UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

Form 10-Q

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

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

	For the quarterly period ended December 31, 2008

	OR

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

	For the transition period from to

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

(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

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

(Address of principal executive offices)

(718) 442-7000

(Registrant’s telephone number, including area code)

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 No _______________

Indicate by check mark whether the registrant is(1) ahas ~~large~~filed ~~accelerated~~all ~~filer,~~reports anrequired ~~accelerated~~to ~~filer,~~be filed orby aSection ~~non-accelerated~~13 ~~filer.~~or 15(asd) ~~defined~~of inthe ~~Rule~~Securities ~~12b-2~~Exchange Act of 1934 during the preceding ~~Exchange~~12 ~~Act~~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 R No £

Indicate ~~Large~~by ~~accelerated~~check mark whether the registrant is a large accelerated filer ~~Accelerated~~, an accelerated filer ~~Non~~, a non-accelerated filer or a smaller reporting company. (as defined in Rule 12b-2 of the Exchange Act).

Large ~~Indicate~~accelerated byfiler ~~check~~£ ~~mark~~Accelerated filer ~~whether~~£ Non-accelerated ~~the~~filer ~~registrant~~R isSmaller reporting ~~a shell~~ company ~~(as defined in Rule 12b-2 of the Exchange Act). Yes No~~ £

Indicate by check mark whether the registrant ~~has~~is ~~filed~~a ~~all~~shell ~~documents~~company ~~and~~(as ~~reports~~defined ~~required~~in toRule 12b-2 ~~be filed 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 No £ No R

Indicate ~~The~~by ~~number~~check ofmark ~~outstanding~~whether ~~shares of~~ the registrant’s ~~common~~has ~~stock,~~filed ~~par~~all ~~value~~documents ~~$0.01~~and ~~per~~reports required ~~share~~to be filed by Section 12, as13 or 15(d) of ~~May 11, 2007~~the ~~was~~Securities ~~945,263~~Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes R No £

The number of outstanding shares of the registrant’s common stock, par value $0.01 per share, as of February 23, 2009 was 1,052,665

INDEX

		Page No.		~~Page No.~~
PART I: FINANCIAL INFORMATION
Item 1.	Financial Statements	3	~~Financial Statements~~	3
			Consolidated Balance Sheets — March 31, 2007 (unaudited) and June 30, 2006	3
	Consolidated Balance Sheets— December 31, 2008 (unaudited) and June 30, 2008	3
			Consolidated Statements of Operations (unaudited) — Three Months Ended and Nine Months Ended March 31, 2007 and 2006	4
	Consolidated Statements of Operations (unaudited) — Three and Six Months Ended December 31, 2008 and 2007	4
			Consolidated Statements of Cash Flows (unaudited) — Nine Months Ended March 31, 2007 and 2006	5
	Consolidated Statements of Cash Flows (unaudited) — Six Months Ended December 31, 2008 and 2007	5
	Notes to Consolidated Financial Statements (unaudited)	7	~~Notes to Consolidated Financial Statements (unaudited)~~	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	10
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	16	~~Quantitative and Qualitative Disclosures about Market Risk~~	16
Item 4.	Controls and Procedures	17	~~Controls and Procedures~~	16
PART II: OTHER INFORMATION
Item 4T.	Controls and Procedures	17
Item 1.			Legal Proceedings	18
PART II: OTHER INFORMATION
Item 1A.			Risk Factors	18
Item 1.	Legal Proceedings	18
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 1A.	Risk Factors	18
Item 3.			Defaults upon Senior Securities	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 4.			Submission of Matters to a Vote of Security Holders	18
Item 3.	Defaults upon Senior Securities	18
Item 5.			Other Information	18
Item 4.	Submission of Matters to a Vote of Security Holders	18
Item 6.			Exhibits	18
Item 5.	Other Information	18
Item 6.	Exhibits	18

PART I.

FINANCIAL INFORMATION

Item I. Financial Statements

Atlantic Express Transportation Corp. and Subsidiaries ~~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

Consolidated Balance Sheets

See accompanying notes to condensed consolidated financial statements.

	December 31,			June 30,
	2008			2008
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	4,274,646		$	2,682,752
Accounts receivable, net of allowance for doubtful accounts of $1,469,877 and $1,409,877, respectively		47,946,659			48,422,466
Inventories		2,617,754			3,508,576
Prepaid insurance		17,842,768			23,716,875
Prepaid expenses and other current assets		5,785,078			4,286,973
Total current assets		78,466,905			82,617,642
Property, plant and equipment, at cost, less accumulated depreciation		77,662,713			83,042,309
Other assets:
Transportation contract rights, net		1,705,762			1,866,496
Deferred financing costs, net		5,148,467			5,936,307
Deposits and other non-current assets		6,935,610			6,590,993
Total other assets		13,789,839			14,393,796
	$	169,919,457		$	180,053,747
Liabilities and Shareholders’ Deficit
Current:
Current portion of long-term debt	$	1,003,663		$	766,232
Current portion of capital lease obligations		1,056,058			1,463,690
Insurance financing payable		631,866			3,247,089
Controlled disbursements account—checks issued not funded		4,589,051			3,303,864
Accounts payable, accrued expenses and other current liabilities		13,315,277			11,350,285
Accrued compensation		5,065,040			4,553,718
Current portion of deferred income		629,777			602,931
Current portion of insurance reserves		300,000			314,000
Accrued interest		4,867,058			5,123,377
Payable to creditors under the plan of reorganization		108,381			137,389
Total current liabilities		31,566,171			30,862,575
Long-term debt, net of current portion		201,165,874			190,465,857
Capital lease obligations, net of current portion		206,187			261,846
Insurance reserves, net of current portion		1,026,646			486,394
Interest rate swap		7,326,571			5,786,069
Deferred income, net of current portion and other long-term liabilities		3,607,999			3,566,722
Deferred state and local income taxes		—			220,000
Total liabilities		244,899,448			231,649,463
Commitments and contingencies
Shareholders’ deficit:
Common stock, par value $.01 per share, authorized shares 1,303,200; issued and outstanding 1,052,665 and 1,032,293, respectively		10,527			10,323
Additional paid-in capital		114,939,064			114,939,064
Accumulated deficit		(189,929,582	)		(166,545,103	)
Total shareholders’ deficit		(74,979,991	)		(51,595,716	)
	$	169,919,457		$	180,053,747

See accompanying notes to consolidated financial statements.

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

	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	)

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2008			2007			2008			2007
Revenues:
School bus operations	$	106,525,185		$	108,782,196		$	166,006,313		$	163,653,130
Paratransit and transit operations		12,548,662			10,646,408			25,327,825			22,773,877

Total revenues		119,073,847			119,428,604			191,334,138			186,427,007

Costs and expenses:
Cost of operations—School bus operations		96,238,363			95,122,201			159,159,401			153,995,918
Cost of operations—Paratransit and transit operations		11,793,694			10,006,345			23,776,243			20,607,555
General and administrative		4,553,061			4,575,464			8,691,335			8,604,450
Depreciation and amortization		4,397,385			4,701,193			8,755,137			9,358,864

Total operating costs and expenses		116,982,503			114,405,203			200,382,116			192,566,787

Income (loss) from operations		2,091,344			5,023,401			(9,047,978	)		(6,139,780	)
Other income (expense):
Interest expense:
Interest		(6,304,131	)		(6,449,297	)		(12,266,009	)		(12,762,646	)
Deferred financing costs		(393,920	)		(391,237	)		(787,840	)		(780,650	)
Change in fair market value of interest rate swap		(2,610,778	)		(2,806,568	)		(1,540,504	)		(5,955,566	)
Reorganization costs		(904	)		(22,991	)		(13,409	)		(68,882	)
Other income		2,197			16,444			51,261			110,438

Loss before income taxes		(7,216,192	)		(4,630,248	)		(23,604,479	)		(25,597,086	)
Provision for (benefit from) income taxes		—			27,000			(220,000	)		(48,000	)

Net loss	$	(7,216,192	)	$	(4,657,248	)	$	(23,384,479	)	$	(25,549,086	)

See accompanying notes to consolidated financial statements.

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

	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

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	December 31,
	2008			2007

Cash flows from operating activities:
Net loss	$	(23,384,479	)	$	(25,549,086	)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation		8,594,403			9,101,944
Amortization		948,573			1,037,570
Original issue discount interest		282,204			282,204
Change in fair market value of interest rate swap		1,540,504			5,955,566
Allowance for doubtful accounts receivable		60,000			60,000
Loss (gain) on sales of fixed assets, net		225,992			(141,626	)
Deferred state and local income taxes		(220,000	)		(102,000	)

Decrease (increase) in:
Accounts receivable		415,807			(3,537,178	)
Inventories		890,822			(203,580	)

Prepaid expenses and other current assets		4,376,003			5,934,632
Deposits and other non-current assets		(344,617	)		2,312,441
Increase (decrease) in:
Accounts payable, accrued expenses, accrued compensation and other current liabilities		2,246,841			1,826,026
Controlled disbursement account		1,285,187			1,585,246
Insurance financing payable		(2,615,223	)		(3,388,053	)
Payable to creditors under plan of reorganization		(29,008	)		—
Insurance reserves and other long-term liabilities		567,529			(52,026	)
Net cash used in operating activities		(5,159,462	)		(4,877,920	)

Cash flows from investing activities:
Additions to property, plant and equipment		(2,609,871	)		(7,442,378	)
Increase in restricted cash and cash equivalents		—			(16,191	)
Proceeds from sales of fixed assets		207,350			188,888

Net cash used in investing activities		(2,402,521	)		(7,269,681	)

Continued

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

	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

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended December 31,
	2008			2007
Cash flows from financing activities:
Proceeds from Amended and Restated Credit Facility, net	$	9,983,499		$	7,495,778
Distribution to parent company		—			(150,000	)
Proceeds from issuance of common stock		204			—
Principal payments on borrowings and capital lease obligations		(829,826	)		(823,844	)
Deferred financing costs		—			(83,210	)

Net cash provided by financing activities		9,153,877			6,438,724
Net increase (decrease) in cash and cash equivalents		1,591,894			(5,708,877	)
Cash and cash equivalents, beginning of year		2,682,752			6,881,838
Cash and cash equivalents, end of period	$	4,274,646		$	1,172,961

Supplemental disclosures of cash flow information:
Cash paid during the period for:

Interest	$	12,191,794		$	10,541,923

Income taxes	$	—		$	76,821

Supplemental disclosures of non-cash investing and financing activity:
Trade-in-value of vehicles exchanged	$	980,000		$	—
Acquisition cost of vehicles exchanged	$	609,073		$	—
Loans incurred for purchases of property, plant and equipment	$	1,038,279		$	206,623

See accompanying notes to consolidated financial statements.

Atlantic Express Transportation Corp. and Subsidiaries ~~Notes to Consolidated Financial Statements~~

Notes to Consolidated Financial Statements

1. Basis of Accounting

These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in Atlantic Express Transportation Corp.’s (the ‘‘“Company’s’’”) financial statements as of and for the year ended June 30, ~~2006~~ 2008 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.

The 2Company believes that borrowings under the Amended and Restated Credit Facility together with its existing cash and cash flow from operations will not be sufficient to fund the Company’s anticipated liquidity requirements for the next year and the Company needs to pursue additional funding alternatives, including the potential sale of certain assets or operations, in order to fund its liquidity requirements. ~~Sale~~ The consolidated financial statements do not include any adjustments that might result from the outcome of ~~Business~~this uncertainty.

~~On July 27, 2006, T-NT Bus Service, Inc~~2., a subsidiary of the Company (‘‘T-NT’’), completed the sale of substantially all of its assets for a gross purchase price of $12.6 million. In addition, Domenic Gatto, the Company’s Chief Executive Officer and President received $100,000 as consideration for entering into a five year non-competition agreement. The Company recognized a gain on the sale of these assets of approximately $5.6 million, net for the nine months ended March 31, 2007 which is included in gain from discontinued operations. The operating results of T-NT were not restated as discontinued operations for the prior year periods due to immateriality. Interest Rate Swap

Effective 3as of May 15, 2007, we entered into an interest swap agreement (the “Swap”) to reduce our exposure to interest rate fluctuations on our Senior Secured Notes due 2012 (the “Notes”), which bear interest at LIBOR plus a margin of 7. ~~PIK~~25%. The ~~Interest~~Swap has a notional amount of $185 million with a fixed rate of 5.21% instead of LIBOR thereby effectively converting the floating rate notes to a fixed rate obligation of 12.46%. The Swap will expire on April 15, 2010. On the interest payment dates of the Notes, the difference between LIBOR and 5.21% will be settled in cash. In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, the Swap does not qualify for "Cash Flow Hedge Accounting" treatment since the documentation of the accounting treatment was not done contemporaneously with entering into the agreement. The change in the fair market value of this interest swap agreement for the six months ended December 31, 2008 as valued by Wachovia Bank, National Association (“Wachovia”) of $1,540,504 is reflected as an increase to interest expense for the six month period. Our obligation under the Swap is secured by the collateral securing our amended and restated credit facility.

~~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’’)~~3. 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. Debt

The ~~4. Insurance~~following ~~Collateral~~represents ~~Requirements~~the debt outstanding at December 31, 2008 and June 30, 2008:

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.

	December 31,			June 30,
	2008			2008
	(unaudited)
Senior Secured Floating Rate Notes due 2012 with cash interest payable October 15th and April 15th(a)	$	185,000,000		$	185,000,000
Less: original issue discount associated with the issuance of the Notes, net (a)		(1,857,837	)		(2,140,041	)
Amended and Restated Credit Facility (b)		15,935,773			5,952,274
Various notes payable, primarily secured by transportation equipment, with interest rates ranging from 8% - 10.3%		3,091,601			2,419,856
		202,169,537			191,232,089
Less current portion		1,003,663			766,232
Long-term debt, net of current portion	$	201,165,874		$	190,465,857

5(a) On May 15, 2007 the Company issued the Notes with an original issue discount of $2,775,000, which is being amortized over the term of the Notes. ~~Reclassification~~ The net proceeds of the Notes were used to repay existing indebtedness and for certain other corporate purposes.

Annual ~~The~~interest ~~statement~~on ~~of operations for~~ the ~~three~~Notes ~~month~~is ~~and~~equal to the ~~nine~~applicable ~~month~~LIBOR ~~periods~~rate ~~ended~~plus ~~March 31,~~a ~~2006~~margin ~~has~~of 7.25%. The ~~been~~applicable ~~reclassified~~LIBOR torate ~~reflect~~is ~~amounts~~determined ~~relating~~by tousing the ~~gains~~second London orbanking ~~losses~~day onprior to the ~~sale~~first day of ~~long~~such ~~lived~~interest ~~assets~~accrual period. The ~~and~~applicable ~~management~~LIBOR ~~fee~~rate ~~expense~~for asthe ~~operating~~April ~~expenses.~~15, ~~These~~2009 ~~amounts~~payment ~~were~~is 4.38%. Interest ~~previously~~payments ~~reflected~~are inrequired ~~other~~semiannually ~~income~~through ~~(expense).~~their maturity ~~The~~date ~~Company~~on ~~will~~April ~~also~~15, ~~reclassify~~2012 ~~its~~and ~~statement~~commenced ofon ~~operations~~October ~~for~~15, 2007. Effective ~~fiscal~~as ~~2004~~of ~~and~~May ~~2005~~15, to2007, ~~conform~~we toentered into the ~~current~~Swap ~~presentation~~to reduce ~~when~~our itexposure ~~publishes~~to ~~its~~interest ~~financial~~rate ~~statements~~fluctuations ~~for~~on the ~~fiscal~~Notes ~~year~~(see ~~ending June 30, 2007.~~Note 2).

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

In ~~guidance~~connection onwith ~~derecognizing,~~the ~~classification,~~issuance ~~interest~~of ~~and~~the ~~penalties~~Notes, ~~accounting~~the inCompany ~~interim~~incurred ~~periods, disclosure, and transition~~$6.8 ~~The~~million ~~requirements~~ of transaction ~~FIN~~costs 48that are ~~effective~~being ~~for~~amortized ~~our~~on ~~fiscal~~a ~~year~~straight-line ~~beginning~~basis ~~July 1,~~over ~~2007. We are in~~ the term ~~process~~ of ~~evaluating this guidance and therefore have not yet determined~~ the ~~impact that FIN 48 will have on our financial position or results of operations upon adoption~~financing.

The Inindenture ~~September 2006,~~governing the ~~FASB~~Notes ~~issued~~provides ~~SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework~~ for ~~measuring~~optional ~~fair~~redemption ~~value in generally accepted accounting principles,~~ and ~~expands~~contains covenants ~~disclosures~~typical ~~about~~of ~~fair~~such ~~value~~arrangements ~~measurements.~~including ~~SFAS~~limitations ~~No. 157 does not require any new fair value measurements, but provides guidance~~ on ~~how~~incurrence ~~to measure fair value by providing a fair value hierarchy used to classify the source~~ of additional ~~the information~~indebtedness. ~~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.~~

The Notes 7are unconditionally guaranteed on a senior secured basis by each of the Company’s existing and future domestic subsidiaries that are not unrestricted domestic subsidiaries, other than certain immaterial subsidiaries. ~~Subsequent~~ ~~Events~~The Notes and the guarantees rank senior in right of payment to all of the Company’s subordinated indebtedness and equal in right of payment with all of the Company’s other senior indebtedness.

The Notes Onand ~~May 1, 2007,~~ the ~~Company~~guarantees ~~announced~~are ~~that~~secured itby ~~had priced~~ a ~~private~~first ~~offering~~priority oflien ~~$185 million~~on ~~aggregate~~all ~~principal~~but ~~amount~~one of ~~Senior~~the Company’s ~~Secured~~and ~~Floating~~the ~~Rate~~Company’s ~~Notes~~guarantor ~~due~~subsidiaries’ ~~2012.~~owned ~~The~~real ~~notes~~properties ~~will~~and hereafter beacquired ~~unconditionally~~real ~~guaranteed~~properties and on asubstantially ~~senior~~all ~~secured basis by each~~ of the Company’s ~~existing~~ and the ~~future~~Company’s ~~domestic~~guarantor subsidiaries’ ~~that~~owned ~~are~~motor ~~not unrestricted domestic subsidiaries~~vehicles, other than ~~certain~~those constituting ~~immaterial~~excluded ~~subsidiaries.~~assets, Weand ~~will~~by ~~pay interest on the notes in cash at an annual rate equal to six month LIBOR plus~~ a ~~margin~~second ofpriority ~~7.250%,~~lien ~~semi-annually~~ on ~~April 15~~those ~~and October 15~~ of ~~each year, commencing October 15, 2007. The gross proceeds from~~ the Company’s ~~sale,~~assets ~~which~~and ~~are expected to be $182.2 million (after original issue discount), will be used to refinance existing indebtedness, including~~ the ~~redemption~~assets of the Company’s ~~outstanding~~guarantor ~~12%~~subsidiaries ~~Senior~~which secure ~~Secured~~the Notes due 2008 and Senior Secured Floating Rate Notes due 2008 at a call price of 103%, or $119.8 million, Third Priority Senior Secured Notes due 2008, Senior Unsecured Term Notes due 2008, to buyout certain vehicle operating leases, for general corporate purposes and to pay related transaction fees and expenses. The Company’s ~~expects to write off $2.8 million of deferred financing costs~~ and ~~$0.8 million~~their ofobligations ~~original~~under ~~issue discount in~~ the ~~fourth~~Company’s ~~quarter~~amended ofrevolving credit ~~fiscal~~facility ~~2007 relating to~~ (the ~~existing~~“Amended ~~indebtedness~~and toRestated beCredit ~~paid.~~Facility”) ~~The~~on ~~closing~~a offirst ~~the sale, which is subject to customary conditions, is scheduled for May 15, 2007.~~priority basis.

InOn ~~connection with the issuance of the Senior Secured Floating Rate Notes due 2012~~July 13, we2007 ~~expect~~an toSEC ~~amend~~registered ~~and~~exchange ~~restate~~offer ~~our~~was ~~senior~~completed ~~credit~~with ~~facility~~respect to provide up to $35.0 of borrowing availability under a revolving credit facility, subject to customary borrowing conditions, plus $10.0 million in available letters of credit. The amended credit facility will be secured by a first priority lien on substantially all of our and our subsidiaries’ assets, other than the ~~collateral securing the Senior Secured Floating Rate~~ Notes ~~due 2012 on a first lien basis~~. In it is anticipated that the amended credit facility will extend the term of our existing credit facility from February 29, 2008 to December 31, 2011. The minimum LTM EBITDA covenant is expected to be $26.0 million which will only be tested if excess availability falls below certain levels.

~~The~~(b) ~~Company~~Concurrently ~~and~~with ~~its~~the ~~parent~~issuance ~~Atlantic~~of ~~Express~~the ~~Transportation~~Notes, ~~Group~~the ~~Inc.~~Company ~~(‘‘AETG’’)~~and ~~have~~substantially ~~entered~~all ~~into~~of anits subsidiaries also amended and restated ~~employment~~its ~~agreement,~~existing ~~dated~~senior ascredit offacility ~~April 18, 2007,~~ with ~~Domenic~~Wachovia ~~Gatto~~to ~~that~~provide ~~provides~~up ~~for~~to ~~his~~$35.0 ~~continued~~million ~~employment~~of ~~with~~borrowing ~~the~~availability ~~Company~~under ~~through~~a ~~December 31~~revolving credit facility, ~~2009~~subject to customary borrowing conditions, plus a $10.0 ~~The~~million ~~term~~letter of Mrcredit facility. ~~Gatto’s~~ ~~employment~~The ~~may~~Amended beand ~~extended~~Restated ~~each~~Credit ~~year~~Facility ~~for~~is asecured ~~period~~by ofa ~~one~~first ~~year~~priority atlien ~~the~~on ~~option~~substantially all of the Company.’s ~~Mr. Gatto~~and ~~was~~its ~~appointed~~subsidiaries’ ~~Chief Executive Officer~~assets, ~~President~~other ~~and~~than ~~Vice~~collateral ~~Chairman~~securing of the ~~Board~~Notes ~~under~~on ~~the~~a ~~employment~~first ~~agreement.~~priority ~~Mr. Gatto~~basis, isand ~~entitled~~by toa ~~receive~~second anpriority ~~annual~~lien ~~bonus~~on ~~equal~~the toreal ~~15%~~property ofsecuring ~~his~~the ~~base~~Notes ~~salary~~on ~~for~~a ~~each~~first ~~fiscal~~priority ~~year~~basis. inIn ~~which~~addition, the ~~Company’s~~term ~~adjusted~~of ~~EBITDA~~the ~~exceeds~~credit byfacility ~~10%~~was ~~the~~extended ~~projected~~to ~~EBITDA~~December 31, 2011. The ~~annual~~Amended ~~bonus~~and isRestated ~~increased~~Credit toFacility ~~25%~~contains ofcertain ~~his~~financial ~~base~~covenants, ~~salary~~including ~~for~~a ~~each~~minimum ~~year~~last in12 ~~which~~month ~~the~~(“LTM”) ~~actual~~ EBITDA ~~exceeds~~covenant ~~the~~of ~~projected~~$26.0 ~~EBITDA~~million, bywhich ~~15%.~~will Inonly ~~the~~be ~~event~~tested ofif aexcess ~~specified~~availability ~~change~~falls ofbelow ~~control~~certain oflevels. ~~AETG~~The orCompany’s ~~the~~LTM ~~Company,~~EBITDA Mrwas $14. ~~Gatto~~8 ~~will~~million ~~receive~~as aof ~~cash~~December ~~exit~~31, ~~bonus~~2008, ~~equal~~however to the ~~fair~~Company ~~market~~has ~~value~~maintained ofan ~~1.5%~~availability toover ~~3.0%~~the ~~based~~required ~~upon~~threshold ~~the~~and ~~fair~~therefore ~~market~~was ~~value~~not ofsubject to the ~~Company’s~~test ~~common~~for ~~shares~~any onperiods athrough ~~fully~~February ~~diluted~~23, ~~basis~~2009. asThe ofAmended ~~the~~and ~~date~~Restated ofCredit ~~such~~Facility ~~change~~also contains customary events of ~~control~~default.

The ~~AETG~~borrowing ~~and~~capacity under the ~~Company~~Amended ~~have~~and ~~entered~~Restated ~~into~~Credit anFacility ~~amended~~is ~~and~~based ~~restated~~upon 85% ~~employment~~of ~~agreement,~~the ~~dated~~net asamount of ~~April 18, 2007,~~eligible ~~with~~accounts ~~Nathan~~receivable ~~Schlenker,~~less reserves. Loans ~~which~~under ~~provides~~the ~~for~~facility ~~his~~bear ~~continued~~interest ~~employment~~at ~~with~~ the ~~Company~~prime ~~through~~rate which was 3.25% at December 31, 2008. Letters of credit are subject to a fee of 1% per annum payable monthly in arrears and any amounts paid by lenders for letters of credit will bear the same rate as loans under our revolving facility. The Company paid a closing fee of $400,000 which is being amortized over the term of ~~Mr. Schlenker’s~~the ~~employment~~financing ~~may~~and beis ~~extended~~required to pay a servicing fee of $10,000 per month, plus a monthly fee of 0.5% on any unused portion of its Amended and Restated Credit Facility.

At December 31, 2008, the Company’s debt under its $35.0 million Amended and Restated Credit Facility was approximately $15.9 million, and it had $3.6 million of borrowing availability after $6.3 million of reserves, based on the Company’s borrowing base calculations.

The Company’s obligation under the Swap is secured by the collateral securing our Amended and Restated Credit Facility and in connection therewith total reserves of approximately $7.7 million and $7.3 million for January and February 2009, respectively, were established against the Company’s borrowing base. In February 2008, the Company’s Amended and Restated Credit Facility was amended to change the calculation of the borrowing base for the purpose of the calculation of excess availability, solely in relation to testing the EBITDA covenant, to exclude the first $5.0 million of reserves established in connection with our Swap. This change was effective until February 15, 2009. On February 17, 2009 the effective date was extended until April 1, 2009 (see Note 8). Until August 28, 2008, excess availability was required to be at least $5.0 million at all times during the period from July 1 to August 31 of any year, and $8.0 million for the balance of the fiscal year. As of August 28, 2008, the Amended and Restated Credit Facility was amended to extend the period where excess availability required is $5.0 million from August 31 of any year to September 15 of any year. As of September 25, 2008, the Amended and Restated Credit Facility was further amended such that the excess availability requirement is as follows: (i) $5.0 million at all times during the period from July 1, 2008 to September 15, 2008, (ii) $8.0 million at all times during the period from September 16, 2008 to September 30, 2008, (iii) $4.5 million at all times during the period from October 1, 2008 to July 31, 2009, (iv) $4.0 million at all times during the period from August 1, 2009 to September 15, 2009, (v) $4.5 million at all times during the period from September 16, 2009 to November 1, 2009, (vi) $8.0 million at all times during the period from November 2, 2009 to June 30, 2010, (vii) $5.0 million at all times during the period from July 1 to September 15 of any year (commencing in 2010), and (viii) $8.0 million at all times during the period from September 16 of any year (commencing in 2010) through June 30 of the immediately following year. Based upon these amendments, the Company did not need to test the EBITDA covenant through February 23, 2009. If the reserve in connection with the Swap increases it may have an adverse effect on the Company’s liquidity, whereby the Company might have to pursue additional funding alternatives including the potential sale of certain assets or operations to fund our liquidity requirements.

~~each~~LTM ~~year~~EBITDA ~~for~~was a$14.8 ~~period~~million as of ~~one~~December ~~year~~31, at2008 ~~the~~and ~~option~~we ofexpect ~~the~~LTM ~~Company.~~EBITDA ~~Mr. Schlenker~~to isbe ~~entitled~~below to$26.0 ~~receive~~million anfor ~~annual~~the ~~bonus~~next ~~equal~~twelve tomonths. ~~15%~~If ofour ~~his~~excess ~~base~~availability ~~salary~~ for ~~each~~the ~~fiscal~~purpose ~~year~~of intesting ~~which~~ the ~~Company’s adjusted~~ EBITDA ~~exceeds~~covenant byfalls ~~10%~~below ~~the~~certain ~~projected~~levels, ~~EBITDA.~~this ~~The~~will ~~annual~~generate ~~bonus~~a isdefault ~~increased~~under toour ~~25%~~Amended ofand ~~his~~Restated ~~base~~Credit ~~salary~~Facility ~~for~~and ~~each~~under ~~year~~certain incircumstances ~~which~~cause ~~the~~a ~~actual~~cross ~~EBITDA~~default ~~exceeds~~under the ~~projected~~Notes. ~~EBITDA~~Although bythe ~~15%.~~Company Inbelieves ~~the~~that ~~event~~it ofwould abe ~~specified~~able ~~change~~to ofreceive ~~control~~a waiver of ~~the~~this ~~Company~~default orfrom ~~AETG~~Wachovia, ~~Mr. Schlenker~~there ~~will~~can ~~receive~~be ano ~~cash~~assurance ~~exit~~that ~~bonus~~this ~~equal~~is to the ~~fair~~case ~~market~~or ~~value~~what ofthe ~~0.5%~~cost to ~~1.5% based upon~~ the ~~fair~~Company ~~market~~might ~~value~~be. ofIf the Company’s ~~common~~would ~~shares~~not onbe able to receive a ~~fully~~waiver, ~~diluted~~then ~~basis~~the asamount of the ~~date~~Amended ofand ~~such~~Restated ~~change~~Credit ofFacility ~~control~~would be reclassified to a short-term liability.

4. New Paratransit Contract

In December 2008, a subsidiary of the Company was awarded a new paratransit contract by the New York City Transit Authority (the “TA”) effective June 1, 2009. The TA estimates the total amount of this contract to be approximately $517.0 million. This contract is for a term of ten years with an option for an additional ten years. The subsidiary has extended its existing contract, which was to expire on December 31, 2008 for an additional five months at the existing terms and conditions that existed on December 31, 2008.

5. Amended Employment Contracts

On December 16, 2008, the employment contracts of Domenic Gatto, our Chief Executive Officer and President and Nathan Schlenker, our Chief Financial Officer were amended to conform the employment agreements to Section 409A of the Internal Revenue Code. In addition, each of the agreements was amended to delete those provisions granting Messrs Gatto and Schlenker annual bonuses in the event the Company achieves results that exceeded projected EBITDA.

6. Equity

In July 2008, we issued 20,362 common shares pursuant to the exercise of warrants which had been issued in connection with our previously outstanding third priority senior secured notes, and received aggregate proceeds of $204.

7. Environmental Issues

By letter dated August 31, 2007, Fiore Bus Service, Inc., a subsidiary of the Company, was notified by the US Environmental Protection Agency, or EPA, of a potential liability in connection with the remediation of the Sutton Brook Disposal Area Superfund site in Tewksbury, Massachusetts. EPA estimated in Fall 2007 that the cost to remediate this site is approximately $30 million and is seeking an agreement from the identified potentially responsible parties, or PRPs, including Fiore, to undertake the remediation of the site and has also demanded reimbursement of EPA's expenses and oversight costs, which EPA stated in its August 2007 letter to be approximately $5.2 million for work performed to date. Under the federal Comprehensive Environmental Response, Compensation and Liability Act, persons who are identified as PRPs such as Fiore may be subject to strict, joint and several liability for the entire cost of cleaning up environmental contamination at sites where hazardous substances have been released. The Company had acquired Fiore in 1998 and the allegations regarding Fiore relate to events which occurred during the 1980s. The Company has taken the position that any liability Fiore may have had regarding the remediation of the Sutton Brook site was discharged in its Chapter 11 bankruptcy reorganization. While Fiore intends to pursue this defense vigorously and believes that its ultimate allocation of costs for this site, if any, should not be material, we can offer no assurance that the bankruptcy defense will be upheld in court or that Fiore's share of any liability will not be material.

8. Subsequent Event

On February 17, 2009, the Amended and Restated Credit Facility was amended to provide that at all times prior to April 1, 2009, the calculation of the borrowing base for the purpose of calculating excess availability, solely in relation to testing the EBITDA covenant, shall exclude the first $5.0 million of reserves established in connection with the Swap. Without the amendment, such reserves would have been included in the borrowing base calculation effective as of February 16, 2009.

9. New Accounting Standards

In September 2006, the FASB issued Statement of Financial Accounting Standards (“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 was effective for the Company for the fiscal year beginning July 1, 2008 and had no material impact on its consolidated financial statements.

In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, “Partial Deferral of the Effective Date of Statement 157”. FSP 157-2 delays the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The Company is currently evaluating the impact of SFAS 157 on non-financial assets and non-financial liabilities, but does not expect the adoption to have a material impact on its consolidated financial statements.

In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” This FSP applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with SFAS 157. This FSP clarifies the application of SFAS 157 in determining the fair values of assets or liabilities in a market that is not active. This FSP was effective upon issuance, including prior periods for which financial statements have not been issued. The adoption of this FSP did not have a material impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 gives the Company the irrevocable option to carry many financial assets and liabilities at fair values, with changes in fair value recognized in earnings. This statement was effective for the Company for the fiscal year beginning July 1, 2008 and did not have a material impact on its consolidated financial statements as the Company did not elect this fair value option on any financial assets or liabilities.

Effective July 1, 2008, the Company adopted EITF Issue No. 07-1, “Accounting for Collaborative Arrangements” (“EITF 07-1”). EITF 07-1 defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. EITF 07-1 also establishes the appropriate income statement presentation and classification for joint operating activities and payments between participants, as well as the sufficiency of the disclosures related to these arrangements. The adoption of EITF 07-1 did not have a material impact on the Company’s consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133”. SFAS 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. SFAS 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of SFAS 133 have been applied, and the impact that hedges have on an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact of SFAS 161, but does not expect the adoption of SFAS 161 to have a material impact on its consolidated financial statements.

In June 2008, the FASB ratified the consensus reached on EITF Issue No. 07-05, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”. EITF Issue No. 07-05 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which would qualify as a scope exception under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” EITF Issue No. 07-05 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption for an existing instrument is not permitted. The Company is currently evaluating the impact of EITF Issue No. 07-05, but does not expect the adoption of EITF Issue No. 07-05 to have a material impact on its consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Atlantic Express Transportation Corp. (‘‘“we’’” or the ‘‘“Company’’”) is the ~~fourth~~third 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. We have contracts with approximately ~~120~~ 104 school districts in New York, Missouri, Massachusetts, California, Pennsylvania, and New Jersey~~, and Illinois~~. For fiscal ~~2007~~2009, we have ~~contracts~~a contract 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 ~~March~~ December 31, ~~2007,~~ 2008, we had a fleet of approximately 5,~~700~~600 vehicles operating from approximately 60 50 facilities.

School bus transportation services accounted for 8886.98% and 8887.68% of our revenues from ~~continuing~~ operations for the ~~nine~~six months ended ~~March~~ December 31, ~~2007~~ 2008 and ~~2006~~2007, respectively. Our school bus transportation contracts have provided a relatively predictable and stable stream of revenues over their terms, which generally initially range from one to five years. Since 1979, we have achieved substantial contract renewals, which we believe is due to (1) our reputation for passenger safety and providing efficient, on-time service, (2) our long-standing relationships with the school districts we service, (3) the preference of school districts to maintain continuity of service with their current proven contractor rather than risk the uncertainty associated with a replacement and (4) the disadvantage of prospective competitors, who generally would have to make substantially greater investments than we would in new equipment and who may experience difficulty obtaining suitable parking and maintenance facilities in our primary markets, especially in the New York City greater metropolitan area.

Paratransit and transit services accounted for 1113.12% and 1112.42% of our revenues from ~~continuing~~ operations for the ~~nine~~six months ended ~~March~~ December 31, ~~2007~~ 2008 and ~~2006~~2007, respectively. ~~The terms of our paratransit and transit contracts generally are initially for five years.~~ These contracts are awarded by public transit systems through a public bidding or request for proposal (‘‘"RFP’’") process. We are generally entitled to a specified charge per hour of vehicle service together with other fixed charges. In December 2008, a subsidiary of the Company was awarded a new paratransit contract by the TA effective June 1, 2009. The TA estimates the total amount of this contract to be approximately $517.0 million. This contract is for a term of ten years with an option for an additional ten years. The subsidiary has extended its existing contract, which was to expire on December 31, 2008 for an additional five months at the existing terms and conditions that existed on December 31, 2008.

Results of Operations~~(1)~~

		Three Months Ended March 31,																		Nine Months Ended March 31,
	Three Months Ended December 31,													Six Months Ended December 31,
		2007									2006									2007								2006
	2008							2007						2008					2007
	(unaudited)	~~(unaudited)~~												(unaudited)						~~(unaudited)~~
	(in millions, except percentages)	~~(in millions, except percentages)~~
Revenues	$	119.1	$	~~122.4~~		100.0	%	$	~~100~~119.04	%	100.0	$%	~~119.0~~	$	191.3		100.0	%	$	186.4	$	~~311.2~~		100.0	%	~~100.0~~	%		$	~~295.9~~		~~100.0~~	%
Cost of operations		108.0		~~107.0~~		90.7	%		87105.41	%	88.0	%	~~104.8~~		182.9		8895.16	%		174.6		~~278.9~~		93.7	%	~~89.6~~	%			~~267.7~~		~~90.5~~	%
General and administrative		4.6		~~4.8~~		3.8	%		34.96	%	3.8	%	~~4.5~~		8.7		34.85	%		8.6		~~13.4~~		4.6	%	~~4.3~~	%			~~14.3~~		~~4.8~~	%
Depreciation and amortization		4.4		~~4.7~~		3.7	%		34.87	%	3.9	%	~~9.9~~		8.8		84.36	%		9.4		~~13.8~~		5.0	%	~~4.5~~	%			~~21.7~~		~~7.3~~	%
Income (loss) from operations		2.1		~~6.0~~		1.8	%		45.90	%	4.2	%	~~(0.2~~	)	(9.0	)	(04.27	)%		(6.1	)	~~5.1~~		(3.3	)%	~~1.6~~	%			~~(7.9~~	)	~~(2.7~~	)%
Interest expense		9.3		~~6.8~~		7.8	%		59.6	%	8.1	%	~~6.2~~		14.6		57.26	%		19.5		~~20.1~~		10.5	%	~~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	)%
Net loss		(7.2	)			(6.1	)%		(4.7	)	(3.9	)%			(23.4	)	(12.2	)%		(25.5	)			(13.7	)%

~~(1)~~Results of ~~All~~Operations ~~figures~~- ~~are~~Three ~~from~~Months ~~continuing~~Ended ~~operations.~~December 31, 2008 Compared to Three Months Ended December 31, 2007

Revenues. Revenues ~~Results~~from ofschool ~~Operations~~bus –operations ~~Three~~were ~~Months~~$106.5 million ~~Ended~~for ~~March~~ the three months ended December 31, ~~2007~~ ~~Compared~~2008 compared to ~~Three~~$108.8 million ~~Months~~for ~~Ended~~the ~~March~~ three months ended December 31, 2007, a decrease of $2.3 ~~2006~~million, or 2.1%. This decrease was due primarily a reduction in service requirements of $2.8 million, due primarily to two less school days in New York City and $2.9 million in lost contracts partially offset by $3.3 million of price increases and $0.1 million in new contracts.

Revenues~~. Revenues~~ from ~~school~~paratransit ~~bus~~and transit operations were $~~111~~12.3 5 million for the three months ended ~~March~~ December 31, ~~2007~~ 2008 compared to $~~108~~10.16 million for the three months ended ~~March~~ December 31, ~~2006~~ 2007, an increase of $31.2 9 million, or 217.9%. This increase was primarily due to ~~$3.8 million~~an increase ofin ~~price~~service ~~increases~~requirements ~~and~~(our ~~$2.9 million~~paratransit ofoperations ~~service~~were ~~requirement~~adversely effected ~~increases~~by ~~due~~a ~~primarily~~ten-day tolabor ~~approximately~~strike ~~140 new routes~~ in ~~New~~December ~~York~~2007) ~~City~~and ~~operations that started February 22, 2006 offset~~ by ~~$2.9 million~~price ~~in sold contracts and~~ increases of $0.~~6 million~~3 ~~in lost contracts~~million.

Revenues from paratransit and transit operations were $11.2 million for the three months ended March 31, 2007 compared to $10.9 million for the three months ended March 31, 2006, an increase of $0.2 million or 2.1% due to price increases and increases in service requirements from existing contracts.

Cost of Operations. Cost of operations of school bus operations were $96.8 million for the three months ended March 31, 2007 compared to $95.0 million for the three months ended March 31, 2006, an increase of $1.9 million or 2.0%. As a percentage of revenues, cost of operations decreased to 87.0% from 87.8% for the three months ended March 31, 2006. Salaries and wages were $52.5 million for the three months ended March 31, 2007 compared to $51.3 million for the three months ended March 31, 2006, an increase of $1.2 million or 2.4%. This increase was primarily due to more employees needed to service additional routes in New York City. As a percentage of revenues, salaries and wages decreased to 47.2% from 47.4%. Vehicle lease expense increased by $1.4 million as the Company continues to finance its vehicle requirements through the use of operating leases.

Cost of operations of paratransit and transit operations were $10.2 million for the three months ended March 31, 2007 compared to $9.8 million for the three months ended March 31, 2006, an increase of $0.3 million or 3.3%. 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.

General and administrative expenses. General and administrative expenses from school bus operations were $4.0 million for the three months ended March 31, 2007 compared to $3.9 million for the three months ended March 31, 2006, an increase of $0.1 million or 2.5%. This increase was primarily due to a $0.4 million increase in professional fees partially offset by $0.2 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.

General and administrative expenses from paratransit and transit operations were $0.7 million for the three months ended March 31, 2007 compared to $0.6 million for the three 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 March 31, 2006.

Depreciation and amortization. Depreciation 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.

Depreciation and amortization expense from paratransit and transit operations was $0.4 million for the three months ended March 31, 2007 and for the three months ended March 31, 2006.

Income (loss) from operations. Income from school bus operations was $6.1 million for the three months ended March 31, 2007 compared to a loss of $0.3 million for the three months ended March 31, 2006, an increase of $6.4 million, due to the net effect of the items discussed above.

Loss from paratransit and transit operations was $0.1 million for the three months ended March 31, 2007 compared to income of $0.1 million for the three months ended March 31, 2006, a decrease of $0.2 million, due to the net effect of the items discussed above.

Interest expense. Interest expense from continuing operations was $6.8 million for the three months ended March 31, 2007 compared to $6.2 million for the three months ended March 31, 2006, an increase of $0.6 million, or 9.2%. The increase was primarily due to $0.6 million in payment in kind (‘‘PIK’’) interest due to the Company not satisfying the maintenance of net leverage test on September 30, 2006 under the Indenture governing its outstanding senior secured notes due 2008 (the ‘‘Notes’’).

Cost of ~~Loss~~Operations. Cost ~~before~~of ~~discontinued~~operations of school bus operations was $96. ~~Due~~2 million for the three months ended December 31, 2008 compared to $95.1 million for the ~~net~~three ~~effect~~months ended December 31, 2007, an increase of $1.1 million or 1.2%. This increase was primarily due to increases in workers compensation insurance expense of $5.8 million (our insurance company changed loss development factors for our workers' compensation and primary automobile liability claims which resulted in significant changes in the ~~items~~related ~~discussed~~expenses ~~above~~for wepolicy ~~experienced~~periods aranging from 2001 through 2007), $0.7 9 million ~~loss~~increase ~~before~~in ~~discontinued~~other ~~operations~~fringe benefits and an increase in vehicle lease expense of $0.6 million. These increases were partially offset by a $5.3 million decrease in automobile liability insurance expense and a $1.1 million reduction in fuel expense. Salaries and wages were $53.8 million for the three months ended ~~March~~ December 31, 2008 and 2007. As a percentage of revenues, ~~compared~~salaries and wages increased to a50.5% ~~loss~~for ofthe $6three months ended December 31, 2008, from 49.~~4 million~~5% for the three months ended ~~March~~ December 31, ~~2006,~~ 2007. As a ~~decrease~~percentage inof ~~loss~~revenues, cost of $5operations increased to 90.~~7 million~~3% for the three months ended December 31, 2008, from 87.4% for the three months ended December 31, 2007.

Cost of ~~Results~~operations of ~~Operations~~paratransit –and ~~Nine~~transit ~~Months~~operations ~~Ended~~were ~~March~~$11.8 million for the three months ended December 31, ~~2007~~ ~~Compared~~2008 compared to ~~Nine~~$10.0 ~~Months~~million ~~Ended~~for ~~March~~the three months ended December 31, 2007, an increase of $1.8 million or 17.9%. This increase was primarily due to an increase in driver wages of $0.9 million due primarily to increased operations, and $0.9 million increase in workers' compensation expense. As a percentage of revenues, salaries and wages decreased to 51.9% for the three months ended December 31, 2008, from 53.1% for the three months ended December 31, 2007. As a percentage of revenues, cost of operations were 94.0% for the three months ended December 31, 2008 and 2007. We had a labor strike on December 10, ~~2006~~2007 affecting our paratransit operations which lasted for ten days. On December 19, 2007 we entered into a new collective bargaining agreement with the relevant union.

General and administrative ~~Revenues~~expenses. ~~Revenues~~ General and administrative expenses from school bus operations were $~~276~~3.~~6 million~~9 ~~for the nine months ended March 31, 2007 compared to $262.2~~ million for the ~~nine~~three months ended ~~March~~ December 31, ~~2006,~~ an2008 ~~increase of $14.3 million~~and 2007, ~~or 5~~respectively.~~5%.~~ As ~~This~~a ~~increase~~percentage ~~was due to $9.8 million~~ of ~~price~~revenues, ~~increases~~general and administrative ~~$12.8 million~~expenses ofincreased ~~service requirement increases due primarily~~ to ~~five more revenue days ($5~~3.~~0 million)~~7% ~~and~~for ~~approximately~~the ~~140~~three ~~new~~months ~~routes~~ended inDecember 31, ~~New York City operations that started February 22~~2008, ~~2006~~ ~~($6~~from 3.~~0 million)~~5% ~~offset~~for bythe ~~$7.0 million~~three inmonths ~~sold~~ended ~~contracts~~ and ~~$1.3 million~~December ~~in lost contracts.~~31, 2007.

~~Revenues~~General and administrative expenses from paratransit and transit operations were $340.6 7 million for the ~~nine~~three months ended ~~March~~ December 31, ~~2007~~ ~~compared~~2008 toand ~~$33~~2007, respectively.~~6 million~~ As ~~for~~a ~~the~~percentage ~~nine~~of revenues, ~~months~~general ~~ended~~and ~~March 31, 2006,~~administrative anexpenses ~~increase~~decreased ofto $15.~~0 million~~2% orfor ~~3.0%~~the ~~due~~three months toended ~~price~~December ~~increases~~31, ~~and~~2008, ~~increases~~from in6.7% ~~service~~for ~~requirements~~the ~~from~~three ~~existing~~months ~~contracts.~~ended December 31, 2007.

~~Cost~~Depreciation ~~of Operations~~and amortization. ~~Cost~~ Depreciation ofand ~~operations~~amortization ofexpense from school bus operations ~~were~~was $~~247~~4.8 1 million for the ~~nine~~three months ended ~~March~~ December 31, ~~2007~~ 2008 compared to $~~238~~4.13 million for the ~~nine~~three months ended ~~March 31, 2006,~~December ~~an increase of $9.7 million or 4.1%. As a percentage of revenues, cost of operations decreased to 89.6% from 90.8% for the nine months ended March~~ 31, ~~2006.~~ ~~Salaries and wages were $134.1 million for the nine months ended March 31,~~ 2007 ~~compared to $130.6 million for the nine months ended March 31~~, ~~2006,~~ a andecrease ~~increase~~ of $30.52 million, or 25.73%. This ~~increase~~decrease was primarily due to ~~more~~the ~~employees~~Company ~~needed~~having tolower ~~service~~depreciation ~~additional~~expense ~~routes~~for ~~and~~the anthree ~~increase~~months inended December ~~payroll days in New York City. As a percentage of revenues~~31, ~~salaries~~2008 ~~and wages decreased to 48.5% from 49.8%. Employee fringe benefits increased by $3.0 million and vehicle lease expense increased by $5.2 million~~ as ~~the~~some ~~Company~~of ~~continues to finance its vehicle requirements through~~ the ~~use~~assets ofare ~~operating~~now ~~leases~~fully depreciated.

Depreciation ~~Cost~~and ofamortization ~~operations~~expense offrom paratransit and transit operations ~~were~~ was $310.13 million for the ~~nine~~three months ended ~~March~~ December 31, ~~2007~~ 2008 compared to $290.7 4 million for the ~~nine~~three months ended ~~March~~ December 31, ~~2006~~ 2007, ana ~~increase~~decrease of $10.5 1 million, or 420.9%. This ~~increase~~decrease was primarily due to anthe ~~increase~~Company having inlower ~~salaries~~depreciation ~~and~~expense ~~wages, employee fringe benefits and an increase in vehicle maintenance costs. As a percentage of revenues, salaries and wages decreased to 51.3%, from 51.4%~~ for the ~~nine~~three months ended ~~March~~ December 31, ~~2006.~~ As2008 as asome ~~percentage~~ of ~~revenues, cost of operations increased to 89.9% for~~ the ~~nine~~assets ~~months~~are ~~ended~~now ~~March 31,~~fully ~~2007, from 88~~depreciated.~~3% for the nine months ended March 31, 2006.~~

~~General~~Income ~~and~~from ~~administrative expenses~~operations. ~~General~~ Operating ~~and~~income ~~administrative expenses~~ from school bus operations ~~were~~was $112.3 million for the three ~~nine~~ months ended ~~March~~ December 31, ~~2007~~ 2008 compared to $125.6 5 million for the ~~nine~~ three months ended ~~March~~ December 31, ~~2006~~ 2007, a decrease in income of $1.3.2 million, or 10 58.14%., ~~This decrease was primarily~~ due to ~~decreases in administrative payroll including a $0.5 million contract renewal bonus paid to certain executives in connection with~~ the ~~extension~~net ~~agreement~~effect ~~with the New York City Department~~ of ~~Education (~~the ~~‘‘DOE’’)~~items ~~and~~discussed $0above.5 million in costs for establishing vehicle lease financing facilities for the nine months ended March 31, 2006. As a percentage of revenues, general and administrative expenses decreased to 4.1%, from 4.8% for the nine months ended and March 31, 2006.

~~General~~Operating ~~and~~loss ~~administrative expenses~~ from paratransit and transit operations ~~were~~was $20.12 million for the ~~nine~~three months ended ~~March~~ December 31, ~~2007~~ 2008 compared to $10.74 million loss for the ~~nine~~three months ended ~~March~~ December 31, ~~2006~~ 2007, ana ~~increase~~decrease in loss of $0.3 million, or 2058.35%. ~~This increase was primarily~~ due to anthe ~~increase~~net ineffect ~~administrative payroll and fringe benefits. As a percentage~~ of ~~revenues, general and administrative expenses increased to 6.0%, from 5.1% for~~ the items ~~nine~~discussed ~~months ended March 31, 2006~~above.

Interest ~~Depreciation and amortization~~expense. ~~Depreciation~~ Interest ~~and amortization~~ expense ~~from school bus operations~~ was $129.8 3 million for the ~~nine~~ three months ended ~~March~~ December 31, ~~2007~~ 2008 compared to $209.56 million for the ~~nine~~ three months ended ~~March~~ December 31, ~~2006~~ 2007, a decrease of $70.7 3 million, or 373.5%. ~~This~~ The decrease was primarily due to a $0.2 million non-cash change in fair market value of interest rate swap expense.

Loss before provision for income taxes. Due to the net effect of the items discussed above we experienced a loss of $7.2 million for the three months ended December 31, 2008, compared to a loss of $4.6 million for the three months ended December 31, 2007, an increase in loss of $2.6 million.

Results of Operations - Six Months Ended December 31, 2008 Compared to Six Months Ended December 31, 2007

Revenues. Revenues from school bus operations were $166.0 million for the six months ended December 31, 2008 compared to $163.7 million for the six months ended December 31, 2007, an increase of $2.4 million, or 1.4%. This increase was due primarily to $4.3 million of price increases, $1.6 million increase in service requirements (due primarily to one more school day in New York City and an increase in summer revenues of $0.7 million) and $0.5 million increase in New York City Department of Education (“DOE’) escort reimbursement revenue, partially offset by $4.1 million in lost contracts.

~~primarily~~Revenues ~~due~~from toparatransit aand transit operations were $425.7 3 million ~~impairment~~for ~~charge~~the onsix ~~fixed~~months ~~assets~~ended December 31, 2008 compared to $22.8 million for the ~~nine~~six months ended ~~March~~ December 31, ~~2006~~2007, ~~and~~an increase ~~the~~of ~~Company having~~ $32.0 6 million ofor ~~lower~~11.2%. ~~depreciation~~This ~~expense~~increase aswas ~~some~~primarily ofdue ~~the~~to ~~assets~~an increase ~~are~~in ~~now~~service ~~fully~~requirements ~~depreciated.~~(our ~~The~~paratransit ~~Company~~operations ~~continues~~were toadversely effected ~~finance~~by ~~its~~a ~~vehicle~~ten-day ~~requirements~~labor ~~through~~strike ~~the~~in ~~use~~December of2007) ~~operating~~and ~~leases~~by ~~(see~~price ~~‘‘Cost~~increases of $0.6 ~~operations’’ above)~~million.

Cost of ~~Depreciation~~Operations. Cost ~~and~~of ~~amortization~~operations ~~expense~~of ~~from~~school ~~paratransit~~bus ~~and transit~~ operations was $1159.1 2 million for the ~~nine~~six months ended ~~March~~ December 31, ~~2007~~ 2008 compared to $1154.2 0 million for the ~~nine~~six months ended ~~March~~ December 31, 2007, an increase of $5.2 ~~2006~~million or 3.4%. This increase was primarily due to increases in workers compensation insurance expense of $6.2 million (our insurance company changed loss development factors for our workers' compensation and primary automobile liability claims which resulted in significant changes in the related expenses for policy periods ranging from 2001 through 2007), a$1.3 million ~~decrease~~increase in other fringe benefits, increase in wages of $01.2 million and an increase in vehicle lease expense of $1 .1 million. These increases were partially offset by a $5.9 million decrease in automobile liability insurance expense. As a percentage of revenues, orsalaries 12and wages were 51.83% for the six months ended December 31, 2008 and 2007. As a percentage of revenues, cost of operations increased to 95.9% for the six months ended December 31, 2008, from 94.1% for the six months ended December 31, 2007.

~~Income~~Cost ~~(loss)~~of ~~from~~ operations~~. Income~~ ~~from~~of ~~school~~paratransit ~~bus~~and transit operations ~~was~~were $423.78 million for the ~~nine~~six months ended ~~March~~ December 31, ~~2007~~ 2008 compared to a $820.9 6 million ~~loss~~ for the ~~nine~~six months ended ~~March~~ December 31, ~~2006~~ 2007, an increase of $3.2 million or 15.4%. This increase was primarily due to an increase in ~~income~~driver ofwages $131.5 million, due primarily to increased operations, $0.8 million increase in workers’ compensation expense and $0.5 million increase in vehicle lease expense. As a percentage of revenues, salaries and wages increased to 51.4% for the ~~net~~six ~~effect~~months ended December 31, 2008, from 51.0% for the six months ended December 31, 2007. As a percentage of revenues, cost of operations increased to 93.9% for the ~~items~~six ~~discussed~~months ~~above~~ended December 31, 2008, from 90.5% for the six months ended December 31, 2007. We had a labor strike on December 10, 2007 affecting our paratransit operations which lasted for ten days. On December 19, 2007 we entered into a new collective bargaining agreement with the relevant union.

~~Income~~General ~~from~~and ~~paratransit~~administrative expenses. General and ~~transit~~administrative expenses from school bus operations ~~was~~were $07.4 million for the ~~nine~~six months ended ~~March~~ December 31, ~~2007~~ ~~compared~~2008 compared to $17.0 2 million for the ~~nine~~six months ended ~~March~~ December 31, ~~2006~~ 2007, aan ~~decrease~~increase of $0.6 3 million, or 613.56%,. This increase was primarily due to ~~the~~increases ~~net~~in professional ~~effect~~fees and advertising expenses. As a percentage of revenues, general and administrative expenses were 4.5% for the ~~items~~six ~~discussed~~months ~~above~~ended December 31, 2008 compared to 4.4% for the six months ended December 31, 2007.

~~Interest~~General ~~expense. Interest~~and ~~expense~~administrative expenses from ~~continuing~~paratransit and transit operations was $~~20.~~1 .3 million for the ~~nine~~six months ended ~~March~~ December 31, ~~2007~~ 2008 compared to $191.2 4 million for the ~~nine~~six months ended December ~~March~~ 31, ~~2006~~ 2007, ana ~~increase~~decrease of $0.8 2 million, or 412.2%. This ~~The increase~~ decrease was primarily due to $1reduced adverting expense.~~2 million~~ As ina ~~PIK~~percentage ~~interest~~of revenues, ~~offset~~general byand aadministrative $0expenses decreased to 5.~~4 million~~0% ~~decrease~~for inthe ~~interest~~six months ~~expense~~ended onDecember ~~all~~31, ~~other~~2008, ~~debt~~from 6.3% for the six months ended December 31, 2007.

~~Loss~~Depreciation ~~before discontinued operations~~and amortization. ~~Due~~ Depreciation toand ~~the~~amortization ~~net~~expense ~~effect~~from school ofbus ~~the~~operations ~~items~~was ~~discussed~~$8.2 million ~~above~~for wethe ~~experienced~~six amonths ~~loss~~ended ~~before~~December 31, ~~discontinued~~2008 ~~operations~~compared ofto $~~14.~~8.7 million for the ~~nine~~six months ended ~~March~~ December 31, 2007, ~~compared to~~ a ~~loss~~decrease of $~~27.~~0.5 million, or 5.3%. This decrease was primarily due to the Company having lower depreciation expense for the ~~nine~~six months ended December ~~March~~ 31, ~~2006,~~ a2008 ~~decrease~~as insome ~~loss~~ of ~~$12~~the assets are now fully depreciated.~~1 million.~~

Depreciation ~~Gain~~and ~~(loss)~~amortization expense from ~~discontinued~~paratransit ~~operations. We~~and ~~experienced~~transit ~~a gain from discontinued~~ operations of was $50.6 million ~~from~~for the ~~sale~~six ofmonths ~~T-NT~~ended ~~Bus~~December ~~Service~~31, ~~Inc~~2008 compared to $0.7 million for the ~~nine~~six months ended ~~March~~ December 31, 2007, ~~compared~~a todecrease aof $0.1 million, ~~minimal~~or ~~loss~~20.8%. This ~~from~~decrease ~~discontinued~~was ~~operations~~primarily due to the Company having lower depreciation expense for the ~~nine~~six months ended ~~March~~ December 31, ~~2006.~~ 2008 as some of the assets are now fully depreciated.

Loss from ~~Liquidity~~operations. Operating ~~and~~loss ~~Capital~~from ~~Resources~~school bus operations was $8.8 million for the six months ended December 31, 2008 compared to $6.2 million loss for the six months ended December 31, 2007, an increase in loss of $2.6 million, or 42.4% due to the net effect of the items discussed above.

~~The~~Operating ~~statements~~loss ~~regarding~~from ~~the~~paratransit ~~Company’s anticipated capital expenditures~~ and transit ~~service~~operations ~~requirements~~was ~~are~~$0.3 ~~‘‘forward~~million ~~looking’’~~compared ~~statements~~to ~~which~~minimal ~~involve~~income ~~unknown~~for ~~risks and uncertainties, such as~~ the ~~Company’s~~six months ~~ability~~ended toDecember ~~meet~~31, ~~or exceed its growth plans and/or available financing~~2007, ~~which~~a ~~may~~decrease ~~cause~~of ~~actual~~$0.3 ~~capital~~million ~~expenditures~~due to ~~differ~~the ~~materially~~net ~~from~~effect of ~~currently~~the ~~anticipated~~items ~~amounts~~discussed above.

Interest ~~The~~expense. Interest ~~Company~~expense ~~operated~~was a$14.6 ~~fleet~~million offor ~~approximately~~the ~~5,700~~six ~~vehicles~~months ended asDecember ~~of March~~ 31, ~~2007~~ ~~and~~2008 ~~consumes~~compared ~~substantial~~to ~~quantities~~$19.5 million offor ~~fuel~~the ~~for~~six ~~its~~months ~~operations.~~ended December ~~Based~~31, on2007, ~~the~~a ~~Company’s~~decrease ~~current~~of ~~operations~~$4.9 million, anor ~~increase~~25.1%. inThe ~~fuel~~decrease ~~costs~~was primarily ofdue 10to ~~cents~~a ~~per~~$4.4 ~~gallon~~million ~~will~~non-cash ~~increase~~change ~~its~~in ~~cost~~fair market value of ~~fuel~~interest rate ~~purchased~~swap byexpense ~~approximately~~and $1.0 .3 million ondecrease anin ~~annual~~interest ~~basis.~~expense on the Notes.

~~The~~Loss ~~Company~~before ~~anticipates~~benefit ~~approximately~~from $5income taxes.~~5 million~~ Due ofto ~~capital~~the ~~expenditures~~net ~~for~~effect of the ~~fiscal~~items ~~year~~discussed ~~ending~~above ~~June 30, 2007,~~we experienced ofa ~~which~~loss of $423.46 million ~~were made~~ for the ~~nine~~six months ended ~~March~~ December 31, ~~2007.~~ 2008 ~~The~~compared ~~Company~~to ~~has~~a ~~met~~loss ~~substantially all~~ of ~~its vehicle capital expenditures requirements by the use of vehicle operating leases. Vehicle lease expense increased~~ $525.2 6 million ~~from~~for the ~~nine~~six months ended ~~March~~ December 31, ~~2006.~~ 2007, ~~The~~a ~~Company~~decrease ~~anticipates~~in ~~its~~loss ~~vehicle~~of ~~lease expense will increase approximately~~ $62.~~3 million~~0 ~~for the fiscal year ending June 30, 2007 compared to the fiscal year ended June 30, 2006~~million.

On July 27, 2006, T-NT, a subsidiary of the Company, completed the sale of substantially all of its assets for a gross purchase price of $12.6 million. In addition, Domenic Gatto, the Company’s Chief Executive Officer and President, received $100,000 as consideration for entering into a five-year non-competition agreement. The Company recognized a gain on the sale of these assets of approximately $5.9 million in the first quarter of fiscal year 2007 which was included in gain from discontinued operations.

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

Liquidity ~~$5.2 million was a credit issued to the Company~~ and ~~$4.8 million~~Capital ~~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.~~ Resources

OnThe ~~September 30, 2006,~~statements ~~the~~regarding the Company’s ~~did~~anticipated ~~not~~capital ~~satisfy~~expenditures ~~the~~and ~~maintenance~~service ofrequirements ~~net~~are ~~leverage~~“forward looking” ~~test~~statements ~~under~~which ~~the~~involve ~~Indenture~~unknown ~~governing~~risks ~~its~~and ~~outstanding~~uncertainties, ~~Notes.~~such Asas ~~a result,~~ the Company’s isability ~~required~~ to ~~pay~~meet ~~additional~~or ~~interest~~exceed atits agrowth ~~rate~~plans ofand/or 2%available ~~per annum in the form of PIK notes. All PIK notes have identical terms to Notes on~~ financing, which ~~they~~may ~~are~~cause ~~payable.~~actual ~~The~~capital ~~Company~~expenditures ~~is also required~~ to ~~pay~~differ ~~the~~materially 2%from ~~per~~currently anticipated ~~annum of PIK interest to the holder of its outstanding Third Priority Secured Note as a result of not satisfying a comparable maintenance of net leverage test applicable to those notes~~amounts.

The ~~Although~~Company ~~the~~operated ~~Company~~a ~~engaged~~fleet inof ~~previously~~approximately ~~reported~~5,600 ~~sale~~vehicles ~~leaseback~~as ~~transactions~~of inDecember ~~2005~~31, 2008 and ~~2006~~consumes insubstantial ~~order~~quantities toof ~~generate~~fuel ~~additional~~for ~~liquidity,~~its ~~the~~operations. Based on the Company’s ~~does~~current ~~not~~operations, ~~currently~~an ~~contemplate~~increase ~~additional~~in ~~sale~~fuel ~~leaseback~~costs ~~transactions~~of 10 cents per gallon will increase its cost of fuel purchased by approximately $0.9 million on an annual basis.

The ~~Almost all of the~~ Company’s ~~long-term~~anticipates ~~debt~~capital isexpenditures ~~due~~for ~~over~~ the ~~next two~~ fiscal ~~years.~~year ~~Failure~~ending toJune ~~repay~~30, 2009 ~~such~~of ~~debt~~approximately at$7.0 ~~maturity~~million ~~would~~(including ~~constitute~~approximately ~~an event of default~~$5.0 Inmillion ~~order to address the upcoming maturity~~ of ~~the Company’s long~~ non-~~term~~vehicle ~~debt,~~capital ~~on May 1~~expenditures), ~~2007,~~ ~~the Company announced that it had priced a private offering~~ of ~~$185 million~~which ~~aggregate principal amount of Senior Secured Floating Rate Notes due 2012~~$3.6 ~~The~~million ~~notes~~were ~~will~~made beduring ~~unconditionally guaranteed on a senior secured basis by each of~~ the six ~~Company’s~~months ~~existing~~ended ~~and~~December ~~future domestic subsidiaries that are not unrestricted domestic subsidiaries~~31, ~~other than certain immaterial subsidiaries~~2008. The WeCompany ~~will~~has ~~pay~~met ~~interest on~~ the ~~notes in cash at an annual rate equal to six month LIBOR plus a margin~~ majority of ~~7.250%,~~its ~~semi-annually~~vehicle onrequirements ~~April 15~~for ~~and~~the ~~October 15~~fiscal ~~of each~~ year, ~~commencing~~ended ~~October 15, 2007.~~June ~~The gross proceeds from the sale~~30, ~~which~~2009 ~~are~~by ~~expected to be $182.2 million (after original issue discount), will be used to refinance existing indebtedness, including to fund~~ the ~~redemption~~ use of ~~the~~operating ~~Company’s~~leases ~~outstanding~~as ~~12%~~it ~~Senior~~did ~~Secured~~for ~~Notes~~the ~~due~~fiscal ~~2008~~year ~~and~~ended ~~Senior~~June ~~Secured Floating Rate Notes due~~ 30, 2008. Vehicle atlease aexpense ~~call~~increased ~~price of 103%, or~~ $~~119~~1.8 6 million, ~~Third~~for ~~Priority~~the ~~Senior~~six ~~Secured~~months ended ~~Notes~~December ~~due~~31, 2008, ~~Senior~~from ~~Unsecured~~the ~~Term~~six ~~Notes~~months ~~due~~ended ~~2008~~December 31, 2007. The toCompany ~~buyout~~anticipates ~~certain~~its vehicle ~~operating~~lease ~~leases,~~expense ~~for~~will ~~general~~increase by ~~corporate~~approximately ~~purposes and to pay related transaction fees and expenses~~$3. ~~The~~3 ~~closing~~million offor the ~~sale,~~fiscal ~~which~~year isending ~~subject~~June ~~to customary conditions~~30, ~~is scheduled for May 15, 2007.~~ 2009.

On May In15, ~~connection~~2007 ~~with~~ the ~~issuance~~Company ofissued ~~the~~$185.0 ~~Senior~~million aggregate principal amount of Senior Secured Floating Rate Notes due 2012, we(the ~~expect~~“Notes”). The toNotes ~~amend~~were issued ~~and~~with ~~restate~~an ~~our~~original ~~senior~~issue ~~credit~~discount ~~facility~~of ~~to provide up to~~ $352.08 ~~of borrowing availability under a revolving credit facility~~million, ~~subject~~which tois ~~customary~~being ~~borrowing~~amortized over ~~conditions,~~the ~~plus~~term ~~$10.0 million in available letters~~ of ~~credit.~~the notes. The ~~amended~~net ~~credit~~proceeds ~~facility~~of ~~will~~the beNotes ~~secured~~were byused to arepay ~~first~~$116.3 ~~priority~~million ~~lien on substantially all~~ of our ~~and~~previously ~~our subsidiaries’ assets~~outstanding notes, ~~other~~$15.5 ~~than~~million of the ~~collateral~~third-priority ~~securing~~senior ~~the~~secured ~~Senior~~notes, ~~Secured~~$4.9 million ~~Floating~~of ~~Rate~~the ~~Notes~~senior ~~due~~unsecured ~~2012~~notes, onrepayment of a ~~first lien basis~~$3.5 Inmillion itletter ~~is anticipated that the amended~~ of credit ~~facility~~advance, ~~will~~$1.6 ~~extend~~million ~~the term~~ of ~~our~~PIK ~~existing~~interest ~~credit~~converted ~~facility~~into ~~from February 29~~debt, ~~2008~~ ~~to December 31, 2011~~$12.1 ~~The~~million for ~~minimum~~the ~~LTM~~buyout ~~EBITDA~~of ~~covenant~~vehicle isoperating ~~expected~~leases toand be $264.0 8 million ~~which~~for ~~will~~outstanding administrative ~~only~~priority beclaims. The ~~tested~~balance ifwas ~~excess~~used ~~availability~~for ~~falls~~other corporate ~~below certain levels~~purposes.

Effective ~~The~~as ~~Company~~of May 15, in2007, ~~addition~~we entered into an interest swap agreement (the “Swap”) to reduce ~~normal~~our ~~working~~exposure ~~capital~~to ~~requirements~~interest rate fluctuations on the Notes, which bear interest at LIBOR plus a margin of 7.25%. The Swap has ~~significant~~a ~~interest~~notional amount ~~obligations~~of ~~and~~$185 ~~capital~~million ~~expenditure~~with ~~requirements~~a tofixed ~~finance~~rate ~~its~~of ~~operations~~5.21% ~~The~~instead ~~Company~~of ~~also~~LIBOR ~~uses~~thereby effectively ~~substantial~~converting ~~amounts~~the offloating ~~fuel~~rate innotes ~~its~~to ~~operations~~a fixed rate obligation of 12.46%. The ~~Significant~~Swap ~~increases~~will expire in April 15, 2010. On the interest ~~cost~~payment dates of ~~fuel~~the ~~will~~Notes, ~~have~~the adifference ~~material~~between ~~effect~~LIBOR onand ~~its~~5.21% ~~operations~~is required to be settled in cash. ~~The~~In ~~Company~~accordance ~~believes~~with ~~that~~SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, the ~~release~~Swap does not qualify for "Cash Flow Hedge Accounting" treatment since the documentation of the ~~insurance~~accounting treatment ~~collateral~~was ~~and~~not ~~the~~done ~~net~~contemporaneously ~~proceeds~~with ~~from~~entering into the agreement. The ~~sale~~change in the fair market value of ~~T-NT,~~this ~~the~~interest ~~proceeds~~swap agreement ~~from~~for the ~~Senior~~six ~~Secured~~months ~~Floating~~ended ~~Rate~~December ~~Notes~~31, ~~due~~2008 ~~2012~~as valued by Wachovia of $1,540,504 ~~together~~is ~~with~~reflected ~~its~~as ~~existing~~an ~~cash~~increase ~~and~~in ~~cash~~interest ~~flow~~expense ~~from~~for ~~operations~~the ~~will~~six bemonth period. Our ~~sufficient~~obligation tounder ~~fund~~the Swap is secured by the ~~Company’s~~collateral securing ~~anticipated~~our ~~liquidity~~amended ~~requirements~~and ~~for~~restated credit facility (the ~~next~~“Amended ~~fiscal~~and ~~year.~~Restated Credit Facility”).

Our Asobligation ofunder ~~March 31, 2007,~~the ~~total~~Swap ~~current~~is ~~assets~~secured ~~were~~by ~~$106.0 million~~the collateral securing our Amended and Restated ~~total~~Credit ~~current~~Facility ~~liabilities~~and ~~were~~in connection therewith total reserves of approximately $707.7 million and $7.3 Atmillion ~~March 31~~for January 2009 and February 2009, ~~2007~~ respectively, were established against our borrowing base. In February 2008, our Amended and Restated Credit Facility was amended to change the ~~Company’s~~calculation ~~debt~~of ~~under~~the borrowing ~~its~~base for the purpose of the calculation of excess availability, solely in relation to testing the EBITDA covenant (see Note 3 (b) to Notes to Consolidated Financial Statements included elsewhere in this Form 10-Q) to exclude the first $305.0 million ~~revolving~~of ~~credit~~reserves established ~~facility~~in connection with our Swap. This change was $effective from January 1, 2008 until February 15, 2009. On February 17, 2009 the effective date was extended until April 1, 2009 (see Note 8 to Notes to Consolidated Financial Statements included elsewhere in this Form 10-Q for further discussion). Until August 28, 2008, excess availability was required to be at least $5 .0 million, ~~including~~at all times during the period from July 1 to August 31 of any year, and $38.5 0 million ~~supplemental~~for ~~loan~~the balance of the fiscal year. As of August 28, 2008, the Amended and itRestated Credit ~~had~~Facility was amended to extend the period where excess availability required is $195.3 0 million from August 31 of ~~borrowing~~any ~~availability~~year to September 15 of any year. As of September 25, ~~based~~2008, onthe Amended and Restated Credit Facility was further amended such that the ~~Company’s~~excess ~~borrowing~~availability ~~base~~requirement ~~calculations.~~is ~~The~~as follows: ~~Company’s~~(i) $105.0 million ~~letter~~at ofall ~~credit~~times ~~facility~~during ~~was~~the ~~fully~~period ~~utilized.~~from OnJuly ~~May 9~~1, ~~2007~~ 2008 to September 15, 2008, (ii) $8.0 million at all times during the ~~Company~~period ~~had~~from September 16, a2008 ~~loan~~to ~~balance~~September of30, 2008, (iii) $14.2 5 million ~~under~~at ~~its~~all times ~~revolving~~during ~~credit~~the ~~facility~~period from October 1, ~~and~~2008 itto ~~had~~July 31, 2009, (iv) $194.0 million at inall ~~borrowing~~times ~~availability~~during the period from August 1, ~~based~~2009 ~~upon~~to September 15, 2009, (v) $4.5 million at all times during the ~~Company’s~~period ~~borrowing~~from ~~base~~September ~~calculations~~16, 2009 to November 1, 2009, (vi) $8.0 Inmillion ~~addition~~at all times during the ~~Company~~period ~~had~~from November 2, 2009 to June 30, 2010, (vii) $5.30 million at all times during the period from July 1 to September 15 of any year (commencing in 2010), and (viii) $8.0 million ~~invested~~at all times during the period from September 16 of any year (commencing in ~~money~~2010) through June 30 of the immediately following year. Based upon these amendments, the Company did not need to test the EBITDA covenant through February 23, 2009.

Concurrently with the issuance of the Notes, the Company and substantially all of its subsidiaries also amended and restated its existing senior credit facility with Wachovia as agent, to provide up to $35.0 million of borrowing availability under a revolving credit facility, subject to customary borrowing conditions, plus a $10.0 million letters of credit facility. The Amended and Restated Credit Facility is secured by a first priority lien on substantially all of the Company’s and its subsidiaries’ assets, other than collateral securing the Notes on a first priority basis. In addition, the term of the credit facility was extended from February 29, 2008 to December 31, 2011. The Amended and Restated Credit Facility contains customary events of default and contains a minimum last 12 month (“LTM”) EBITDA covenant of $26.0 million, which will only be tested if excess availability falls below certain levels. The LTM EBITDA was $14.8 million as of December 31, 2008, but was not tested because the Company met the availability requirements.

The borrowing capacity under the Amended and Restated Credit Facility is based upon ~~market~~85% ~~funds~~of the net amount of eligible accounts receivable less reserves. Our Onsenior ~~May 9, 2007,~~lender ~~the~~has ~~Company~~established ~~had~~borrowing base reserves of approximately $~~116~~7.7 million and $7.3 million ~~(including~~for ~~PIK~~January ~~notes)~~2009 ~~aggregate~~and ~~principal~~February 2009, ~~amount~~respectively, ~~outstanding~~in ofconnection ~~the~~with our Swap (see Notes 2 and ~~$15~~3(b) to Notes to Consolidated Financial Statements included elsewhere in this Form 10-Q).~~5 million~~ Loans under the facility bear interest at the prime rate (~~including~~the prime ~~PIK~~rate ~~notes~~at December 31, 2008 was 3.25%). Letters ~~outstanding~~of credit are subject to a fee of 1% per annum payable monthly in arrears and any amounts paid by lenders for letters of credit will bear the ~~Third~~same ~~Priority~~rate ~~Senior~~as ~~Secured~~loans under ~~Note~~our revolving facility. The Company paid a closing fee of $400,000 and is required to pay a servicing fee of $10,000 per month, plus pay a monthly fee of 0.5% on any unused portion of its Amended and Restated Credit Facility.

Under the ~~Net~~terms ~~cash~~of ~~used~~our incontract ~~operating~~with ~~activities. Net~~the ~~cash~~DOE ~~used~~(our inlargest ~~operating~~customer) ~~activities was $1.2 million for~~ the ~~nine~~Company ~~months~~has received ~~ended~~a ~~March 31, 2007,~~CPI ~~resulting~~increase ~~primarily~~of ~~from~~4% ~~$18.8 million~~for ~~used~~the infiscal ~~operating~~year ~~activities,~~ending ~~partially~~June ~~offset by $0~~30, 2009.~~2 million~~ However, ~~cash~~because ~~provided~~of bya ~~changes~~reduction in the ~~components~~number of ~~working~~routes ~~capital (primarily an increase in accounts payable, accrued expenses, accrued compensation~~ and ~~other~~a change ~~current liabilities of $9.7 million and an increase~~ in ~~insurance~~the ~~financing~~configuration ~~payable~~ of ~~$2.1 million,~~routes ~~partially~~for ~~offset~~the byyear anthe increase inwas ~~accounts~~effectively reduced to ~~receivable of $13~~3.~~2 million)~~1% ~~non~~at ~~cash~~December ~~items~~31, ~~of $16~~2008.~~7 million of depreciation and amortization and $0.7 million of amortization of original issue discount.~~

The ~~Net~~Company, ~~cash used~~ in ~~operating~~addition ~~activities~~to ~~was~~normal ~~$12.6 million~~working ~~for~~capital ~~the nine months ended March 31~~requirements, ~~2006,~~ ~~resulting~~has ~~primarily~~significant interest ~~from~~obligations ~~$31.2 million~~and ~~used~~capital inexpenditure ~~operating~~requirements ~~activities~~to ~~plus~~finance $6its operations.~~7 million~~ Our ~~cash~~senior ~~used~~lender ~~due~~has toestablished ~~changes~~borrowing base reserves ~~in the components~~ of ~~working~~approximately ~~capital (primarily an increase in accounts receivable of~~ $107.1 7 million and ~~an increase in prepaid expenses and other current assets of~~ $47.~~6 million,~~3 ~~partially offset by an increase $6.2~~ million offor January ~~accounts~~2009 ~~payable,~~and ~~accrued~~February ~~expenses~~2009, ~~accrued compensation and other current liabilities~~respectively, ~~and~~in anconnection ~~increase~~with inour ~~insurance~~Swap ~~financing~~(see Notes ~~payable~~2 ofand ~~$2.2 million~~3(b), ~~partially~~to ~~offset~~Notes byto ~~non~~Consolidated ~~cash~~Financial ~~items~~Statements ofincluded elsewhere ~~$19.8 million~~in ofthis ~~depreciation~~Form ~~and~~10-Q). ~~amortization,~~If ~~$4.7 million~~these ofreserves ~~fixed~~increase ~~asset~~they ~~impairment~~may ~~and~~have ~~$0.7 million~~a significant ofadverse ~~amortization~~effect ofon ~~original~~the ~~issue~~Company’s ~~discount~~liquidity.

For the ~~Net~~fiscal ~~cash~~year ~~provided~~ending byJune ~~investing~~30, ~~activities. For~~2009 there will be two less DOE revenue days as well as one additional payroll day compared to the ~~nine~~fiscal ~~months~~year ended ~~March 31~~June 30, ~~2007~~ 2008. This will have a negative impact on the Company’s margins. In addition, the company ~~net~~has ~~cash~~been ~~provided~~informed by ~~investing~~its ~~activities~~insurance ~~was~~company ~~$16.2 million~~that ~~resulting~~it ~~primarily~~will ~~from~~not ~~$11~~receive any retrospective insurance credits (as previously expected) this year.~~8 million~~ The ofCompany ~~proceeds~~believes ~~from~~that borrowings under the ~~sale~~Amended ofand Restated ~~assets,~~Credit ~~$3.1 million~~Facility ~~decrease~~together inwith ~~restricted~~its existing cash and ~~$5.1 million~~cash offlow ~~proceeds~~ from operations ~~sales~~will ornot ~~redemptions~~be ofsufficient ~~marketable~~to ~~securities,~~fund ~~partially~~the ~~offset~~Company’s byanticipated ~~the~~liquidity requirements ~~$4.4 million~~for ofthe ~~capital~~next ~~expenditures.~~year Ofand ~~these,~~the ~~$0.6 million~~Company needs ofto ~~capital~~pursue additional ~~expenditures~~funding ~~were~~alternatives, ~~directly~~including ~~financed~~the ~~with~~potential ~~purchase~~sale ~~money~~of ~~debt~~certain ~~and~~assets or ~~the~~operations, ~~balance~~in ~~were~~order ~~financed~~to ~~from~~fund ~~operating~~its ~~cash~~liquidity ~~flows~~requirements.

LTM ~~For~~EBITDA ~~the~~was ~~nine~~$14.8 ~~months~~million ~~ended~~as ~~March~~ of December 31, ~~2006,~~ ~~the~~2008 ~~net~~and ~~cash~~we ~~provided~~expect byLTM ~~investing~~EBITDA ~~activities~~to ~~was~~be below $626.2 0 million ~~resulting~~for ~~primarily from~~ the ~~sale~~next ~~and~~twelve ~~leaseback~~months. If of our ~~Los~~excess availability ~~Angeles,~~for ~~California~~the ~~facility,~~purpose of testing the ~~sale~~EBITDA ~~and~~covenant ~~leaseback~~(see ofNote ~~our~~3(b) ~~Staten~~to Notes ~~Island,~~to ~~New~~Consolidated ~~York~~Financial ~~facility~~Statements ~~and~~included ~~the~~elsewhere ~~sale~~in ofthis ~~property~~Form in10-Q) falls Stbelow ~~Louis,~~certain ~~Missouri~~levels, ~~partially~~this ~~offset~~will bygenerate ~~the~~a ~~purchase~~default ofunder ~~$1.7 million~~our ofAmended ~~transportation~~and Restated ~~contract~~Credit ~~rights~~Facility and ~~$5.1 million~~under ofcertain ~~capital~~circumstances ~~expenditures.~~cause Ofa ~~these,~~cross $0default under the Notes.~~5 million~~ Although the Company believes that it would be able to receive a waiver of ~~capital~~this ~~expenditures~~default ~~were~~from ~~directly~~Wachovia, ~~financed~~there ~~with~~can ~~purchase~~be ~~money~~no ~~debt~~assurance that ~~and~~this is the ~~balance~~case ~~were~~or ~~financed~~what ~~from~~the ~~operating~~cost ~~cash~~to ~~flows.~~the ~~Purchase~~Company ofmight ~~marketable~~be. If the ~~securities~~Company ~~were~~would ~~$3.2 million~~not ~~for~~be ~~the~~able ~~nine~~to ~~months~~receive ~~ended~~a ~~March 31~~waiver, ~~2006~~ ~~and~~then ~~proceeds~~the ~~from~~amount ~~sale~~ of ~~redemption~~the Amended ofand ~~marketable~~Restated ~~securities~~Credit ~~were~~Facility ~~$3.0 million.~~would be reclassified to a current liability.

~~Net~~As ~~cash~~of ~~used~~December in31, ~~financing~~2008, ~~activities~~total current assets were $78. ~~Net~~5 ~~cash~~million ~~used~~and intotal ~~financing~~current ~~activities~~liabilities ~~totaled~~were $931.3 6 million. At ~~for~~December 31, 2008, the ~~nine~~Company’s ~~months~~debt ~~ended~~under ~~March 31~~its $35.0 million Amended and Restated Credit Facility was $15.9 million, ~~2007~~ ~~due~~and ~~primarily~~it tohad $73.2 6 million ~~net~~of ~~payments~~borrowing ~~under~~availability, based on the ~~senior~~Company’s ~~credit~~borrowing ~~facility~~base calculations. ~~and~~Approximately $28.9 million of the Company’s $10.0 million inletter of ~~payments~~credit onfacility ~~borrowings~~was used. On February 10, 2009, under ~~capital~~our ~~leases~~Amended and Restated Credit Facility the Company had a credit balance of $2.8 million, and ~~purchase~~it ~~money~~had ~~mortgages~~$15.2 million in borrowing availability, based upon the Company’s borrowing base calculations.

Net cash used in operating activities. Net cash ~~provided~~used byin ~~financing~~operating activities ~~totaled~~was $25.3 2 million for the ~~nine~~six months ended ~~March~~ December 31, ~~2006~~ ~~due~~2008, resulting primarily tofrom $423.9 1 million used ofin ~~proceeds~~operating ~~from~~activities, ~~the~~partially ~~sale~~offset ofby ~~stock~~cash ~~and~~provided ~~$0.3 million~~by ~~net~~changes ~~proceeds~~in the ~~under~~components ~~the~~of ~~senior~~working ~~credit~~capital ~~facility,~~of ~~partially~~$6.6 ~~offset~~million and by non-cash items of $211.5 3 million in($9.5 ~~payments~~million onof ~~borrowings~~depreciation ~~under~~and ~~capital~~amortization, ~~leases~~$1.5 ~~and~~million ~~purchase~~of ~~money~~interest swap ~~mortgages~~expense and $0.3 million inof ~~deferred~~amortization ~~financing~~of ~~costs.~~original issue discount).

Net cash used in operating activities was $4.9 million for the six months ended December 31, 2007, resulting primarily from $23.5 million used in operating activities partially offset by cash provided by changes in the components of working capital of $2.2 million, and by non-cash items of $16.4 million ($10.1 million of depreciation and amortization, $6.0 million of interest swap expense and $0.3 million of amortization of original issue discount).

Net cash used in investing activities. For the six months ended December 31, 2008, the net cash used in investing activities was $2.4 million resulting primarily from $3.6 million of capital expenditures of which $1.0 million were financed by purchase money mortgages and $2.6 million were financed from operating cash flows, partially offset by $0.2 million proceeds from sales of fixed assets.

For the six months ended December 31, 2007, the net cash used in investing activities was $7.3 million resulting primarily from $7.6 million of capital expenditures of which $0.2 million were financed by purchase money mortgages and $7.4 million were financed from operating cash flows, partially offset by $0.2 million proceeds from sales of fixed assets.

Net cash provided by financing activities. Net cash provided by financing activities totaled $9.2 million for the six months ended December 31, 2008 due primarily to $10.0 million of net borrowings under the Amended and Restated Credit Facility partially offset by $0.8 million of principal payments on borrowings and capital lease obligations.

Net cash provided by financing activities totaled $6.4 million for the six months ended December 31, 2007 due primarily to $7.5 million of net borrowings under the Amended and Restated Credit Facility, partially offset by $0.8 million in payments on borrowings under capital leases and purchase money mortgages.

Commitments and Contingencies

Reference is made to Note ~~16 ‘‘~~12 “Commitments and Contingencies’’” of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2006~~ 2008 for a description of the Company’s material commitments and contingencies.

Critical Accounting Policies

In presenting our consolidated financial statements in conformity with U.S. generally accepted accounting principles, we are required to make estimates and judgments that affect the amounts reported therein. Some of the estimates and assumptions we are required to make relate to matters 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, 2008. There have been no material changes to our critical accounting policies as of December 31 , 2008.

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.

Disclosure Regarding Forward-Looking Statements

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.

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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of operations, we are exposed to market risks arising from adverse changes in interest rates. Market 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.

We operated a fleet of approximately 5,~~700~~600 vehicles as of ~~March~~ December 31, ~~2007~~ 2008 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 $1.0.9 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 wecurrently have hedged approximately or25% ~~may~~of ~~seek~~our toexpected dofuel ~~the~~requirements ~~same~~ in ~~the~~New ~~future.~~York WeCity ~~currently~~through June ~~do not have any fuel hedging agreements in place~~30, ~~but~~2009 and we continually evaluate entering into additional 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 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 of the $30.0 million of borrowings 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 a $3.5 million advance under the letter of 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.

Item 4. Controls and Procedures

The Company maintains disclosure 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.

As of ~~the~~December 31, ~~end~~2008, ofour ~~the~~only variable ~~period~~rate ~~covered~~borrowings byare ~~this Form 10-Q,~~ the ~~Company~~notes ~~again~~(LIBOR ~~carried~~plus ~~out~~7.25% aninterest) ~~evaluation,~~and ~~under~~ the Amended ~~supervision~~ and ~~with~~Restated ~~the~~Credit ~~participation~~Facility of(prime ~~the~~rate). On ~~Company’s~~May ~~management~~15, 2007 ~~including~~we ~~its~~reduced ~~Chief~~our ~~Executive~~exposure ~~Officer~~to ~~and~~interest ~~Chief~~rate ~~Financial~~fluctuations ~~Officer,~~on ofour ~~the~~notes ~~effectiveness~~by ofentering into the ~~design~~Swap. ~~and~~The ~~operation~~Swap ofhas ~~the~~a ~~Company’s~~notional ~~disclosure~~amount ~~controls~~of ~~and~~$185 ~~procedures.~~million ~~Based~~with ona ~~the~~fixed rate ~~foregoing,~~of ~~the~~5.21% ~~Company’s~~instead ~~Chief~~of ~~Executive~~LIBOR ~~Officer~~thereby ~~and~~effectively ~~Chief~~converting ~~Financial Officer concluded that~~ the ~~Company’s~~floating ~~disclosure~~rate notes ~~controls~~to ~~and~~a ~~procedures~~fixed ~~were~~rate ~~still~~obligation ~~ineffective as~~ of ~~the~~12.46%. The ~~end~~Swap ofwill ~~the~~expire ~~period~~on April ~~covered~~15, by2010. On ~~this~~the ~~Form~~interest ~~10-Q.~~payment ~~The~~dates ~~Company~~of ~~continues~~the tonotes, ~~review~~the difference ~~its~~between ~~disclosure~~LIBOR ~~controls~~ and ~~procedures~~5.21% inwill ~~order~~be tosettled ~~improve~~in ~~their effectiveness~~cash. As of December ~~Although the process is ongoing~~31, 2008 the ~~Company~~fair ~~has~~market ~~identified~~value aof ~~need~~the toSwap ~~modify~~as ~~its~~valued ~~financial~~by Wachovia ~~period~~was ~~closing from~~ a ~~sequential~~$7.3 tomillion aliability. Our ~~more~~obligation ~~simultaneous~~under ~~process,~~the toSwap is ~~reduce~~secured by the ~~time~~collateral ~~necessary~~securing toour ~~properly~~Amended ~~complete~~and ~~its~~Restated ~~financial~~Credit Facility. As ~~statement~~of ~~preparation~~December 31, ~~and~~2008, ~~review.~~based Asupon our ~~the~~variable ~~review~~interest ~~process~~rate ~~continues~~borrowings, ~~the~~a ~~Company~~100 ~~may~~basis ~~identify~~point ~~other~~increase ~~areas~~in ~~for~~interest rates, ~~improvement.~~applied ~~The~~to ~~Company~~our ~~has~~maximum ~~implemented~~variable ~~improvements~~rate borrowings, ~~but~~would ~~cannot~~have ~~yet~~no ~~determine~~material effect ~~when~~on ~~all~~interest ~~improvements~~expense ~~will~~or becorresponding ~~completed~~cash orflows ~~have~~until ~~the~~periods ~~intended~~commencing April ~~effect~~16, 2010.

Item 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 reporting4. Controls ~~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. Procedures

Not applicable

Item 4T. Controls and Procedures

The Company maintains disclosure 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.

As of the end of the period covered by this Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed 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 our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective as of December 31, 2008.

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.

PART II.

OTHER INFORMATION

Item 1. Legal Proceedings

By letter ~~None~~dated August 31, 2007, Fiore Bus Service, Inc., a subsidiary of the Company, was notified by the US Environmental Protection Agency, or EPA, of a potential liability in connection with the remediation of the Sutton Brook Disposal Area Superfund site in Tewksbury, Massachusetts. EPA estimated in Fall 2007 that the cost to remediate this site is approximately $30 million and is seeking an agreement from the identified potentially responsible parties, or PRPs, including Fiore, to undertake the remediation of the site and has also demanded reimbursement of EPA's expenses and oversight costs, which EPA stated in its August 2007 letter to be approximately $5.2 million for work performed to date. Under the federal Comprehensive Environmental Response, Compensation and Liability Act, persons who are identified as PRPs such as Fiore may be subject to strict, joint and several liability for the entire cost of cleaning up environmental contamination at sites where hazardous substances have been released. The Company had acquired Fiore in 1998 and the allegations regarding Fiore relate to events which occurred during the 1980s. The Company has taken the position that any liability Fiore may have had regarding the remediation of the Sutton Brook site was discharged in its Chapter 11 bankruptcy reorganization. While Fiore intends to pursue this defense vigorously and believes that its ultimate allocation of costs for this site, if any, should not be material, we can offer no assurance that the bankruptcy defense will be upheld in court or that Fiore's share of any liability will not be material.

Item 1A. Risk Factors

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~~2008 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.

The Company believes that borrowings under the Amended and Restated Credit Facility together with its existing cash and cash flow from operations will not be sufficient to fund the Company’s anticipated liquidity requirements for the next year and the Company needs to pursue additional funding alternatives, including the potential sale of certain assets or operations, in order to fund its liquidity requirements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits

The following documents are filed as Exhibits to this report:

Exhibit No.	Description	~~Description~~
3.1		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
10.1	New York City Transit Contract #07H9751C, by and between New York City Transit Authority and Atlantic Paratrans of NYC, Inc.
3.2		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
10.2	New York City Transit Authority Contract Modification / Change Order dated December 19, 2008
3.3		Section 1350 Certification of Principal Executive Officer
10.3	Amendment No. 4 to Third Amended and Restated Loan and Security Agreement, dated February 17, 2009
3.4		Section 1350 Certification of Principal Financial Officer
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

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.		~~ATLANTIC EXPRESS TRANSPORTATION CORP.~~
Date: May 11, 2007			By: /s/ Domenic Gatto
Date: February 23, 2009	By:	/s/ Domenic Gatto
			Domenic Gatto Chief Executive Officer (Principal Executive Officer)
	Domenic Gatto
Date: May 11, 2007			By: /s/ Nathan Schlenker
	Chief Executive Officer
			Nathan Schlenker Chief Financial Officer (Principal Financial and Principal Accounting Officer)
	(Principal Executive Officer)
Date: February 23, 2009	By:	/s/ Nathan Schlenker
	Nathan Schlenker
	Chief Financial Officer
	(Principal Financial and Principal Accounting Officer)

EXHIBIT INDEX

Exhibit No.	Description	~~Description~~
3.1		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
10.1	New York City Transit Contract #07H9751C, by and between New York City Transit Authority and Atlantic Paratrans of NYC, Inc.
3.2		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
10.2	New York City Transit Authority Contract Modification / Change Order dated December 19, 2008
3.3		Section 1350 Certification of Principal Executive Officer
10.3	Amendment No. 4 to Third Amended and Restated Loan and Security Agreement, dated February 17, 2009
3.4		Section 1350 Certification of Principal Financial Officer
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

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