UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2005
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to


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


	For the quarterly period ended March 31, 2007


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


	For the transition period from to

Commission File Number: 0-24247

Atlantic Express Transportation Corp.

(Exact name of registrant as specified in its charter)

New York		~~13-392-4567~~	13-392-4567
(State or other jurisdiction of incorporation or organization)		~~(IRS Employer Identification No)~~	(IRS Employer Identification No.)

7 7 North Street Staten Island, New York 10302-1205 (Address of principal executive offices)

(~~Address of principal executive offices~~718) 442-7000

(718) 556-8079

(Registrant’s telephone number, including area code)

~~Indicate~~ 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~~ ý Yes No o

~~Indicate~~ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (as defined in Rule 12b-2 of the Exchange Act). ~~Yes o No ý~~

~~Indicate~~ byLarge ~~check~~accelerated ~~mark~~filer Accelerated ~~whether the registrant is a shell company (as defined in Rule 12b~~filer Non-~~2 of~~accelerated ~~the Exchange Act). Yes o No ý~~filer

~~Indicate~~ Indicate by check mark whether the registrant ~~has~~is ~~filed~~a ~~all~~shell ~~documents~~company ~~and~~(as ~~reports required~~defined toin beRule ~~filed~~12b-2 ~~by Section 12, 13 or 15(d)~~ of the ~~Securities~~ Exchange Act ~~of 1934 subsequent to the distribution of securities under a plan confirmed by a court~~). Yes ý No o

~~The~~ ~~number~~Indicate ofby ~~outstanding~~check ~~shares~~mark ofwhether the registrant’s ~~common~~has ~~stock,~~filed ~~$0.01~~all ~~par~~documents ~~value~~and reports required to be filed by Section 12, as 13 or 15(d) of ~~November 9,~~the ~~2005~~Securities ~~was~~Exchange ~~945,263~~Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No

The number of outstanding shares of the registrant’s common stock, par value $0.01 per share, as of May 11, 2007 was 945,263

INDEX

		~~Page No.~~		Page No.
PART I: FINANCIAL INFORMATION		3
Item 1.	~~Financial Statements~~	3	Financial Statements	3
	Consolidated Balance Sheets— September 30, 2005 (unaudited) and June 30, 2005	3
			Consolidated Balance Sheets — March 31, 2007 (unaudited) and June 30, 2006	3
	Consolidated Statements of Operations (unaudited) — Three Months Ended September 30, 2005 and 2004	4
			Consolidated Statements of Operations (unaudited) — Three Months Ended and Nine Months Ended March 31, 2007 and 2006	4
	Consolidated Statements of Cash Flows (unaudited) — Three months Ended September 30, 2005 and 2004	5
			Consolidated Statements of Cash Flows (unaudited) — Nine Months Ended March 31, 2007 and 2006	5
	~~Notes to Consolidated Financial Statements (unaudited)~~	6	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	8	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	~~Quantitative and Qualitative Disclosures about Market Risk~~	14	Quantitative and Qualitative Disclosures about Market Risk	16
Item 4.	~~Controls and Procedures~~	14	Controls and Procedures	16
PART II: OTHER INFORMATION		16
Item 1.	~~Legal Proceedings~~	16	Legal Proceedings	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 1A.			Risk Factors	18
Item 3.	Defaults upon Senior Securities	16
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 4.	Submission of Matters to a Vote of Security Holders	16
Item 3.			Defaults upon Senior Securities	18
Item 5.	Other Information	16
Item 4.			Submission of Matters to a Vote of Security Holders	18
Item 6.	Exhibits and Reports on Form 8-K	16
Item 5.			Other Information	18
Item 6.			Exhibits	18

Table of Contents

PART I.

FINANCIAL INFORMATION

Item I. Financial Statements

Atlantic Express Transportation Corp. and Subsidiaries Consolidated Balance Sheets

Consolidated Balance Sheets


	March 31, 2007				June 30, 2006
	(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	6,180,427			$	501,271
Accounts receivable, net of allowance for doubtful accounts of $1,247,228 and $1,760,310, respectively			59,210,117				46,084,799
Inventories			2,712,792				2,763,901
Assets held for sale			—				6,222,679
Prepaid insurance			30,614,842				34,881,384
Prepaid expenses and other current assets			7,300,064				3,740,504
Total current assets			106,018,242				94,194,538
Property, plant and equipment, at cost, less accumulated depreciation			83,584,130				93,477,922
Other assets:
Restricted cash and cash equivalents			667,675				3,728,146
Restricted marketable securities			—				4,428,627
Transportation contract rights, net			2,776,754				3,162,134
Deferred financing costs, net			3,439,422				6,200,525
Deposits and other non-current assets			10,970,180				8,234,313
Total other assets			17,854,031				25,753,745
TOTAL ASSETS		$	207,456,403			$	213,426,205
Liabilities and Shareholder’s Deficit
Current liabilities:
Current portion of long-term debt		$	14,817,385			$	22,196,184
Current portion of capital lease obligations			1,573,676				1,625,172
Insurance financing payable			6,157,340				4,086,924
Controlled disbursements account—checks issued not funded			2,820,830				2,202,664
Accounts payable, accrued expenses and other current liabilities			26,828,247				26,222,915
Accrued compensation			6,776,359				3,166,608
Current portion of insurance reserves			854,618				1,458,766
Accrued interest			9,513,133				5,429,594
Payable to creditors under the plan of reorganization—current portion			1,310,354				2,128,413
Total current liabilities			70,651,942				68,517,240
Long-term debt, net of current portion			137,942,447				135,885,374
Capital lease obligations, net of current portion			2,309,424				3,340,907
Insurance reserves, net of current portion			261,037				457,434
Deferred income, net of current portion and other long-term liabilities			3,455,355				3,328,464
Deferred state and local income taxes			622,000				622,000
Payable to creditors under the plan of reorganization, net of current portion			1,316,602				1,307,959
Total liabilities			216,558,807				213,459,378
Commitments and contingencies
Shareholder’s deficit:
Common stock, par value $.01 per share, authorized shares 1,303,200; issued and outstanding 945,263			9,453				9,453
Additional paid-in capital			114,939,064				114,939,064
Accumulated deficit			(124,050,921	)			(114,816,797	)
Accumulated other comprehensive loss			—				(164,893	)
Total shareholder’s deficit			(9,102,404	)			(33,173	)
TOTAL LIABILITIES AND SHAREHOLDER’S DEFICIT		$	207,456,403			$	213,426,205

	September 30, 2005			June 30, 2005
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,215,192		$	6,834,961
Accounts receivable, net of allowance for doubtful accounts of $1,734,850 and $1,704,850, respectively	44,468,436			44,831,587
Inventories	3,169,753			2,859,415
Prepaid insurance	28,159,644			31,425,704
Prepaid expenses and other current assets	5,108,055			3,222,345
Due from affiliates , net	277,508			—
Total current assets	82,398,588			89,174,012
Property, plant and equipment, at cost, less accumulated depreciation	120,981,172			129,938,411
Other assets:
Restricted cash and cash equivalents	5,194,260			5,263,733
Restricted marketable securities	4,636,393			4,560,313
Transportation contract rights, net	5,169,228			3,988,048
Deferred financing costs, net	8,894,628			9,586,228
Deposits and other non-current assets	5,037,000			4,494,719
Total other assets	28,931,509			27,893,041
	$	232,311,269		$	247,005,464
Liabilities and shareholder’s equity
Current liabilities:
Current portion of long-term debt	$	24,946,901		$	24,820,652
Current portion of capital lease obligations	1,392,270			1,356,354
Insurance financing payable	2,203,925			3,984,116
Controlled disbursements account—checks issued not funded	2,684,721			4,725,722
Accounts payable, accrued expenses and other current liabilities	26,304,021			24,061,465
Accrued compensation	5,265,092			6,986,704
Current portion of insurance reserves	1,757,774			2,130,008
Accrued interest	8,523,286			4,406,189
Payable to creditors under the plan of reorganization	1,526,133			1,810,085
Total current liabilities	74,604,123			74,281,295
Long-term debt, net of current portion	135,497,098			135,316,642
Capital lease obligations, net of current portion	5,100,298			4,966,079
Insurance reserves, net of current portion	1,179,807			1,179,807
Deferred income, net of current portion and other long-term liabilities	3,142,597			2,415,869
Deferred state and local income taxes	622,000			622,000
Payable to creditors under the plan of reorganization, net of current portion	3,214,648			3,247,270
Total liabilities	223,360,171			222,028,962
Commitments and contingencies
Shareholder’s equity:
Common stock, par value $.01 per share, authorized shares 1,303,200; issued and outstanding 651,600	6,516			6,516
Additional paid-in capital	110,042,001			110,042,001
Accumulated deficit	(101,082,746		)	(85,155,726		)
Accumulated other comprehensive income (loss)	(15,073		)	83,711
Total shareholder’s equity	8,950,698			24,976,502
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	232,311,269		$	247,005,464

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Atlantic Express Transportation Corp. and Subsidiaries Consolidated Statements of Operations (Unaudited)

Consolidated Statement of Operations


	Three Months Ended March 31,								Nine Months Ended March 31,
	2007				2006				2007				2006
Revenues:
School bus operations		$	111,279,929			$	108,126,057			$	276,555,250			$	262,246,458
Paratransit and transit operations			11,151,739				10,919,097				34,624,230				33,604,599
Total revenues			122,431,668				119,045,154				311,179,480				295,851,057
Costs and expenses:
Cost of operations—School bus operations			96,844,422				94,971,415				247,770,364				238,050,642
Cost of operations—Paratransit and transit operations			10,132,696				9,808,928				31,124,510				29,694,952
General and administrative			4,764,776				4,533,122				13,370,447				14,295,953
Depreciation and amortization			4,664,293				9,926,070				13,839,465				21,677,965
Total operating costs and expenses			116,406,187				119,239,535				306,104,786				303,719,512
Income (loss) from operations			6,025,481				(194,381	)			5,074,694				(7,868,455	)
Other expense, net
Interest expense			(6,797,806	)			(6,224,748	)			(20,050,760	)			(19,248,519	)
Reorganization costs			(15,024	)			(70,304	)			(51,495	)			(162,764	)
Other income			73,452				99,056				180,870				294,939
Loss before discontinued operations			(713,897	)			(6,390,377	)			(14,846,691	)			(26,984,799	)
Gain (loss) from discontinued operations			—				—				5,612,567				(2,400	)
Net loss		$	(713,897	)		$	(6,390,377	)		$	(9,234,124	)		$	(26,987,199	)

(Unaudited)

	Three Months Ended September 30,
	2005			2004
Revenues:
School bus operations	$	55,586,660		$	43,304,544
Paratransit and transit operations	11,700,394			11,450,949
Total revenues	67,287,054			54,755,493
Costs and expenses:
Cost of operations—School bus operations	55,789,208			46,833,663
Cost of operations—Paratransit and transit operations	10,164,588			9,842,696
General and administrative	4,629,211			3,920,913
Depreciation and amortization	6,071,880			6,114,369
Total operating costs and expenses	76,654,887			66,711,641
Loss from operations	(9,367,833		)	(11,956,148		)
Other income (expense):
Interest expense	(6,426,707		)	(4,966,204		)
Reorganization costs	(59,236		)	(339,859		)
Other income (loss)	38,080			(479,367		)
Loss before provision for income taxes and discontinued operations	(15,815,696		)	(17,741,578		)
Provision for income taxes	—			36,000
Loss before discontinued operations	(15,815,696		)	(17,777,578		)
Loss from discontinued operations	(1,324		)	(134,495		)
Net loss	$	(15,817,020	)	$	(17,912,073	)

See accompanying notes to consolidated financial statements.

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Atlantic Express Transportation Corp. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)

Consolidated Statement of Cash Flows


	Nine Months Ended March 31,
	2007				2006
Cash flows from operating activities:
Net loss		$	(9,234,124	)		$	(26,987,199	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on sales of marketable securities and investments			67,841				12,840
Depreciation			13,454,084				16,177,691
Fixed asset impairment			—				4,745,137
Amortization			3,272,342				3,580,448
Original issue discount interest			730,611				730,612
Reserve for doubtful accounts receivable			90,000				90,000
Gain on sale of business			(5,868,473	)			—
Loss on sales of fixed assets, net			299,284				1,058,434
Decrease (increase) in:
Accounts receivable			(13,215,318	)			(10,064,580	)
Inventories			51,109				(129,689	)
Prepaid expenses and other current assets			946,194				(4,626,893	)
Deposits and other non-current assets			(2,735,867	)			(3,797,019	)
Increase (decrease) in:
Accounts payable, accrued expenses, accrued compensation and other current liabilities			9,743,447				6,236,324
Controlled disbursement account			618,166				(296,052	)
Insurance financing payable			2,070,416				2,195,646
Payable to creditors under plan of reorganization			(809,416	)			(590,101	)
Insurance reserves and other long-term liabilities			(673,654	)			(946,411	)
Net cash used in operating activities			(1,193,358	)			(12,610,812	)
Cash flows from investing activities:
Additions to property, plant and equipment			(3,783,928	)			(4,597,129	)
Purchase of transportation contract rights			—				(1,678,272	)
Proceeds from sale of business			11,760,113				—
Proceeds from sales of fixed assets			606,707				10,986,495
Decrease in restricted cash and cash equivalents			3,060,471				1,588,980
Purchases of marketable securities			(547,507	)			(3,164,115	)
Proceeds from sales or redemptions of marketable securities			5,072,704				3,032,730
Net cash provided by investing activities			16,168,560			$	6,168,689

~~(Unaudited)~~ Continued

	Three Months Ended September 30,
	2005			2004
Cash flows from operating activities
Net loss	$	(15,817,020	)	$	(17,912,073	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Gain on sales of marketable securities and investments	(5,582		)	(3,277		)
Depreciation	5,379,468			5,825,241
Fixed asset impairment	445,137			—
Amortization	1,175,404			947,188
Original issue discount interest	243,537			169,566
Reserve for doubtful accounts receivable	30,000			30,000
(Gain) loss on sales of fixed assets	(33,648		)	375,667
Decrease (increase) in:
Restricted cash and cash equivalents	—			950,033
Accounts receivable	333,151			6,829,077
Inventories	(310,337		)	(41,594		)
Prepaid expenses and other current assets	1,317,246			(2,140,490		)
Due from affiliates, net	(277,508		)	—
Deposit and other non-current assets	(548,964		)	(196,461		)
Increase (decrease) in:
Accounts payable, accrued expenses, accrued compensation and other current liabilities	4,601,968			8,151,283
Controlled disbursement account	(2,041,000		)	579,761
Insurance financing payable	(1,780,191		)	(1,991,568		)
Payable to creditors under plan of reorganization	(316,574		)	(14,365		)
Insurance reserve and other long-term liabilities	(259,961		)	(433,064		)
Net cash provided by (used in) operating activities	(7,864,874		)	1,124,924
Cash flows from investing activities
Additions to property, plant and equipment	(1,860,523		)	(1,188,098		)
Purchase of transportation contract rights	(1,421,772		)	—
Proceeds from sales of fixed assets	5,778,089			102,445
Increase (decrease) in restricted cash and cash equivalents	69,473			(87,288		)
Purchases of marketable securities	(1,470,702		)	—
Proceeds from sales or redemptions of marketable securities	1,299,708			41,313
Net cash provided by (used in) investing activities	2,394,273			(1,131,628		)
Cash flows from financing activities
Proceeds from (payments of) senior credit facility	$	539,910		$	(2,647,180	)
Proceeds from Senior Secured Notes	—			4,900,000
Distributions to parent company	(110,000		)	(100,000		)
Principal payments on borrowings and capital lease obligations	(344,261		)	(46,747		)
Deferred financing	(234,817		)	(586,526		)
Net cash provided by (used in) financing activities	(149,168		)	1,519,547
Net increase (decrease) in cash and cash equivalents	(5,619,769		)	1,512,843
Cash and cash equivalents, beginning of year	6,834,961			3,741,683
Cash and cash equivalents, end of period	$	1,215,192		$	5,254,526
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	931,867		$	408,361
Income taxes	$	51,892		$	26,220

See accompanying notes to consolidated financial statements.

Table of Contents

Atlantic Express Transportation Corp. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)

Notes to Consolidated Financial Statements


	Nine Months Ended March 31,
	2007				2006
Cash flows from financing activities:
Proceeds (payments) on senior credit facility, net		$	(7,207,715	)		$	322,729
Distribution to parent company			—				(110,000	)
Proceeds from sale of common stock			—				4,900,000
Principal payments on borrowings and capital lease obligations			(1,961,954	)			(2,458,609	)
Deferred financing costs			(126,377	)			(304,999	)
Net cash provided by (used in) financing activities			(9,296,046	)			2,349,121
Net increase (decrease) in cash and cash equivalents			5,679,156				(4,093,002	)
Cash and cash equivalents, beginning of year			501,271				6,834,961
Cash and cash equivalents, end of period		$	6,180,427			$	2,741,959
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	10,774,032			$	11,071,624
Income taxes		$	113,841			$	87,792
Supplemental disclosures of non-cash investing and financing activity:
Loans incurred for purchases of property, plant and equipment		$	590,528			$	461,510

~~1. Basis~~ ofSee ~~Accounting~~accompanying notes to consolidated financial statements.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s financial statements as of and for the year ended June 30, 2005 as filed on the Company’s Special Financial Report on Form 15d-2. In the opinion of management, all adjustments and accruals, (consisting only of normal recurring adjustments) which are necessary for a fair presentation of operating results are reflected in the accompanying financial statements. Operating results for the periods presented are not necessarily indicative of the results for the full fiscal year.

2. Sales and Leaseback Transaction

On July 6, 2005, 201 West Sotello Realty Inc., a subsidiary of the Company, completed the sale and leaseback of its owned real property located in Los Angeles, California. The sale and lease back was pursuant to the Agreement and Escrow Instructions for Purchase of Real Estate (the “Agreement and Escrow Instructions”) with S.R. Partners (the “Buyer”). Pursuant to the Agreement and Escrow Instructions, 201 West Sotello Realty Inc. sold to the Buyer its owned real property located in Los Angeles, California for a gross purchase price of $5,000,000. In connection with the sale of the property, Atlantic Express of L.A. Inc., a subsidiary of the Company, agreed to leaseback the premises from the Buyer for a term of approximately ten years. The triple net lease called for monthly payments of $39,583 with annual increments of 2.5%. Atlantic Express of L.A. Inc. is responsible for all real property taxes and certain insurance costs under the lease. The gain on this transaction was $737,268 and is being amortized over the leaseback period on a straight-line basis.

3. Exchange Offer

On August 3, 2005, the Company announced its offer to exchange up to (i) $105.0 million in aggregate principal amount of its 12% Series B Senior Secured Notes due 2008, which have been registered under the Securities Act of 1933, as amended, for its outstanding unregistered 12% Series A Senior Secured Notes due 2008 and (ii) $10.0 million in aggregate principal amount of its Series B Senior Secured Floating Rate Notes due 2008, which have been registered under the Securities Act of 1933, as amended, for its outstanding unregistered Series A Senior Secured Floating Rate Notes due 2008. On August 31, 2005, Atlantic Express Transportation Corp. announced the successful completion of this exchange offer.

4. New Accounting Standards

There have been no new accounting pronouncements or significant changes to accounting pronouncements during the quarter ended September 30, 2005 that the Company expects will have a material impact on the Company’s financial statements. See Note 2 to Notes to Consolidated Financial Statements included in the Company’s Special Financial Report on Form 15d-2.

5. Employment Agreements

An executive was eligible to receive a performance bonus of $500,000, in relation to the contract with the Department of Education of the City of New York (“DOE”) for 2006. As of September 30, 2005, the Company has paid out $250,000 of this bonus and expects to pay the balance by June 30, 2006.

6. Due from Affiliates

The Company and its affiliates have common insurance policies covering vehicle loss, umbrella, general liability, building and contents and workers compensation. The Company pays the entire premium amounts and charges a pro-rata share of these costs to its affiliates based on a percentage of fleet, revenue, or payrolls of the affiliate to total fleet, revenue or payrolls. The Company also allocates a portion of employee health benefit costs based on a monthly number of covered employees.

Table of Contents

~~7. Purchase~~ ofAtlantic Express Transportation ~~Contract~~Corp. ~~Rights~~and Subsidiaries Notes to Consolidated Financial Statements

~~The Company entered into~~ ~~an agreement on June 17, 2005 to purchase 105 transportation routes (the “Assigned Routes”) pursuant to the DOE contract~~1. On Basis ~~September 15,~~of ~~2005 the transaction was consummated and the~~Accounting ~~Company paid $1,417,500 for the Assigned Routes.~~

8 These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in Atlantic Express Transportation Corp. ~~Subsequent~~’s (the ‘‘Company’s’’) financial statements as of and for the year ended June 30, 2006 as filed on the Company’s Annual Report on Form 10-K. In the opinion of management, all adjustments and accruals (consisting only of normal recurring adjustments), which are necessary for a fair presentation of operating results are reflected in the accompanying financial statements. Operating results for the periods presented are not necessarily indicative of the results for the full fiscal year. ~~Events~~

~~On October 17, 2005,~~ ~~the Company sold 293,663 shares of its common stock, par value $0~~2.01 Sale ~~per share, to Atlantic Express Transportation Group Inc. (“AETG”) for an aggregate purchase price~~ of ~~$4.9 million. The~~Business Company is a wholly owned subsidiary of AETG. AETG obtained $3.7 million of the proceeds of the $4.9 million investment from GSC and $1.2 million from the holder of the Company’s 10% Third Priority Notes due 2008.

On ~~November~~July 227, 2006, ~~2005 the~~T-NT ~~Company~~Bus ~~amended~~Service, ~~its~~Inc., ~~receivable~~a ~~agreement~~subsidiary (of the ~~“Receivable~~Company ~~Agreement”~~(‘‘T-NT’’) ~~with Wachovia Bank~~, ~~National~~completed ~~Association~~the ~~(“Wachovia”), to~~sale ~~sell~~of ~~Wachovia,~~substantially ~~without~~all ~~recourse,~~of upits toassets for a ~~maximum~~gross ~~$8.2~~purchase ~~million~~price ~~(previously~~ of $512.9 6 million). ofIn ~~accounts~~addition, ~~receivable. This~~Domenic ~~increased~~Gatto, ~~amount~~the isCompany’s ~~available~~Chief toExecutive ~~the~~Officer ~~Company~~and ~~from~~President ~~November 2~~received $100, ~~2005~~000 ~~through~~as ~~July 1,~~consideration ~~2006,~~for atentering ~~which~~into ~~time~~a ~~the~~five ~~maximum~~year ~~receivables~~non-competition ~~able~~agreement. ~~to be~~The ~~sold~~Company ~~will~~recognized ~~revert~~a ~~back~~gain toon the sale of these assets of approximately $5.~~9 million.~~6 ~~The~~million, ~~President~~net ~~and~~for ~~Chief~~the ~~Executive~~nine ~~Officer~~months ofended ~~the~~March 31, 2007 ~~Company~~which ~~increased~~is ~~his existing~~included ~~personal~~in ~~guarantee~~gain infrom ~~full~~discontinued ~~support~~operations. The operating results of ~~the~~T-NT ~~agreement~~were ~~and~~not ~~received~~restated ~~an additional~~as ~~$50,000~~discontinued ~~guarantee~~operations ~~fee~~for the prior year periods due to immateriality.

~~On November 22, 2005,~~ ~~Midway Leasing, Inc~~3., PIK ~~(“Midway”) a subsidiary of the Company, entered into~~Interest a Contract of Sale with a third party (the “Purchaser”). Pursuant to the Contract of Sale, Midway has agreed to sell to the Purchaser its owned real property located in Staten Island, New York for a gross purchase price of $4,200,000. In connection with the sale of the property, Midway has agreed to leaseback the premises from the Purchaser for a term of ten years. The triple net lease calls for monthly payments of $29,750 with a 2.0% increase per year, beginning November 30, 2006. The Company will be responsible for all real property taxes and certain insurance costs under the lease.

On September 30, 2006, the Company did not satisfy the maintenance of net leverage test under the Indenture governing its outstanding senior secured notes due 2008 (the ‘‘Notes’’). As a result, the Company is required to pay additional interest at a rate of 2% per annum in the form of payment in kind (‘‘PIK’’) notes. All PIK notes have identical terms as the Notes. The Company is also required to pay the 2% per annum of PIK interest to the holder of its outstanding Third Priority Secured Note. The Company will issue the PIK notes on each remaining semi-annual interest payment date of April 15 and October 15, beginning April 15, 2007.

4. Insurance Collateral Requirements

In December 2006, one of the Company’s insurance carriers released approximately $10.0 million in excess collateral based upon retrospective adjustments for various years. Approximately $5.2 million was a credit issued to the Company and $4.8 million was a reduction in a letter of credit held by the insurance company. This letter of credit was collateralized by restricted cash which is now available for working capital.

5. Reclassification

The statement of operations for the three month and the nine month periods ended March 31, 2006 has been reclassified to reflect amounts relating to the gains or losses on the sale of long lived assets and management fee expense as operating expenses. These amounts were previously reflected in other income (expense). The Company will also reclassify its statement of operations for fiscal 2004 and 2005 to conform to the current presentation when it publishes its financial statements for the fiscal year ending June 30, 2007.

6. New Accounting Standards

In June 2006, the FASB issued Financial Interpretation No. (FIN) 48, ‘‘Accounting for Uncertainty in Income Taxes.’’ FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, ‘‘Accounting for Income Taxes.’’ FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides

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~~Item~~ guidance 2.on ~~Management’s~~derecognizing, ~~Discussion~~classification, interest and ~~Analysis~~penalties, accounting in interim periods, disclosure, and transition. The requirements of ~~Financial~~FIN ~~Condition~~48 are effective for our fiscal year beginning July 1, 2007. We are in the process of evaluating this guidance and ~~Results~~therefore have not yet determined the impact that FIN 48 will have on our financial position or results of ~~Operations~~operations upon adoption.

~~General~~ In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for us beginning July 1, 2008. We are currently assessing the potential impact that the adoption of SFAS No. 157 will have on our financial statements.

~~Atlantic Express Transportation Corp. (“we” or “the~~ ~~Company”) is the fourth largest provider of school bus transportation in the United States and the leading provider in New York City, the largest market in which we operate~~7. Subsequent ~~We have contracts with 112 school districts in New York,~~Events Missouri, Massachusetts, California, Pennsylvania, New Jersey, and Illinois. For fiscal 2006, we have contracts to provide paratransit services in New York to physically and mentally challenged passengers who are unable to use standard public transportation. We also provide other transportation services, including fixed route transit, express commuter line and charter and tour buses through our coach services. As of September 30, 2005, we had a fleet of approximately 6,000 vehicles operating from approximately 45 major facilities.

~~Contracts~~ On ~~with~~May 1, 2007, the Company’s ~~largest~~announced ~~customer,~~that ~~the~~it ~~DOE,~~had ~~were~~priced ~~extended~~a ~~effective~~private ~~July~~offering of $185 1,million ~~2005 for~~aggregate anprincipal ~~additional~~amount ~~five~~of ~~years~~Senior ~~through~~Secured ~~June 30,~~Floating ~~2010~~Rate Notes due 2012. ~~School~~ ~~bus transportation~~The ~~services~~notes ~~accounted~~will ~~for~~be ~~82.6%~~unconditionally ~~and~~guaranteed ~~79.1%~~on ofa ~~our~~senior ~~revenues~~secured ~~from continuing~~basis ~~operations~~by ~~for~~each of the ~~three~~Company’s ~~months~~existing ~~ended~~and ~~September 30,~~future ~~2005~~domestic ~~and 2004~~subsidiaries that are not unrestricted domestic subsidiaries, ~~respectively~~other than certain immaterial subsidiaries. ~~Our~~We ~~school~~will ~~bus~~pay ~~transportation~~interest ~~contracts~~on ~~have~~the ~~provided~~notes in cash at an annual rate equal to six month LIBOR plus a ~~relatively~~ ~~predictable~~margin ~~and~~of ~~stable~~7.250%, ~~stream~~semi-annually on April 15 and October 15 of ~~revenues~~each ~~over~~year, ~~their~~commencing ~~terms~~October 15, 2007. ~~which generally~~The ~~initially~~gross ~~range~~proceeds from ~~one~~the sale, which are expected to ~~five~~be ~~years~~$182.2 million ~~Since~~(after ~~1979~~original issue discount), wewill ~~have~~be ~~achieved substantial~~used ~~contract~~to ~~renewals~~refinance existing indebtedness, ~~which~~including wethe ~~believe~~redemption isof ~~due~~the toCompany’s ~~(1) our reputation~~outstanding ~~for~~12% ~~passenger~~Senior ~~safety~~Secured Notes due 2008 and ~~providing~~Senior ~~efficient,~~Secured ~~on-time~~Floating ~~service,~~Rate ~~(2) our long-standing~~Notes ~~relationships~~due ~~with~~2008 ~~the~~at ~~school~~a ~~districts~~call weprice ~~service~~of 103%, ~~(3)~~or $119.8 ~~the preference~~million, ofThird ~~school~~Priority ~~districts~~Senior toSecured ~~maintain~~Notes ~~continuity~~due of2008, ~~service~~Senior ~~with~~Unsecured ~~their current~~Term ~~proven~~Notes ~~contractor~~due ~~rather~~2008, ~~than~~to ~~risk~~buyout ~~the~~certain ~~uncertainty~~vehicle ~~associated~~operating ~~with~~leases, ~~a replacement~~for general corporate purposes and ~~(4) the~~to ~~disadvantage~~pay ofrelated ~~prospective~~transaction ~~competitors,~~fees ~~who generally~~and ~~would~~expenses. The ~~have~~Company expects to ~~make~~write ~~substantially~~off ~~greater~~$2.8 million ~~investments~~of ~~than~~deferred wefinancing ~~would~~costs and $0.8 million of original issue discount in ~~new~~ ~~equipment~~the ~~and~~fourth ~~who~~quarter ~~may~~of ~~experience~~fiscal ~~difficulty~~2007 ~~obtaining~~relating ~~suitable~~to ~~parking~~the ~~and maintenance~~existing ~~facilities~~indebtedness into ~~our~~be ~~primary~~paid. ~~markets,~~The ~~especially~~closing inof the ~~New~~sale, ~~York greater~~which ~~metropolitan~~is ~~area~~subject to customary conditions, is scheduled for May 15, 2007.

~~The~~ In ~~paratransit~~connection ~~and~~with ~~transit~~the ~~services~~issuance ~~operations accounted~~of ~~for~~the ~~17.4%~~Senior Secured Floating Rate Notes due 2012, we expect to amend and 20restate our senior credit facility to provide up to $35.9%0 of ~~our~~borrowing ~~revenues~~availability ~~from~~under ~~continuing~~a ~~operations~~revolving ~~for the~~credit ~~three~~facility, ~~months~~subject ~~ended~~to ~~September 30~~customary borrowing conditions, ~~2005~~plus ~~and~~$10.0 million ~~2004,~~in ~~respectively~~available letters of credit. The ~~terms~~ amended credit facility will be secured by a first priority lien on substantially all of our ~~paratransit~~ and ~~transit~~our ~~contracts~~subsidiaries’ ~~are~~assets, ~~initially~~other ~~for~~than ~~five~~the ~~years. These~~collateral ~~contracts~~securing ~~are~~the ~~awarded~~Senior bySecured ~~public~~Floating ~~transit~~Rate ~~systems~~Notes ~~through~~due 2012 on a ~~public~~first ~~bidding or~~lien ~~request~~basis. ~~for~~In ~~proposal~~it ~~(“RFP”)~~is ~~process.~~anticipated Wethat ~~are~~the ~~generally~~amended ~~entitled~~credit tofacility ~~a specified~~will ~~charge~~extend ~~per~~the ~~hour~~term of ~~vehicle~~our ~~service~~existing ~~together~~credit ~~with~~facility ~~other~~from ~~fixed~~February 29, 2008 ~~charges~~to December 31, 2011. The ~~method~~minimum ofLTM ~~contract~~EBITDA ~~compensation~~covenant ~~also~~is ~~varies~~expected to be $26.0 million which will only be tested if excess availability falls below certain levels.

~~Results~~ The ofCompany ~~Operations~~and its parent Atlantic Express Transportation Group Inc. (1‘‘AETG’’) have entered into an amended and restated employment agreement, dated as of April 18, 2007, with Domenic Gatto that provides for his continued employment with the Company through December 31, 2009. The term of Mr. Gatto’s employment may be extended each year for a period of one year at the option of the Company. Mr. Gatto was appointed Chief Executive Officer, President and Vice Chairman of the Board under the employment agreement. Mr. Gatto is entitled to receive an annual bonus equal to 15% of his base salary for each fiscal year in which the Company’s adjusted EBITDA exceeds by 10% the projected EBITDA. The annual bonus is increased to 25% of his base salary for each year in which the actual EBITDA exceeds the projected EBITDA by 15%. In the event of a specified change of control of AETG or the Company, Mr. Gatto will receive a cash exit bonus equal to the fair market value of 1.5% to 3.0% based upon the fair market value of the Company’s common shares on a fully diluted basis as of the date of such change of control.

	Three Months Ended September 30,
	2005					2004
	(unaudited)
	(in millions, except percentages)
Revenues	$	67.3		100.0	%	$	54.8		100.0	%
Cost of operations	66.0			98.0	%	56.7			103.5	%
General and administrative	4.6			6.9	%	3.9			7.2	%
Depreciation and amortization	6.1			9.0	%	6.1			11.2	%
Income (loss) from continuing operations	(9.4		)	(13.9	)%	(12.0		)	(21.8	)%
Interest expense	6.4			9.6	%	5.0			9.1	%
Income (loss) before discontinued operations	(15.8		)	(23.5	)%	(17.8		)	(32.5	)%

AETG and the Company have entered into an amended and restated employment agreement, dated as of April 18, 2007, with Nathan Schlenker, which provides for his continued employment with the Company through December 31, 2008. The term of Mr. Schlenker’s employment may be extended

~~(1) All figures are from continuing operations.~~8

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8 each year for a period of one year at the option of the Company. Mr. Schlenker is entitled to receive an annual bonus equal to 15% of his base salary for each fiscal year in which the Company’s adjusted EBITDA exceeds by 10% the projected EBITDA. The annual bonus is increased to 25% of his base salary for each year in which the actual EBITDA exceeds the projected EBITDA by 15%. In the event of a specified change of control of the Company or AETG, Mr. Schlenker will receive a cash exit bonus equal to the fair market value of 0.5% to 1.5% based upon the fair market value of the Company’s common shares on a fully diluted basis as of the date of such change of control.

~~Results of Operations - Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004~~9

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~~Revenues. Revenues from school bus operations were~~ ~~$55.6 million~~Item ~~for the three months ended September 30, 2005 compared to $43~~2.~~3 million~~ Management’s ~~for~~Discussion ~~the three months ended September 30, 2004, an increase of $12.3 million, or 28.4%. This increase was due to $1.4 million of price increases due primarily to the new DOE contract,~~ and ~~service~~Analysis ~~requirement increases (excluding escort revenue)~~ of ~~$5.9~~Financial ~~million~~Condition ~~due primarily to five more revenue days~~ and ~~approximately~~ ~~130~~Results ~~new routes in New York City operations, which include the Assigned Routes (see Note 7~~ of ~~Notes to Consolidated Financial Statements),~~Operations offset by $0.5 million in lost contracts. In addition, under the terms of its current contract with the DOE, the Company receives full reimbursement of all escort costs plus a five percent administrative fee. This change increased revenue by $5.8 million, which included a $1.2 million reimbursement for the July and August health and welfare costs under the current contract with the DOE, which was expensed by the Company. The Company previously expensed these costs equally over the school year (September through June).

~~Revenues from paratransit and transit operations were~~ ~~$11.7 million for the three months ended September 30, 2005 compared~~General to $11.5 million for the three months ended September 30, 2004, an increase of $0.2 million or 2.2%. This increase was due to $1.9 million of price increases and increases in service requirements from existing contracts, partially offset by $1.3 million in lost contracts and $0.4 million of revenue in connection with customer reimbursement of fuel charges for the three months ended September 30, 2004, compared to the three months ended September 30, 2005 when the customer provided its own fuel.

~~Cost~~ Atlantic ofExpress ~~Operations. Cost~~Transportation ~~of operations of school bus operations were $55~~Corp.8 ~~million~~(‘‘we’’ ~~for~~or the ~~three~~‘‘Company’’) ~~months~~is ~~ended September 30, 2005 compared to $46.8 million for~~ the ~~three~~fourth ~~months~~largest ~~ended~~provider ~~September 30, 2004, an increase~~ of ~~$9.0 million~~school orbus ~~19.1%. Salaries~~transportation ~~and~~in ~~wages were $30.1 million for~~ the ~~three~~United ~~months~~States ~~ended~~and ~~September 30, 2005 compared to $25.9 million for~~ the ~~three~~leading ~~months~~provider ~~ended September 30, 2004, an increase of $4.2 million or 16.4%. Salaries and wages increased primarily due to six more payroll days~~ in New York City, inthe ~~September 2005~~largest asmarket ~~compared~~in ~~to September 2004,~~ which ~~increased~~we ~~salaries and wages from school bus operations approximately $3~~operate.3 ~~million,~~We ~~and~~have ~~the~~contracts ~~increase~~with of approximately ~~130~~120 ~~new~~school ~~routes~~districts in New York ~~City~~, ~~which~~Missouri, ~~required~~Massachusetts, ~~additional~~California, ~~drivers~~Pennsylvania, ~~mechanics~~New ~~and operational employees. As a percentage of revenues~~Jersey, ~~salaries~~ and ~~wages decreased to 54~~Illinois.2% ~~for~~For ~~the~~fiscal ~~three months ended September 30~~2007, ~~2005,~~ ~~from~~we ~~59.8%~~have ~~for~~contracts ~~the~~to ~~three~~provide ~~months~~paratransit ~~ended~~services ~~September 30,~~in ~~2004. Employee~~New ~~fringe~~York benefits increased $2.6 million including $1.5 million of employee fringe benefits which were escort costs that were reimbursable from the DOE (see above). The balance of the increase was due primarily to ~~increases~~physically ~~in worker compensation costs~~ and ~~increased~~mentally ~~payroll~~challenged ~~taxes. As~~passengers awho ~~percentage~~are ofunable ~~revenues,~~to ~~employee~~use ~~fringe benefits~~standard ~~increased~~public ~~to 17~~transportation.8% ~~for~~We ~~the~~also ~~three~~provide ~~months~~other ~~ended~~transportation ~~September 30~~services, ~~2005, from~~including ~~16.8%~~fixed ~~for~~route ~~the three months ended September 30~~transit, ~~2004.~~express ~~Fuel~~commuter ~~expense, due~~line toand ~~higher~~charter ~~fuel prices~~ and ~~extra~~tour ~~consumption~~buses ~~based~~through onour ~~additional~~coach ~~revenue days in the current quarter, increased $1~~services.2 ~~million~~As ~~and~~of ~~vehicle lease expense increased $0.7 million for the three months ended September~~March 3031, ~~2005, compared to the three months ended September~~ 302007, ~~2004. As~~we had a ~~percentage~~fleet of ~~revenues~~approximately 5,700 ~~cost~~vehicles ~~of operations~~operating ~~decreased to 100.4% for the three months ended September 30, 2005,~~ from ~~108.1%~~approximately ~~for the three months ended September~~60 ~~30, 2004~~facilities.

~~Cost~~ School ofbus ~~operations~~transportation ofservices ~~paratransit~~accounted ~~and~~for ~~transit operations~~88.9% ~~were~~and ~~$10~~88.~~2 million~~6% of our revenues from continuing operations for the ~~three~~nine months ended ~~September~~March 3031, ~~2005~~ 2007 ~~compared~~and to2006, $9respectively.~~8 million~~ ~~for~~Our ~~the~~school ~~three~~bus ~~months~~transportation ~~ended~~contracts ~~September 30, 2004,~~have anprovided ~~increase~~a relatively predictable and stable stream of ~~$0.3 million~~revenues orover 3their terms, which generally initially range from one to five years.~~3%.~~ ~~This~~Since ~~increase~~1979, ~~was~~we ~~primarily~~have achieved substantial contract renewals, which we believe is due to an(1) our ~~increase~~reputation infor ~~salaries~~passenger safety and ~~wages~~providing ~~and~~efficient, ~~employee~~on-time ~~fringe~~service, ~~benefits~~(2) our oflong-standing ~~$0.4 million~~relationships with the school districts we service, ~~partially~~(3) the ~~offset~~preference byof ~~lower~~school ~~fuel~~districts ~~expense~~to maintain continuity of ~~$0.2~~service ~~million,~~with ~~due~~their tocurrent ~~a customer~~proven ~~providing~~contractor ~~its~~rather ~~own~~than ~~fuel. As~~risk the uncertainty associated with a ~~percentage~~ replacement and (4) the disadvantage of ~~revenues~~prospective competitors, ~~salaries~~who ~~and~~generally ~~wages~~would ~~increased~~have to ~~49.9%~~make ~~for~~substantially ~~the~~greater ~~three months~~investments ~~ended~~than ~~September 30,~~we ~~2005,~~would ~~from~~in ~~48.7%~~new ~~for~~equipment ~~the~~and ~~three~~who ~~months~~may ~~ended~~experience ~~September 30~~difficulty obtaining suitable parking and maintenance facilities in our primary markets, ~~2004~~ especially in the New York City greater metropolitan area.

~~General~~ Paratransit and ~~administrative~~transit ~~expenses. General~~services ~~and~~accounted ~~administrative~~for ~~expenses from school bus operations were $4~~11.1% ~~million~~and ~~for~~11.4% ~~the~~of ~~three~~our ~~months~~revenues ~~ended~~from ~~September 30, 2005~~continuing ~~compared~~operations ~~to $3.3 million~~ for the ~~three~~nine months ended ~~September~~March 3031, ~~2004,~~ 2007 anand ~~increase~~2006, ~~of $0~~respectively.8 ~~million~~The orterms ~~22.9%.~~of ~~This~~our ~~increase~~paratransit ~~was~~and ~~primarily~~transit ~~due~~contracts ~~to increases~~generally inare ~~administrative~~initially ~~payroll,~~for ~~primarily~~five $0years.5 ~~million~~These incontracts aare ~~performance bonus~~awarded ~~(see~~by ~~Note~~public 5transit ofsystems ~~Notes~~through toa ~~Consolidated~~public ~~Financial~~bidding ~~Statements)~~or ~~and~~request ~~increases in~~for ~~professional~~proposal ~~fees~~(‘‘RFP’’) ~~of $0~~process.3 ~~million. As a~~We ~~percentage~~are ofgenerally ~~school~~entitled ~~bus operations revenues, general and administrative expenses decreased~~ to ~~7.4%~~a ~~for~~specified ~~the~~charge ~~three~~per ~~months~~hour ~~ended~~of ~~September 30,~~vehicle ~~2005, from~~service ~~7.7%~~together ~~for~~with ~~the~~other ~~three~~fixed ~~months ended and September 30, 2004~~charges.

~~General and administrative expenses from paratransit~~ ~~and~~Results ~~transit operations were $0.5 million for the three months ended September 30, 2005 compared to $0.6 million for the three months ended September 30, 2004, a decrease~~ of ~~$0.~~Operations(1 ~~million or 9.0%. This decrease was primarily due to~~) reductions in administrative payroll and fringe benefits as a result of a lost contract. As a percentage of paratransit and transit operations revenues, general and administrative expenses decreased to 4.6% for the three months ended September 30, 2005, from 5.2% for the three months ended September 30, 2004.

Depreciation and amortization. Depreciation and amortization expense from school bus operations was $5.7 million for the three months ended September 30, 2005 compared to $5.6 million for the three months ended September 30, 2004, an increase of


	Three Months Ended March 31,												Nine Months Ended March 31,
	2007						2006						2007						2006
	(unaudited)												(unaudited)
	(in millions, except percentages)
Revenues		$	122.4		100.0	%		$	119.0		100.0	%		$	311.2		100.0	%		$	295.9		100.0	%
Cost of operations			107.0		87.4	%			104.8		88.1	%			278.9		89.6	%			267.7		90.5	%
General and administrative			4.8		3.9	%			4.5		3.8	%			13.4		4.3	%			14.3		4.8	%
Depreciation and amortization			4.7		3.8	%			9.9		8.3	%			13.8		4.5	%			21.7		7.3	%
Income (loss) from operations			6.0		4.9	%			(0.2	)	(0.2	)%			5.1		1.6	%			(7.9	)	(2.7	)%
Interest expense			6.8		5.6	%			6.2		5.2	%			20.1		6.4	%			19.2		6.5	%
Income (loss) before discontinued operations			(0.7	)	(0.6	)%			(6.4	)	(5.4	)%			(14.8	)	(4.8	)%			(27.0	)	(9.1	)%

9(1) All figures are from continuing operations.

~~$0.1 million, or 2.1%. This increase was primarily due to $0.4~~ ~~million~~Results of ~~impairment~~Operations to– ~~fixed~~Three ~~assets,~~Months ~~partially~~Ended ~~offset~~March 31, 2007 byCompared ~~$0.3~~to ~~million~~Three ~~of lower~~Months ~~depreciation~~Ended ~~expense as some of the equipment is now fully depreciated.~~March 31, 2006

~~Depreciation~~ Revenues. Revenues ~~and amortization expense~~ from ~~paratransit and~~school ~~transit~~bus operations ~~was~~were $0111.3 million for the three months ended ~~September~~March 3031, ~~2005~~ 2007 compared to $0108.51 million for the three months ended ~~September~~March 3031, ~~2004~~ 2006, aan ~~decrease~~increase of $03.2 million, or 322.19%. This ~~decrease~~increase was due to ~~lower depreciation~~$3.8 million ~~expense~~of asprice ~~some~~increases and $2.9 million of ~~the~~service ~~equipment~~requirement isincreases ~~now~~due ~~fully~~primarily ~~depreciated~~to approximately 140 new routes in New York City operations that started February 22, 2006 offset by $2.9 million in sold contracts and $0.6 million in lost contracts.

~~Operating income (loss) from operations. Operating loss from school bus operations was $~~10.0 million for the three months ended September 30, 2005 compared to $12.5 million loss for the three months ended September 30, 2004, a decrease in loss of $2.5 million, or 19.6%, due to the net effect of the items discussed above.

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~~Operating~~ Revenues ~~income~~ from paratransit and transit operations ~~was~~were $011.72 million for the three months ended ~~September~~March 3031, ~~2005~~ 2007 compared to $010.59 million for the three months ended ~~September~~March 3031, ~~2004~~ 2006, an increase of $0.1 2 million, or 272.81%, due to ~~the~~price ~~net~~increases ~~effect~~and ofincreases ~~the~~in ~~items discussed~~service ~~above~~requirements from existing contracts.

~~Interest~~ Cost ~~expense~~of Operations. ~~Interest~~ Cost ~~expense~~of ~~from~~operations ~~continuing~~of school bus operations ~~was~~ were $696.4 8 million for the three months ended ~~September~~March 3031, 2007 ~~2005~~ compared to $595.0 million for the three months ended ~~September~~March 3031, ~~2004~~ 2006, an increase of $1.59 million, or 292.40%. ~~The~~As ~~increase~~a ~~was~~percentage ~~primarily~~of ~~due~~revenues, cost of operations decreased to $87.0% from 87.~~6 million~~8% infor ~~interest~~the ~~expense~~three onmonths ~~our~~ended ~~$15~~March 31, 2006.0 Salaries and wages were $52.5 million offor ~~10%~~the ~~third~~three ~~priority~~months ~~senior secured~~ended ~~notes~~March 31, 2007 ~~due~~compared ~~2008~~to ~~(the~~$51.3 million ~~“Additional~~for ~~Indebtedness”),~~the ~~issued~~three inmonths ended March ~~2005~~31, a 2006, an increase of $01.3 2 million or 2.4%. This increase was primarily due to more employees needed to service additional routes in ~~interest~~New ~~expense~~York onCity. ~~our~~As ~~senior~~a ~~credit~~percentage ~~facility~~of revenues, ~~due primarily~~salaries and wages decreased to ~~higher~~47.2% ~~interest~~from ~~rates,~~47.4%. ~~and~~Vehicle alease expense increased by $01.3 4 million ~~increase~~as inthe ~~deferred financing~~Company ~~expenses~~continues to finance its vehicle requirements through the use of operating leases.

~~Reorganization~~ Cost ~~costs. Reorganization~~of ~~costs~~operations of paratransit and transit operations were $010.1 2 million for the three months ended ~~September~~March 3031, 2007 ~~2005~~ compared to $09.38 million for the three months ended ~~September~~March 3031, ~~2004~~ 2006, aan ~~reduction~~increase of $0.3 million, or 873.3%. This increase was primarily due to an increase in salaries and wages and employee fringe benefits of $0.5 million offset partially by a decrease in liquidated damages of $0.2 million. As a percentage of revenues, salaries and wages increased to 51.9% from 51.6% for the three months ended March 31, 2006. As a percentage of revenues, cost of operations increased to 90.9% from 89.8% for the three months ended March 31, 2006.

~~Loss before provision for income~~ ~~taxes~~General and ~~discontinued~~administrative ~~operations~~expenses. ~~Due~~ General toand ~~the~~administrative ~~net~~expenses ~~effect~~from ofschool ~~the~~bus ~~items~~operations ~~discussed above~~were we$4.0 million ~~experienced~~for athe ~~loss~~three ~~before~~months ~~provision~~ended ~~for~~March 31, 2007 ~~income~~compared ~~taxes~~to ~~and discontinued operations of~~ $153.89 million for the three months ended ~~September~~March 3031, ~~2005~~ 2006, ~~compared~~an toincrease ~~a loss~~ of $170.7 1 million ~~for~~or ~~the~~2.5%. ~~three~~This ~~months~~increase ~~ended~~was ~~September 30, 2004,~~primarily due to a ~~decrease~~$0.4 million increase in ~~loss~~professional offees partially offset by $10.92 million decrease in administrative payroll and fringe benefits. As a percentage of revenues, general and administrative expenses decreased to 3.6% from 3.7% for the three months ended and March 31, 2006.

~~Income (loss) from discontinued~~ ~~operations. We experienced~~General aand ~~minimal~~administrative ~~loss~~expenses from ~~discontinued~~paratransit and transit operations were $0.7 million for the three months ended ~~September~~March 3031, 2007 ~~2005~~ compared to a$0.6 million ~~loss~~for ~~from~~the ~~discontinued~~three ~~operations~~ months ended March 31, 2006, an increase of $0.1 million or 22.9%. This increase was primarily due to an increase in administrative payroll and fringe benefits. As a percentage of revenues, general and administrative expenses increased to 6.4% from 5.3% for the three months ended ~~September~~March 3031, ~~2004~~ 2006.

~~Liquidity~~ Depreciation and ~~Capital~~amortization. Depreciation ~~Resources~~and amortization expense from school bus operations was $4.3 million for the three months ended March 31, 2007 compared to $9.5 million for the three months ended March 31, 2006, a decrease of $5.2 million, or 54.8%. This decrease was primarily due to a $4.3 million impairment charge on fixed assets for the three months ended March 31, 2006 and the Company having $0.9 million of lower depreciation expense as some of the assets are now fully depreciated.

~~The statements regarding the~~ ~~Company’s~~Depreciation ~~anticipated capital expenditures~~ and ~~service~~amortization ~~requirements~~expense ~~are~~from ~~“forward looking”~~paratransit ~~statements~~and ~~which~~transit ~~involve~~operations ~~unknown~~was ~~risks~~$0.4 million ~~and~~for ~~uncertainties, such as~~ the ~~Company’s~~ ~~ability~~three tomonths ~~meet~~ended orMarch 31, 2007 ~~exceed its growth plans~~ and~~/or~~ ~~available financing,~~for ~~which~~the ~~may~~three ~~cause~~months ~~actual~~ended ~~capital expenditures to differ materially from currently anticipated amounts~~March 31, 2006.

On Income ~~September 15,~~(loss) ~~2005,~~from ~~the~~operations. Income ~~Company~~from ~~purchased~~ school bus operations was $16.4 1 million offor ~~transportation~~the ~~contract~~three ~~rights,~~months ~~whereby~~ended ~~they~~March 31, 2007 ~~were~~compared ~~assigned~~ to ~~service~~ ~~105~~a ~~additional~~loss ~~routes~~of $0.3 million for the ~~DOE~~three ~~(see~~months ~~Note~~ended 7March 31, 2006, an increase of ~~Notes~~$6.4 million, due to ~~Consolidated~~ ~~Financial~~the ~~Statements)~~net effect of the items discussed above.

~~On November 2,~~ ~~2005~~Loss ~~the~~from ~~Company~~paratransit ~~amended~~and ~~its~~transit ~~receivable~~operations ~~agreement~~was ~~with Wachovia, to sell Wachovia, without recourse, up to a maximum~~ $80.2 1 million ~~(previously~~for ~~$5.9 million) of accounts receivable. This increased amount is available to~~ the ~~Company~~ ~~from~~three ~~November 2,~~months ~~2005~~ended ~~through July~~March 131, 2007 ~~2006,~~compared ~~at which time the maximum receivables~~ to beincome ~~sold~~of ~~will revert back to the~~ $50.9 1 million~~. The~~ ~~President~~for ~~and Chief Executive Officer of~~ the ~~Company~~three ~~increased~~months ~~his~~ended ~~existing personal guarantee in full support of the agreement and received an additional $50~~March 31,~~000 guarantee fee. As of November~~ 212006, ~~2005,~~a ~~the~~decrease ~~Company~~of ~~had~~ $40.6 2 million, ofdue ~~sold~~to ~~receivables~~the ~~and~~net ~~received~~effect ~~cash proceeds~~ of ~~$3.7~~the ~~million, net~~items ofdiscussed ~~applicable commissions~~above.

~~The Company believes that it will have sufficient~~ ~~minimum~~Interest ~~LTM~~expense. Interest ~~EBITDA~~expense ~~computed~~from ~~quarterly~~continuing tooperations ~~meet~~was ~~the EBITDA maintenance covenant of~~ $276.0 8 million infor the ~~indenture~~three ~~governing~~months ~~its~~ended ~~12% Senior Secured Notes due 2008 and its Senior Secured Floating Rate Note due 2008 (collectively~~March 31, 2007 ~~the~~compared ~~“Notes”) at~~to ~~June~~$6.2 ~~30,~~million ~~2006. However,~~for ~~based on current projections,~~ the ~~Company~~three ~~may~~months ~~not~~ended ~~have sufficient LTM EBITDA computed quarterly to meet the EBITDA maintenance covenant of $23.0 million at~~ March 31, 2006, ~~and~~ ~~the~~an ~~EBITDA~~increase ~~maintenance covenant~~of ~~at September~~$0.6 30million, ~~2006~~or ~~of $31~~9.~~0 million~~2%. The ~~Company~~increase ~~believes~~was ~~that if~~primarily ~~these~~due ~~EBITDA shortfalls should occur, it will be able~~ to ~~obtain~~$0.6 million ain ~~waiver~~payment ~~of these~~in ~~covenants~~kind ~~from~~(‘‘PIK’’) ~~the~~interest ~~requisite~~due ~~percentage~~to ~~of bondholders. As~~ the Company ~~believes~~ ~~that~~not itsatisfying isthe ~~probable~~maintenance ~~that it can obtain such a waiver prior to such circumstance becoming an event~~ of ~~default~~net ~~under~~leverage ~~the~~test ~~indenture~~on ~~(including~~September 30, 2006 ~~if necessary,~~under the ~~applicable~~Indenture ~~grace~~governing ~~period),~~its itoutstanding ~~has~~senior ~~not~~secured ~~reclassified the long–term~~ notes todue ~~short~~2008 ~~term~~(the ~~at September 30, 2005~~‘‘Notes’’).

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~~The Company operates a fleet of approximately 6,000~~ ~~vehicles~~Loss asbefore ofdiscontinued ~~September 30, 2005 and consumes substantial quantities of fuel for its~~ operations. Due ~~Based~~to on the ~~Company’s~~net ~~current~~effect ~~operations, an increase in fuel costs~~ of ~~ten~~the ~~cents~~items ~~per~~discussed ~~gallon~~above ~~will~~we ~~increase~~experienced ~~its~~a ~~cost of fuel purchased by approximately~~ $1.0 .7 million onloss anbefore ~~annual~~discontinued ~~basis.~~operations ~~The Company’s gross price~~ for ~~diesel~~ ~~fuel~~the inthree ~~its~~months ~~largest~~ended ~~consumption~~March 31, ~~area~~2007, ~~New~~compared ~~York~~to ~~City,~~a ~~was~~loss ~~approximately~~ of $36.154 million ~~per~~for ~~gallon~~the atthree ~~September 30,~~months ~~2005~~ended ~~and on November~~March 1531, 2006, ~~2005~~a ~~the price~~decrease ~~per~~in ~~gallon~~loss ~~was~~of ~~approximately~~ $25.~~50 per gallon~~7 million.

~~The Company anticipates total~~ ~~capital~~Results ~~expenditures~~ of ~~approximately~~Operations ~~$6.0~~– ~~million~~Nine ~~(primarily~~Months ~~non-vehicle capital~~Ended ~~expenditures) in fiscal 2006, of which $1.8 million of capital expenditures were made in the three months ended September~~March 3031, ~~2005. The Company expects to meet its new vehicle requirements for fiscal 2006 by leasing these vehicles. Vehicle lease expense increased $0.7 million for the three months ended September~~ ~~30, 2005,~~2007 ~~compared~~Compared to ~~the~~Nine ~~three~~Months ~~months~~Ended ~~ended September~~March 3031, ~~2004.~~ 2006

~~On July 6, 2005, 201 West Sotello Realty Inc., a~~ ~~subsidiary of the Company, completed the sale and leaseback of its owned real property located in Los Angeles, California~~Revenues. ~~The~~ Revenues ~~sale~~from ~~and~~school ~~lease~~bus ~~back~~operations ~~was pursuant~~were ~~to the Agreement and Escrow Instructions for Purchase of Real Estate (the “Agreement and Escrow Instructions”) with S~~$276.~~R. Partners (the “Buyer”).~~6 ~~Pursuant~~million tofor the ~~Agreement~~nine ~~and~~months ~~Escrow~~ended ~~Instructions~~March 31, 2007 ~~201~~compared ~~West~~to ~~Sotello Realty Inc~~$262. ~~sold~~2 million tofor the ~~Buyer~~nine ~~its~~months ~~owned~~ended ~~real property located in Los Angeles~~March 31, 2006, ~~California for~~an aincrease ~~gross purchase price~~ of $~~5,000,000~~14. ~~In connection with the sale of the property~~3 million, ~~Atlantic~~or ~~Express of L~~5.A5%. ~~Inc.,~~This aincrease ~~subsidiary~~was ofdue ~~the Company, agreed~~ to ~~leaseback the premises from the Buyer for a term of approximately ten years. The triple net lease calls for monthly payments of~~ $~~39,583 with annual increments of 2~~9.~~5%. Atlantic~~8 million ~~Express~~ of ~~L.A.~~price ~~Inc.~~increases ~~is responsible for all real property taxes~~ and ~~certain insurance costs under the lease~~$12. ~~The~~8 million ~~gain on this transaction~~ of ~~$737,268~~service ~~is being~~requirement ~~amortized~~increases ~~over~~due ~~the~~primarily ~~leased~~to ~~period~~five onmore arevenue ~~straight-line~~days ~~basis~~($5.0 million) ~~The~~and ~~indenture~~approximately ~~governing~~140 ~~the~~new ~~Notes~~routes ~~limits,~~in ~~but does~~New ~~not~~York ~~prohibit,~~City ~~the~~operations ~~Company~~that ~~from~~started ~~selling assets~~February 22, 2006 ~~including~~($6.0 million) ~~assets constituting~~offset ~~collateral~~by ~~securing the Notes~~$7.0 million ~~This transaction was made~~ in ~~compliance~~ ~~with~~sold ~~the~~contracts ~~asset~~and ~~sale~~$1.3 million ~~covenant~~in oflost ~~the indenture governing the Notes~~contracts.

~~On October 17, 2005, the Company sold 293,663~~ ~~shares~~Revenues offrom ~~its~~paratransit ~~common~~and ~~stock,~~transit ~~par~~operations ~~value~~were $34.016 million ~~per~~for ~~share,~~the tonine ~~AETG,~~months ~~for~~ended anMarch 31, 2007 ~~aggregate purchase~~compared ~~price~~to of $433.9 6 million. ~~The~~for ~~Company~~the isnine amonths ~~wholly~~ended ~~owned~~March 31, 2006, ~~subsidiary~~an increase of ~~AETG.~~ ~~AETG obtained~~ $31.7 0 million ofor ~~the $4~~3.90% ~~million~~due ~~investment~~to ~~from~~price ~~GSC~~increases and ~~$1.2 million~~increases ~~from~~in ~~the~~service ~~holder~~requirements offrom ~~the~~existing ~~Additional Indebtedness~~contracts.

On Cost ~~November 22,~~of ~~2005,~~Operations. Cost ~~Midway~~of ~~entered~~operations ~~into~~of ~~a Contract~~school ofbus ~~Sale~~operations ~~with~~were $247.8 million for the ~~Purchaser.~~nine months ended March ~~Pursuant~~31, 2007 compared to $238.1 million for the ~~Contract~~nine ofmonths ~~Sale~~ended March 31, 2006, ~~Midway~~an ~~has~~increase ~~agreed~~of to$9.7 million ~~sell~~or to4.1%. ~~the Purchaser~~As ~~its~~a ~~owned~~percentage ~~real~~of ~~property~~revenues, ~~located~~cost inof ~~Staten~~operations ~~Island,~~decreased ~~New~~to ~~York~~89.6% from 90.8% for ~~a gross~~the ~~purchase~~nine ~~price~~months ofended $4March 31,~~200,000~~ 2006. InSalaries ~~connection~~and ~~with~~wages ~~the~~were ~~sale~~$134.1 million offor the ~~property,~~ ~~Midway~~nine ~~has~~months ~~agreed~~ended March 31, 2007 compared to ~~leaseback~~$130.6 million for the ~~premises~~nine ~~from~~months ~~the~~ended ~~Purchaser~~March 31, 2006, ~~for~~an ~~a term~~increase of ~~ten~~$3.5 million ~~years~~or 2.7%. ~~The~~This ~~triple~~increase ~~net~~was ~~lease~~primarily ~~calls~~due ~~for~~to ~~monthly~~more ~~payments~~employees needed to service additional routes and an increase in payroll days in New York City. As a percentage of ~~$29~~revenues,~~750 with~~ asalaries 2and wages decreased to 48.05% ~~increase~~from ~~per~~49.8%. ~~year,~~Employee ~~beginning~~fringe ~~November 30,~~benefits ~~2006~~increased by $3.0 million ~~The~~and ~~Company will~~vehicle belease ~~responsible~~expense ~~for~~increased ~~all~~by ~~real~~$5.2 million ~~property~~as ~~taxes~~the ~~and~~Company ~~for~~continues ~~certain~~to ~~insurance~~finance ~~costs under~~its vehicle requirements through the ~~lease~~use of operating leases.

~~The Company estimates, in addition to normal working~~ ~~capital~~Cost ~~requirements,~~of ~~that~~operations itof ~~will~~paratransit ~~need~~and ~~the~~transit ~~following cash flows to finance its~~ operations inwere ~~fiscal 2006:~~ $1931.5 1 million tofor ~~service~~the ~~its~~nine ~~interest~~months ~~obligations~~ended March 31, 2007 compared to $629.0 7 million for ~~capital~~the ~~expenditures~~nine ~~(primarily~~months ~~for~~ended ~~non-vehicle~~March 31, 2006, ~~capital expenditures)~~an ~~and~~increase of $31.9 5 million ~~for~~or ~~amortization~~4.9%. ofThis ~~debt~~increase ~~and~~was ~~capital~~primarily ~~lease obligations.~~due ~~The~~to ~~Company~~an ~~believes~~increase ~~that~~in ~~borrowings~~salaries ~~under~~and ~~its~~wages, ~~senior~~employee ~~credit facility~~fringe benefits and ~~the~~an ~~Receivable~~increase ~~Agreement,~~in asvehicle ~~amended,~~maintenance ~~the~~costs. ~~proceeds~~As ~~from~~a ~~the~~percentage ~~additional contribution~~ of ~~capital from AETG~~revenues, ~~plus~~salaries ~~the proceeds from the sale~~ and ~~leaseback~~ ofwages ~~its~~decreased ~~North~~to ~~Street~~51.3%, ~~Staten Island New York property, together with its existing cash and cash flow~~ from ~~operations~~51.4% ~~and~~for the ~~anticipated~~nine ~~effect~~months ~~of its~~ended ~~extension~~March 31, 2006. ~~agreement~~As ~~with~~a ~~the~~percentage ~~DOE~~of revenues, ~~will~~cost beof ~~sufficient~~operations increased to ~~fund~~89.9% ~~the Company’s anticipated requirements~~ for the ~~next~~nine ~~year.~~months Inended ~~addition~~March 31, ~~the~~2007, ~~Company~~from ~~is continuing~~88.3% tofor ~~pursue additional funding alternatives, including~~ the ~~sale~~nine ~~of certain~~months ~~assets~~ended ~~or operations~~March 31, ~~in order to improve its liquidity position~~2006.

~~The~~ General ~~Company’s~~and ~~level~~administrative ofexpenses. General ~~indebtedness~~and ~~may~~administrative ~~make~~expenses itfrom ~~more difficult~~school ~~for~~bus itoperations towere ~~satisfy~~$11.3 million ~~its~~for ~~obligations~~the ~~with~~nine ~~respect~~months ended March 31, 2007 compared to $12.6 million for the ~~Notes~~nine ~~because~~months ended March 31, 2006, a ~~substantial~~ ~~portion~~decrease of ~~the~~$1.3 million ~~Company’s~~or ~~cash~~10.1%. ~~flow~~This ~~from~~decrease ~~operations~~was ~~will~~primarily ~~be dedicated~~due to ~~debt~~decreases ~~service~~in ~~payments.~~administrative ~~Accordingly,~~payroll ~~the~~including ~~Company’s~~a ~~cash~~$0.5 million ~~flow availability~~contract renewal bonus paid to ~~fund~~certain ~~increases~~executives in ~~working~~connection ~~capital~~with ~~and~~the ~~capital~~extension ~~expenditures~~agreement ~~may be~~with ~~restricted,~~the asNew ~~will~~York ~~its~~City ~~flexibility~~Department of Education (the ‘‘DOE’’) and $0.5 million in ~~planning~~costs for establishing vehicle lease financing facilities for the nine months ended March 31, 2006. orAs ~~reacting~~a topercentage of revenues, ~~changes in~~general ~~its~~and ~~business~~administrative expenses decreased to 4.1%, ~~industry~~from or4.8% ~~general~~for ~~adverse~~the ~~economic~~nine ~~conditions~~months ended and March 31, 2006.

~~As of September 30,~~ ~~2005,~~General ~~total~~and ~~current~~administrative ~~assets~~expenses ~~were~~from ~~$82.4~~paratransit ~~million~~ and ~~total~~transit ~~current~~operations ~~liabilities~~ were $742.6 1 million. Atfor ~~September 30, 2005,~~ the ~~Company’s~~nine ~~debt~~months ~~under~~ended ~~the senior~~March 31, 2007 ~~credit~~compared ~~facility~~to ~~was~~ $191.9 7 million, ~~including~~for the ~~$3.5~~nine ~~million~~months ~~supplemental loan~~ended March 31, ~~and~~2006, itan ~~had~~increase of $0.1 3 million ofor ~~borrowing availability, based on the Company’s borrowing base calculations~~20. ~~The Company’s letter of credit line was fully utilized~~3%. OnThis ~~November 21,~~increase ~~2005, the Company’s debt under the senior credit facility~~ was ~~$16.1~~primarily ~~million~~due ~~(including~~to ~~the~~an ~~$3.5~~increase ~~million~~in ~~supplemental~~administrative ~~loan)~~payroll and it ~~had~~fringe $3benefits.9 ~~million~~As ina ~~borrowing~~percentage ~~availability~~of revenues, ~~based~~general ~~upon~~and ~~the~~administrative ~~Company’s borrowing~~expenses ~~base~~increased ~~calculations.~~to ~~On November 21~~6.0%, ~~2005,~~from ~~the Company had $115~~5.~~0 million~~1% ~~outstanding~~for of the ~~Notes~~nine ~~and~~months ~~$15.0~~ended ~~million outstanding of the Additional Indebtedness~~March 31, 2006.

~~Net~~ Depreciation ~~cash~~and ~~provided~~amortization. Depreciation byand ~~(used~~amortization ~~in) operating~~expense ~~activities.~~from ~~Net cash~~school ~~used~~bus inoperations ~~operating activities~~ was $712.9 8 million for the ~~three~~nine months ended ~~September~~March 3031, ~~2005,~~ 2007 ~~resulting~~compared ~~primarily~~to ~~from~~ $1720.0 5 million ~~used~~for inthe ~~operating~~nine ~~activities partially~~months ~~offset~~ended ~~from~~March 31, 2006, ~~cash~~a ~~provided~~decrease ~~due to changes in the components~~ of ~~working capital of~~ $17.8 7 million, ~~(primarily~~or a37.5%. This decrease inwas ~~prepaid expenses and other~~

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~~current~~ primarily ~~assets~~due ofto ~~$1.3~~a ~~million, and an increase of~~ $4.6 7 million ~~of accounts~~impairment ~~payable,~~charge ~~accrued~~on ~~expenses,~~fixed ~~accrued~~assets ~~compensation~~for ~~and~~the ~~other~~nine ~~current liabilities,~~months ~~partially~~ended ~~offset~~March 31, by2006 anand ~~increase~~the inCompany ~~controlled~~having ~~disbursement account of~~ $23.0 million ~~and~~of anlower ~~increase~~depreciation inexpense ~~insurance~~as ~~financing~~some ~~payable~~ of ~~$1.8 million),~~the ~~and~~assets byare ~~non-cash~~now ~~items~~fully ~~of $6~~depreciated.6 ~~million~~The ofCompany ~~depreciation~~continues ~~and amortization,~~to ~~$0.4~~finance ~~million~~its ofvehicle ~~fixed~~requirements ~~asset~~through ~~impairment~~the ~~and~~use ~~$0.2~~of ~~million~~operating ~~of amortization~~leases of(see ~~original~~‘‘Cost ~~issue~~of ~~discount~~operations’’ above).

~~Net~~ Depreciation ~~cash~~and ~~provided~~amortization ~~by operating~~expense ~~activities~~from paratransit and transit operations was $1.1 million for the ~~three~~nine months ended ~~September~~March 3031, ~~2004,~~ 2007 ~~primarily~~compared ~~due~~ to ~~cash of~~ $121.3 2 million ~~resulting~~for ~~from changes in~~ the ~~components~~ ofnine ~~working~~months ~~capital~~ended ~~($8.2 million of which was from increases in accounts payable~~March 31, ~~accrued expenses~~ 2006, ~~accrued~~a ~~compensation~~decrease ~~and~~of ~~other current liabilities and~~ $60.8 1 million ~~of which was from decreases in accounts receivable)~~, ~~plus~~or $612.8 ~~million of non-cash items of depreciation and amortization, partially offset by $18~~%.~~0 million used in operating activities.~~

~~Net cash~~ ~~provided~~Income by(~~used in~~loss) ~~investing~~from ~~activities~~operations. Income ~~For~~from ~~the~~school ~~three~~bus ~~months~~operations ~~ended~~was ~~September~~$4.7 ~~30, 2005,~~million for the ~~net~~nine ~~cash~~months ~~provided~~ended byMarch 31, 2007 ~~investing~~compared ~~activities~~to ~~was~~a $28.4 9 million ~~resulting primarily~~loss ~~from~~for the ~~sale~~nine ~~and~~months ~~leaseback~~ended ~~of our California facility~~March 31, 2006, ~~partially offset~~an byincrease ~~the~~in ~~purchase~~income of $113.4 5 million, ofdue ~~transportation~~to ~~contract~~the ~~rights~~net ~~and $1.9~~effect ~~million~~ of ~~capital~~the ~~expenditures,~~items ~~which~~discussed ~~were financed from operating cash flows~~above.

~~For~~ Income from paratransit and transit operations was $0.4 million for the ~~three~~nine months ended ~~September~~March 3031, 2007 ~~2004, the~~compared ~~Company~~to ~~made~~ $1.2 0 million offor ~~capital~~the ~~expenditures~~nine tomonths ~~acquire~~ended ~~additional vehicles~~March 31, 2006, ~~other~~a ~~property~~decrease ~~and~~of ~~equipment~~$0.6 million, ~~which~~or ~~were~~61.5%, ~~financed~~due ~~from~~to ~~operating~~the ~~cash flows~~net effect of the items discussed above.

~~Net~~ Interest ~~cash~~expense. Interest ~~provided~~expense byfrom ~~(used~~continuing ~~in) financing~~operations ~~activities~~was $20.1 million ~~Net cash~~for ~~used~~the innine ~~financing~~months ~~activities~~ended ~~totaled~~March 31, 2007 compared to $019.1 2 million for the ~~three~~nine months ended ~~September~~March 3031, 2006, ~~2005~~an ~~due~~increase ~~primarily~~of to $0.3 8 million, inor ~~payments~~4.2%. ~~on borrowings~~The ~~under~~increase ~~capital~~was ~~leases~~primarily ~~and~~due ~~purchase~~to ~~money mortgages and~~ $01.2 million in ~~deferred~~PIK ~~financing costs~~interest, ~~partially~~ offset by a $0.5 4 million ~~net~~decrease ~~borrowings under~~in ~~the~~interest ~~senior~~expense ~~credit~~on ~~facility~~all other debt.

~~Net~~ Loss ~~cash~~before ~~provided~~discontinued byoperations. Due ~~financing~~to ~~activities~~the ~~totaled $1.5~~net ~~million~~effect ~~for~~of the ~~three~~items ~~months~~discussed ~~ended~~above ~~September 30,~~we ~~2004~~experienced ~~due~~a ~~primarily to~~loss ~~$4.9~~before ~~million~~discontinued operations of ~~new~~$14.8 million ~~borrowing~~for ~~from~~the anine ~~senior~~months ~~unsecured~~ended ~~note~~March 31, 2007, ~~partially~~compared ~~offset by~~to a loss of $227.6 0 million infor ~~net repayments under~~ the ~~senior~~nine ~~credit~~months ~~facility~~ended ~~and~~March 31, 2006, ~~0.6 million~~a decrease in ~~deferred~~loss ~~financing~~of ~~costs~~$12.1 million.

~~Commitments~~ Gain ~~and~~(loss) from discontinued operations. We experienced a gain from discontinued operations of $5.6 million from the sale of T-NT Bus Service Inc. for the nine months ended March 31, 2007 compared to a minimal loss from discontinued operations for the nine months ended March 31, 2006. ~~Contingencies~~

~~Reference is made to~~ ~~Note~~Liquidity ~~16 “Commitments~~ and ~~Contingencies” of~~Capital ~~Notes to the Consolidated Financial Statements in the Company’s Special~~Resources ~~Financial Report on Form 15d-2 for the fiscal year ended June 30, 2005 for a description of the Company’s material commitments.~~

~~Critical~~ The ~~Accounting~~statements ~~Policies~~regarding the Company’s anticipated capital expenditures and service requirements are ‘‘forward looking’’ statements which involve unknown risks and uncertainties, such as the Company’s ability to meet or exceed its growth plans and/or available financing, which may cause actual capital expenditures to differ materially from currently anticipated amounts.

In The ~~presenting~~Company ~~our~~operated ~~consolidated~~a ~~financial~~fleet ~~statements~~of ~~in conformity~~approximately ~~with~~5,700 ~~U.S.~~vehicles ~~generally~~as ~~accepted~~of ~~accounting principles~~March 31, 2007 ~~we are required to make estimates~~ and ~~judgments~~consumes ~~that~~substantial ~~affect~~quantities ~~the amounts reported therein. Some~~ of ~~the~~fuel ~~estimates~~for ~~and~~its ~~assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events~~operations. WeBased ~~base these estimates~~ on ~~historical~~the ~~experience~~Company’s ~~and~~current onoperations, ~~various~~an ~~other~~increase ~~assumptions~~in ~~that~~fuel ~~we believe~~costs toof be10 ~~reasonable~~cents ~~and~~per ~~appropriate.~~gallon ~~Actual~~will ~~results~~increase ~~may~~its ~~differ significantly~~cost ~~from these estimates. The following is a description~~ of ~~our accounting~~fuel ~~policies~~purchased ~~that~~by weapproximately ~~believe~~$1.0 million ~~require subjective and complex judgments, and could potentially have a material effect~~ on ~~our~~an ~~reported~~annual ~~financial condition or results of operation~~basis.

~~Property,~~ The ~~Plant~~Company ~~and~~anticipates ~~Equipment~~approximately $5. We5 million ~~depreciate~~of ~~our~~capital ~~property,~~expenditures ~~plant~~for ~~and equipment~~the ~~over~~fiscal ~~their~~year ~~useful~~ending ~~lives~~June 30, ~~which range from 3 to 31.5~~ ~~years~~2007, onof ~~a straight-line~~which ~~basis~~$4.4 million ~~These~~were ~~useful~~made ~~lives~~for ~~are~~the ~~based~~nine ~~upon~~months ~~our~~ended ~~estimates~~March 31, 2007. ofThe ~~the periods~~Company ~~that~~has ~~the~~met ~~assets~~substantially ~~will~~all ~~provide~~of ~~economic~~its ~~benefit.~~vehicle ~~Our~~capital ~~policy~~expenditures isrequirements toby ~~review~~ the ~~carrying~~use ~~value~~ of ~~our~~vehicle ~~long-lived~~operating ~~assets~~leases. ~~whenever~~Vehicle ~~events~~lease orexpense ~~changes~~increased ~~in circumstances~~$5.2 million ~~occur~~from ~~that indicate~~ the ~~carrying~~nine ~~value~~months ~~may~~ended ~~not be recoverable~~March 31, 2006. ~~Our~~ ~~definite~~The ~~life~~Company ~~assets~~anticipates ~~will~~its ~~continue~~vehicle tolease beexpense ~~depreciated~~will orincrease ~~amortized~~approximately ~~over their~~$6.3 million ~~estimated~~for ~~useful~~the ~~lives~~fiscal ~~and~~year ~~are~~ending ~~subject~~June 30, 2007 compared to the ~~impairment~~fiscal ~~criteria~~year ~~as required~~ended ~~by SFAS No.~~June ~~144~~30, 2006.

~~Transportation~~ On ~~Contract~~July 27, 2006, ~~Rights. Transportation~~T-NT, ~~contract~~a ~~rights~~subsidiary ~~primarily represent~~of the ~~value~~Company, wecompleted ~~assigned to~~ the ~~cost~~sale of ~~investments~~substantially inall ~~school~~of ~~bus companies~~its inassets ~~excess~~for ofa ~~the~~gross ~~book~~purchase ~~value~~price of ~~the companies acquired~~$12.6 million. In addition, we ~~have~~Domenic ~~purchased~~Gatto, ~~from~~the ~~unrelated~~Company’s ~~third~~Chief ~~parties~~Executive ~~certain~~Officer ~~transportation contract rights with respect to revenue contracts~~ and ~~travel~~President, ~~routes.~~received ~~Transportation contract~~$100,000 ~~rights~~as ~~are~~consideration ~~assessed~~ for ~~impairment~~entering atinto ~~least~~a ~~annually~~five-year ~~and~~non-competition ~~whenever events or changes in circumstances indicate that the carrying value may not be recoverable~~agreement. ~~Important~~The ~~factors~~Company ~~that~~recognized ~~could~~a ~~trigger~~gain anon ~~impairment review include significant underperformance relative to historical or projected future operating results, significant changes in~~ the ~~use~~sale of ~~the~~these ~~acquired~~ assets ~~or the strategy~~ of ~~the~~approximately ~~overall business, and significant negative industry or economic trends~~$5.9 million ~~If indicators of impairment are present, management evaluates the carrying value of the intangibles~~ in ~~relation to~~ the ~~projection~~first ofquarter ~~future undiscounted cash flows~~ of ~~the~~fiscal ~~underlying~~year ~~assets.~~2007 ~~Projected~~which ~~cash~~was ~~flows~~included ~~are based~~in ongain ~~historical results adjusted to reflect management’s best estimate of future market and operating conditions, which may differ~~ from ~~actual~~discontinued ~~cash flow~~operations. Transportation contract rights are amortized on a straight-line basis over twelve years, which represents our company’s estimate of the average length of the contracts and expected renewal periods. The requirements for these impairment charges were

12 In December 2006, one of the Company’s insurance carriers released approximately $10.0 million in excess collateral based upon retrospective adjustments for various years. Approximately

determined by management’s evaluation that the future undiscounted cash flows attributable to the underlying assets were unlikely to exceed the carrying value of the transportation contract rights assets for certain of the school bus companies. The impairment charges were the difference between book value of the transportation contract rights and estimated fair value, determined as the estimated future cash flows.13

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~~Income Taxes. We follow the liability method under SFAS No. 109,~~ ~~“Accounting for Income Taxes.” The primary objectives of accounting for taxes~~ ~~under SFAS No~~$5.2 ~~109~~million ~~are~~was toa ~~(1) recognize~~credit ~~the~~issued ~~amount~~to ~~of tax payable for~~ the ~~current~~Company ~~year~~ and ~~(2)~~$4.8 ~~recognize~~million ~~the~~was ~~amount~~a ofreduction ~~deferred~~in ~~tax~~a ~~liability~~letter ~~or asset~~of ~~for~~credit ~~the~~held ~~future~~by ~~tax consequences attributable to temporary differences between~~ the ~~financial~~insurance ~~statements’ carrying amounts of existing assets and liabilities and their respective tax bases and of events that have been reflected in our financial statements or tax returns~~company. ~~When~~This ~~the~~letter ~~realization~~ of ~~a deferred~~credit ~~tax~~was ~~asset~~collateralized isby ~~not~~restricted ~~considered~~cash towhich ~~be more likely than not, a valuation allowance~~ is ~~recorded~~now ~~against~~available ~~that~~for ~~deferred~~working ~~tax asset~~capital.

We On ~~have~~September 30, 2006, ~~net~~the ~~deferred~~Company ~~tax~~did ~~assets~~not ~~resulting~~satisfy ~~primarily from~~the ~~net~~maintenance ~~operating~~of ~~losses~~net ~~(“NOL”)~~leverage ~~that~~test ~~will~~under ~~reduce~~the ~~taxable~~Indenture ~~income~~governing inits ~~future periods.~~outstanding ~~SFAS No~~Notes. ~~109~~ ~~requires~~As ~~that~~ a ~~valuation~~result, ~~allowance~~the beCompany ~~established when it~~ is ~~“more~~required ~~likely~~to ~~than~~pay ~~not”~~additional ~~that~~interest ~~all~~at or a ~~portion~~rate of ~~net~~2% ~~deferred~~per ~~tax assets~~annum ~~will~~in ~~not~~the beform ~~realized.~~of APIK ~~review~~notes. ofAll ~~all~~PIK ~~available~~notes ~~positive~~have ~~and~~identical ~~negative evidence~~terms ~~needs~~ to beNotes ~~considered,~~on ~~including~~which ~~expected~~they ~~reversals~~are ofpayable. ~~significant deductible~~The ~~temporary~~Company ~~differences,~~is aalso ~~company’s~~required ~~recent~~to ~~financial~~pay ~~performance,~~ the ~~market~~ ~~environment~~2% inper ~~which~~annum aof ~~company~~PIK ~~operates,~~interest ~~tax~~to ~~planning strategies and~~ the ~~length~~ holder of ~~the~~its ~~NOL~~outstanding ~~carryforward~~Third ~~period.~~Priority ~~Management~~Secured ~~believes~~Note ~~that~~as ~~the realization of~~ a ~~portion~~result of ~~the deferred tax assets is~~ not ~~considered~~satisfying toa becomparable ~~more~~maintenance ~~likely than~~of ~~not~~net ~~and~~leverage ~~accordingly,~~test ~~has~~applicable ~~provided~~to athose ~~valuation allowance~~notes.

~~We file consolidated federal and state income tax~~ ~~returns~~Although ~~with our parent and its affiliates. The income tax charge or benefits allocated to us is based upon an allocation method determined by~~ the ~~group under~~Company ~~its~~engaged ~~tax~~in ~~sharing~~previously ~~agreement.~~reported ~~The~~sale ~~balance~~leaseback ~~identified~~transactions asin ~~deferred~~2005 ~~tax assets~~ and ~~liabilities~~2006 ~~can,~~ in ~~substance,~~order ~~be considered the equivalent~~ to ~~amounts~~generate ~~due from~~additional ~~and~~liquidity, ~~due~~the toCompany ~~this~~does ~~affiliated~~not ~~group~~currently ~~based~~contemplate ~~upon~~additional ~~the~~sale ~~application~~leaseback ~~of this method~~transactions.

~~Allowance~~ Almost ~~for~~all ~~Doubtful~~of ~~Accounts~~the Company’s long-term debt is due over the next two fiscal years. We ~~maintain~~Failure to repay such debt at maturity would constitute an ~~allowance~~event ~~for~~of ~~estimated~~default. ~~losses resulting~~In ~~from~~order to address the ~~inability~~upcoming maturity of ~~our~~the ~~customers~~Company’s tolong-term ~~make~~debt, ~~required~~on ~~payments~~May 1, 2007, the Company announced that it had priced a private offering of $185 million aggregate principal amount of Senior Secured Floating Rate Notes due 2012. ~~We estimate~~The ~~uncollectible~~notes ~~amounts~~will ~~based~~be ~~upon~~unconditionally ~~historical~~guaranteed ~~bad~~on ~~debts~~a senior secured basis by each of the Company’s existing and future domestic subsidiaries that are not unrestricted domestic subsidiaries, ~~current customer~~other ~~receivable~~than ~~balances~~certain immaterial subsidiaries. We will pay interest on the notes in cash at an annual rate equal to six month LIBOR plus a margin of 7.250%, ~~age~~semi-annually on April 15 and October 15 of ~~customer~~each ~~receivable~~year, ~~balances~~commencing October 15, 2007. The gross proceeds from the ~~customer~~sale, which are expected to be $182.2 million (after original issue discount), will be used to refinance existing indebtedness, including to fund the redemption of the Company’s ~~financial~~ ~~condition~~outstanding 12% Senior Secured Notes due 2008 and ~~current~~Senior ~~economic~~Secured ~~trends~~Floating Rate Notes due 2008 at a call price of 103%, or $119.8 million, IfThird ~~the~~Priority ~~actual~~Senior ~~uncollected amounts~~Secured ~~were~~Notes due 2008, Senior Unsecured Term Notes due 2008, to ~~significantly~~buyout ~~exceed~~certain ~~the~~vehicle ~~estimated~~operating ~~allowance~~leases, ~~our~~for ~~results~~general corporate purposes and to pay related transaction fees and expenses. The closing of ~~operations~~ ~~would~~the besale, ~~materially~~which ~~adversely~~is ~~affected~~subject to customary conditions, is scheduled for May 15, 2007.

~~Revenue~~ In ~~Recognition. Revenues~~connection ~~from~~with ~~school~~the ~~bus~~issuance ~~and~~of ~~paratransit~~the Senior Secured Floating Rate Notes due 2012, we expect to amend and ~~transit~~ ~~operations~~restate ~~are~~our ~~recognized~~senior ~~when~~credit ~~services~~facility ~~are~~to ~~provided~~provide up to $35.0 Weof ~~bill~~borrowing ~~our customers~~availability onunder a ~~monthly~~revolving ~~basis~~credit ~~based~~facility, ~~upon~~subject ~~the~~to ~~completion~~customary borrowing conditions, plus $10.0 million in available letters of ~~bus~~credit. ~~routes~~The ~~for~~amended ~~school bus~~credit ~~operations~~facility ~~and~~will ~~service~~be ~~hours~~secured ~~for~~by ~~paratransit~~a first priority lien on substantially all of our and ~~transit~~our ~~operations~~subsidiaries’ assets, ~~which in~~other ~~both~~than ~~cases~~the ~~are~~collateral ~~typically~~securing ~~based~~the ~~upon~~Senior ~~contracts~~Secured orFloating ~~extension~~Rate ~~agreements~~Notes ~~we have~~due ~~with~~2012 ~~our~~on ~~customers~~a first lien basis. ~~Under~~In ~~our~~it ~~largest~~is ~~contract,~~anticipated that the ~~DOE~~amended ~~retains~~credit 5%facility will extend the term of our ~~monthly~~ ~~billings~~existing ~~(retainage),~~credit ~~which~~facility isfrom ~~normally~~February 29, 2008 ~~returned~~to ~~in August~~December of31, 2011. ~~the following~~The ~~fiscal~~minimum ~~year~~LTM ~~based~~EBITDA ~~upon~~covenant usis ~~completing~~expected ~~contractual~~to ~~service~~be ~~for~~$26.0 million ~~the prior~~which ~~school~~will ~~year.~~only Webe ~~have~~tested ~~always~~if ~~collected~~excess ~~the~~availability ~~retained~~falls ~~amounts~~below incertain ~~full~~levels.

~~Insurance~~ The ~~Coverage~~Company, in addition to normal working capital requirements, has significant interest obligations and ~~Reserves~~capital expenditure requirements to finance its operations. The Company ~~self-insures~~also uses substantial amounts of fuel in its ~~obligations~~operations. Significant increases in the cost of fuel will have a material effect on its operations. The Company believes that ~~may~~ ~~arise~~the ~~under~~release ~~workers~~of ~~compensation~~the insurance collateral and ~~automobile~~the ~~liability~~net ~~claims. Provisions~~proceeds ~~for~~from ~~such~~the ~~obligations~~sale ~~are~~of ~~provided~~T-NT, the proceeds from the Senior Secured Floating Rate Notes due 2012, together with its existing cash and cash flow from operations will be sufficient to fund the Company’s anticipated liquidity requirements for asthe ~~follows:~~next fiscal year.

~~Reserves~~ As ~~requirements~~of ~~for~~March 31, 2007, ~~deductible~~total ~~amounts,~~current ~~for~~assets ~~the three~~were ~~months~~$106.0 million ~~ended~~and ~~September~~total current liabilities were $70.7 million. At March 31, 2007, the Company’s debt under its $30.0 million revolving credit facility was $10.5 million, ~~2005~~including ~~were~~the $3.5 million supplemental loan, and it had $19.3 million of borrowing availability, based ~~upon~~on ~~valuations~~the ~~supplied by~~Company’s anborrowing ~~insurance~~base ~~company~~calculations. ~~Such~~The ~~valuations~~Company’s ~~computed~~$10.0 million ~~reserve~~letter ~~requirements~~of ~~based upon~~credit ~~estimated~~facility ~~ultimate~~was ~~claim~~fully ~~losses~~utilized. On May 9, 2007, ~~including~~the ~~those~~Company ~~incurred~~had ~~but~~a ~~not reported~~loan balance of $1.2 million ~~Charges~~under toits ~~operations~~revolving ~~are~~credit ~~adjusted~~facility, ifand ~~necessary~~it had $19.0 million in borrowing availability, tobased ~~reflect~~upon ~~these valuations~~the Company’s borrowing base calculations. In addition the Company had $5.3 million invested in money

~~The following table reflects the activity in this account for the three months ended September 30, 2005:~~14

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	Total Reserve
Balance, June 30, 2005	$	3,309,815
Expense	32,021
Payments against the reserve	(404,255		)
Balance, September 30, 2005	$	2,937,581
Current portion of insurance reserve	$	1,757,774
Long term portion of insurance reserve	1,179,807
Total insurance reserve	$	2,937,581

market funds. On May 9, 2007, the Company had $116.3 million (including PIK notes) aggregate principal amount outstanding of the Notes and $15.5 million (including PIK notes) outstanding of the Third Priority Senior Secured Note.

Net cash used in operating activities. Net cash used in operating activities was $1.2 million for the nine months ended March 31, 2007, resulting primarily from $18.8 million used in operating activities, partially offset by $0.2 million cash provided by changes in the components of working capital (primarily an increase in accounts payable, accrued expenses, accrued compensation and other current liabilities of $9.7 million and an increase in insurance financing payable of $2.1 million, partially offset by an increase in accounts receivable of $13.2 million) non cash items of $16.7 million of depreciation and amortization and $0.7 million of amortization of original issue discount.

~~Disclosure~~ ~~Regarding~~Net ~~Forward-Looking~~cash ~~Statements~~used in operating activities was $12.6 million for the nine months ended March 31, 2006, resulting primarily from $31.2 million used in operating activities plus $6.7 million cash used due to changes in the components of working capital (primarily an increase in accounts receivable of $10.1 million and an increase in prepaid expenses and other current assets of $4.6 million, partially offset by an increase $6.2 million of accounts payable, accrued expenses, accrued compensation and other current liabilities, and an increase in insurance financing payable of $2.2 million), partially offset by non cash items of $19.8 million of depreciation and amortization, $4.7 million of fixed asset impairment and $0.7 million of amortization of original issue discount.

~~This~~ Net ~~report~~cash ~~contains~~provided ~~forward-looking~~by ~~statements~~investing activities. For ~~These statements~~the ~~relate~~nine tomonths ~~future~~ended ~~events~~March 31, 2007, orthe ~~our~~net ~~future~~cash ~~financial~~provided ~~performance,~~by ~~and involve~~investing ~~known~~activities ~~and~~was ~~unknown~~$16.2 million ~~risks,~~resulting ~~uncertainties~~primarily ~~and~~from ~~other~~$11.8 million ~~factors~~of ~~that~~proceeds ~~may~~from ~~cause our~~the ~~actual~~sale ~~results, levels~~ of ~~activity~~assets, ~~performance~~$3.1 million ordecrease ~~achievements~~in torestricted ~~be materially~~cash ~~different~~and ~~from~~$5.1 million ~~any future results, levels~~ of ~~activity,~~proceeds ~~performance or~~from ~~achievements~~sales ~~expressed~~ or ~~implied~~redemptions byof ~~these~~marketable ~~forward-looking statements. In some cases~~securities, ~~you~~partially ~~can~~offset ~~identify forward-looking statements~~ by ~~terminology~~the ~~such~~$4.4 million asof ~~“may,” “will,”~~capital ~~“should,”~~expenditures. ~~“expects,”~~Of ~~“intends~~these,” ~~“plans,”~~$0.6 million ~~“anticipates,”~~of ~~“believes,”~~capital ~~“estimates,” “predicts,”~~expenditures ~~“potential,”~~were ~~“continue”~~directly orfinanced ~~the~~with ~~negative~~purchase ofmoney ~~these~~debt ~~terms~~and orthe ~~other comparable~~balance ~~terminology.~~were ~~These~~financed ~~statements~~from ~~are~~operating ~~only~~cash ~~predictions~~flows. ~~Actual events or~~ ~~results may differ materially.~~

~~Although~~ For wethe ~~believe~~nine ~~that~~months ended March 31, 2006, the ~~expectations~~net ~~reflected~~cash in provided by investing activities was $6.2 million resulting primarily from the ~~forward-looking~~sale ~~statements~~and ~~are~~leaseback ~~reasonable,~~of weour ~~cannot~~Los ~~guarantee~~Angeles, ~~future results~~California facility, ~~levels~~the sale and leaseback of ~~activity,~~our ~~performance~~Staten orIsland, ~~achievements.~~New ~~These~~York ~~forward-looking statements~~facility ~~are~~and ~~made~~the assale of property in St Louis, Missouri, partially offset by the ~~date~~purchase of ~~this~~$1.7 million ~~report~~of transportation contract rights and $5.1 million of capital expenditures. Of these, ~~except~~$0.5 million asof ~~required~~capital ~~under the~~expenditures ~~federal~~were ~~securities~~directly ~~laws~~financed with purchase money debt and the ~~rules and~~balance ~~regulations~~were financed from operating cash flows. Purchase of ~~the~~marketable ~~SEC,~~securities ~~we assume~~were no$3.2 million ~~obligation~~for tothe ~~update~~nine ormonths ~~revise~~ended ~~them~~March 31, 2006 orand toproceeds ~~provide~~from ~~reasons~~sale ~~why~~of ~~actual results~~redemption ~~may~~of ~~differ~~marketable securities were $3.0 million.

~~Item~~ Net cash used in financing activities. Net cash used in financing activities totaled $9.3 million for the nine months ended March 31, 2007 due primarily to $7.2 million ~~Quantitative~~net payments under the senior credit facility and ~~Qualitative~~$2.0 million ~~Disclosures~~in ~~About~~payments ~~Market~~on ~~Risk~~borrowings under capital leases and purchase money mortgages.

In Net cash provided by financing activities totaled $2.3 million for the ~~normal~~nine ~~course~~months ofended ~~operations~~March 31, 2006 wedue ~~are~~primarily ~~exposed~~ to ~~market~~ ~~risks~~$4.9 million ~~arising~~of proceeds from ~~adverse~~the ~~changes~~sale inof ~~interest~~stock ~~rates~~and $0.3 million ~~Market~~net ~~risk~~proceeds ~~is defined~~under ~~for~~the ~~these~~senior ~~purposes~~credit asfacility, ~~the~~partially ~~potential~~offset ~~change~~by $2.5 million in ~~the~~payments ~~fair~~on ~~value~~borrowings ~~of financial~~under ~~assets~~capital orleases ~~liabilities~~and ~~resulting~~purchase ~~from~~money anmortgages ~~adverse~~and ~~movement~~$0.3 million in ~~interest rates~~deferred financing costs.

~~We operated a fleet of approximately 6,000 vehicles as~~ ofCommitments ~~September 30, 2005~~ and ~~consume substantial quantities of fuel for our~~Contingencies operations. Based on our current operations, an increase in fuel costs of ten cents per gallon will increase our cost of fuel purchased by approximately $1.0 million on an annual basis. From time to time in the past, we have entered into hedging contracts to protect ourselves from fluctuations in the cost of fuel, and we may seek to do the same in the future. We currently do not have any fuel hedging agreements in place, but we continually evaluate entering into such agreements if we believe increases in fuel costs are likely. No assurance can be given that we will be able to adequately protect ourselves from fluctuating fuel costs even if we enter into hedging contracts.

~~As of September 30, 2005, our only material~~ ~~variable~~Reference ~~rate~~is ~~borrowings~~made ~~are~~to ~~the~~Note ~~Senior~~16 ~~Secured~~‘‘Commitments ~~Floating~~and ~~Rate~~Contingencies’’ ~~Outstanding~~of Notes ~~(LIBOR~~ ~~plus~~to ~~9.2%~~Consolidated ~~interest)~~Financial ~~and~~Statements ~~$16.5 million~~in of the ~~$20.0 million~~Company’s ~~of borrowings~~Annual ~~under~~Report ~~our~~on ~~$20.0 million~~Form ~~senior~~10-K ~~credit~~for ~~facility~~the ~~(prime~~fiscal ~~plus~~year ~~1% interest).~~ended ~~As of September~~June 30, ~~2005, we had approximately $20.0~~ ~~million~~2006 ~~(of~~for ~~which $3.5 million has~~ a ~~fixed~~description ~~interest rate~~ of ~~12%)~~ ~~of borrowings outstanding under our senior credit facility and a $3.5 million advance under~~ the ~~letter~~Company’s ofmaterial ~~credit facility~~commitments. ~~A 100 basis point increase~~ in interest rates, applied to our variable rate borrowings as of September 30, 2005, would result in an annual increase in interest expense and a corresponding reduction in cash flow of approximately $0.3 million.

~~Item~~ Critical 4.Accounting ~~Controls and Procedures~~Policies

~~The~~ In ~~Company~~presenting ~~maintains~~our ~~disclosure~~consolidated ~~controls~~financial ~~and procedures~~statements ~~(as defined~~ in ~~Rule 15d-15(e) under~~conformity ~~the~~with ~~Securities Exchange~~U.S. ~~Act~~generally ofaccepted ~~1934~~accounting principles, aswe ~~amended (the “Exchange Act”)) that~~ are ~~designed to ensure that information~~ required to bemake ~~disclosed~~estimates byand ~~the~~judgments ~~Company~~that inaffect ~~reports it files or submits under~~ the ~~Exchange~~amounts ~~Act is recorded, processed, summarized and~~ reported ~~within~~therein. ~~the~~Some ~~time~~of ~~periods specified in~~ the ~~SEC’s~~estimates ~~rules~~ and ~~forms, and~~assumptions ~~that~~we ~~such~~are ~~information~~required ~~is accumulated and communicated~~ to ~~the~~make ~~Company’s management,~~relate ~~including its Chief Executive Officer and Chief Financial Officer, as appropriate~~ to ~~allow~~matters ~~timely decisions regarding required disclosure.~~

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report, as evidenced by the Company’s inability to timely file this report. The Company has begun a review of its disclosure controls and procedures in order to improve their effectiveness. Although the process is ongoing, the Company has identified a need to modify its financial period closing from a sequential to a more simultaneous process, to reduce the time necessary to properly complete its financial statement preparation and review. As the review process continues, the Company may identify other areas for improvement. The Company intends to begin implementing improvements as soon as practicable, beginning as early as the quarter ending December 31, 2005, but cannot yet determine when all improvements will be completed or have the intended effect.15

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14 that are inherently uncertain as they pertain to future events. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate. Actual results may differ significantly from these estimates. A discussion of our critical accounting policies and the related judgments and estimates affecting the preparation of our consolidated financial statements is included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2006. There have been no material changes to our critical accounting policies as of March 31, 2007.

~~There were no changes in our internal control over~~ ~~financial~~Disclosure ~~reporting,~~Regarding ~~identified~~Forward-Looking ~~in connection with the evaluation of such~~Statements ~~internal control that occurred during our last fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.~~

15 This report contains forward-looking statements. These statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘expects,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ ‘‘continue’’ or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.

~~PART II~~ Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These forward-looking statements are made as of the date of this report and, except as required under the federal securities laws and the rules and regulations of the SEC, we assume no obligation to update or revise them or to provide reasons why actual results may differ.

~~OTHER~~ ~~INFORMATION~~Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~Item~~ In 1the normal course of operations, we are exposed to market risks arising from adverse changes in interest rates. ~~Legal~~Market ~~Proceedings~~risk is defined for these purposes as the potential change in the fair value of financial assets or liabilities resulting from an adverse movement in interest rates.

~~None~~ We operated a fleet of approximately 5,700 vehicles as of March 31, 2007 and consume substantial quantities of fuel for our operations. Based on our current operations, an increase in fuel costs of ten cents per gallon will increase our cost of fuel purchased by approximately $1.0 million on an annual basis. From time to time in the past, we have entered into hedging contracts to protect ourselves from fluctuations in the cost of fuel, and we have or may seek to do the same in the future. We currently do not have any fuel hedging agreements in place, but we continually evaluate entering into agreements if we believe increases in fuel costs are likely. No assurance can be given that we will be able to adequately protect ourselves from fluctuating fuel costs even if we enter into hedging contracts.

~~Item~~ As of March 31, 2007, our only material variable rate borrowings are the Senior Secured Floating Rate Notes (LIBOR plus 9.2% interest) and $26.5 million ~~Unregistered~~of ~~Sales~~the $30.0 million of ~~Equity~~borrowings ~~Securities~~under our $30.0 million senior credit facility (prime plus 1% interest). As of March 31, 2007, we had approximately $10.5 million (of which $3.5 million has a fixed interest rate of 12%) of borrowings outstanding under our senior credit facility and ~~Use~~a $3.5 million advance under the letter of ~~Proceeds~~credit facility. A 100 basis point increase in interest rates, applied to our variable rate borrowings as of March 31, 2007, would result in an annual increase in interest expense and a corresponding reduction in cash flow of approximately $0.2 million.

~~None~~ Item 4. Controls and Procedures

~~Item~~ The 3.Company ~~Defaults~~maintains ~~upon~~disclosure ~~Senior~~controls and procedures (as defined in Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’)), that are designed to ensure that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

~~None.~~16

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~~Item~~ As 4of the end of the period covered by this Form 10-Q, the Company again carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. ~~Submission~~Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were still ineffective as of ~~Matters~~the end of the period covered by this Form 10-Q. The Company continues to review its disclosure controls and procedures in order to improve their effectiveness. Although the process is ongoing, the Company has identified a ~~Vote~~need ofto ~~Security~~modify ~~Holders~~its financial period closing from a sequential to a more simultaneous process, to reduce the time necessary to properly complete its financial statement preparation and review. As the review process continues, the Company may identify other areas for improvement. The Company has implemented improvements, but cannot yet determine when all improvements will be completed or have the intended effect.

~~None~~ There were no changes in our internal controls over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. In March 2007, as a result of our existing controls and procedures, we discovered an apparent defalcation by one of our employees at one of our facilities involving the diversion of certain customer payments. We are cooperating with law enforcement authorities and have filed a proof of loss with our insurance carrier. We do not expect the incident to have any material impact on our financial position or results of operations. Although existing controls and procedures detected the incident, subsequent to March 31, 2007 we made changes designed to further improve our collection and custody of customer payments and to improve our process for inquiries regarding past due accounts.

~~Item 5. Other Information~~17

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~~None~~ PART II.

~~Item~~ OTHER ~~6. Exhibits~~INFORMATION

~~The following documents are filed as Exhibits~~ toItem ~~this~~1. Legal ~~report:~~Proceedings

Exhibit No.		Description
31.1		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1		Section 1350 Certification of Principal Executive Officer
32.2		Section 1350 Certification of Principal Financial Officer

None.

16 Item 1A. Risk Factors

~~SIGNATURE~~ Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, and trading price of the Notes. Please refer to the Company’s Annual Report on Form 10-K for fiscal year 2006 for additional information concerning these risk factors and other uncertainties that could negatively impact the Company. There have been no material changes to those risk factors as previously disclosed except as set forth in our Current Reports on Form 8-K dated April 19, 2007 and May 1, 2007. The relevant potions of which (consisting of risk factor disclosure) are hereby incorporated by reference.

~~Pursuant~~ toItem ~~the~~2. Unregistered ~~requirements~~Sales of ~~the~~Equity Securities ~~Exchange~~and ~~Act~~Use of ~~1934, as amended,~~Proceeds ~~Atlantic Express Transportation Corp. has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.~~

	ATLANTIC EXPRESS TRANSPORTATION CORP.
Date: December 5, 2005	By:	/s/ Domenic Gatto
	Domenic Gatto
	Chief Executive Officer
	(Principal Executive Officer)
Date: December 5, 2005
	By:	/s/ Neil J. Abitabilo
	Neil J. Abitabilo
	Chief Financial Officer
	(Principal Financial and Principal Accounting Officer)

None.

17 Item 3. Defaults upon Senior Securities

~~EXHIBIT INDEX~~ None.

Exhibit No.		Description
31.1		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1		Section 1350 Certification of Principal Executive Officer
32.2		Section 1350 Certification of Principal Financial Officer

Item 4. Submission of Matters to a Vote of Security Holders

18 None.

Item 5. Other Information

None.

Item 6. Exhibits

The following documents are filed as Exhibits to this report:


Exhibit No.			Description
3.1			Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
3.2			Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
3.3			Section 1350 Certification of Principal Executive Officer
3.4			Section 1350 Certification of Principal Financial Officer

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, Atlantic Express Transportation Corp. has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			ATLANTIC EXPRESS TRANSPORTATION CORP.
Date: May 11, 2007			By: /s/ Domenic Gatto
			Domenic Gatto Chief Executive Officer (Principal Executive Officer)
Date: May 11, 2007			By: /s/ Nathan Schlenker
			Nathan Schlenker Chief Financial Officer (Principal Financial and Principal Accounting Officer)

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EXHIBIT INDEX


Exhibit No.			Description
3.1			Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
3.2			Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
3.3			Section 1350 Certification of Principal Executive Officer
3.4			Section 1350 Certification of Principal Financial Officer

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