      ----------     ---------- 

Balance at December 31, 1994                             206,935      1,139,894
  Issued                                                  20,805        154,403
  Redeemed                                               (87,211)      (479,542)
  Depreciation in share value                               --         (126,608)
                                                      ----------     ---------- 

Balance at December 31, 1995                             140,529    $   688,147
                                                      ==========    ===========

8.    PERFORMANCE SHARE OPTION PLAN

      Effective May 3, 1995, the Company adopted a Performance Share Option Plan
      ("Option Plan") intended to offer incentives  beyond current  compensation
      to certain  officers and key  employees  responsible  for  furthering  the
      Company's long-term earnings growth.  Performance share options are issued
      at the sole discretion of the Performance Share Option Plan Committee (the
      "Committee").  Under the Plan,  200,000  option  shares are  available for
      grant.  The option price is  determined  by the Committee and for 1995 was
      set at $7.41 per share.  Options are exercisable only upon a "Transfer" of
      ownership  as defined in the Option Plan  agreement.  The options  have no
      stated  expiration date but will expire upon termination of the optionee's
      employment.  No compensation  expense was recorded during 1995,  since the
      options were  granted at fair market  value.  At December 31, 1995,  there
      were 77,250 shares under option at an option price of $7.41 per share.
9.    LEASES

      Minimum annual rental commitments under noncancelable  operating leases at
      December 31, 1995 (primarily for office space) are as follows:

      1996                                                       $    2,642,509
      1997                                                            1,692,026
      1998                                                            1,060,172
      1999                                                              705,190
      2000                                                              302,074
      Thereafter                                                        822,097
                                                                 --------------
                                                                 $    7,224,068
                                                                 ==============

      Total rental expense for the year ended December 31, 1995 and 1994 and the
      three months ended December 31, 1993 and the year ended September 30, 1993
      was $3,404,000, $3,107,000, $775,000 and $3,216,000, respectively.

10.   401(k) PROFIT SHARING PLAN

      The Company  sponsors a defined  contribution  401(k) Profit  Sharing Plan
      ("Plan") covering  substantially all employees.  Annual contributions made
      by the Company to the Plan are strictly discretionary in nature and may be
      discontinued or temporarily  suspended for a definite or indefinite period
      of time. The Company's profit sharing  contributions  are allocated to the
      account  balance  of  each  participant   based  upon  the  ratio  of  the
      participant's  Plan year  compensation to the total Plan year compensation
      of all participants and vest over a six-year period.  There were no profit
      sharing contributions for any of the periods presented.

      During the year ended December 31, 1995, the Company contributed  $331,064
      to the 401(k) portion of the Plan, equivalent to 50% of employees' pre-tax
      contributions,  up to 3% of each employees' pay. These  contributions also
      vest over a six-year period.  Participant  forfeitures aggregating $49,460
      were retained.  The Company's contribution for the year ended December 31,
      1994 was $273,513 with forfeitures of $46,938. The Company's contributions
      to the Plan were $113,850 during the three months ended December 31, 1993.
      During the year ended September 30, 1993, participant forfeitures totaling
      $321,033 were retained to satisfy the Company's contribution to the Plan.
                                       12
11.   LITIGATION

      A lawsuit was filed on April 24, 1991  against the Company in the Superior
      Court of Lake County,  Indiana.  The claim alleged  negligent and careless
      conduct on the part of the Company,  which resulted in permanent  personal
      injuries  being  suffered  by the  plaintiff  as a result of  exposure  to
      hazardous materials while operating equipment at a landfill.  On March 23,
      1995, a trial jury returned a verdict  against the Company and awarded the
      plaintiff  $704,375 in damages.  The Company filed a motion with the Court
      to correct  errors in May 1995 and,  as a result,  the Court  reduced  the
      judgment  against the Company by $70,000.  Since that time,  the plaintiff
      has accepted the  Company's  settlement  offer of $500,000 and such amount
      was paid subsequent to December 31, 1995. The Company has pursued recovery
      of the  settlement  amount  from its  insurance  carrier  and in June 1997
      reached  an  agreement  to recover  $550,000  from the  insurance  carrier
      related to this claim.

      On March 1, 1994,  the Company and another  party were named as defendants
      in a lawsuit  filed in the  Court of Common  Pleas,  Franklin,  Ohio.  The
      plaintiff alleges that the Company negligently  performed an environmental
      site assessment which failed to indicate environmental  contamination that
      has  made  a  mortgage  on  the  property  in the  amount  of $15  million
      worthless.  The Company believes it has a meritorious defense with respect
      to the  lawsuit  and intends to  vigorously  defend the action.  While the
      ultimate  outcome cannot be determined at this time,  management  does not
      believe it will have a material adverse effect on the Company's  financial
      statements.

      By letter  dated  December  12, 1993,  the Company  entered the  Voluntary
      Disclosure Program administered by the U.S. Department of Defense ("DoD").
      The bases of the  disclosure are  allegations  that certain former Company
      employees  paid  unlawful  gratuities  to a federal  government  inspector
      concerning a contract at a federal  government site.  Possible  violations
      involve  the  federal  Anti-Kickback  Act,  federal  criminal  law against
      bribery,  and the federal  civil False  Claims Act.  The Company  retained
      independent  legal  counsel to  undertake  internal  investigation  of the
      matter  and to  prepare a report  for  presentation  to the  Office of the
      Inspector General, DoD. The Company could be responsible for the repayment
      of  any  losses  suffered  by  the  federal   government  related  to  the
      gratuities, fraud or kickbacks. In January 1995, the Company submitted the
      internal  investigation  report to DoD in which it found that the  illegal
      gratuities  had been paid by a former Company  employee.  The Company paid
      the federal government the losses identified in the internal investigation
      report.  The  Company  does not  believe  it has any  additional  monetary
      obligation to the federal government as a result of the matters covered by
      the investigation; however, the federal government accepted the funds with
      the  express   reservation  that  the  acceptance  did  not  constitute  a
      limitation of the Company's liability.  The federal government conducted a
      compliance   audit  of  the  report  in  1995  and  requested   additional
      information  to determine if fines should be levied against the Company or
      if the Company should be suspended from participation in future government
      contracts.  As of June  25,  1997,  the  Company  is  negotiating  a final
      settlement agreement with the DoD which will include the withdrawal of the
      Company  from all federal  government  contracting  work.  The Company has
      historically  derived  approximately  10% of its net service revenues from
      federal government sources.
                                       13
A  complaint  was filed in December  1995  against the Company and another
      party in the Circuit Court of Dade County,  Florida. The plaintiff alleges
      that the  Company  failed to update its report on the  suitability  of the
      foundation material after a substitution in those materials was made. As a
      result of the plaintiff's  reliance on this report,  the materials used in
      the  foundation  were found to be inadequate and the building pad settled,
      resulting in damages.  The Company  believes it has a meritorious  defense
      with respect to the lawsuit and intends to  vigorously  defend the action.
      While the ultimate  outcome cannot be determined at this time,  management
      does not believe it will have a material  adverse  effect on the Company's
      financial statements.

      On December 5, 1996,  the  Company  received  notice of a claim by Western
      Capital  Corporation.  Western  Capital  Corporation's  claim  against the
      Company  arises  from a claim  made  by a third  party.  The  third  party
      allegedly   received   serious  bodily  injuries  during  the  removal  of
      underground storage tanks from Western Capital Corporation's property as a
      subcontracted  employee  of the  Company.  The  Company  believes it has a
      meritorious  defense with respect to the lawsuit and intends to vigorously
      defend the action. While the ultimate outcome cannot be determined at this
      time,  management does not believe it will have a material  adverse effect
      on the Company's financial statements.

      The  Company  has been  named or has  claims  pending  arising  out of the
      ordinary  conduct of its  business.  In the opinion of  management,  these
      matters are adequately covered by insurance, appropriately provided for in
      the accompanying financial statements,  without merit, or are not material
      to the Company's financial statements.

                                       14