ATC ENVIRONMENTAL INC, 10-Q, 1997-07-15

ATC ENVIRONMENTAL INC
10-Q, 1997-07-15
TESTING LABORATORIES

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

FORM 10-Q

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

For the Quarter Ended May 31, 1997

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

Commission File Number: 1-10583

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

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

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

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

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

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

The number of shares outstanding of the Registrant's Common Stock as of July 14,
1997 was 7,804,207.

<PAGE>

ATC GROUP SERVICES INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 31, 1997
<TABLE>
<CAPTION>

PART I - FINANCIAL INFORMATION:
<S> <C>
Item 1 - Financial Statements:

Consolidated Balance Sheets
February 28, 1997 and May 31, 1997 (Unaudited).......................................................... F-3

Consolidated Statements of Operations
Three months ended May 31, 1996 and 1997 (Unaudited).................................................... F-4

Consolidated Statements of Stockholders' Equity
Three months ended May 31, 1996 and 1997 (Unaudited).................................................... F-5

Consolidated Statements of Cash Flows
Three months ended May 31, 1996 and 1997 (Unaudited).................................................... F-6

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

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

PART II - OTHER INFORMATION:

Items 1-6........................................................................................................ F-16

Signatures....................................................................................................... F-17

Exhibit 11 - Computation of Earnings Per Share
Three months ended May 31, 1996 and 1997 (Unaudited)........................................................... F-18

Exhibit 27 - Financial Data Schedule
May 31, 1997 (Unaudited)....................................................................................... F-19

</TABLE>

F-2
<PAGE>

ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1997 AND MAY 31, 1997 (Unaudited)
<TABLE>
<CAPTION>

February 28, May 31,
1997 1997
--------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................................. $ 2,003,890 $ 8,207,157
Trade accounts receivable, less allowance for doubtful accounts
($1,455,716 at February 28, 1997 and $1,340,549 at May 31, 1997)..................... 34,406,026 34,412,368
Costs in excess of billings on uncompleted contracts................................... 5,191,569 6,538,290
Prepaid expenses and other current assets.............................................. 2,934,193 2,581,101
Deferred income taxes.................................................................. 790,400 790,400
Refundable income taxes................................................................ 118,340 -
------------- ------------
Total current assets................................................................. 45,444,418 52,529,316

PROPERTY AND EQUIPMENT, Net (Note C)...................................................... 3,784,633 3,772,795

GOODWILL, net of accumulated amortization
($1,478,876 at February 28, 1997 and $1,858,160 at May 31, 1997) (Note B)............... 35,587,076 43,376,477
COVENANTS NOT TO COMPETE, net of accumulated amortization
($455,316 at February 28, 1997 and $501,631 at May 31, 1997) (Note B)................... 632,184 585,869
OTHER ASSETS.............................................................................. 845,346 3,957,547
------------- ------------
$ 86,293,657 $104,222,004
============= ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt......................................................................... $ 300,000 $ 300,000
Current maturities of long-term debt.................................................... 1,986,730 1,538,642
Accounts payable ....................................................................... 7,440,024 6,728,488
Income taxes payable.................................................................... - 458,132
Accrued compensation.................................................................... 3,789,233 4,883,954
Accrued payment obligations - ATEC acquisition (Note B) ................................ 1,721,594 3,827,301
Other accrued expenses.................................................................. 2,505,143 2,533,279
------------- -------------
Total current liabilities............................................................. 17,742,724 20,269,796

LONG-TERM DEBT, less current maturities................................................... 22,123,344 33,631,454
OTHER LIABILITIES, including non-current payment obligations (Note B)..................... 270,386 2,989,781
DEFERRED INCOME TAXES..................................................................... 717,900 717,900
------------- -------------
Total liabilities..................................................................... 40,854,354 57,608,931
------------- -------------

COMMITMENTS AND CONTINGENCIES (Notes B and D)

STOCKHOLDERS' EQUITY (Note D):
Common stock, par value $.01 per share; authorized 20,000,000 shares; issued
and outstanding 7,800,187 shares at February 28, 1997 and 7,802,987
shares at May 31, 1997................................................................ 78,002 78,030
Additional paid-in capital.............................................................. 28,996,627 28,994,053
Retained earnings....................................................................... 16,364,674 17,540,990
-------------- -------------
Total stockholders' equity......................................................... 45,439,303 46,613,073
-------------- -------------
$ 86,293,657 $ 104,222,004
============== =============
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1996 AND 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Three Months Ended
May 31,
---------------------------------
1996 1997
--------------- --------------
<S> <C> <C>

REVENUES................................................................................... $ 16,645,983 $ 31,374,666
Reimbursable Costs...................................................................... 2,621,578 4,455,833
--------------- --------------

NET REVENUES............................................................................... 14,024,405 26,918,833

COST OF NET REVENUES....................................................................... 6,742,393 14,661,621
--------------- --------------

Gross profit.......................................................................... 7,282,012 12,257,212
--------------- --------------

OPERATING EXPENSES:
Selling................................................................................. 542,582 999,995
General and administrative.............................................................. 3,918,015 8,477,336
Provision for bad debts................................................................. 132,635 377,439
--------------- --------------
4,593,232 9,854,770
--------------- --------------

Operating income...................................................................... 2,688,780 2,402,442

NON-OPERATING EXPENSE (INCOME):
Interest expense........................................................................ 57,326 498,408
Interest income......................................................................... (130,035) (51,783)
Other................................................................................... (10,814) 9,501
--------------- --------------
(83,523) 456,126
--------------- --------------

Income before income taxes............................................................ 2,772,303 1,946,316

INCOME TAX EXPENSE......................................................................... 1,054,000 770,000
--------------- --------------

NET INCOME ................................................................................ $ 1,718,303 $ 1,176,316
=============== ==============

EARNINGS PER COMMON SHARE AND
DILUTIVE COMMON EQUIVALENT SHARE:
Primary............................................................................... $ .20 $ .14
=============== ==============
Fully diluted......................................................................... $ 20 $ .14
=============== ==============

WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Primary............................................................................... 8,581,643 8,400,722
=============== ==============
Fully diluted......................................................................... 8,680,339 8,517,991
=============== ==============
</TABLE>
See notes to consolidated financial statements.

F-4
<PAGE>

ATC GROUP SERVICES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MAY 31, 1996 AND 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Notes
Additional Receivable-
Common Stock Paid-in Common Retained
Shares Amount Capital Stock Earnings Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, February 29, 1996.............. 7,796,577 $ 77,966 $ 29,030,189 $ (45,000) $ 10,129,259 $ 39,192,414

Sale of common stock at $4.13
per share, upon exercise of
stock options and warrants........... 400 4 1,646 - - 1,650
Continuing registration costs applied
against additional paid in capital... - - (1,415) - - (1,415)
Stock received as consideration for
sale of assets....................... (12,320) (123) (51,990) - (72,319) (124,432)
Net income.............................. - - - - 1,718,303 1,718,303
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, May 31, 1996................... 7,784,657 $ 77,847 $ 28,978,430 $ (45,000) $ 11,775,243 $ 40,786,520
============ ============ ============ ============ ============ ============

Notes
Additional Receivable-
Common Stock Paid-in Common Retained
Shares Amount Capital Stock Earnings Total
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, February 28, 1997.............. 7,800,187 $ 78,002 $ 28,996,627 $ - $ 16,364,674 $ 45,439,303

Sale of common stock at $1.88 to
$10.00 per share, upon exercise of
stock options and warrants........... 2,800 28 23,910 - - 23,938
Continuing registration costs applied
against additional paid in capital... - - (26,484) - - (26,484)
Net income.............................. - - - - 1,176,316 1,176,316
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, May 31, 1997................... 7,802,987 $ 78,030 $ 28,994,053 $ - $ 17,540,990 $ 46,613,073
============ ============ ============ ============ ============ ============

</TABLE>
See notes to consolidated financial statements.

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

CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MAY 31, 1996 AND 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Three Months Ended
May 31,
---------------------------------
1996 1997
---------------- ---------------
<S> <C> <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................ $ 1,718,303 $ 1,176,316
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and leasehold amortization............................................. 198,728 239,580
Amortization of goodwill and covenants.............................................. 162,704 425,599
Provision for bad debts............................................................. 132,635 377,439
Other............................................................................... (30,074) (16,338)
Changes in operating assets and liabilities, net of amounts acquired in
acquisitions:
Receivables..................................................................... (2,849,887) (2,062,365)
Prepaid expenses and other assets............................................... (453,025) (115,701)
Accounts payable and other liabilities.......................................... (3,149,254) (2,678,862)
Income taxes payable............................................................ 712,252 458,132
-------------- ---------------
Net cash flows from operating activities............................................ (3,557,618) (2,196,200)
-------------- ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of American Testing and Engineering Corp, net of cash acquired............... (8,965,952) (2,420,766)
Purchase of 3D Information Services, Inc., net of cash acquired....................... (2,926,681) -
Purchase of property and equipment.................................................... (429,435) (256,753)
Other................................................................................. 49,910 19,510
-------------- ---------------
Net cash flows from investing activities............................................ (12,272,158) (2,658,009)
-------------- ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt and notes payable............................ 20,919,941 33,000,000
Proceeds from issuance of common stock, net of expenses............................... 1,650 23,938
Principal payments on long-term debt and notes payable, including
capital lease obligations........................................................... (11,814,927) (21,939,978)
Payments for continuing registration costs............................................ (1,415) (26,484)
-------------- ---------------
Net cash flows from financing activities............................................ 9,105,249 11,057,476
-------------- ---------------

Net change in cash and cash equivalents............................................. (6,724,527) 6,203,267

CASH AND CASH EQUIVALENTS, Beginning of period............................................. 13,469,443 2,003,890
-------------- ---------------

CASH AND CASH EQUIVALENTS, End of period................................................... $ 6,744,916 $ 8,207,157
============== ===============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest.............................................................................. $ 58,190 $ 559,751
============== ===============
Income taxes.......................................................................... $ 356,969 $ 193,529
============== ===============
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

ATC GROUP SERVICES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------

A. GENERAL

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

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

Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These condensed financial statements should be
read in conjunction with the consolidated financial statements and the notes
included in the Company's financial statements for the fiscal year ended
February 28, 1997, which are included in the Company's Annual Report on Form
10-K.

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

Senior Secured Notes - On May 29, 1997, the Company issued $32,500,000
of 8.18% Senior Secured Notes due in annual installments beginning May, 2000,
through May, 2004, to a group of financial institutions. Interest on the Senior
Secured Notes is payable semi-annually on May 31, and November 30, commencing on
November 30, 1997. The Senior Secured Notes are collateralized by accounts
receivable, work-in-process, intangible assets and the Company's primary
depository accounts. The proceeds from the Senior Secured Notes have in part
been utilized to repay the Company's outstanding bridge credit facility.
Accordingly, at February 28, 1997, the Company classified its $20,850,000
outstanding bridge credit facility as long-term debt. The bridge facility was
entered into in May, 1996, to provide capital in connection with the Company's
acquisition of American Testing and Engineering Corporation and 3D Information
Services, Inc.

Bank Credit Agreement - In connection with the Senior Secured Note
offering, the Company executed a credit agreement with the Chase Manhattan Bank
and Atlantic Bank of New York. The credit agreement provides for a $15,000,000
revolving line of credit maturing on November 30, 1999. The borrowings under the
line of credit are collateralized by the Company's cash, accounts receivable,
work in process, and intangible assets on a pari passu basis with the Senior
Secured Note holders. Under the terms of the Note and Credit Agreements, the
Company is required to comply with certain financial and business covenants
including maintaining minimum working capital levels, fixed charge and interest
ratios and restrictions on dividend payments.

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

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

In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings Per Share. SFAS No. 128, which becomes effective for financial
statements of the Company issued for fiscal years ending after December 15,
1997, replaces primary and fully diluted earnings per share, as disclosed under
certain pronouncements, with basic and diluted earnings per share. Pro forma
basic earnings per share for the three months ended May 31, 1996 and 1997 are
$.22 and $.15, respectively. Pro forma diluted earnings per share for the three
months ended May 31, 1996 and 1997 are $.20 and $.14, respectively.
F-7
<PAGE>
Reclassifications - Certain reclassifications have been made to the
prior period's financial statements to conform to the current years
presentation.

B. BUSINESS ACQUISITIONS AND MERGER

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

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

Under the original purchase agreement, the Company was contingently
liable to ATEC for additional purchase consideration up to $10,750,000 if
certain conditions were met. The seller since met certain of these contingent
consideration requirements in the quarter ended May 31, 1997 and the Company
began to amortize the associated goodwill in this period. The Company's
obligation for these payments of $3,883,000 is included in short-term
liabilities at May 31, 1997. In addition, in connection with the issuance of the
Senior Secured Notes on May 29, 1997, the Company and the seller executed an
amendment to the original purchase agreement and agreed to remove or modify the
remaining contingent consideration requirements. As a result of the foregoing,
the Company paid $2,420,766 on May 30, 1997 and expects to be obligated to pay
$2,745,234 in fiscal 1999 and therefore has included this obligation in other
long-term liabilities at May 31, 1997. Additionally, the Company has the option
to purchase certain properties from the seller for $1,700,000 in fiscal 2002.

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

Amounts paid to seller and a majority owner:
Cash.......................................................... $ 9,000,000
Payment obligations, for property and facility
rentals and non-compete consideration..................... 6,001,000
Contingent/additional consideration under amended purchase
agreement................................................. 9,049,000
Liabilities assumed:
Current liabilities.......................................... 15,731,076
Bank debt.................................................... 10,750,000
Direct expenses related to acquisition.......................... 139,438
------------
$ 50,670,514
============
The payment obligations to seller/majority owner are payable monthly
through February 1999 and are included in accrued payment obligations - ATEC
acquisition in the accompanying consolidated balance sheet.

The purchase price allocation reflecting the additional consideration
is summarized as follows:

Accounts receivable and work in process, net of allowances...... $ 18,957,768
Other current assets............................................ 2,023,996
Other assets.................................................... 1,428,617
Covenants not to compete........................................ 430,000
Goodwill ....................................................... 27,830,133
------------
$ 50,670,514
============
As a result of sellers warranties of purchased trade receivables and
work in process that were not realized, the Company is entitled to set-offs of
$618,835 against the option price to acquire certain properties in fiscal 2002.
If the Company does not exercise its option, the set-offs will be refunded by
the seller. Amounts are included in other non-current assets in the accompanying
consolidated balance sheet.

In connection with the purchase agreement, the Company has issued an
irrevocable letter of credit in the amount of $500,000 to secure the Company's
performance of its payment obligations. The letter of credit is renewable by the
seller until such time the Company has paid the purchase obligations in full. No
amounts have been drawn against the letter of credit.

F-8
<PAGE>
3D Information Services, Inc. - On May 28, 1996, ATC purchased certain
assets and assumed certain liabilities of 3D Information Services, Inc. ("3D"),
a New Jersey based information services company providing technical information
consulting services in all phases of information system design, development,
maintenance and management in client server and mainframe based environments.
The purchase price was comprised of the following consideration:

Amounts paid to seller:
Cash......................................................... $ 3,000,000
Note payable................................................. 2,500,000
Assumed liabilities............................................. 247,905
Direct expenses related to acquisition.......................... 23,149
------------
$ 5,771,054
============
The initial purchase price allocation is summarized as follows:

Accounts receivable............................................. $ 1,163,981
Work in process................................................. 279,047
Property and equipment.......................................... 77,381
Other current assets............................................ 77,560
Covenant not to compete......................................... 100,000
Goodwill ....................................................... 4,073,085
------------
$ 5,771,054
Fiscal 1996 ============
Hill Businesses - In November 1995, ATC purchased certain assets and
assumed certain liabilities of Kaselaan & D'Angelo Associates, Inc., Hill
Environmental, Inc. (formerly the environmental division of Gibbs & Hill, Inc.)
and Particle Diagnostics, Inc., wholly owned subsidiaries of Hill International,
Inc. (collectively the "Hill Businesses").

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

Amounts paid to seller:
Cash........................................................ $ 2,517,949
Letter of credit, net of imputed interest (Note E)..... 700,000
Note payable at 8.75% interest (Note E)................ 300,000
Liabilities assumed............................................. 907,884
Direct expenses related to acquisition.......................... 885,538
------------
$ 5,311,371
============

Direct expenses related to acquisition includes costs incurred in order
to obtain proper title to the assets from Sellers bank as described further in
Note D. In addition, the Company issued to certain selling shareholders, 50,000
stock options to purchase restricted common stock at $13.875 per share as
consideration for non compete agreements.

The purchase price allocation is summarized as follows:

Costs in excess of billings on uncompleted contracts,
net of unrealizable amounts.................................. $ 620,000
Property and equipment.......................................... 175,000
Other assets.................................................... 30,572
Covenants not to compete........................................ 37,500
Goodwill........................................................ 4,448,299
------------
$ 5,311,371
============

The Company is contingently liable to reimburse up to $150,000 of
certain facility lease costs if incurred by Hill International, Inc. The payment
of the contingent liability, which the Seller claims is now due, certain other
liabilities and the $300,000 note is being withheld pending the outcome of the
litigation (Note D).

F-9
<PAGE>

Applied Geosciences, Inc. - Effective February 29, 1996, ATC purchased
certain assets and assumed certain liabilities of Applied Geosciences, Inc.
("AGI"), a California based environmental consulting company having offices in
San Diego, Tustin and San Jose, California. The purchase price was comprised of
the following consideration. In addition, AGI will receive contingent
consideration of up to $190,000 subject to actual collections of the purchased
trade receivables in excess of a minimum amount established under the
agreements. As of February 28, 1997 $22,324 of contingent consideration had been
earned and paid.

Cash to seller.................................................. $ 147,546
Contingent consideration earned to date......................... 22,324
Cash to secured creditors of seller............................. 441,514
Liabilities assumed............................................. 225,538
Direct expenses related to acquisition.......................... 31,246
------------
$ 868,168
============
The purchase price allocation is summarized as follows:

Accounts receivable, net........................................ $ 474,973
Property and equipment.......................................... 115,060
Covenants not to compete........................................ 30,000
Goodwill........................................................ 248,135
------------
$ 868,168
============

Pro Forma Financial Information (Unaudited) - The following unaudited
pro forma information sets forth the results of operations of ATC as if ATC's
purchase of significant subsidiaries including ATEC and 3D had occurred on March
1, 1996:
<TABLE>
<CAPTION>
PRO FORMA
Three Months Ended May 31,
-------------------------------
1996 1997
------------- -------------
<S> <C> <C>
Revenues............................................................................ $ 34,768,116 $ 31,374,666
Net income.......................................................................... 2,615,757 1,176,316
Earnings per share (fully diluted).................................................. $ .30 $ .14

Weighted average shares............................................................. 8,680,339 8,517,991
</TABLE>

C. PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following:
<TABLE>
<CAPTION>

February 28, May 31,
1997 1997
------------- -------------
<S> <C> <C>
Office equipment.................................................................... $ 3,339,049 $ 3,436,139
Laboratory and field equipment...................................................... 3,335,721 3,356,402
Transportation equipment............................................................ 207,857 294,701
Leasehold improvements.............................................................. 849,700 864,138
------------- -------------
7,732,327 7,951,380
Less accumulated depreciation....................................................... 3,947,694 4,178,585
------------- -------------
Property and Equipment, net......................................................... $ 3,784,633 $ 3,772,795
============= =============
</TABLE>

F-10
<PAGE>

D. COMMITMENTS AND CONTINGENCIES

Litigation - First Fidelity Bank, N.A., et al v. Hill International,
Inc. et al, Superior Court of New Jersey, Law Division, Burlington County,
Docket No. Bur-L-03400-95, filed December 19, 1995. Irvin E. Richter, et al v.
ATC Group Services Inc., et al, United States District Court, District of New
Jersey, Civ. No. 96 CV 5818 (JBS) filed December 6, 1996. On December 19, 1995,
a second amended complaint was filed in the above-entitled action which joined
the Company as a defendant and included a count against the Company seeking
recovery of certain assets purchased from Hill International, Inc. ("Hill") on
the grounds that plaintiff banks hold security interests in the assets and that
Hill is in default under the security agreement creating such alleged security
interests. The original plaintiffs in this action were First Fidelity Bank, N.A.
and United Jersey Bank, N.A. The primary defendants were Hill and certain of its
subsidiaries, and Irvin Richter, David Richter, Janice Richter and William
Doyle. Irvin Richter and David Richter are officers and stockholders of Hill. In
April 1996, the Company filed a cross-claim against Hill, Irvin Richter and
David Richter alleging breach of contract, fraud, among other allegations and
seeking unspecified damages, including punitive damages and equitable relief. In
August, 1996, Hill and the Richters filed an answer denying ATC's cross claims,
a cross-claim against ATC and a third party claim against certain members of
ATC's management and an employee. The cross claim and third party claim seek
unspecified damages, including punitive damages, for defamation, breach of the
Richters' non-competition agreements and securities fraud. The defamation claim
is based on plaintiff banks' allegation of fraud against Hill and the Richters
in their amended complaint, which Hill and the Richters allege was based on
defamatory statements made by ATC in settlement discussions with the plaintiff
banks. In its answer, the Company both denies that it made defamatory statements
and asserts that the defamation allegations fail to state a legally valid claim.
The breach of contract and securities claims are based on allegations that ATC
made representations concerning a registration rights agreement to be provided
in connection with options issued to the Richters as consideration for their
non-competition agreements. In its answer, the Company denies that an agreement
concerning registration rights was ever reached and asserts that the Richters
forfeited any such rights in any case as a result of their conduct in connection
with the asset purchase. These related cases are in their early stages with
discovery yet to take place. In January, 1997, the plaintiff banks dismissed
their claim against ATC. On December 6, 1996, Hill and the Richters commenced an
action against ATC and the same officers and employees of ATC alleging
essentially the same claims in federal court as in the state action. This action
is entitled Irvin E. Richter et al. v. ATC Group Services, et al., Civ. No.
96-5818(JBS), U.S. District. Court for the District of New Jersey, December 6,
1996. ATC has answered, raising the same defenses and additional defenses
related to the timeliness of the federal claim. This is essentially the same
action as in federal court as the pending state action. The case is currently in
the discovery phase. It does not create a risk of double recovery. In the
Company's opinion, the outcome of this matter will not have a significant effect
on the Company's financial position or future results of operations, although no
assurances can be given in this regard.

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

State of New York Department of Taxation and Finance- The Company has
received a notice of audit from the New York State Department of Taxation and
Finance for the three fiscal years 1993, 1994, and 1995. The agent has issued a
preliminary audit report, which is expected to be the basis of a formal
assessment estimated to be approximately $200,000. The Company is disputing the
agents positions and intends to appeal any assessment if rendered. No assurances
can be given regarding the ultimate liability, if any, which may result.

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

F-11
<PAGE>

E. INDUSTRY SEGMENT DATA

The Company provides services through its environmental consulting and
engineering segment and its information technology consulting segment. Industry
segment data for fiscal 1998 and 1997 are as follows:
<TABLE>
<CAPTION>

Environmental Information Adjustments &
& Engineering Technology Elimination's Total
------------------ ----------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Fiscal 1998

Quarter Ended May 31, 1997
--------------------------
Revenues.............................. $ 29,361,911 $ 2,240,299 $ (227,544) $ 31,374,666
Operating income...................... 2,231,443 170,999 - 2,402,442
Depreciation and amortization......... 230,735 8,845 - 239,580
Capital expenditures.................. 236,266 20,487 - 256,753

Identifiable Assets as of May 31, 1997 $ 101,676,015 $ 5,751,650 $ (3,205,661) $ 104,222,004
--------------------------------------

Fiscal 1997

Quarter Ended May 31, 1996
--------------------------
Revenues.............................. $ 16,498,022 $ 147,961 $ - $ 16,645,983
Operating income...................... 2,670,264 18,516 - 2,688,780
Depreciation and amortization......... 194,766 3,962 - 198,728
Capital expenditures.................. 383,116 - - 383,116

Identifiable Assets as of May 31, 1996 $ 87,209,636 $ 5,845,164 $ (3,001,500) $ 90,053,300
--------------------------------------
</TABLE>

F-12
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES

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

Recent Developments

Senior Debt Offering & Bank Credit Agreement - On May 29, 1997 the Company
issued $32,500,000 of 8.18% Senior Secured Notes in a private placement
offering. The notes are payable in five installments beginning May 31, 2000;
interest is payable semi-annually commencing November 30, 1997. The Company has
the right to prepay the loans at a premium over the outstanding principal. In
connection with the note offering, the Company executed a credit agreement with
the Chase Manhattan Bank and Atlantic Bank of New York. The credit agreement
provides for a $15,000,000 revolving line of credit maturing on November 30,
1999. A portion of the proceeds of the Senior Secured Notes were used to repay
the outstanding borrowings of $21,350,000 as of May 29, 1997 under the Company's
bridge credit facility. The bridge facility was entered into in May, 1996 to
provide capital in connection with the Company's acquisition of American Testing
and Engineering Corporation and 3D Information Services, Inc.

Acquisitions

Fiscal 1997
American Testing and Engineering Corporation - On May 24, 1996, ATC
purchased certain assets and assumed certain liabilities of American Testing and
Engineering Corporation ("ATEC"), a national environmental consulting firm. ATEC
provides environmental consulting and engineering services including risk
assessments, compliance audits, environmental remediation consulting,
geotechnical, materials testing, industrial hygiene and analytical services
through a large network of branch and regional offices.

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

3D Information Services, Inc. - Effective May 28, 1996, ATC purchased
certain assets and assumed certain specified liabilities of 3D Information
Services, Inc. ("3D"), a New Jersey based information services company providing
technical information system consulting services in all phases of information
system design, development, maintenance and management in client server and
mainframe based environments. 3D provides analysis and design services and
system programming services to help clients in building new computer systems and
modifying existing computer systems. 3D also provides support to clients in
maintaining computer systems and in areas such as help desk management and other
system support services. Employees of 3D typically work full-time at a client's
work site. Its clients include major companies in the telecommunications,
financial services and pharmaceutical industries.

Fiscal 1996
Hill International Inc. Environmental Subsidiaries - On November 10,
1995, ATC purchased certain assets and assumed certain liabilities of the
subsidiary companies at Hill International, Inc. that provided environmental
consulting and engineering services (collectively the "Hill Businesses"). These
services include asbestos management, industrial hygiene and indoor air quality
consulting, environmental auditing and permitting, environmental regulatory
compliance, water and wastewater engineering, solid waste and landfill
management, hazardous waste management and analytical laboratory services. The
Hill Businesses operated from facilities located in New York City, Boston and
Willingboro, New Jersey. The Boston and New York offices have been integrated
with ATC's existing operations, and ATC has benefited from other cost-saving
measures taken, including the elimination of certain employees previously with
the Hill Businesses.

Applied Geosciences, Inc. - Effective February 29, 1996, ATC purchased
certain assets and assumed certain liabilities of Applied Geosciences, Inc.
("AGI"). AGI services included environmental and hazardous waste site
assessments, remediation design, air quality management, asbestos services,
litigation support and engineering geology through its offices located in San
Diego, Tustin, and San Jose, California.
F-13
<PAGE>
Results of Operations

Three Months Ended May 31, 1997 Compared with Three Months Ended May 31, 1996
Revenues in the three months ended May 31, 1997 increased 88.5% to
$31,374,666, compared with $16,645,983 in the three months ended May 31, 1996.
This increase was primarily attributable to the positive effect of the
acquisition of ATEC and 3D in May 1996.

Revenues in the three months ended May 31, 1997 from ATC's branch offices
having comparable operations in the three months ended May 31, 1996, when
adjusted to eliminate the effect of a large project, remained apporximately the
same. Actual comparable revenues decreased 11.3% to $11,864,392 compared with
$13,369,254 in the three months ended May 31, 1996 as the prior year revenues
includes $1,430,000 from a large government project. Revenues in the three
months ended May 31, 1997 attributable to the acquisitions of certain assets of
ATEC and 3D totaled $19,509,734.

Reimbursable costs represent direct project expenses billed to
environmental and engineering segment clients. For the three months ended May
31, 1997, reimbursable costs increased 70% to $4,455,833, compared with
$2,621,578 in the three months ended May 31, 1996. Reimbursable costs as a
percentage of revenues decreased to 14.2% for the three months ended May 31,
1997 compared with 15.7% in the three months ended May 31, 1996. The
reimbursable cost percentage for the prior year was higher than normal due to
outside services used to complete the large government project referred to
above. Direct project costs were over 40% of this projects revenues. Excluding
reimbursable costs of this project, reimbursable costs as a percentage of
revenues would have been approximately 13.2%. However, reimbursable costs have
averaged 15.4% following the acquisition of ATEC as ATEC's traditional
consulting services, consisting of drilling and materials testing and
engineering services, utilize higher amounts of outside services and direct
project expenses compared to those consulting services being provided prior to
the acquisition.

Gross profit in the three months ended May 31, 1997 increased 68.3% to
$12,257,212, compared with $7,282,012 in the three months ended May 31, 1996.
Gross margin decreased to 45.5% in the three months ended May 31, 1997, compared
with 51.9% in the three months ended May 31, 1996. ATC's gross margin decreased
because the gross margin for the first quarter of fiscal 1997 benefited from
increased revenue levels and improved employee utilization resulting from the
large project above and from work deferred from the fourth quarter of fiscal
1996 which was adversely impacted from severe winter weather conditions. ATC's
gross profit margin for the last three quarters of fiscal 1997 averaged 42.6%.

Operating expenses in the three months ended May 31, 1997 increased
114.5% to $9,854,770, compared with $4,593,232 in the three months ended May 31,
1996. In the first quarter of fiscal 1997, operating expenses as a percentage of
net revenues was 32.8% which compares favorably to fiscal 1996 where operating
expenses as a percentage of net revenues averaged 36.5%. This improvement was
due to the increased net revenue levels caused by the large government project
and weather factors referred to above without corresponding increases in fixed
and administrative costs. In addition, the acquisition of ATEC completed on
March 24, 1996 changed the Company's operating cost structure, further reducing
operating expenses as a percentage of net revenues. However, since the ATEC
acquisition, the Company has experienced operating cost increases without
corresponding net revenue increases. As a result, for the three months ended May
31, 1997 operating expenses as a percentage of net revenues was 36.6%. Of total
operating expenses, the largest component is employee payroll and related costs.
Employee costs for the three months ended May 31, 1997 were $4,187,830 or 15.6%
of net revenues, up from an average of 12.4% for the first three quarters
following the ATEC acquisition. Other operating costs have increased including
travel, facility, and general administrative costs. Additionally, in the three
months ended May 31, 1997, amortization of goodwill and intangibles increased to
$425,599, compared with $162,704 in the three months ended May 31, 1996
reflecting the additional goodwill amortization resulting from the ATEC and 3D
acquisitions.

Operating income in the three months ended May 31, 1997 decreased 10.6%
to $2,402,442 compared with $2,688,780 in the three months ended May 31, 1996.
Operating income decreased as a percentage of net revenues to 8.9% in the three
months ended May 31, 1997, compared with 19.2% in the three months ended May 31,
1996.

Nonoperating expense in the three months ended May 31, 1997 increased
to $456,126 compared with nonoperating income of $83,523 in the three months
ended May 31, 1996. The change in nonoperating expense (income) is primarily
attributable to increased interest expense due to bank debt outstanding during
the quarter.

Income tax expense in the three months ended May 31, 1997 was $770,000,
compared with $1,054,000 in the three months ended May 31, 1996. During the
three months ended May 31, 1997 and 1996, the Company's effective tax rates were
39.6% and 38.0%, respectively.

As a result of the foregoing, net income in the three months ended May
31, 1997 decreased 31.5% to $1,176,316, or $.14 per share on a fully diluted
F-14
<PAGE>
basis, compared with $1,718,303 or $0.20 per share on a fully diluted basis, in
the three months ended May 31, 1996. The fully diluted weighted average number
of shares outstanding decreased 162,348 shares to 8,517,991 shares primarily due
to lower common stock equivalents resulting from lower common stock prices
off-set by an increase in shares issued from the exercise of options and
warrants. Net income decreased as a percentage of net revenues to 4.4% in the
three months ended May 31, 1997 compared with 12.3% in the three months ended
May 31, 1996.

Liquidity and Capital Resources

At May 31, 1997, working capital was $32,259,520 compared with working
capital of $27,701,694 at February 28, 1997, an increase of $4,557,826. This
increase in working capital is primarily a result of increased cash from the
issuance of the Senior Secured Notes, increases in accounts receivable and
unbilled receivables, offset by increases in accrued payment obligations in
connection with the ATEC acquisition. Primarily as a result of the additional
purchase consideration incurred in May 1997 in connection with the acquisition
of ATEC, the Company's tangible net worth decreased to $2,650,727 at May 31,
1997 from $9,220,043 at February 28, 1997.

During the three months ended May 31, 1997, net cash flows used in
operating activities were $2,196,200 primarily due to the decrease in accounts
payable and other liabilities, a portion of which was related to payments of
liabilities from acquisitions, and an increase in billed and unbilled
receivables. Net cash flows used in investing activities were $2,658,009,
resulting from the additional purchase consideration paid for ATEC and purchases
of property and equipment. Net cash flows provided by financing activities were
$11,057,476, primarily representing the proceeds of the Senior Secured Notes,
less repayment of the outstanding bridge credit facility.

During the three months ended May 31, 1996, net cash flows used in
operating activities were $3,557,618, primarily due to the decrease in accounts
payable and other liabilities, a portion of which was related to payments of
assumed liabilities from acquisitions, and an increase in billed and unbilled
receivables. Net cash flows used in investing activities were $12,272,158,
resulting from the acquisitions of ATEC and 3D and purchases of property and
equipment. Net cash flows provided by financing activities were $9,105,249,
primarily representing the proceeds of the bridge credit facility, less payments
made on long-term debt and notes payable.

Management of the Company believes the proceeds from the issuance of
the Senior Secured Notes after repayment of the bridge credit facility, funds
available from its unused $15,000,000 bank line of credit and cash provided from
operations are adequate to fund current operations including liabilities
incurred in connection with the Company's acquisitions of ATEC and 3D.

The Company may seek to obtain additional public or private equity
financing in the future in order to expand operations, provide funds for future
acquisitions or reduce debt, however no assurance can be given as to the
Company's ability to obtain funds on acceptable terms and conditions.

F-15
<PAGE>

PART II - OTHER INFORMATION

Item 1. Legal Proceedings:
First Fidelity Bank, N.A., et al v. Hill International, Inc. et al,
Superior Court of New Jersey, Law Division, Burlington County, Docket
No. Bur-L-03400-95, filed December 19, 1995. Irvin E. Richter, et al v.
ATC Group Services Inc., et al, United States District Court, District
of New Jersey, Civ. No. 96 CV 5818 (JBS) filed December 6, 1996. On
December 19, 1995, a second amended complaint was filed in the
above-entitled action which joined the Company as a defendant and
included a count against the Company seeking recovery of certain assets
purchased from Hill International, Inc. ("Hill") on the grounds that
plaintiff banks hold security interests in the assets and that Hill is
in default under the security agreement creating such alleged security
interests. The plaintiffs in this action are First Fidelity Bank, N.A.
and United Jersey Bank, N.A. The primary defendants were Hill and
certain of its subsidiaries, and Irvin Richter, David Richter, Janice
Richter and William Doyle. Irvin Richter and David Richter are officers
and stockholders of Hill. In April 1996, the Company filed a
cross-claim against Hill, Irvin Richter and David Richter alleging
breach of contract, fraud, among other allegations and seeking
unspecified damages, including punitive damages and equitable relief.
In August, 1996, Hill and the Richters filed an answer denying ATC's
cross claims, a cross-claim against ATC and a third party claim against
certain members of ATC's management. The cross claim and third party
claim seek unspecified damages, including punitive damages, for
defamation, breach of the Richters' non-competition agreements and
securities fraud. The defamation claim is based on plaintiff banks'
allegation of fraud against Hill and the Richters in their amended
complaint, which Hill and the Richters allege was based on defamatory
statements made by ATC in settlement discussions with the plaintiff
banks. In its answer, the Company both denies that it made defamatory
statements and asserts that the defamation allegations fail to state a
legally valid claim. The breach of contract and securities claims are
based on allegations that ATC made representations concerning a
registration rights agreement to be provided in connection with options
issued to the Richters as consideration for their non-competition
agreements. In its answer, the Company denies that an agreement
concerning registration rights was ever reached and asserts that the
Richters forfeited any such rights in any case as a result of their
conduct in connection with the asset purchase. These related cases are
in their early stages with discovery yet to take place. In January,
1997, the plaintiff bank dismissed their claim against ATC. On December
6, 1996, Hill and the Richters commenced an action against ATC and the
same officers and employees of ATC alleging essentially the same claims
in federal court as in the state action. ATC has answered, raising the
same defenses and additional defenses related to the timeliness of the
federal claim. This is essentially the same action as in federal court
as the pending state action. It does not create a risk of double
recovery. In the Company's opinion, the outcome of this matter will not
have a significant effect on the Company's financial position or future
results of operations, although no assurances can be given in this
regard.

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

Item 2. Changes in Securities:
Not Applicable

Item 3. Defaults Upon Senior Securities:
Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders:
Not Applicable

F-16
<PAGE>

Item 5. Other Information:
Not Applicable

Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
11 - Computation of Earnings Per Share
Three months ended May 31, 1997 (Unaudited)

27 - Financial Data Schedule
May 31, 1997 (Unaudited)

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

SIGNATURES

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

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

Dated: July 15 1997 /s/ MORRY F.RUBIN
------------------- ----------------------
MORRY F. RUBIN,
President and Chief Executive Officer

Dated: July 15, 1997 /s/ RICHARD L. PRUITT
-------------------- ----------------------
RICHARD L. PRUITT,
Vice President and
Principal Accounting Officer

F-17
<PAGE>

ATC GROUP SERVICES INC. AND SUBSIDIARIES EXHIBIT 11

COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED MAY 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended May 31,
-------------------------------
1996 1997
------------- -------------
<S> <C> <C>
Primary earnings per share:
Weighted average number of shares of common stock outstanding...................... 7,788,586 7,801,181

Additional shares assuming exercise of dilutive stock options and stock warrants... 793,057 599,541
------------- -------------

Total average common and common equivalent shares outstanding.................... 8,581,643 8,400,722
============= =============

Net income......................................................................... $ 1,718,303 $ 1,176,316
============= =============

Earnings per common and dilutive common equivalent share........................... $ .20 $ .14
============= =============

Fully diluted earnings per share:
Weighted average number of shares of common stock outstanding...................... 7,788,586 7,801,181

Additional shares assuming exercise of dilutive stock options and stock warrants... 891,753 716,810
------------- -------------

Total average common and common equivalent shares outstanding.................... 8,680,339 8,517,991
============= =============

Net income......................................................................... $ 1,718,303 $ 1,176,316
============= =============

Earnings per common and dilutive common equivalent share........................... $ .20 $ .14
============= =============
</TABLE>

F-18
<PAGE>
ATC GROUP SERVICES INC. AND SUBSIDIARIES EXHIBIT 27

FINANCIAL DATA SCHEDULE
MAY 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

As of
Item Number Item Description May 31, 1997
<S> <C> <C>
-----------------------

5-02(1) Cash and cash items.......................................................... $ 8,207,157
5-02(2) Marketable securities and short-term investments............................. -
5-02(3)a(1) Notes and accounts receivable - trade........................................ 35,752,917
5-02(4) Allowances for doubtful accounts............................................. (1,340,549)
5-02(6) Inventory.................................................................... -
5-02(9) Total current assets......................................................... 52,529,316
5-02(13) Property, plant and equipment................................................ 7,951,380
5-02(14) Accumulated depreciation..................................................... 4,178,585
5-02(18) Total assets................................................................. 104,222,004
5-02(21) Total current liabilities.................................................... 20,269,796
5-02(22) Bonds mortgages and similar debt............................................. 35,470,096
5-02(28) Preferred stock - mandatory redemption....................................... -
5-02(29) Preferred stock - no mandatory redemption.................................... -
5-02(30) Common stock................................................................. 78,030
5-02(31) Other stockholders' equity................................................... 46,535,043
5-02(32) Total liabilities and stockholders' equity................................... 104,222,004

Three months ended
May 31, 1997
-----------------------

5-03(b)1(a) Net sales of tangible products...............................................$ -
5-03(b)1 Total revenues............................................................... 31,374,666
5-03(b)2(a) Cost of tangible goods sold.................................................. -
5-03(b)2 Total costs and expenses applicable to sales and revenues.................... 19,117,454
5-03(b)3 Other costs and expenses..................................................... 9,435,049
5-03(b)5 Provision for doubtful accounts and notes.................................... 377,439
5-03(b)(8) Interest and amortization of debt discount................................... 498,408
5-03(b)(10) Income before taxes and other items.......................................... 1,946,316
5-03(b)(11) Income tax expense........................................................... 770,000
5-03(b)(14) Income continuing operations................................................. 1,176,316
5-03(b)(15) Discontinued operations...................................................... -
5-03(b)(17) Extraordinary items.......................................................... -
5-03(b)(18) Cumulative effect - changes in accounting principles......................... -
5-03(b)(19) Net Income................................................................... 1,176,316
5-03(b)(20) Earning per share - primary.................................................. .14
5-03(b)(20) Earnings per share - fully diluted........................................... .14

</TABLE>
F-19

<PAGE>
<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-30-1997
<CASH> 8,207,157
<SECURITIES> 0
<RECEIVABLES> 35,752,917
<ALLOWANCES> 1,340,549
<INVENTORY> 0
<CURRENT-ASSETS> 52,529,316
<PP&E> 7,951,380
<DEPRECIATION> 4,178,585
<TOTAL-ASSETS> 104,222,004
<CURRENT-LIABILITIES> 20,269,796
<BONDS> 35,470,096
0
0
<COMMON> 78,030
<OTHER-SE> 46,535,043
<TOTAL-LIABILITY-AND-EQUITY> 104,222,004
<SALES> 0
<TOTAL-REVENUES> 31,374,666
<CGS> 0
<TOTAL-COSTS> 19,117,454
<OTHER-EXPENSES> 9,435,049
<LOSS-PROVISION> 377,439
<INTEREST-EXPENSE> 498,408
<INCOME-PRETAX> 1,946,316
<INCOME-TAX> 770,000
<INCOME-CONTINUING> 1,176,316
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,176,316
<EPS-PRIMARY> .14
<EPS-DILUTED> .14

</TABLE>