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

                                    FORM 10-K

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

                   For the fiscal year ended June 30, 2001 or

                                       OR

            [ ]   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                                   13-392-3467
     (State or Other Jurisdiction of                    (I.R.S. Employer
     Incorporation or Organization)                    Identification No.)

 7 North Street, Staten Island, New York                   10302-1205
(Address of Principal Executive Offices)                   (Zip Code)

                                 (718) 442-7000
               Registrant's telephone number, including area code

        Securities Registered Pursuant to Section 12(b) of the Act: None

        Securities Registered Pursuant to Section 12(g) of the Act: None

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

      Indicate by check mark whether the  registrant has filed all documents and
reports  required  to 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 |_|

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

      Indicate  the  number of shares  outstanding  of each of the  registrant's
classes of common stock, as of the latest practicable date.

      As of September 28, 2001, 100 Shares of Common Stock,  no par value,  were
outstanding; all of which were held by an affiliate.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None.

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<PAGE>

                                     PART I.

Item 1. BUSINESS

      General

      Unless otherwise indicated or the context otherwise  requires,  references
to the "Company" and "Atlantic" are to Atlantic Express Transportation Corp. and
its  subsidiaries,  and, for periods prior to February 4, 1997, the subsidiaries
of Atlantic Express  Transportation  Group Inc. (together with its predecessors,
"AETG") engaged in the transportation  business.  Atlantic conducts its business
through its  subsidiaries.  References  to fiscal years are to years ending June
30.

      Atlantic,  a  wholly  owned  subsidiary  of  AETG,  is one of the  largest
providers of school bus  transportation  in the United  States.  The Company has
contracts   with  149  school   districts  in  New  York,   Missouri,   Vermont,
Massachusetts,  Illinois, California, Pennsylvania,  Connecticut and New Jersey.
In  addition  to its school  bus  transportation  operations  (the  "School  Bus
Division"),  the  Company  provides  services  to  public  transit  systems  for
physically and mentally  challenged  passengers  (the  "Paratransit  Division"),
transportation  for  pre-kindergarten  children  and  Medicaid  recipients  (the
"Pre-K/Medicaid  Division"),  fixed route  transit,  express  commuter  line and
charter  and  tour  bus  services  (the  "Coach  Division")   (collectively  the
"Transportation Operations") and sells school buses and commercial vehicles (the
"Bus Sales  Operations").  Atlantic has a fleet of approximately  6,800 vehicles
operating from 73 facilities and provides bus sales from five facilities.

      Effective July 1, 1997,  the Company  acquired 100% of the common stock of
Central New York Coach  Sales & Service,  Inc.  ("Coach")  and Jersey Bus Sales,
Inc.  ("Jersey") and certain related  property  (together with Coach and Jersey,
collectively  "Central")  for  a  total  consideration  of  $26.5  million  less
Central's  long-term  indebtedness  as of July 1, 1997  which was $4.8  million.
Central is the leading  authorized  distributor of school buses  manufactured by
Blue Bird Body Company ("Blue Bird") which is the leading manufacturer of school
buses in North America.

      Acquisition  of AETG.  On October 27,  1998,  the holders of a majority in
principal  amount of the  Company's 10 3/4%  Senior  Secured Notes due 2004 (the
"Notes")  consented to an amendment to the Indenture relating to the Notes which
in substance exempted the transactions  contemplated by a  Recapitalization  and
Stock Purchase Agreement (the "Recapitalization") from the definition of "Change
of Control" under the Indenture.  On November 4, 1998 the  Recapitalization  was
consummated.  As a result, GSCP II Holdings (AE), LLC ("Buyer"), an affiliate of
Greenwich Street Capital  Partners,  Inc., a New York based private equity fund,
acquired an approximately 88% equity interest in a recapitalized AETG which owns
all of the issued and outstanding shares of capital stock of the Company.

      Recent Transactions

      Certain of the recent transactions discussed below occurred after June 30,
2001,  the end of the fiscal year covered by this Form 10-K.  Nevertheless,  the
discussion  has been  included  to provide a more  complete  description  of the
business of the Company as of the date of the filing of this Form 10-K.

      New School Bus  Contracts.  In September  2000, the New York City Board of
Education (the "Board")  extended all of the Company's  contracts with the Board
for an additional five years ending June 30, 2005.  These contracts  represented
approximately  34.7% of the  Transportation  Operations  revenues for the fiscal
year ended June 30,  2001.  Under the terms of these  contracts,  the Company is
able to recover a portion of any increase in  automobile  and general  liability
premiums,  workers compensation premiums and fuel costs over base period amounts
commencing with the school year beginning September 2000.

      Paratransit Contracts. In August 2001, the Company was awarded a five year
contract  (with two  one-year  renewal  options)  by the New York  City  Transit
Authority  (the "T.A.").  Pursuant to the terms of the  contract,  the T.A. will
provide all of the required  vehicles  and as a result,  the Company will not be


                                       1
<PAGE>

required to make significant capital expenditures relating to the contract. This
contract  which is expected to commence  in December  2001  provides  for a pass
through of all automobile  liability  insurance  costs to the T.A. The Company's
existing contract with the T.A. which was due to expire in May 2001 was extended
for up to seven months. This extension also included a fuel adjustment clause in
addition to the pass through of any  automobile  liability  insurance  increases
incurred by the Company.

      In  August  2001,  the  Company  signed  an  Assignment,   Assumption  and
Subcontract  of Paratransit  Services (the  "Agreement")  with the  Southeastern
Pennsylvania  Transportation  Authority ("SEPTA") and Anderson Travel, Inc. (the
"Assignee")  whereby  the  Company  granted  the  Assignee  all of  its  rights,
obligation and interest to and under a paratransit contract with SEPTA which was
due to expire on March 15, 2002 and in addition retained the Assignee to perform
all of its obligations under a second  paratransit  contract between the Company
and SEPTA which was due to expire in October 2001.  The Company  negotiated  the
Agreement when SEPTA  declined to reimburse the Company for material  amounts of
automobile   liability  insurance  costs  for  the  paratransit   operations  in
Pennsylvania  which would have caused the Company to incur significant losses in
the  operations of these two  contracts.  Revenues for these  contracts  totaled
approximately  $12.7  million and $13.0  million for the fiscal years ended June
30, 2001 and June 30, 2000, respectively.

      Coach  Contracts.  In  August  2000 the  Company  was  awarded  a one year
contract by South  Carolina  Electric  and Gas  ("SCE&G"),  to run a fixed route
transit  system in Columbia,  South  Carolina.  Pursuant to the  contract  SCE&G
provided the Company with the majority of all required vehicles and as a result,
the Company was not required to make significant capital  expenditures  relating
to the contract.  In June 2001 the Company was awarded a one year contract (with
two  one  year  renewal  options)  by the New  York  City  Economic  Development
Commission  (the  "EDC") to provide  an express  commuter  service  from  Staten
Island, New York into Manhattan,  New York. This service is the first subsidized
transit  contract for the Company.  The Company has leased 20 luxury  coaches to
provide this service.

      Offer to Purchase and Consent Solicitation.  In December 2000, the holders
of a majority in principal amount of the Notes consented to an Offer to Purchase
(the  "Offer")  and Consent  Solicitation  (the  "Consent")  whereby the Company
purchased  $30.0  million  aggregate  principal  amount  of the  Notes  and  the
Noteholders  consented  to an  amendment  to the  Indenture  which in  substance
permitted the Company to increase the amount of debt that may be incurred  under
the Indenture,  without regard to the Interest Coverage Ratio, to $125.0 million
from $30.0  million.  In connection  therewith,  the Company  received a capital
contribution  from  AETG of (i) all of the  issued  and  outstanding  shares  of
capital  stock of Atlantic  Transit,  Corp.  ("ATC")  and (ii) $10.0  million of
additional  equity  (collectively  the  "Contribution").  As  a  result  of  the
Contribution,  ATC and its  subsidiaries  have pledged their stock to secure the
Notes and have become  guarantors of the Notes.  In addition,  the Indenture has
been  amended to include (i) an annual  leverage  test,  which if not met by the
Company,  could  increase the interest  rate payable by 0.50% per annum;  (ii) a
provision  that  provides for  limitation  of  acquisition  debt incurred by the
Company in any fiscal year and (iii)  amendments to the limitation on restricted
payments and limitations on transactions with affiliates covenants.

      New Credit  Facility.  In December  2000,  concurrently  with the Offer to
Purchase and Consent Solicitation  referred to above, the Company terminated its
existing  $30.0 million  credit  facility with  Congress  Financial  Corporation
("Congress") and entered into a new three year,  $125.0 million revolving credit
facility  (the  "Facility")  with  Congress.  Borrowings  under the Facility are
available for working  capital,  acquisitions  and general  corporate  purposes,
including  letters of  credit,  subject to the  borrowing  conditions  contained
therein.  Borrowings  also were used to fund the Offer and Consent  payment,  as
well as expenses of the Offer and Consent.

      The  Facility  is  secured by first  priority  security  interests  in all
present and future  assets of the Company  except for the stock of the Company's
direct and indirect  subsidiaries which are required to be pledged to secure the
Notes. As required by the Indenture,  the Notes are secured by a second priority
security interest in the same collateral. The interest rate per annum applicable
to the Facility is either prime rate, as announced by First Union  National Bank
plus  0.75%,  or at the  Company's  option,  the  adjusted  Eurodollar  rate (as
defined)  plus 2.75%.  The Company is required to pay certain fees in connection
with the  Facility  including  but not limited to an unused line fee of 0.50% on
the undrawn portion of the Facility.


                                       2
<PAGE>

      The Facility contains negative covenants similar to those contained in the
Notes plus the requirement to maintain  minimum  monthly  adjusted net worth and
minimum quarterly  earnings before income taxes,  depreciation and amortization,
plus customary events of default.

      Pooling of Interest.  All the financial information presented includes the
accounts of ATC from inception in February 1999.

      Accounts  Purchase and Sale  Agreement.  In July 2001 the Company  entered
into an agreement (the "Receivable  Agreement") with Congress, to sell Congress,
without recourse, up to approximately $5.9 million of accounts receivable of the
Company.  Under the Receivable Agreement,  Congress purchases receivables at the
gross  amount of such  accounts  (less three and  one-quarter  percent  purchase
commission) and immediately credits 85% of this amount to the Company,  with the
balance paid to the Company upon Congress  receiving  cumulative  collections on
all receivables purchased in excess of the purchase price previously credited.

      Equity  Contribution.  In September 2001, AETG made an additional  capital
contribution to the Company of $5.5 million.

Transportation Operations

School Bus Division.  The School Bus Division is the Company's largest division.
The Company has  contracts to provide  school bus  transportation  in 149 school
districts in New York, Missouri, Vermont,  Massachusetts,  Illinois, California,
Pennsylvania, Connecticut and New Jersey. The Company's revenues from school bus
operations have increased at a compound annual growth rate of 18.2%, from $120.3
million in fiscal 1996 to $276.6 million in fiscal 2001.

      Services.  The Company generally  provides services for  transportation of
open  enrollment  ("Regular  Education")  students  through  the use of standard
school buses, and transportation for physically or mentally challenged ("Special
Education")  students  through the use of an assortment  of vehicles,  including
standard school buses, passenger vans and lift-gate vehicles,  which are capable
of accommodating  wheelchair bound students.  In most jurisdictions  serviced by
the  Company,  escorts are required to  accompany  drivers on Special  Education
vehicles.

      Contracts.  The Company's school bus transportation  contracts are awarded
by school  districts  based on public  bidding or request for  proposal  ("RFP")
process.  The  Company's  school bus  transportation  contracts  have provided a
relatively  predictable  and stable stream of revenues  over their terms,  which
range from one to five  years.  Compensation  under  school  bus  transportation
contracts is generally based upon a daily rate per vehicle, which is established
either by public  bidding or by proposal  and  negotiation  with  respect to RFP
contracts.  Contracts  in New York City  provide  for the  payment  of the daily
vehicle rate (which  encompasses all costs of the Company,  including driver and
escorts)  for days of  scheduled  performance  in  accordance  with  the  school
calendar  and  provides  for  payment  of 85% of the daily  rate in the event of
school  cancellations  of any scheduled  school day.  Daily vehicle rates earned
under  contract  renewals  are  generally   increased  from  previous  rates  by
application  of the Consumer  Price Index  ("CPI").  The  Company's  costs could
outpace such revenue increases. The number of vehicles required is determined by
the school districts,  initially pursuant to its bid specifications  and/or RFP,
and is subject to change.

      The Company's school bus  transportation  contracts  generally provide for
performance  security in one or more of the following forms:  performance bonds,
letters of credit and cash retainages.  Under current arrangements,  the Company
secures  the  performance  of its  contracts  with the Board  through the use of
performance  bonds plus cash retainages of 5% of amounts due to the Company.  In
most other instances,  the Company has opted to satisfy its security performance
requirements by posting performance bonds.

      Customers.  The Company has  longstanding  relationships  with many of the
school districts which it services. School districts with which the Company does
business generally appoint a business manager and/or  transportation  supervisor
to oversee school bus  transportation  operations.  Larger school districts have
separate  bureaus or  divisions,  which  regulate and supervise the provision of
school bus transportation


                                       3
<PAGE>

services.  Passenger  safety,  timeliness  and  quality of service are among the
factors  used by  school  bus  transportation  administrators  to  evaluate  the
Company.

      In the Company's experience, unless a school district is dissatisfied with
the services of a school bus transportation contractor, school districts tend to
extend existing  contracts  rather than solicit bids from potential  replacement
contractors,  unless  applicable  law or the  terms  of the  contract  otherwise
require.  Management  believes that replacing an existing  contractor  through a
bidding  process  generally  has  resulted in higher  prices to  districts  than
contract extensions because of the significant start-up costs that a replacement
contractor  faces.  Bidding also exposes a school district to uncertainty in the
quality of service which would be provided by a new contractor.

      Historically, school districts awarded school bus transportation contracts
through a public  bidding  process by which such  contracts  were required to be
awarded to the lowest responsible bidder,  without regard to quality of service.
However,  management  believes  that due, in part,  to the poor  performance  of
certain low-priced school bus transportation contractors,  school districts will
increasingly  rely on a RFP process,  which  enables  school  administrators  to
broaden  the  factors  considered  when  awarding a  contract.  Factors  such as
passenger safety, timeliness and quality of service, among others, are generally
considered  under the RFP  process.  In 1996,  the State of New York  (where the
Company has its largest  concentration of school bus  transportation  contracts)
adopted legislation,  which, for the first time, permits school districts in the
State of New York to select school bus transportation  contractors through a RFP
process.  Management believes that because of the reputation it has developed in
the  school  bus  transportation  industry,  it is  well  positioned  to  obtain
contracts which are awarded by the RFP process as well as by public bidding.

      The New York Board of Education  accounted for 34.7%,  33.3%, and 38.1% of
the Company's revenues from  Transportation  Operations in fiscal 2001, 2000 and
1999,  respectively.  The  Company's  17  contracts  with the New York  Board of
Education  have  been  extended   through  June  30,  2005.  No  other  customer
contributed  greater  than 10% of the  Company's  revenues  from  Transportation
Operations during these periods.

Paratransit Division. The Paratransit Division is the second largest division of
the  Transportation   Operations.   The  Paratransit  Division's  revenues  have
increased  from $11.8  million in fiscal 1996 to $56.0  million in fiscal  2001.
Management  believes the demand for  paratransit  services in the United  States
will  continue to grow over the next several  years.  Pursuant to the  Americans
with  Disabilities  Act of 1990 (the "ADA"),  certain public transit systems are
required to provide  comparable  services to disabled  persons who are unable to
use standard  public  transportation.  The larger public transit  systems in the
United States rely predominantly upon the private sector to perform  paratransit
services,  while  approximately  one-half of the small and medium  size  systems
outsource paratransit transportation services.

      Better known national paratransit providers include Laidlaw Transit, Inc.,
First  Transit,  a division of First Group  America,  Inc. and the  Company.  In
addition,  paratransit  services are also  provided by several  hundred  smaller
local paratransit companies and by local municipalities.

      To  achieve   passenger  safety  and  to  satisfy   paratransit   contract
requirements, the Company has instituted a comprehensive driver-training course,
which encompasses defensive driving,  passenger  sensitivity,  first aid and CPR
procedures,  passenger assistance  techniques and detailed information about the
disabilities  of  the  passengers  which  the  Company  transports.  Paratransit
services are primarily funded by public transit systems.

      Services.  The  Company's  paratransit  services are  rendered  based upon
advance call-in requests for transportation, which are primarily scheduled by an
independent  third party.  At June 30, 2001, the Company had  approximately  644
vehicles  consisting of full-size  four-door sedan automobiles and lift-equipped
vans  to  service  its  paratransit  contracts.  The  Paratransit  Division  has
developed  a  substantial  degree  of  expertise  in  developing  and  providing
transportation  services  required  by its  physically  or  mentally  challenged
passengers.


                                       4
<PAGE>

      Contracts. The terms of the Company's paratransit contracts range from one
to five years. The scope of services and contract requirements vary considerably
from one  jurisdiction to another.  The three general  components of paratransit
transportation  services are (i)  providing the actual  transportation  service;
(ii) reserving passenger requests for service;  and (iii) sorting and scheduling
passenger  requests for service.  Some of the  Company's  customers  require the
Company to perform all three components of service while other customers perform
one or more of such functions  themselves or through third parties.  Paratransit
vehicles are generally  provided by the transit agency. The Company is generally
entitled to a specified  charge per hour of vehicle service  together with other
fixed  charges.  Paratransit  users  pay the  Company  a fixed  amount  per trip
determined by the local transit system  governmental  entity (which may be equal
to or based upon prevailing  public  transportation  fees in the jurisdiction in
question),  which is credited  against the monthly  contract  price due from the
local transit system.

      Customers.  The Company  presently  performs  paratransit  services  under
contracts  with public  transit  systems in New York,  New Jersey,  and Arizona.
Management believes that its New York contract is one of the largest paratransit
contracts awarded to date in the United States.

Pre-K/Medicaid  Division. The Company provides  transportation for physically or
mentally  challenged  children  between the ages of three and five,  to and from
pre-kindergarten  facilities  located  in the New York  City  metropolitan  area
pursuant to contracts with the New York City Department of Transportation.  Each
vehicle  requires  the  presence of an escort who is  responsible  to assist the
children on and off the bus.  Escorts are  employed  and trained by the Company.
The Company is  compensated  on a per child basis at rates which are  determined
pursuant to public  bidding.  The Company also performs  contracts with private,
not-for-profit   organizations,   which  are  funded  under  Medicaid,  for  the
transportation  of  physically  or mentally  challenged  passengers  to and from
rehabilitation  facilities and receives compensation based upon a daily rate per
person  transported,  which rates of compensation vary based upon ambulatory and
non-ambulatory  passengers. At June 30, 2001, the Company utilized approximately
150 vehicles in the performance of these contracts.

      The Company generated approximately 2.1% of its Transportation  Operations
revenues in fiscal 2001 from its Pre-K/Medicaid Division.

Coach  Division.  The Company  provides fixed route transit,  express  commuter,
charter and tour bus  transportation  services  with a fleet of 61 luxury  motor
coaches and 10 mini coaches.

      Charter and tour bus operations  include single day and multi-day charters
throughout the continental  United States and Canada.  In addition,  the Company
operates  scheduled line services  between New York City and Atlantic City under
contractual  arrangements  with tour  operators.  Luxury  coaches are  generally
contracted  for individual  special  events.  The Company's  contracts for coach
services vary based on duration and length of trip. This division generated 3.5%
of the Company's Transportation Operations revenues in fiscal 2001.

Focus on Passenger  Safety and  Service.  Management  has  developed a corporate
culture focused on passenger safety and service. Unlike many of its competitors,
the  Company  requires  its  drivers  to  wear  standardized  uniforms,  thereby
reinforcing its  professional  image.  In addition,  all drivers are required to
attend  periodic  safety  workshops  and  training  programs,   which  emphasize
defensive driving and courteous behavior.  Management believes that its emphasis
on  passenger  safety  and  service  is a  competitive  advantage  and  a  major
contributor to its success in winning new contracts.

Fleet Management and  Maintenance.  At June 30, 2001, the Company had a fleet of
6,758 vehicles and the average age of the Company's fleet, exclusive of vehicles
provided  by various  transportation  authorities,  was 6.4 years (6.9 years for
school buses, which account for 62.2% of the Company's fleet). School buses have
an average useful life of approximately 16 years.

      At June 30,  2001,  the  fleet was  maintained  by the  Company's  trained
mechanics  at its 73  facilities.  The  Company has a  comprehensive  preventive
maintenance  program  for its  equipment  to  minimize  equipment  down time and
prolong  equipment life.  Programs  implemented by the Company


                                       5
<PAGE>

include  standard  maintenance,   regular  safety  checks,  lubrication,   wheel
alignments and oil and filter changes, all of which are performed on a regularly
scheduled basis by the Company's mechanics.

      The following is a breakdown of the Company's  fleet of owned  vehicles at
June 30, 2001 by age:

<TABLE>
<CAPTION>
                                                             Lift/                      Service
                                           Minivans          Ramp                         and
                              School         And           Equipped                     Support
                              Buses          Cars          Vehicles        Coaches      Vehicles       Total
                            ---------    -----------     ------------    ----------    ----------     -------
<S>                            <C>          <C>               <C>             <C>          <C>         <C>
Less than 2 yrs. old ......      458          175              80              1             1           715
2-5 yrs. old ..............    1,441          641             265              6            44         2,397
5-10 yrs old ..............      764          598             176             10            41         1,589
10-15 yrs. old ............    1,033           90              91             23            25         1,262
Greater than 15 years .....       71            5               3              2            11            92
                               -----        -----           -----          -----         -----         -----
Total                          3,767        1,509             615             42           122         6,055
                               =====        =====           =====          =====         =====         =====
</TABLE>

      The following is a breakdown of the Company's  fleet of leased vehicles at
June 30, 2001 by age:

<TABLE>
<CAPTION>
                                                             Lift/                      Service
                                           Minivans          Ramp                         and
                              School         And           Equipped                     Support
                              Buses          Cars          Vehicles        Coaches      Vehicles       Total
                            ---------    -----------     ------------    ----------    ----------     -------
<S>                            <C>          <C>               <C>             <C>          <C>         <C>
Less than 2 yrs. old ......       0             1               2             16             0            19
2-5 yrs. old ..............     102             2              33             10             0           147
5-10 yrs old ..............       2             0               0              5             0             7
10-15 yrs. old ............       0             0               0              0             0             0
Greater than 15 years .....       0             0               0              0             0             0
                               -----        -----           -----          -----         -----         -----
Total .....................     104             3              35             31             0           173
                               =====        =====           =====          =====         =====         =====
</TABLE>

      In addition  to the  vehicles  in the tables  above,  at June 30, 2001 the
Company  operated 530 vehicles  provided by various  transportation  authorities
pursuant to their respective contracts.

Employees.  At June 30,  2001,  the Company had over 8,500  employees to provide
transportation services,  consisting of approximately 6,600 drivers, 700 escorts
and 700  mechanics.  In  addition,  there were  approximately  500  employees in
executive,  operations,  clerical and sales functions.  The Company's school bus
drivers and escorts are required to undergo background checks,  drug and alcohol
testing and  fingerprinting  as a condition for employment on school buses.  All
drivers are licensed to drive school  buses and/or motor  coaches in  accordance
with federal and state licensing requirements.

      The Company requires its drivers to complete a thorough and  comprehensive
training process in addition to satisfying  federal and state  requirements.  In
some  states,  such as New York,  a special  subclass of license is required for
school bus  drivers.  The  Company's  paratransit  drivers are also  required to
complete special training.  Drivers undergo a 20-hour basic training course once
a year and a two-hour  refresher class twice per year. In addition,  drivers are
required to be  fingerprinted  and pass a  defensive  driving  test,  as well as
physical,   oral  and  written   tests.   Further,   all  drivers  must  pass  a
pre-employment  drug test as well as random  drug and alcohol  tests  during the
course of each year. Pursuant to federal and state law, each year the Company is
required  to  randomly  test 50% of its drivers for drug use and 25% for alcohol
use.

      At  June  30,  2001,  approximately  79% of the  Company's  Transportation
Operation  employees  were members of various labor unions and the Company was a
party  to 27  collective  bargaining  agreements,  13 of  which  covering  3,638
employees  expire  within  less  than 2  years.  Management  believes  that  its
relations with its employees are satisfactory. The Company has had no strikes or
work stoppages in the past 10 years.


                                       6
<PAGE>

      At June  30,  2001,  approximately  23% of the  Company's  Transportations
Operations bus drivers,  escorts and mechanics were represented by Local 1181 of
the Amalgamated  Transit Union, which primarily  represents  personnel rendering
services on behalf of the New York Board of  Education.  Labor  agreements  with
Local 1181 require contributions to the Local 1181 welfare fund and pension plan
on behalf of drivers,  mechanics and certain escorts.  All contracts  awarded by
the New York  Board of  Education  during  the  past 22 years  contain  employee
protection  provisions  and require  continued  contributions  to the Local 1181
pension  plan and welfare  fund for rehired  employees  opting to remain in such
plan and such fund. Pursuant to a plan amendment approved by the Pension Benefit
Guaranty  Corporation,  withdrawal  liability for contributing  employers to the
plan, such as the Company, is essentially  eliminated,  provided that withdrawal
is based upon the loss of New York  Board of  Education  contracts  and that the
successor contractor becomes a contributing employer to the plan.

Competition.  The school bus transportation  industry and paratransit operations
are highly competitive.  The Company competes on the basis of its reputation for
passenger  safety,  quality of  service  and price.  Management  believes  it is
competitive in each of these areas.  Contracts are generally awarded pursuant to
public bidding,  where price is the primary  criteria for a contract award.  The
Company has many  competitors in the school bus and  paratransit  transportation
business  including  transportation  companies  with  resources  and  facilities
substantially  greater  than those of the  Company.  The Company  competes  with
Laidlaw  Transit,  Inc.  a  division  of  Laidlaw,  Inc.,  the  largest  private
transportation  contractor in North  America,  First Transit and First  Student,
divisions of First Group America, Inc., the second largest company, and National
Express Corporation, in addition to other regional and local companies.

Bus Sales Operations

      The Company entered the bus sales business in 1997 through the acquisition
of Central.  Central,  which has non-exclusive  distribution  contracts,  is the
leading  authorized  distributor of school buses  manufactured by Blue Bird Body
Company  ("Blue  Bird"),  which is the leading  manufacturer  of school buses in
North America.  While there are various other distributors of buses in Central's
distribution  area,  the Company  believes  that  Central has a greater than 45%
market share for sales of school buses in its distribution territory.

      The  Company's  Bus Sales  Operations  sells school  buses and  commercial
vehicles  within New Jersey and various  counties in New York.  The  majority of
buses  purchased  by the  Company  are  for  pre-existing  orders.  The  Company
generated  approximately 20.2%, 21.1%, and 24.7% of its total revenues from this
operation in fiscal 2001, 2000, and 1999, respectively.

      The Bus Sales Operations are seasonal in nature. Approximately 44% and 45%
of the annual  sales of Bus Sales  Operations  occurred  in the  quarters  ended
September  30, 2000 and 1999,  respectively.  In addition,  the working  capital
needs of the operation  have tended to increase  during this quarter in response
to the higher  seasonal  sales  volume and because  inventory  is at its highest
during July and August prior to seasonal school bus deliveries.

      At June 30, 2001, the Company employed approximately 200 people in its Bus
Sales Operations, none of which were members of collective bargaining groups.

Risk Management and Insurance

      The Company maintains various forms of liability  insurance against claims
made by third  parties  for bodily  injury or  property  damage  resulting  from
operations.  Such insurance  consists of (i) general and liability  insurance of
$100 million per occurrence with no deductible against claims arising from other
(e.g.,  non-automobile)  liability exposure; (ii) automobile liability insurance
of up to $100  million  per  occurrence,  subject to a $250,000  deductible  per
occurrence and an aggregate maximum  deductible of approximately $11 million for
eight months (the policy term) subject to a refund based upon a  calculation  of
ratable  incurred  losses  valued as of a date  eighteen  months or as otherwise
mutually agreed to, after the Rating Plan Period;  and (iii) statutory  worker's
compensation insurance and employers liability insurance,  subject to a $250,000
deductible per occurrence.  Beyond the occurrence limits mentioned  herein,  the
automobile  liability  coverage  provides  indemnity for an unlimited  number of
occurrences and general


                                       7
<PAGE>

liability  coverage provides $100 million aggregate  coverage per location.  The
Company's  insurance  policies  generally  provide  coverage for a one year term
(eight  months  in the case of the  Company's  current  automobile  policy)  and
therefore, are generally subject to annual renewal.

      The  Company  self-insures  its  current  workers  compensation  insurance
deductibles  through Atlantic North Casualty Company ("Atlantic North") a wholly
owned captive insurance company chartered in Vermont. The Company believes it is
able to increase its  investment  income through the retention of and investment
of premium  income in excess of amounts paid under  claims in any given  period.
Atlantic  North's total claims liability is partially funded by premiums charged
to  operating  companies,  which,  in turn,  are  limited  to the  amount of the
deductible on the Company's  worker's  compensation  insurance policy (currently
$12.1 million).

      Prior to June 30,  2001,  the Company  also  self-insured  its  automobile
insurance  deductibles.  Atlantic  North's  total  claims  were fully  funded by
premiums  charged to operating  companies,  which,  in turn, were limited to the
amount of the combined  deductibles on the Company's automobile insurance policy
($3.9 million in the fiscal year ended June 30, 2001).

      In addition,  the Company maintains  catastrophic  coverage of $25 million
per occurrence,  for an unlimited  number of occurrences,  subject to a $100,000
deductible per occurrence. This insurance provides replacement cost coverage for
losses on the  Company's  fleet and  insurance  against  business  interruptions
resulting  from  the  occurrence  of  natural  catastrophes.  The  Company  also
maintains  property  insurance for the  replacement  cost of all of its real and
personal property.

Environmental Matters

      The Company's  operations  are subject to a broad range of federal,  state
and local  environmental  laws,  ordinances  and  regulations,  including  those
governing discharges into the air and water, the storage,  handling and disposal
of  solid  and  hazardous  wastes,  the  remediation  of  soil  and  groundwater
contaminated by petroleum products or hazardous substances or wastes, and health
and safety of employees  ("Environmental  Laws").  In addition,  a number of the
Company's  facilities  are located in  metropolitan  areas where there is a long
history of industrial  and/or commercial use. The Company is taking into account
the requirements of such Environmental  Laws in the improvement,  modernization,
expansion and start-up of its facilities. As with most transportation companies,
the Company could incur significant costs related to environmental compliance or
remediation; these costs however, most likely would be incurred over a period of
years.  Compliance with Environmental Laws or more vigorous enforcement policies
of regulatory  agencies,  or stricter or different  interpretations of such laws
and future regulatory action regarding soil or groundwater, may require material
expenditures by the Company.

      Under  various  Environmental  Laws a current  or  previous  owner of real
estate  or  operations  thereon  may be  liable  for the  costs  of  removal  or
remediation of certain hazardous  substances or petroleum  products on, under or
in such  property,  without  regard to whether the owner or operator knew of, or
caused,  the presence of  contaminants.  The presence of (or failure to properly
remediate) such substances may adversely affect the ability to sell or rent such
real  estate or to borrow  using such real  estate as  collateral.  Persons  who
generate,  arrange for the disposal or treatment of hazardous  substances may be
liable for the costs of investigation,  remediation or removal of such hazardous
substances at or from the disposal or treatment  facility  regardless of whether
such facility is owned or operated by such person.  Finally, the owner of a site
may be subject to common law claims by third  parties based on damages and costs
resulting from environmental contamination emanating from a site.

      Certain federal,  state and local laws,  regulation and ordinances  govern
the  removal,  encapsulation  or  disturbance  of  asbestos-containing  material
("ACM") when such  materials  are in poor  condition or in the event of building
remodeling,  renovation or  demolition.  Such laws may impose  liability for the
release of ACM and may provide for third parties to seek recovery from owners or
operators of real estate for personal  injury  associated  with ACM. The Company
has not  undertaken  an  environmental  assessment  or ACM  survey at all of its
facilities.  However,  based on previous inquires, the Company is aware that ACM
is present at various facilities,  some of which may be in a condition requiring
removal or encapsulation at this time.


                                       8
<PAGE>

      Underground  storage  tanks  ("USTs") are located at many of the Company's
properties.  In the  case of USTs  operated  by  previous  owner-operators,  the
Company  has not  evaluated  whether  such USTs were closed in  accordance  with
applicable legal  requirements.  In addition,  property owned and/or operated by
the Company may be impacted by offsite issues,  such as leaking USTs or previous
or current industrial operations. Except in certain instances in connection with
the  removal  of a UST,  the  Company  has not  undertaken  an  analysis  of the
condition of the subsurface soils at its properties.

      In connection  with its ownership  and  operation of its  properties,  the
Company  may be  potentially  liable for costs in  connection  with the  matters
discussed above (including costs of investigation and remediation),  which costs
could have a material  adverse effect on the Company.  With respect to Central's
facilities,  the  Company  has  sought to  reduce  the  impact of such  costs by
obtaining certain  representations  and indemnities from the sellers of Central.
The  indemnity  covers  environmental  matters to the extent  that such  matters
exceed  $200,000 and involve a maximum of  $1,000,000.  To be  indemnified,  the
Company  must  assert any claims  within  six years of the  consummation  of the
Central acquisition.  The Company has no assurance that the sellers will perform
their indemnification obligations.

Government Regulation

      The Company is subject to a wide variety of federal,  state and  municipal
laws and regulations concerning (i) vehicle standards and equipment maintenance;
(ii) qualification,  training and testing of employees;  and (iii) qualification
and maintenance of operating  facilities.  The Company's vehicles are subject to
federal motor  vehicle  safety  standards  established  by the National  Highway
Traffic Safety Administration  ("NHTSA").  Specific standards are promulgated by
the NHTSA with regard to school  buses  pursuant to the School Bus Safety Act of
1974.  The Company's  vehicles are also subject to the laws and  regulations  of
each state in which it operates,  which are often more stringent than applicable
federal  requirements.  For example,  in New York State,  in addition to federal
standards,  regulations  promulgated  by the New York State  Department of Motor
Vehicles and the New York State Department of Transportation  ("NYSDOT") require
that school buses be equipped with high back seats,  left-handed  emergency door
exits, 16 gauge side panels and illuminated  school bus signs.  All school buses
and  paratransit  vehicles are required to be inspected twice annually by NYSDOT
inspectors  in  accordance  with a  rigorous  set  of  standards  covering  each
mechanical component of the vehicles.

      The Company's  employees are subject to various federal and state laws and
regulations pertaining to driver qualifications, and drug, alcohol and substance
abuse testing.  The Commercial Motor Vehicle Safety Act of 1986 requires drivers
of commercial  vehicles,  including school buses,  motor coaches and paratransit
vehicles,  to obtain a commercial driver's license.  Many states have additional
licensing  requirements  for  subclasses  of drivers  such as school bus drivers
and/or paratransit drivers.  Under regulations enacted at the state and/or local
levels, the Company's school bus drivers and paratransit drivers are required to
complete  certain  minimum  basic  training  and  follow-up   refresher  classes
annually. Pursuant to regulations promulgated by the United States Department of
Transportation  under the Drug Free Workplace Act of 1988, the Company's drivers
are required to undergo pre-employment drug and alcohol testing, and the Company
is required to conduct random  testing for drug and/or  alcohol  abuse.  Similar
drug and alcohol abuse testing is also  required  under various state laws.  The
Company's operating and maintenance facilities for its Transportation Operations
and Bus Sales  Operations are also required to be maintained in accordance  with
regulations   promulgated  by  various  federal  and  state  agencies  including
departments of education,  departments of motor vehicles,  and state departments
of transportation.

Item 2. PROPERTIES

      Subsidiaries of the Company provide Transportation Operation services from
73  facilities  (of which 7 are owned,  64 are leased and 2 which are  partially
owned and partially  leased) in 11 states.  The  facilities are utilized for bus
storage,  repair and maintenance  and/or  administrative  purposes.  The Company
believes that its  facilities  are adequate to service its present  business and
the currently anticipated expansion of existing operations.


                                       9
<PAGE>

      Bus Sales  Operations are provided from 5 facilities (of which 2 are owned
and 3 are leased) in two states.

Item 3. LEGAL PROCEEDINGS

      The Company is a plaintiff in a  multi-party  action  against the New York
Board of  Education.  The action,  which is pending in the Supreme  Court of the
State of New York,  New York  County,  concerns  the method of  calculation  for
increases to the daily rate of  compensation  paid to the Company under contract
extension agreements. The New York Board of Education has claimed in preliminary
audits that transportation contractors, including the Company, received contract
payments in prior years which exceeded the amount to which the contractors  were
entitled in accordance with contract rate adjustment  procedures.  In the action
the Company claimed that the New York Board of Education (i) improperly  changed
the comparison years pursuant to which  contractors  established their increased
costs for purposes of qualifying for annual rate increases; and (ii) incorrectly
calculated costs associated with  transportation  contracts which resulted in an
erroneous determination of applicable daily rates of compensation.  The first of
the two  claims  has been  dismissed.  The  second  claim is still  pending.  In
September 2000, the Company entered into a letter agreement with the Board which
provided that (a) upon final resolution of the Company's outstanding claims, the
Company would pay any amount determined to be due the Board over a term of seven
years, and (b) the Company would receive credit up to 100% of such amount, equal
to the amount paid by the Company for the purchase of school buses in the period
of July 2000  through  July 2003 as long as such school  buses were  utilized to
perform the Company's  contracts with the Board.  The Company  believes that its
purchase of qualifying buses within the above  prescribed  period will eliminate
any liability that the Company may have to the Board.

      In July 2001,  Council of the City of New York,  Peter Vallone (as Speaker
of the  Council  of the City of New  York),  Virginia  Fields  (as member of the
Council  of the City of New York) and  Lawrence  Hanley  (as an  individual  tax
payer)  commenced a proceeding  in Supreme  Court of the State of New York,  New
York County, against the Company, Rudolph Giuliani, the City of New York and the
EDC.  The  proceeding  involves  the  awarding  of a contract  by the EDC to the
Company for express commuter service from Staten Island,  New York to Manhattan,
New York. The petitioners  seek a declaration  that the awarding of the contract
is  void  and  an  injunction  forbidding  the  granting  of the  contract.  The
petitioners  assert that the contract  constitutes an award of a "franchise" and
as such,  that  pursuant  to the Charter of the City of New York,  the  contract
should not have been  awarded  without the  approval  of the City  Council and a
public  hearing.  The  Supreme  Court for the  County of New York has denied the
petitioners' request for a preliminary injunction and has dismissed the petition
except for a single cause of action brought by Lawrence Hanley.  The petitioners
have filed an appeal of the court's decision denying the preliminary  injunction
and dismissing various causes of actions. The Company believes that the contract
was  validly  granted  and  therefore,  that it will  ultimately  prevail in the
action.

      In August 2001,  Consumer  Cause,  Inc.  commenced  an action  against the
Company as well as many other operators of school buses in Southern  California.
The  litigation,  which  is  pending  in the  Superior  Court  of the  State  of
California,  Los Angeles County, concerns the alleged failure on the part of the
school bus operators to warn  passengers and drivers that they may be exposed to
engine  exhausts  that  allegedly  cause  cancer  or  reproductive  toxicity  in
violation  of  California  law.  Consumer  Cause seeks a  permanent  injunction,
penalties  of $2,500 per day, per alleged  violation  and  unspecified  monetary
damages.  The Comapny  believes that it was not required to warn  passengers and
drivers as  asserted  in the action and  therefore,  that the  plaintiff  is not
entitled to the various forms of relief it seeks.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.


                                       10
<PAGE>

                                    PART II.

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MARKETS

      The  Company  is a wholly  owned  subsidiary  of AETG.  There is no public
trading market for the Company's common stock.

      The Company  has made  distributions  to AETG of  $122,000,  $115,763  and
$229,049 in fiscal 2001, 2000 and 1999, respectively.

Item 6. SELECTED FINANCIAL DATA

      The selected financial data for each of the years in the three-year period
ended  June 30,  2001 were  derived  from the  audited  historical  Consolidated
Financial  Statements  of the  Company.  Such data  includes  the pooling of ATC
acquired from AETG.  The  information  contained in this table should be read in
conjunction  with Item 7 -  Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations  and the historical  Consolidated  Financial
Statements of the Company,  including the notes thereto,  included  elsewhere in
this Form 10-K.

<TABLE>
<CAPTION>
                                                                     Year Ended June 30,
                                                                       ($ in millions)
                                                                     -------------------
                                                  2001          2000          1999         1998         1997
                                                --------      --------      --------     --------     --------
<S>                                               <C>          <C>           <C>          <C>          <C>
Operating Data:
Revenues ...................................      $441.6       $402.4        $330.3       $261.9       $166.1
Income from operations .....................        15.4         21.3          19.1         11.8          7.4
Income (loss) before extraordinary items
     and cumulative effect of a change in
     accounting principle ..................        (7.9)        (3.5)         (1.7)        (7.1)        (0.6)
Net income (loss) ..........................        (7.9)        (3.8)         (1.7)        (7.1)        (1.7)
Balance Sheet Data:
Total assets ...............................       346.1        298.4         253.1        206.5        154.4
Long-term debt .............................       246.4        216.4         195.4        157.9        110.5
Total shareholder's equity .................        47.9         48.3          26.2         20.2         27.6
</TABLE>

----------

Item 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

      The following  discussion should be read in conjunction with the "Selected
Financial  Data" and the  historical  Consolidated  Financial  Statements of the
Company, including the notes thereto, included elsewhere in this Form 10-K.

General

      Atlantic is one of the largest  providers of school bus  transportation in
the United States.  The Company has contracts  with 149 school  districts in New
York, Missouri,  Vermont,  Massachusetts,  Illinois,  California,  Pennsylvania,
Connecticut and New Jersey. In addition to the School Bus Division,  the Company
provides  services  to  public  transit  systems  for  physically  and  mentally
challenged  passengers  through the  Paratransit  Division,  transportation  for
pre-kindergarten  children and Medicaid  recipients  through the  Pre-K/Medicaid
Division,  fixed route transit,  express  commuter line and charter and tour bus
services   through  the  Coach  Division   (collectively   the   "Transportation
Operations")  and sells school  buses and  commercial  vehicles  (the "Bus Sales
Operations").  At June 30,  2001,  Atlantic had a fleet of  approximately  6,800
vehicles operating from 73 facilities and provided bus sales from 5 facilities.


                                       11
<PAGE>

      For each of the years in the three year period  ended June 30,  2001,  the
percentage of revenues from the Company's business segments were as follows:

                                                 2001       2000       1999
                                               --------   --------   --------
      Transportation Operations .........        79.8%      78.9%      75.3%
      Bus Sales Operations ..............        20.2%      21.1%      24.7%

      The  School  Bus  Division  accounted  for  78.5%,  76.8% and 80.0% of the
Company's  Transportation  Operation  revenues  in fiscal  2001,  2000 and 1999,
respectively.  The Company's school bus transportation contracts have provided a
relatively  predictable  and stable stream of revenues  over their terms,  which
range from one to five years.  Since 1979,  Atlantic has achieved a  substantial
contract  renewal,  which  management  believes is due to (i) its reputation for
passenger   safety  and  providing   efficient,   on-time   service;   (ii)  its
long-standing  relationships  with the school  districts it services;  (iii) 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 (iv) the disadvantage of prospective competitors, who generally
would have to make  substantially  greater  investments  than the Company in new
equipment  and who may  experience  difficulty  obtaining  suitable  parking and
maintenance  facilities in the Company's primary markets,  especially in the New
York greater metropolitan area.

      The daily price charged per vehicle varies, depending upon a wide range of
factors including (i) vehicle type (standard school buses, minivans, or vehicles
with   wheelchair   lifts);   (ii)  the  nature  of   service  to  be   provided
(transportation of regular  enrollment  students or transportation of physically
or mentally  challenged  students);  (iii) special  requirements of a particular
school district  concerning age of vehicles  and/or  upgrades on equipment;  and
(iv)  the  cost of  labor.  Salaries  and  related  labor  costs  are  the  most
significant   factors  in  the  Company's  cost   structure.   In  urban  areas,
particularly  those with a strong union presence,  the cost of providing  school
bus  transportation  is substantially  greater than in suburban and rural areas,
where unions are generally less  prevalent and salaries are lower.  As a result,
prices paid by school districts vary  accordingly.  School Bus Division revenues
have historically been seasonal, based on the school year and holiday schedules.
During the months of September through June, the Company's fleet of school buses
has been generally fully utilized. Historically during the summer months, only a
portion  of the  Company's  school  buses  have been  required  to  fulfill  the
Company's summer contracts for school and camp activities and special trips.

      The Paratransit  Division,  which accounted for 15.9%,  18.7% and 14.7% of
the Company's Transportation  Operations revenues in fiscal 2001, 2000 and 1999,
respectively,  is the second largest division of the Transportation  Operations.
The terms of the Company's  paratransit  contracts range from one to five years.
The contacts are awarded by public transit  systems  through a public bidding or
RFP process. The Company is generally entitled to a specified charge per hour of
vehicle  service  together  with other  fixed  charges.  The method of  contract
compensation also varies.

      The Company's  Pre-K/Medicaid  Division  accounted for less than 3% of the
Company's  Transportation  Operation  revenues in each of the last three  fiscal
years. Pre-K contracts are generally awarded to the lowest responsible bidder in
a public  bidding  process.  Medicaid  contracts are generally  awarded  through
negotiations  with private  agencies.  The Company  generally  services specific
Pre-K bus routes  during the months of  September  through  June,  and  services
Medicaid routes throughout the year. Pre-K and Medicaid  contracts are generally
paid based on number of passengers per trip.

      The  Coach  Division,  which  accounted  for  3.5%,  2.1 % and 2.4% of the
Company's  Transportation  Operation  revenues  in fiscal  2001,  2000 and 1999,
respectively,  operates luxury coaches for fixed route transit, express commuter
services and charter and tour  contracts  for  individual  special  events.  The
Company's  contracts  for coach  services  vary  based on term and length of the
trip.  Coach Division  charter and tour revenues are generally a function of the
size and  number of  coaches  utilized  rather  than the  number  of  passengers
carried.

      The Bus Sales  Operations,  which accounted for 20.2%,  21.1% and 24.7% of
the Company's total revenues in fiscal 2001, 2000 and 1999, respectively,  sells
school buses and commercial vehicles primarily


                                       12
<PAGE>

in New Jersey and various  counties in New York. The Bus Sales  Operations  were
acquired effective July 1, 1997.

      The principal elements of the Company's Transportation  Operations cost of
sales are labor and related employment expenses, fuel, parts, vehicle insurance,
worker's  compensation  insurance  and rent.  Historically,  cost of sales  have
varied directly in proportion to revenues,  and approximately 94% of fiscal 2001
cost of sales were variable costs consisting of direct labor  (primarily  driver
wages and related  employment  expenses),  fuel costs and maintenance  costs. At
June 30, 2001,  approximately  79% of the  Company's  employees  were members of
various  labor  unions and the  Company  was party to 27  collective  bargaining
agreements,  13 of which  covering  3,638  employees  expire  within less than 2
years.  Although the Company believes that  historically it has had satisfactory
labor relations with its employees and their unions, the Company's  inability to
negotiate  acceptable  union contracts in the future or a deterioration of labor
relations  could result in strikes or work  stoppages  and  increased  operating
costs as a result of higher wages or benefits paid to union members, which would
have a material adverse effect on the Company.

      General and  administrative  expenses  include costs  associated  with the
Company's  headquarters  in Staten  Island,  New York and  terminal  office  and
managerial salaries.  Management believes that it currently has sufficient staff
to support  anticipated  revenues  levels.  Cost increases are anticipated to be
offset  somewhat  as the  Company's  business  grows  and the  Company  realizes
economies  of  scale  by  spreading  the cost of the  administrative  staff  and
facilities over a larger revenue base.

Results of Operations

<TABLE>
<CAPTION>
                                                                   Year Ended June 30,
                                              ------------------------------------------------------------
                                                                    ($ in millions)
                                              ------------------------------------------------------------
                                                    2001                  2000                  1999
                                              ---------------       ---------------       ----------------
<S>                                           <C>       <C>         <C>       <C>         <C>        <C>
Revenues ..................................   $441.6    100.0%      $402.4    100.0%      $330.3     100.0%
Gross profit ..............................     67.4     15.3         65.4     16.2         54.6      16.5
General and administrative expenses .......     28.8      6.5         25.2      6.3         22.6       6.8
Depreciation and amortization .............     23.2      5.3         18.8      4.7         12.9       3.9
Income from operations ....................     15.4      3.5         21.3      5.3         19.1       5.8
Net interest expense ......................     28.2      6.4         25.3      6.3         20.7       6.3
Non-recurring item ........................       --       --           --       --          1.2       0.4
Loss  before cumulative effect of a change
     In accounting principle ..............     (7.9)    (1.8)        (3.5)    (0.9)        (1.7)     (0.5)
Net loss ..................................     (7.9)    (1.8)        (3.8)    (0.9)        (1.7)     (0.5)
</TABLE>


                                       13
<PAGE>

      Twelve Months Ended June 30, 2001 Compared to Twelve Months Ended June 30,
2000

      Revenues.  Revenues from Transportation Operations were $352.3 million for
the twelve months ended June 30, 2001 compared to $317.3  million for the twelve
months ended June 30, 2000, an increase of $35.0 million or 11.0%. This increase
was due primarily to (i) $4.3 million as a result of new contracts  awarded (net
of contracts  lost);  and (ii) $30.7 million due to contract rate  increases and
increases in service requirements of existing contracts. Revenues from Bus Sales
Operations were $89.3 million for the twelve months ended June 30, 2001 compared
to $85.1  million for the twelve months ended June 30, 2000, an increase of $4.2
million or 4.9%. This increase was primarily due to $3.5 million increase in new
bus sales and $0.6 million increase in parts and other sales.

      Gross  profit.  Gross  profit  from  Transportation  Operations  was $61.3
million for the twelve  months ended June 30, 2001 compared to $57.7 million for
the twelve months ended June 30, 2000, an increase of $3.5 million or 6.1%. This
increase was due  primarily to the increase in revenues  described  above.  As a
percentage  of revenues,  gross profit  decreased to 17.4% for the twelve months
ended June 30, 2001 from 18.2% for the twelve  months ended June 30, 2000.  This
decrease  was  primarily  due to  increases in fuel costs (0.6%) and labor costs
(0.8%) partially offset by a decrease in sub-contract labor costs (0.5%).  Gross
profit from the Bus Sales  Operations  was $6.1  million  for the twelve  months
ended June 30, 2001  compared to $7.6  million for the twelve  months ended June
30,  2000, a decrease of $1.5  million or 19.5%.  As a  percentage  of revenues,
gross profit  decreased  to 6.9% for the twelve  months ended June 30, 2001 from
9.0% for the twelve  months ended June 30, 2000.  The  reduction in gross profit
percentage  was due  primarily  to an  increase in  proportion  of sales made of
commercial  vehicles  which have lower  margins than school buses and  increased
competition (primarily in the New Jersey market).

      General and administrative  expenses.  General and administrative expenses
for the Transportation Operations were $24.5 million for the twelve months ended
June 30, 2001  compared to $21.3  million for the twelve  months  ended June 30,
2000, an increase of $3.2 million or 15.1%. This increase was due primarily to a
net  credit of $3.6  million in the  fiscal  year  ended June 30,  2000 due to a
litigation   settlement   partially  offset  by  a  $0.4  million  reduction  in
advertising  expenses.  As a percentage of revenues,  general and administrative
expenses  for the  Transportation  Operations  increased  to 7.0% for the twelve
months ended June 30, 2001 from 6.7% for the twelve  months ended June 30, 2000.
General  and  administrative  expenses  for the Bus Sales  Operations  were $4.3
million for the twelve  months ended June 30, 2001  compared to $3.9 million for
the twelve months ended June 30, 2000 an increase of $0.4 million or 9.3%.  This
increase was due primarily to $0.1 million increases in  administrative  payroll
and benefits and $0.1 million increases in advertising and promotional expenses.
As a percentage  of  revenues,  general and  administrative  expenses of the Bus
Sales  Operations was 4.8% for the twelve months ended June 30, 2001 compared to
4.6% for the twelve months ended June 30, 2000.

      Depreciation and  amortization.  Depreciation and amortization  expense of
Transportation Operations was $22.3 million for the twelve months ended June 30,
2001  compared to $18.0  million for the twelve  months ended June 30, 2000,  an
increase of $4.3 million or 24.1%.  This increase was primarily due to increases
in  depreciation of $3.9 million in connection with the purchase of new vehicles
and $0.4 million  increase in amortization of contract rights primarily of newly
acquired  subsidiaries.  Depreciation and amortization  expense of the Bus Sales
Operations  was $0.9 million for the twelve months ended June 30, 2001 and 2000,
respectively.

      Income from operations.  Transportation  Operations income from operations
was $14.4  million in fiscal 2001  compared to $18.5  million in fiscal  2000, a
decrease of $4.0  million or 21.7%.  This  decrease was due to the net effect of
the items discussed above. Bus Sales Operations  income from operations was $1.0
million in fiscal 2001  compared to $2.8  million in fiscal  2000, a decrease of
$1.8  million  or 65.1%.  This  decrease  was due to the net effect of the items
discussed above.

      Net interest expense.  Net interest expense was $28.2 million for the year
ended June 30, 2001  compared to $25.3 million for the year ended June 30, 2000,
an increase of $2.9  million or 11.6%.  This  increase  was due  primarily to an
increase in the average  amount of borrowings  in connection  with the Company's
revolving line of credit and an increase of $1.4 million in the  amortization of
deferred  financing costs partially offset by $1.8 million reduction in interest
on the Notes due to the Company's repurchase of


                                       14
<PAGE>

$30.0 million  dollars of the Notes.  The repurchase of the Notes using proceeds
from the Company's  revolving line of credit resulted in an interest  savings of
approximately $0.4 million for the year ended June 30, 2001.

      Net income  (loss).  The Company  generated a net loss of $7.9 million for
the fiscal year ended June 30, 2001  compared to a net loss of $3.8  million for
the fiscal year ended June 30, 2000, an increase of $4.1 million.

      Twelve Months Ended June 30, 2000 Compared to Twelve Months Ended June 30,
1999

      Revenues.  Revenues from Transportation Operations were $317.3 million for
the twelve months ended June 30, 2000 compared to $248.6  million for the twelve
months ended June 30, 1999, an increase of $68.7 million or 27.6%. This increase
was due  primarily to (i) $18.1  million as a result of new  contracts  awarded;
(ii) $33.1  million due to contract  rate  increases  and  increases  in service
requirements  of existing  contracts;  and (iii) $17.5  million in revenue  from
acquisition of new  subsidiaries.  Revenues from Bus Sales Operations were $85.1
million for the twelve  months ended June 30, 2000 compared to $81.7 million for
the twelve months ended June 30, 1999, an increase of $3.3 million or 4.1%. This
increase was primarily due to $4.0 million  increase in new bus sales  partially
offset by $0.7 million decrease in parts and other sales.

      Gross  profit.  Gross  profit  from  Transportation  Operations  was $57.7
million for the twelve  months ended June 30, 2000 compared to $46.7 million for
the twelve  months ended June 30, 1999,  an increase of $11.1  million or 23.7%.
This increase was due primarily to the increase in revenues  described above. As
a percentage of revenues,  gross profit decreased to 18.2% for the twelve months
ended June 30, 2000 from 18.8% for the twelve  months ended June 30, 1999.  This
decrease was primarily due to increases in fuel costs and labor due to the tight
labor market.  Gross profit from the Bus Sales  Operations  was $7.6 million for
the twelve  months  ended June 30, 2000  compared to $7.9 million for the twelve
months ended June 30, 1999, a decrease of $0.3 million or 3.4%.  As a percentage
of revenues, gross profit decreased to 9.0% for the twelve months ended June 30,
2000 from 9.7% for the twelve months ended June 30, 1999.  This decrease was due
primarily to an increase in the current year of the  proportion  of sales in the
New Jersey  market which has had  historically  lower gross margins than the New
York market and lower margins generated by the sale of commercial vehicles.

      General and administrative  expenses.  General and administrative expenses
for the Transportation Operations were $21.3 million for the twelve months ended
June 30, 2000  compared to $18.8  million for the twelve  months  ended June 30,
1999,  an increase of $2.3 million or 12.9%.  This increase was due primarily to
increases  in (i)  professional  fees of $1.0 million and (ii)  advertising  and
promotion  expenses  of $1.4  million and (iii) $3.7  million in  administrative
payroll  and  benefits  due  primarily  to  new  business  and   acquisition  of
subsidiaries  partially  offset by $4.8 in settlement  fees in connection with a
litigation settlement.  As a percentage of revenues,  general and administrative
expenses  for the  Transportation  Operations  decreased  to 6.7% for the twelve
months ended June 30, 2000 from 7.6% for the twelve  months ended June 30, 1999.
General  and  administrative  expenses  for the Bus Sales  Operations  were $3.9
million for the twelve  months ended June 30, 2000  compared to $3.7 million for
the twelve months ended June 30, 1999 an increase of $0.2 million or 5.3%.  This
increase was due primarily to $0.1 million increases in  administrative  payroll
and benefits and $0.1 million  increases in telephone  expenses due to expansion
of business. As a percentage of revenues, general and administrative expenses of
the Bus Sales  Operations was 4.6% for the twelve months ended June 30, 2000 and
June 30, 1999.

      Depreciation and  amortization.  Depreciation and amortization  expense of
Transportation  Operations  was $ 18.0 million for the twelve  months ended June
30, 2000 compared to $12.1 million for the twelve months ended June 30, 1999, an
increase of $5.9 million or 48.9%.  This increase was primarily due to increases
in  depreciation in connection with the purchase of new vehicles and acquisition
of  subsidiaries.  Depreciation  and  amortization  expense  of  the  Bus  Sales
Operations  was $0.9 million for the twelve  months ended June 30, 2000 compared
to $0.8 million for the twelve months ended June 30, 1999.

      Income from operations.  Transportation  Operations income from operations
was $18.5  million in fiscal 2000  compared to $15.7  million in fiscal 1999, an
increase of $2.8 million. This increase was due to


                                       15
<PAGE>

the net effect of the items discussed above.  Bus Sales  Operations  income from
operations  was $2.8  million in fiscal 2000  compared to $3.3 million in fiscal
1999,  a decrease of $0.5  million or 15.2%.  This  decrease  was due to the net
effect of the items discussed above.

      Net interest expense.  Net interest expense was $25.3 million for the year
ended June 30, 2000  compared to $20.7 million for the year ended June 30, 1999,
an increase of $4.6  million or 22.1%.  This  increase  was due  primarily to an
increase in the average  amount of borrowings  in connection  with the Company's
revolving line of credit and $2.4 million additional interest in connection with
additional debt incurred for the purchase of subsidiaries.

      Non-recurring  item.  Non-recurring  item was $1.2  million in fiscal 1999
which  represented fees and expenses (other than bondholder  consent fees), paid
by the  shareholders  of AETG for the  benefit  of the  Company.  There  were no
non-recurring items for the year ended June 30, 2000.

      Net income  (loss).  The Company  generated a net loss of $3.8 million for
the fiscal year ended June 30, 2000  compared to a net loss of $1.7  million for
the fiscal year ended June 30, 1999, an increase of $2.1 million.

Liquidity and Capital Resources

      Capital expenditures for the fiscal years ended June 30, 2001 and June 30,
2000  totaled  $32.8  million  and  $33.5  million,   respectively.   Management
anticipates  capital  expenditures of approximately $18.5 million in fiscal 2002
in connection with new contracts, normal replacement of vehicles and maintenance
capital expenditures.

      The  majority  of  these  capital  expenditures  will be  incurred  in the
Company's first quarter which is its seasonal low period.  The Company  believes
that the Receivable  Agreement,  along with its $125 million  Facility (of which
$8.3  million  was  available  at June 30,  2001)  and the  equity  contribution
received from AETG in September 2001 will provide it with  sufficient  liquidity
to conduct its operations for the coming fiscal year.

      The Company intends to seek to selectively  continue to acquire contracts,
especially those requiring minimum capital  expenditures,  to the extent that it
is able to finance  these from  operating  cash flows and/or  additional  equity
contributions from AETG.

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

      Net Cash  Provided  By (Used in)  Operating  Activities.  Net cash used in
operating  activities  was $3.6  million for the fiscal year ended June 30, 2001
primarily  due to a $7.9  million  net loss,  $17.0  million  of funds  used for
working  capital and a $6.1 million  increase in deferred income taxes partially
offset by $26.3 million of non-cash items of depreciation  and  amortization and
$1.1 million other sources of funds.  Net cash provided by operating  activities
was $13.9 million for the fiscal year ended June 30, 2000  primarily due to $1.3
million of funds provided by working capital plus non-cash items of depreciation
and  amortization of $20.7 million  partially offset by a $3.8 million net loss,
$1.2  million  increase in deferred tax assets,  $1.1 million  decrease in other
long-term liabilities and $1.8 million other net uses of funds.

      Net Cash Provided by (Used in) Investing  Activities.  For the fiscal year
ended June 30, 2001, the Company made $32.8 million of capital  expenditures  to
acquire  additional   vehicles,   property  and  equipment.   Of  these  capital
expenditures  $0.7 million were directly  financed and the balance were financed
from operating cash flows.  For the fiscal year ended June 30, 2000, the Company
made $33.5  million  of capital  expenditures  to acquire  additional  vehicles,
property and equipment. Of these capital expenditures $1.2 million were directly
financed and the balance were financed from  operating  cash flows.  In addition
the Company  made $2.7 million of net  dispositions  of  marketable  securities,
which securities were held by Atlantic North.


                                       16
<PAGE>

      In August  2001,  the Company was awarded a five year  contract  (with two
one-year renewal  options) by the New York City Transit  Authority (the "T.A.").
Pursuant to the terms of the contract, the T.A. will provide all of the required
vehicles and as a result,  the Company will not be required to make  significant
capital expenditures relating to the contract.

      In  August  2000 the  Company  was  awarded a one year  contract  by South
Carolina  Electric  and Gas  ("SCE&G"),  to run the transit  system in Columbia,
South  Carolina.  Pursuant to the contract  SCE&G  provided the Company with the
majority of all required vehicles and as a result,  the Company was not required
to make significant capital expenditures  relating to the contract. In June 2001
the Company was awarded a one year contract (with two one year renewal  options)
by the New York City Economic  Development  Commission (the "EDC") to provide an
express commuter service from Staten Island, New York into Manhattan,  New York.
This service is the first  subsidized  transit  contract  for the  Company.  The
Company has leased 20 luxury to coaches to provide this service.

      Net Cash Provided by (Used in) Financing Activities.  Net cash provided by
financing  activities  totaled  $38.8 million for the fiscal year ended June 30,
2001 due to (i) a $4.5  million  cash  contribution  as part of a $10.0  million
capital contribution from the Company's parent, AETG; (ii) $106.2 million of net
borrowings under the Company's  revolving line of credit;  (iii) $9.7 million of
insurance  premium  financing,  partially  offset by $46.4  million of principal
payments on  borrowings,  repayment  of $30.0  million of the  Company's 10 3/4%
Senior Secured Notes due 2004 and $5.2 million of deferred  financing  costs. In
addition AETG contributed  $5.5 million of vehicles to the Company.  The Company
incurred $0.7 million of indebtedness to directly  finance capital  expenditures
for the year ended June 30,  2001.  Net cash  provided by  financing  activities
totaled $32.5 million for the fiscal year ended June 30, 2000,  due primarily to
(i) $26.1  million  capital  contributions  from  AETG;  (ii)  $22.1  million of
additional  borrowings partially offset by $12.2 repayment of debt in connection
with acquisition of subsidiaries,  $1.5 million debt amortization  requirements,
$1.3 million  reduction in  borrowings  under the  Company's  revolving  line of
credit and $0.5  million in deferred  financing  costs.  In addition the Company
incurred $1.2 million of indebtedness to directly  finance capital  expenditures
for the year ended June 30, 2002.

      The cost of automobile liability insurance has increased  dramatically due
to the tight  insurance  market.  The  Company's  new policy  insures up to $100
million per occurrence,  subject to a $250,000  deductible per occurrence and an
aggregate maximum  deductible of approximately $11 million for eight months (the
policy term),  subject to a refund based upon a calculation of ratable  incurred
losses  valued  as of a date 18 months  (or as  otherwise  agreed  to) after the
rating plan  period.  In  management's  opinion,  based upon prior years  actual
losses,  its automobile  liability  insurance costs will increase  approximately
$6.0 to $8.0  million  for the year ended June 30, 2002 over the year ended June
30, 2001.

      At June 30, 2001, the Company's total debt and  stockholder's  equity were
$246.4 million and $47.9 million,  respectively.  The Company's  ability to meet
its debt service  obligations and to reduce its total  indebtedness  will depend
upon  its  future  performance,  which  will  be  subject  to  general  economic
conditions,  its ability to achieve cost savings and other  financial,  business
and other  factors  affecting the  operations of the Company,  many of which are
beyond its control.  If the Company cannot  generate  sufficient  cash flow from
operations  in the future to service its debt,  it may be required to  refinance
all or a portion  of such debt  (including  the  Notes),  sell  assets or obtain
additional  financing.  There can be no assurance  that any such  refinancing or
asset  sales  would  be  possible  or that  any  additional  financing  could be
obtained.

Quarterly Financial Information; Seasonality

      The table below sets forth unaudited summary financial information for the
Company for the last 12  quarters.  This  information  has been  prepared by the
Company on a basis consistent with its audited Consolidated Financial Statements
and includes all  adjustments  that  management  considers  necessary for a fair
presentation of the results for such quarters.

      The Company's operations are seasonal in nature.  Historically,  the first
quarter of the  Company's  fiscal  year has  generated  operating  losses due to
significantly  reduced revenues of the Transportation  Operations (primarily the
School Bus Division) during the summer months. The Company's school bus


                                       17
<PAGE>

contracts  generally  resume in late August and early  September.  The Company's
quarterly  operating  results  also  fluctuate  due  to a  variety  of  factors,
including  variation  in the  number of school  days in each  quarter  (which is
affected by the timing of the first and last days of the school year,  holidays,
the month in which spring break occurs and adverse weather conditions, which can
close  schools)  and  the   profitability  of  the  Company's  other  divisions.
Consequently,  interim results are not  necessarily  indicative of the full year
and  quarterly  results  may vary  substantially,  both within a fiscal year and
between comparable fiscal years.

      The Bus Sales  Operations are also seasonal in nature.  Approximately  44%
and 45% of the annual  sales of Bus Sales  Operations  occurred in the  quarters
ended  September  30,  2000 and 1999,  respectively.  In  addition,  the working
capital  needs of the operation  have tended to increase  during that quarter in
response to the higher  seasonal  sales  volume and because  inventory is at its
highest during July and August prior to heavy seasonal school bus deliveries.

<TABLE>
<CAPTION>
                                                                      ($ in millions)
                         --------------------------------------------------------------------------------------------------------
                                     Fiscal 2001                        Fiscal 2000                         Fiscal 1999
                         ----------------------------------   --------------------------------    -------------------------------
                           Sept.    Dec.     Mar.     June     Sept.   Dec.      Mar.     June     Sept.    Dec.    Mar.     June
                            30,      31,      31,      30,      30,     31,       31,      30,      30,      31,     31,      30,
                           2000     2000     2001     2001     1999    1999      2000     2000     1998     1998    1999     1999
                          ------   ------   ------   ------   ------   ------   ------   ------   ------   -----   -----   ------
<S>                       <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>     <C>     <C>
Revenue ...............   $100.3   $109.3   $110.9   $121.0   $ 86.9   $102.5   $106.7   $106.3   $ 71.0   $85.0   $77.3   $ 97.0
Income (loss)
 from operations ......     (3.8)     6.1      4.3      8.8     (3.1)     7.3      9.6      7.5     (1.1)    7.8     5.7      6.7
Net income (loss)
 before extra-ordinary
 item and
 cumulative effect of a
 change in accounting
 principle ............     (5.9)    (1.3)    (1.3)     0.7     (5.2)     0.3      1.6     (0.2)    (3.2)    0.6     0.3      6.0
EBITDA (1) ............      2.1     11.7      9.9     14.9      1.0     11.8     14.9      1.8      8.8    10.4    12.4     11.0

Cash flows from:
 Operating activities .      2.4     (6.6)    (0.5)    (1.1)     0.9     10.2     (5.0)     9.8    (10.3)    9.5     5.2    (12.0)
 Investing activities .    (16.7)    (3.9)   (14.0)    (4.2)   (19.3)    (5.7)   (15.8)    (2.5)   (16.2)   (8.3)   (1.3)    (7.1)
 Financing activities .     11.3      9.9     14.2      3.4     19.1      2.8     15.0     (4.4)    (4.4)   (2.0)   17.2
</TABLE>

----------
      (1) EBITDA  represents  income from  operations  before  depreciation  and
      amortization.  EBITDA  is  used  in  certain  financial  covenants  in the
      indenture  relating  to the Notes  and is  frequently  used by  securities
      analysts and is presented here to provide additional information about the
      Company's operations.  EBITDA is not a measurement presented in accordance
      with  generally  accepted  accounting  principles.  EBITDA  should  not be
      considered  in  isolation;  as a  substitute  for net  income,  cash  flow
      provided  by  operating  activities  or other  income  or cash  flow  data
      prepared in accordance with generally accepted accounting  principles;  or
      as a measure of the Company's  profitability or liquidity.  EBITDA as used
      in this Form 10-K may not be  comparable  to "EBITDA" as reported by other
      companies.

Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company is exposed to market risk from fluctuations in interest rates,
which could impact its consolidated  financial  position,  results of operations
and cash flows.  The Company  manages  the  exposure to market risk  through its
regular operating and financing activities.  The Company does not use derivative
financial  instruments for speculative or trading purposes and does not maintain
such instruments that may expose it to significant market risk.

      Our earnings are  sensitive to changes in short-term  interest  rates as a
result of our borrowings under variable rate debt. If interest rates increase by
10 percent  for the year  ending  June 30,  2002,  our  interest  expense  would
increase,  and income before income taxes would decrease,  by approximately $0.9
million.  This  analysis  does not consider the effects of the reduced  level of
overall economic activity, or


                                       18
<PAGE>

other factors that could exist in such an environment.  Further, in the event of
a change of such magnitude,  management  could take actions to further  mitigate
its  exposure to the change.  However,  due to the  uncertainty  of the specific
actions that would be taken and their possible effects, the sensitivity analysis
assumes no changes in our financial structure.

      In addition,  the Company manages its fuel costs to reduce its exposure to
market  changes.  Fuel  costs are  sensitive  to market  changes  as well as the
overall growth or decline of the Company's business. Changes in fuel costs would
result in an  increase or decrease in the  Company's  gross  margin  percentage.
Based on a  hypothetical  10 percent  increase  in fuel costs for the year ended
June 30,  2001,  the total costs would be  equivalent  to an increase in cost of
$1.6 million, or .37% of total revenues.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      See Index to Consolidated Financial Statements,  which appears on Page F-1
hereof.

Item 9. CHANGES AND  DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE

      Not Applicable.


                                       19
<PAGE>

                                    PART III.

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The following table sets forth certain information  concerning the members
of the Board of Directors and executive  officers of the Company as of September
28, 2001.  Directors serve for a term of one year or until their  successors are
elected and qualified.

Name                     Age                Position
----                     ---                --------

Domenic Gatto ........   52   Director, President and Chief Executive Officer
Nathan Schlenker .....   63   Chief Financial Officer, Executive Vice President,
                              Secretary and Treasurer
Jerome Dente .........   55   Chief Operating Officer
Noel Cabrera .........   41   Executive Vice President
David Kessler ........   61   Vice President and Director of the Paratransit
                              Division
Douglas Danforth .....   79   Director
Sanjay Patel .........   40   Chairman of the Board
Thomas Inglesby ......   44   Director

      Domenic Gatto, Director,  President and Chief Executive Officer. Mr. Gatto
has been President,  Chief  Executive  Officer and a Director of the Company and
AETG since their formations.  Mr. Gatto, a Vietnam veteran,  began his career in
the  school  bus  business  as a bus  driver  and has been  responsible  for the
development of all facets of the business of the Company and AETG.

      Nathan  Schlenker,  Chief  Financial  Officer,  Executive Vice  President,
Secretary and Treasurer.  Mr. Schlenker has been Chief Financial  Officer of the
Company since its  formation,  and has held such position at AETG since 1991. In
November  1998,  Mr.  Schlenker  was  elected  to  serve  as an  Executive  Vice
President,  Secretary and  Treasurer of the Company and AETG.  Prior to 1991 Mr.
Schlenker  was the Vice  President of Finance of Feuer Leather  Corporation,  an
international leather manufacturer and marketing firm. From 1973 until 1985, Mr.
Schlenker  was a partner of Ekstein,  Ekstein &  Schlenker,  a firm of certified
public accountants.

      Jerome Dente, Chief Operating Officer.  Mr. Dente has been Chief Operating
Officer since  December 1997 and was Director of New York School Bus  Operations
for the Company from 1994 through 1997.  Prior to 1994 Mr. Dente served 28 years
as a  Transportation  Officer in the United  States Army,  achieving the rank of
Colonel.  Mr. Dente  received a Master of Science in  Transportation  Management
from Florida Institute of Technology, a Master of Arts in Strategic Studies from
the U.S. Naval War College and a Bachelors of Science from Widener University.

      Noel Cabrera,  Executive  Vice  President.  Mr. Cabrera has been Executive
Vice  President of the Company  since its  formation,  a Vice  President of AETG
since 1994 and Executive  Vice  President of AETG since July 1996.  Mr.  Cabrera
joined AETG in 1990 as a management  analyst.  He was  previously  employed as a
consultant for Manasia  Enterprises,  a New York based consulting firm, and as a
project  manager  for  the  Office  of  the  President  of the  Republic  of the
Philippines with respect to financing of industrial projects.

      David Kessler,  Vice President and Director of the  Paratransit  Division.
Mr.  Kessler has been Vice  President and Director of the  Paratransit  Division
since 1994.  He has been  employed by AETG since 1989.  Mr.  Kessler  received a
Master of  Public  Affairs/Master  of  Science  in  Engineering  from  Princeton
University and a Bachelors of Science in Engineering from Cornell University.

      Douglas  Danforth,  Director.  Mr.  Danforth  has been a  Director  of the
Company and AETG since  November  1998.  He was  Chairman of the Board and Chief
Executive Officer of Westinghouse  Electric Corporation from December 1983 until
December 1987. From January 1988 to May 1998 he served as


                                       20
<PAGE>

Chairman and Chief Executive Officer of the Pittsburgh Pirates Baseball Club. He
is a Director of Sola  International,  Inc.  Dal-Tile  Corporation and Greenwich
Street Capital Partners.

      Sanjay  Patel,  Chairman of the Board.  Mr. Patel has been Chairman of the
Board since November 1998. He has been Senior Managing Director of GSCP, Inc., a
merchant  banking  firm,  since  April  1998.  Prior  thereto  he was a Managing
Director of Goldman,  Sachs & Co. from  November  1996 to January  1998. He is a
Director of Recovery Engineering, Inc.

      Thomas  Inglesby,  Director.  Mr. Inglesby has been a Director of AETG and
the Company since November 1998. Since 1997, Mr. Inglesby has been a Director of
GSPC,  Inc. He is Chairman of the Board of Teknekron  Infoswitch  Corporation as
well as Check  Printers,  Inc.  From  1994-1997,  Mr.  Inglesby  was a  Managing
Director  with  Harbour  Group  in  St.  Louis,  Missouri,  an  investment  firm
specializing  in  the  acquisition  of  manufacturing  companies  in  fragmented
industries.  Prior  thereto he was an officer  with The South  Street  Funds for
three years.

      There  are no  family  relationships  between  any  of the  aforementioned
persons.

Item 11. EXECUTIVE COMPENSATION

      Directors who are employees of the Company or one of its  subsidiaries  or
employees  of  the  majority  stockholder  or  its  affiliates  do  not  receive
additional  compensation  for  serving  as  directors.  For  his  services  as a
Director,  Mr. Danforth  receives  attendance fees (which shall not be less than
$10,000 in the  aggregate  for any given fiscal year) of $2,500 for each meeting
of the Board of Directors he attends in person or for telephone  meetings of the
Board of  Directors  for which  substantial  time is required  and $500 for each
other telephone meeting of the Board of Directors.

      The  Company  and AETG have  entered  into an  employment  agreement  with
Domenic Gatto which  provides for his continued  employment  with the Company as
President and Chief  Executive  Officer and to serve upon the Board of Directors
of the Company until  November 3, 2002,  unless earlier  terminated,  subject to
extension by the Board of Directors for up to three years.  The employment  term
may be terminated  with or without cause.  The agreement  provides for an annual
base salary of $350,000  commencing  November 4, 1998 ("Effective Date") subject
to annual  increases by a  percentage  equal to the  percentage  increase in the
Regional CPI,  provided that such increase  shall in no event be more than 5% or
less than 3% of the base salary. In addition the agreement  provided for bonuses
of  $260,000  each on the six month and 12 month  anniversary  of the  Effective
Date.  Upon  the  sale  of  66% of the  stock  of  AETG  owned  by the  majority
shareholder, an initial public offering of AETG or a merger, recapitalization or
other similar event,  Mr. Gatto is entitled to a bonus of up to $1,500,000.  The
agreement  also contains  covenants for  non-competition,  non-solicitation  and
confidentiality upon the termination of his employment.

      The Company and AETG  entered  into an  employment  agreement  with Nathan
Schlenker  ("Schlenker")  which provided for his continued  employment  with the
Company  as  Chief  Financial  Officer,  commencing  on the  Effective  Date and
expiring  on November  3, 2000 (as  extended).  On July 19, 2000 the Company and
AETG entered into a new employment agreement with Schlenker expiring on November
3, 2001, unless earlier  terminated,  subject to extension by Board of Directors
for one year.  This  agreement  provides  for an annual base salary of $240,000,
subject to the same  annual  increases  as Domenic  Gatto.  The  agreement  also
contains covenants for  non-competition,  non-solicitation  and  confidentiality
upon the termination of the employment. On September 1, 2001, this agreement was
extended to a new expiration date of November 2, 2002.


                                       21
<PAGE>

                           Summary Compensation Table
                             Annual Compensation(1)

<TABLE>
<CAPTION>
                                         Fiscal                          Other Annual    All Other
Name and Principal Position               Year    Salary     Bonus       Compensation  Compensation
---------------------------               ----    ------     -----       ------------  ------------
<S>                                       <C>    <C>        <C>           <C>           <C>
Domenic Gatto .........................   1999   $433,122   $    --      $106,353(2)   $260,000(3)
President and Chief Executive Officer     2000   $374,588   $55,000      $ 67,316(2)   $260,000(3)
                                          2001   $395,622   $    --      $ 67,316(2)   $     --

Nathan Schlenker ......................   1999   $208,487   $ 3,500      $     --      $     --
Chief Financial Officer, Executive Vice   2000   $231,275   $49,000      $     --      $     --
President, Secretary and Treasurer        2001   $253,864   $20,000      $     --      $     --

Jerry Dente ...........................   1999   $116,154   $ 8,000      $     --      $     --
Chief Operating Officer                   2000   $134,529   $18,500      $     --      $     --
                                          2001   $143,256   $15,000      $     --      $     --

Noel Cabrera ..........................   1999   $103,731   $ 3,000      $     --      $     --
Executive Vice President                  2000   $111,257   $18,500      $     --      $     --
                                          2001   $118,433   $14,000      $     --      $     --

David Kessler(4) ......................   2001   $ 98,054   $17,250      $     --      $     --
Executive Vice President
</TABLE>
----------
(1)   There is no  non-cash  compensation  in lieu of  salary  or bonus or other
      long-term compensation awards or payouts or any other compensation payable
      to the  individuals  named in the table.  There is no  applicable  defined
      benefit  plan under which  benefits are  determined  other than 401(k) and
      deferred compensation contributions made.

(2)   Includes  (i)  $25,800 for  automobile  allowance;  (ii)  $35,000 for life
      insurance  allowance;  and (iii) for 1999,  $38,458 for vacation  time not
      taken.

(3)   Bonus in relation to change of control.

(4)   For 1999 and 2000,  this  executive's  compensation  has been  omitted  in
      accordance with Securities and Exchange Commission rules.


                                       22
<PAGE>

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      AETG owns all of the Company's  issued and outstanding  capital stock. The
following  table sets forth certain  information  with respect to the beneficial
ownership  of the  Common  Stock of AETG as of  September  12,  2001 by (i) each
person  who is known by the  Company  to  beneficially  own more  than 5% of the
outstanding  shares of Common Stock;  (ii) each  director of AETG;  (iii) AETG's
Chief Executive  Officer and the other executive  officers listed in the Summary
Compensation  Table above; and (iv) all current directors and executive officers
of AETG as a group.

                                                                Percentage of
                                              Number           all Outstanding
Name(1)                                      of Shares         Shares Owned(10)
-------                                      ---------         ----------------
Domenic Gatto ............................    71,070.77(5)          6.28%
Nathan Schlenker .........................      2014.94(6)          0.18%
Jerry Dente ..............................           --               --
Noel Cabrera .............................      1514.94(7)          0.14%
David Kessler ............................           --               --
Douglas Danforth(2) ......................      1875.00(8)          0.17%
Sanjay Patel(3) ..........................           --               --
Thomas Inglesby(3) .......................           --               --
GSCP II Holdings (AE), LLC(4) ............ 1,022,673.60(9)         91.31%
All directors and executive
  officers of AETG as a group                 76,475.65
  (8 persons) ............................   (5)(6)(7)(8)           6.73%

(1)   Unless otherwise indicated,  the business address of each beneficial owner
      is c/o Atlantic Express  Transportation Group Inc., 7 North Street, Staten
      Island,  New York  10302-1205  and each  beneficial  owner has sole voting
      power and  investment  power (or shares such power with his  spouse)  with
      respect to all shares of capital stock listed as owned by such  beneficial
      owner.

(2)   The business address of Mr. Danforth is c/o Executive Associates,  One PPG
      Place, Suite 2210, Pittsburgh, Pennsylvania 15222.

(3)   The business address of Messrs. Patel and Inglesby is c/o Greenwich Street
      Capital  Partners,  Inc. 500 Campus Drive,  Suite 220,  Florham Park,  New
      Jersey 07932.

(4)   The business address of GSCP II Holdings (AE), LLC is 12 East 49th Street,
      Suite 3200, New York, New York 10017.

(5)   Includes  (i)  12,119.4  shares  of  Common  Stock of AETG  issuable  upon
      exercise of options at a price of $100.00 per share and (ii) 1,500  shares
      of Series A Convertible  Preferred  Stock of AETG  convertible  into 1,500
      shares of Common Stock of AETG.

(6)   Includes  (i)  1,514.94  shares  of  Common  Stock of AETG  issuable  upon
      exercise of options at a price of $100.00 per share and (ii) 500 shares of
      Series A Convertible  Preferred Stock of AETG  convertible into 500 shares
      of Common Stock of AETG.

(7)   Shares of Common  Stock of AETG  issuable  upon  exercise  of options at a
      price of $100.00 per share.

(8)   Shares of Common  Stock of AETG  issuable  upon  exercise of warrants at a
      price of $100.00 per share.

(9)   Includes (i) 70,000 shares of Series A Convertible Preferred Stock of AETG
      convertible into 70,000 shares of Common Stock of AETG; (ii) 62,000 shares
      of Series B Convertible  Preferred Stock of AETG  convertible  into 62,000
      shares  of  Common  Stock of AETG;  and  (iii)  20,000


                                       23
<PAGE>

      shares of Series C Convertible  Preferred Stock of AETG  convertible  into
      20,000 shares of Common Stock of AETG.

(10)  Each  beneficial  owner's  percentage  ownership is determined by assuming
      that  convertible  securities,  options and warrants that are held by such
      person (but not those held by any other person) and which are  exercisable
      within 60 days of the date hereof have been exercised.

      Acquisition  of AETG.  On October 27,  1998,  the holders of a majority in
principal  amount  of the  Company's  Notes  consented  to an  amendment  to the
Indenture  relating to the Notes which in substance  exempted  the  transactions
contemplated   by  a   Recapitalization   and  Stock  Purchase   Agreement  (the
"Recapitalization")  from the  definition  of  "Change  of  Control"  under  the
Indenture  so  that  the  Company  would  not be  required  as a  result  of the
Recapitalization  to offer to purchase  all of the Notes then  outstanding  at a
purchase  price equal to 101% of the  aggregate  principal  amount  thereof plus
accrued   interest  to  the  date  of  repurchase.   On  November  4,  1998  the
Recapitalization  was consummated.  As a result, Buyer acquired an approximately
88% equity interest in a recapitalized AETG.

      The   Recapitalization,   including  the  related  transaction  costs  and
expenses,  incurred  by the  Buyer,  Wafra  Acquisition  Fund 4, LP.  ("Wafra"),
Domenic,  Michael and Patrick Gatto (the "Gattos") (except for costs relating to
the Consent) were funded by equity capital provided to AETG by the Buyer. 50% of
the costs  associated with the Consent were funded by equity capital provided to
AETG by the Buyer and the  balance of such costs were  funded by equity  capital
provided to AETG by Domenic Gatto and Wafra.

      In  connection  with the  Recapitalization,  AETG's  authorized  stock was
amended to  consist  of a single  class of common  stock.  Previously,  AETG was
authorized  to issue 228  shares of Common  Stock  with no par value of which 88
shares with no par value were issued and  outstanding and 72 shares of Preferred
Stock  with a per  share  $.01 par  value of which 72  shares  were  issued  and
outstanding.  On November 4, 1998, AETG amended its Certificate of Incorporation
to authorize  the issuance of 1,650,000  shares of Common Stock with a per share
$.001 par value and to eliminate all authorized  Preferred Shares. Each share of
Common Stock and Preferred  Stock were exchanged for 7,954,545  shares of Common
Stock. Buyer acquired approximately 88% of the Common Stock of the recapitalized
AETG, and AETG repurchased all of the shares of AETG held by Michael and Patrick
Gatto and a portion of shares held by Domenic  Gatto and Wafra,  which left them
approximately 8% and 4% of the Common Stock, respectively.

      At the  closing of the  Recapitalization  Agreement,  Domenic  Gatto,  the
founder, a Director,  President and Chief Executive Officer of the Company,  and
Nathan Schlenker, Chief Financial Officer,  Executive Vice President,  Secretary
and Treasurer of the Company,  entered into new employment  agreements  with the
Company  and AETG and option  agreements  with AETG.  Domenic  Gatto's  brother,
Michael Gatto resigned as a Director,  Executive Vice President and Secretary of
the Company, and his brother,  Patrick Gatto, resigned as a Director,  Executive
Vice President and Treasurer of the Company.

      As part of the Recapitalization,  the Stockholders'  Agreement dated as of
February 28, 1994 among AETG, the Gattos and Wafra was terminated. The Buyer and
the other stockholders of AETG,  including Domenic Gatto and Wafra, entered into
a new  Stockholders'  Agreement  (as amended the "New  Stockholders  Agreement")
dated as of November 4, 1998.

      The New  Stockholders  Agreement  provides  for,  among  other  things (i)
election of five directors,  a majority of whom would be designated by the Buyer
and which  would  include  Domenic  Gatto for so long as he is employed by AETG;
(ii) removal of any director,  with or without cause,  upon  notification by the
Buyer of its desire for such  removal;  and (iii)  replacement  of any  director
designated  by the Buyer who  ceases  to serve on the  board of  directors  with
another designee of the Buyer.

      The New Stockholders  Agreement also contains provisions that, among other
things and subject to certain exceptions,  including any restrictions imposed by
applicable law or by AETG's or the Company's debt agreements (i) provide for put
and call  rights in the event  Domenic  Gatto or a  Management  Stockholder  (as
defined in the New Stockholders Agreement) is no longer employed by the Company;
(ii)  provide  for put rights for Wafra  upon the sixth  anniversary  of the New
Stockholders  Agreement  or upon the sale by Domenic  Gatto of all his shares of
capital  stock of AETG;  (iii)  restrict  the  ability of Domenic  Gatto


                                       24
<PAGE>

and  the  Management   Stockholders  to  transfer  their  respective   ownership
interests,  other than in  certain  limited  circumstances  or by  transfers  to
Permitted  Transferees  (as  defined in the New  Stockholders  Agreement);  (iv)
restrict the ability of Wafra and a certain other  stockholder to transfer their
respective ownership interests other than in certain limited circumstances;  (v)
provide in certain  circumstances for demand and piggyback  registration  rights
for the Buyer and its  affiliates  that own Common  Stock of AETG and for demand
registration  rights for Wafra,  the costs of such  registrations to be borne by
AETG; (vi) provide tag-along rights to the remaining stockholders to participate
in certain sales by the Buyer of capital  stock of AETG;  and (vii) provide drag
along rights pursuant to which the stockholders would agree to sell their shares
of capital  stock to an  independent  third party if the Buyer  approves  such a
sale.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Prior  to and in  contemplation  of the  Recapitalization,  AETG  sold its
wholly  owned  subsidiary  G.  Entertainment,  Inc.  along with its wholly owned
subsidiaries   (collectively   "G.   Entertainment"),   which   made  up  AETG's
entertainment  business,  to the Gattos.  Three subsidiaries of G. Entertainment
were  collectively  indebted to the Company in the amount of $4.8  million as of
June 30, 1997 pursuant to a promissory  note (the  "Entertainment  Note").  Such
indebtedness  resulted  from  numerous  intercompany  loans  among  the  various
subsidiaries  of AETG prior to the  formation  of the  Company.  During the last
quarter of fiscal 1998, two of these subsidiaries suffered a precipitous decline
and  the  Company  took  a $4.6  million  non-recurring  charge  and  wrote  the
Entertainment  Note down to  $510,000.  On November 4, 1998,  after  receiving a
fairness opinion issued by an investment bank of national standing,  the Company
sold the Entertainment Note to the Gattos. The sale price was $510,000 (the book
value of the  note),  plus an  amount  equal  to  one-half  of the net  proceeds
received from any sale of assets of two of these subsidiaries  within a 12 month
period  from  the  date of  closing.  There  was no sale of  assets  within  the
prescribed period.

      The  Company's  Coach  Division  is  operated  through  its  wholly  owned
subsidiary, Atlantic Express Coachways, Inc. ("Coachways"), which leases "Park &
Ride"  and  administrative   facilities  from  Showplace  Bowling  Center,  Inc.
("Showplace"), a wholly owned subsidiary of G. Entertainment. The administrative
facilities  consist  of an office and ticket  sales  facilities.  The lease also
provides  for use of parking  facilities  for  commuters  who  purchase  express
tickets on Coachways' express bus service between Staten Island and Manhattan in
New York City.  The lease,  which is for a term of 10 years,  with two five-year
renewal  options,  commenced  July 1, 1995 for an annual base rental of $180,000
(increased  to $200,520  effective May 1, 2000).  The Company  believes that the
rental reflects the reasonable market value for the lease.

      Staten Island Bus, Inc., a wholly owned subsidiary of the Company,  leases
a facility  from  Dom-Rich  Associates,  Inc. a wholly  owned  subsidiary  of G.
Entertainment.  The lease, which is for a term of five years, with two five-year
renewal options, commenced January 1, 1997 for an annual base rental of $48,000.
The Company  believes that the rental  reflects the reasonable  market value for
the lease.

      GSCP, Inc.  ("GSCP"),  an affiliate of Buyer, AETG and the Company entered
into a Financial  Services  Agreement  (the "FSA") dated as of November 4, 1998.
Under the FSA, AETG and the Company engaged GSCP as financial  advisor to, among
other things,  provide  assistance to each of AETG and the Company in connection
with its  financial  and  business  affairs,  its  banking  and  other  business
relationships,  and the operating and expansion of its business. The FSA expires
in 2008,  subject to early  termination  by GSCP upon 15 days notice to AETG and
the Company or  termination  upon certain events after which the Buyer no longer
retains voting control of AETG and the Company. AETG and the Company pay GSCP an
annual advisory fee of $500,000 throughout the term of the FSA.

      On December 21, 2000 the Company entered into a tax sharing agreement with
AETG whereby  each of the parties  agreed to file  consolidated  tax returns and
contribute  their  portion  of income  tax  liability  based  upon each of their
respective taxable incomes.

      At June 30, 2001, the Company had a non-interest  bearing  receivable from
AETG of $805,540. Such amount arose as a result of advances to AETG.


                                       25
<PAGE>

      Commencing  August 1999,  after receiving a fairness  opinion issued by an
investment  bank of national  standing,  Central  entered into an agreement with
Atlantic Bus Distributors,  Inc. ("ABD"),  a wholly owned subsidiary of AETG, to
order certain buses through ABD.  Central is required to deposit 20% of the cost
of these vehicles  simultaneously  with ABD's receipt of these vehicles from the
manufacturers  and pay the  balance  to ABD  upon  Central's  delivery  of these
vehicles  to its  customers  or within  120 days,  whichever  comes  first.  The
purchase  price of each bus  equals  the price at which ABD  purchased  such bus
together with any costs incurred by ABD in connection  with the purchases of any
such  vehicles.  During the year ended June 30,  2001,  total  payments  made by
Central under this agreement were $29.3 million. The amount to be paid in fiscal
2002 will  depend  upon the number of buses that  Central  purchases  under this
agreement.

      In August 1997, in connection with the acquisition of Central, the Company
purchased real  property,  which serves as the primary  operating  facilities of
Central,  from Mr. Denney, a former  shareholder of Central for a purchase price
of $2.2 million and issued mortgage notes. The notes are being amortized over 15
years with a five year balloon  payment.  Mr. Denney continues to be employed by
the Company as President of Central.


                                       26
<PAGE>

                                    PART IV.

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

      (a) Financial Statements

      See Index to Consolidated Financial Statements,  which appears on page F-1
hereof.

      (b) Reports on Form 8-K

      None.

      (c) Exhibits

      The exhibits  listed on the Exhibit Index  following  the  signature  page
hereof are filed  herewith (or  incorporated  by  reference) in response to this
Item.


                                       27
<PAGE>

                                   SIGNATURES

      Pursuant to the  requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
behalf by the undersigned, thereunto duly authorized.

                                           ATLANTIC EXPRESS TRANSPORTATION CORP.

                                           By: /s/ DOMENIC GATTO
                                               ---------------------------------
                                               Domenic Gatto
                                               Director, President and Chief
                                               Executive Officer
                                               Date: October 10, 2001

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

Name                             Title                          Date
----                             -----                          ----

/s/   DOMENIC GATTO              Director, President and        October 10, 2001
------------------------------   Chief Executive Officer
      Domenic Gatto

/s/   NATHAN SCHLENKER           Chief Financial Officer,       October 10, 2001
------------------------------   Executive Vice President,
      Nathan Schlenker           Secretary and Treasurer

/s/   DOUGLAS DANFORTH           Director                       October 10, 2001
------------------------------
      Douglas Danforth

/s/   SANJAY PATEL               Chairman of the Board          October 10, 2001
------------------------------
      Sanjay Patel

/s/   THOMAS INGLESBY            Director                       October 10, 2001
------------------------------
      Thomas Inglesby


                                       28
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                   Index to Consolidated Financial Statements

                                                                            PAGE
                                                                            ----
Report of Independent Public Accountants .........................           F-2

Consolidated Balance Sheets as of June 30, 2001 and 2000 .........           F-3

Consolidated Statements of Operations for the Years Ended
June 30, 2001, 2000 and 1999 .....................................           F-4

Consolidated Statements of Stockholder's Equity for
the Years Ended June 30, 1999, 2000 and 2001 .....................           F-5

Consolidated Statements of Cash Flows for the Years Ended
June 30, 2001, 2000 and 1999 .....................................       F-6-F-8

Notes to Consolidated Financial Statements .......................      F-9-F-23

Schedule II - Valuation and Qualifying Accounts for
the Years Ended June 30, 1999, 2000 and 2001 .....................          F-24


                                      F-1
<PAGE>

                    Report of Independent Public Accountants

To the Board of Directors and Stockholder of
     Atlantic Express Transportation Corp.

      We have audited the accompanying  consolidated  balance sheets of Atlantic
Express  Transportation Corp. and subsidiaries as of June 30, 2001 and 2000, and
the related  consolidated  statements of operations,  stockholder's  equity, and
cash flows for each of the three years in the period ended June 30, 2001.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

      In our opinion,  the consolidated  financial  statements referred to above
present fairly,  in all material  respects,  the financial  position of Atlantic
Express  Transportation Corp. and subsidiaries as of June 30, 2001 and 2000, and
the results of their operations and their cash flows for each of the three years
in the period  ended June 30,  2001 in  conformity  with  accounting  principles
generally accepted in the United States.

                                                   Arthur Andersen LLP

New York, New York
September 28, 2001


                                      F-2
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                           Consolidated Balance Sheets

                                                             June 30,
                                                   -----------------------------
                                                       2001             2000
                                                   ------------     ------------
                     Assets
Current:
     Cash and cash equivalents .................   $  1,909,719     $  5,585,901
     Current portion of marketable securities ..      5,282,000        1,461,000
     Accounts receivable, net of allowance for
       doubtful accounts of $1,175,000 and
       $1,709,000 in 2001 and 2000, respectively     69,699,369       57,911,467
     Inventories ...............................     14,484,980       10,675,606
     Notes receivable ..........................         33,459           15,901
     Prepaid expenses and other current assets .     17,067,262        7,129,168
                                                   ------------     ------------
               Total current assets ............    108,476,789       82,779,043
                                                   ------------     ------------
Property, plant and equipment, at cost, less
  accumulated depreciation .....................    175,655,190      158,784,748
                                                   ------------     ------------
Other assets:
     Goodwill, net .............................     11,491,698       11,817,606
     Investments ...............................        488,150           35,000
     Marketable securities, net of
        current portion ........................      6,697,337        6,691,661
     Transportation contract rights, net .......     19,577,871       21,586,626
     Deferred financing and organization
        costs, net .............................      8,791,385        7,080,118
     Due from parent company ...................        805,540          837,300
     Notes receivable ..........................        166,541               --
     Deposits and other noncurrent assets ......      3,540,280        4,316,475
     Deferred tax assets .......................     10,045,465        3,954,168
     Covenant not to compete, net ..............        395,000          521,000
                                                   ------------     ------------
               Total other assets ..............     61,999,267       56,839,954
                                                   ------------     ------------
                                                   $346,131,246     $298,403,745
                                                   ============     ============
       Liabilities and Stockholder's Equity
Current:
     Current portion of long-term debt .........   $  1,795,144     $  1,907,563
     Insurance financing payable ...............      9,724,226               --
     Accounts payable ..........................      4,607,497        2,759,257
     Accrued compensation ......................     10,114,488        7,277,106
     Current portion of insurance reserve ......      6,330,000        3,200,000
     Accrued interest ..........................      6,841,781        7,315,366
     Other accrued expenses and current
        liabilities ............................     11,809,590       10,491,120
                                                   ------------     ------------
               Total current liabilities .......     51,222,726       32,950,412
                                                   ------------     ------------

Long-term debt, net of current portion .........    244,637,001      214,470,878
                                                   ------------     ------------
Premium on bond issuance .......................        470,115          771,750
                                                   ------------     ------------
Other long-term liabilities ....................      1,873,272        1,877,517
                                                   ------------     ------------
Commitments and contingencies

Stockholder's equity:
     Common stock, no par value, authorized
        shares 200; issued and outstanding 100 .        250,000          250,000
     Additional paid-in capital ................     56,698,517       46,698,517
     Retained earnings (accumulated deficit) ...     (7,487,911)         536,372
     Accumulated other comprehensive (loss)
        income .................................     (1,532,474)         848,299
                                                   ------------     ------------
               Total stockholder's equity ......     47,928,132       48,333,188
                                                   ------------     ------------
                                                   $346,131,246     $298,403,745
                                                   ============     ============

The accompanying notes to consolidated financial statements are an integral part
                            of these balance sheets.


                                      F-3
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                               Year Ended June 30,
                                                 -----------------------------------------------
                                                     2001              2000            1999
                                                 -------------    -------------    -------------
<S>                                              <C>              <C>              <C>
Revenues:
  Transportation Operations ..................   $ 352,321,191    $ 317,293,121    $ 248,610,791
  Bus Sales Operations .......................      89,256,672       85,078,295       81,739,086
                                                 -------------    -------------    -------------
Total revenues ...............................     441,577,863      402,371,416      330,349,877
                                                 -------------    -------------    -------------
Costs and expenses:
  Cost of operations - Transportation
    Operations ...............................     291,041,645      259,560,915      201,945,717
  Cost of operations - Bus Sales Operations ..      83,121,907       77,454,772       73,845,585
  General and administrative .................      28,813,036       25,224,381       22,588,874
  Depreciation and amortization ..............      23,162,018       18,840,535       12,913,839
                                                 -------------    -------------    -------------
Total operating costs and expenses ...........     426,138,606      381,080,603      311,294,015
                                                 -------------    -------------    -------------
  Income from operations .....................      15,439,257       21,290,813       19,055,862
Interest expense, net ........................     (28,246,804)     (25,301,933)     (20,714,979)
Other expense ................................        (728,669)        (527,614)        (224,588)
                                                 -------------    -------------    -------------
  Loss before nonrecurring item, benefit from
    income taxes and cumulative effect of a
    change in accounting principle ...........     (13,536,216)      (4,538,734)      (1,883,705)

  Nonrecurring item - recapitalization expense              --               --        1,223,161
                                                 -------------    -------------    -------------

  Loss before benefit from income taxes and
    cumulative effect of a change in
    accounting principle .....................     (13,536,216)      (4,538,734)      (3,106,866)
Benefit from income taxes ....................       5,633,933        1,074,853        1,398,089
                                                 -------------    -------------    -------------

  Loss before cumulative effect of a
    change in accounting principle ...........      (7,902,283)      (3,463,881)      (1,708,777)

Cumulative effect of a change in accounting
  principle, net of benefit from income
  taxes of $245,875 ..........................              --         (300,511)              --
                                                 -------------    -------------    -------------
Net loss .....................................   $  (7,902,283)   $  (3,764,392)   $  (1,708,777)
                                                 =============    =============    =============
</TABLE>


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


                                      F-4
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                 Consolidated Statements of Stockholder's Equity

                    Years ended June 30, 1999, 2000 and 2001

<TABLE>
<CAPTION>
                                                                          Retained      Accumulated
                                                                          earnings         other
                                         Common stock    Additional     (accumulated   comprehensive   Comprehensive
                                         No par value  paid-in capital    deficit)     income (loss)   (loss) income       Total
                                         ------------  ---------------    --------     -------------   -------------       -----
<S>                                      <C>            <C>            <C>             <C>             <C>             <C>
Balance, June 30, 1998 ...............        250,000     13,188,926      6,354,353         376,293                      20,169,572

Contribution from parent
  company ............................             --      4,750,000             --              --                       4,750,000

Contribution for
 recapitalization expense ............             --      2,709,591             --              --    $         --       2,709,591

Net loss .............................             --             --     (1,708,777)             --      (1,708,777)     (1,708,777)

Distributions to parent
  company ............................             --             --       (229,049)             --              --        (229,049)

Unrealized gain on
  marketable securities ..............             --             --             --         549,657         549,657         549,657
                                                                                                       ------------
Comprehensive loss ...................             --             --             --              --    $ (1,159,120)             --
                                         ------------   ------------   ------------    ------------    ============    ------------
Balance, June 30, 1999 ...............        250,000     20,648,517      4,416,527         925,950                      26,240,994

Contribution from parent
  company ............................             --     26,050,000             --              --    $         --      26,050,000

Net loss .............................             --             --     (3,764,392)             --      (3,764,392)     (3,764,392)

Distributions to parent
  company ............................             --             --       (115,763)             --              --        (115,763)

Unrealized loss on
  marketable securities ..............             --             --             --         (77,651)        (77,651)        (77,651)
                                                                                                       ------------
Comprehensive loss ...................             --             --             --              --    $ (3,842,043)             --
                                         ------------   ------------   ------------    ------------    ============    ------------
Balance, June 30, 2000 ...............        250,000     46,698,517        536,372         848,299                      48,333,188
                                         ------------   ------------   ------------    ------------                    ------------
Contribution from parent
  company ............................             --     10,000,000             --              --              --      10,000,000

Net loss .............................             --             --     (7,902,283)             --      (7,902,283)     (7,902,283)

Distributions to parent
  company ............................             --             --       (122,000)             --              --        (122,000)

Unrealized loss on
  marketable securities ..............             --             --             --      (2,380,773)     (2,380,773)     (2,380,773)
                                                                                                       ------------
Comprehensive loss ...................             --             --             --              --    $(10,283,056)             --
                                         ------------   ------------   ------------    ------------    ============    ------------
Balance, June 30, 2001 ...............   $    250,000   $ 56,698,517   $ (7,487,911)   $ (1,532,474)                   $ 47,928,132
                                         ============   ============   ============    ============                    ============
</TABLE>

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


                                      F-5
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                            Year Ended June 30,
                                                -------------------------------------------
                                                    2001           2000             1999
                                                -----------     -----------     -----------
<S>                                             <C>             <C>             <C>
Cash flows from operating activities:
  Net loss ..................................   $(7,902,283)    $(3,764,392)    $(1,708,777)

Adjustments to reconcile net loss to net cash
 provided by (used in) operating activities:
  (Gain) loss on sale of marketable
    securities and investments ..............       364,852      (1,220,620)     (1,274,138)
  (Gain) loss on sale of fixed assets .......       276,012           3,674              --
  Deferred income taxes .....................    (6,091,297)     (1,320,726)     (1,740,284)
  Depreciation ..............................    20,422,934      16,411,451      11,020,621
  Amortization ..............................     5,887,732       4,278,771       2,618,082
  Write-off of doubtful accounts receivable .            --          51,000              --
  Reserve for doubtful accounts receivable ..       120,000         120,000         120,000
  Recapitalization expense ..................            --              --       1,223,161
  Decrease (increase) in:
    Accounts receivable .....................   (11,907,902)     (5,984,695)    (11,962,490)
    Inventories .............................    (3,809,374)      4,781,214      (4,458,957)
    Prepaid expenses and other current assets    (9,938,094)       (277,810)       (843,828)
    Deferred lease expense ..................            --         148,155         185,960
    Deposits and other noncurrent assets ....       776,195        (941,781)     (1,894,710)
  Increase (decrease) in:
    Accounts payable ........................     1,848,240        (590,807)        138,253
    Accrued expenses and other current
     liabilities ............................     6,812,267       3,396,192       3,629,394
    Other long-term liabilities .............      (474,823)     (1,146,012)     (2,617,606)
                                                -----------     -----------     -----------
    Net cash provided by (used in)
     operating activities ...................    (3,615,541)     13,943,614      (7,565,319)
                                                ===========     ===========     ===========
</TABLE>

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


                                      F-6
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                              Year Ended June 30,
                                               -----------------------------------------------
                                                   2001              2000             1999
                                               -------------    -------------    -------------
<S>                                            <C>              <C>              <C>
Cash flows from investing activities:
  Acquisition of subsidiaries (net of cash
   acquired of $0, $97,584 and $699,808
   in 2001, 2000 and 1999, respectively) ...   $    (453,150)   $ (14,885,349)   $ (10,577,043)
  Proceeds from sale of fixed assets .......         652,431        1,217,842               --
  Additions to property, plant and equipment     (32,035,019)     (32,226,324)     (23,970,591)
  Purchase of transportation contract rights        (226,394)         (49,667)         (80,532)
  Payments for covenant not to compete .....         (50,000)        (225,000)              --
  Due from parent company ..................          31,760           15,000         (179,711)
  Notes receivable .........................        (184,099)          27,557        1,673,967
  Marketable securities and investments ....      (6,572,301)       2,701,688          184,352
                                               -------------    -------------    -------------
    Net cash used in investing activities ..     (38,836,772)     (43,424,253)     (32,949,558)
                                               -------------    -------------    -------------

Cash flows from financing activities:
  Capital contributed from parent company ..       4,547,980       26,050,000        4,750,000
  Proceeds of additional borrowings ........     106,245,264       22,125,000       32,889,608
  Principal payments on borrowings .........     (76,455,060)     (15,042,189)      (7,415,087)
  Insurance financing payable ..............       9,724,226               --               --
  Deferred financing and organization
   costs ...................................      (5,164,279)        (531,880)        (671,760)
  Other ....................................        (122,000)        (115,763)        (229,049)
                                               -------------    -------------    -------------
    Net cash provided by financing
     activities ............................      38,776,131       32,485,168       29,323,712
                                               -------------    -------------    -------------
Net increase (decrease) in cash and
 cash equivalents ..........................      (3,676,182)       3,004,529      (11,191,165)
Cash and cash equivalents, beginning of year       5,585,901        2,581,372       13,772,537
                                               -------------    -------------    -------------
Cash and cash equivalents, end of year .....   $   1,909,719    $   5,585,901    $   2,581,372
                                               =============    =============    =============
Supplemental disclosures of cash
 flow information:
  Cash paid during the year for:
    Interest ...............................   $  25,668,982    $  22,822,876    $  20,238,285
    Income taxes ...........................         294,773          217,005          157,434
                                               =============    =============    =============
Supplemental schedule of noncash investing
 and financing activities:
  Loans incurred for purchase of property,
   plant and equipment .....................   $     734,078    $   1,225,152    $   6,055,359
  Buses contributed as additional paid-in
   capital .................................       5,452,020               --               --
  Liability incurred for contract rights ...              --          415,320               --
  Additional paid-in capital contributed
   for bondholder consent fees and expenses               --               --        2,709,591
                                               =============    =============    =============
</TABLE>

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


                                      F-7
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

      Supplemental Schedule on Non Cash Investing and Financing Activities

For the year ended June 30, 2001:

The Company  acquired all of the capital stock of Wrightholm Bus Line,  Inc. for
$453,150.


For the Year Ended June 30, 2000:

The Company  purchased all of the capital  stock of the following  companies for
$25,657,468.

<TABLE>
<CAPTION>
                                                                    Robert L.
                                    T-NT Bus                      McCarthy & Son
                                  Service, Inc.  Transcomm, Inc.       Inc.          Total
                                  ------------    ------------    ------------    ------------
<S>                               <C>             <C>             <C>             <C>
Fair value of assets acquired .   $ 11,063,986    $ 11,476,460    $  5,266,830    $ 27,807,276
Cash paid for the capital stock     (3,967,746)     (7,373,192)     (3,641,995)    (14,982,933)
Repayment of debt upon closing      (6,349,390)     (3,156,934)     (1,168,211)    (10,674,535)
                                  ------------    ------------    ------------    ------------
   Liabilities assumed ........   $    746,850    $    946,334    $    456,624    $  2,149,808
                                  ============    ============    ============    ============
</TABLE>

For the Year Ended June 30, 1999:

The Company  purchased all of the capital  stock of the following  companies for
$16,928,901.  In conjunction with the acquisitions,  liabilities were assumed as
follows-

<TABLE>
<CAPTION>
                                                Fiore Bus
                                             Service, Inc.,
                                                McIntire                                              James H.
                                             Transportation,                                          McCarty
                                             Inc., R. Fiore                                           Limousine
                                              Bus Service,                                          Service, Inc.
                                             Inc., and Groom        Mountain                         and Airport
                                             Transportation,     Transit, Inc.     Winsale, Inc.    Services, Inc.        Total
                                               ------------      ------------      ------------      ------------      ------------
<S>                                            <C>               <C>               <C>               <C>               <C>
Fair value of assets acquired ............     $  7,654,207      $  3,864,876      $  3,322,901      $  3,979,453      $ 18,821,437
Cash paid for the capital stock ..........       (6,020,011)       (1,306,104)       (1,685,554)       (2,265,182)      (11,276,851)
Repayment of debt upon closing ...........         (760,062)       (1,940,042)       (1,286,701)       (1,665,245)       (5,652,050)
                                               ------------      ------------      ------------      ------------      ------------
 Liabilities assumed .....................     $    874,134      $    618,730      $    350,646      $     49,026      $  1,892,536
                                               ============      ============      ============      ============      ============
</TABLE>

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


                                      F-8
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                   Notes to Consolidated Financial Statements

1. Business

      Atlantic Express Transportation Corp. ("AETC" or the "Company"),  a wholly
owned subsidiary of Atlantic Express  Transportation Group Inc. ("AETG"), is one
of the largest  providers  of school bus  transportation  in the United  States,
providing  services to various  municipalities in New York,  Missouri,  Vermont,
Massachusetts,  Illinois, California, Pennsylvania,  Connecticut and New Jersey.
In  addition to its school bus  transportation  operations,  AETC also  provides
services  to public  transit  systems  for  physically  or  mentally  challenged
passengers,  fixed route  transit,  express  commuter  line and charter and tour
services,  transportation for pre-kindergarten  children and Medicaid recipients
and sales of school  buses and  commercial  vehicles  in New Jersey and  various
counties in New York.

2. Summary of Significant Accounting Policies

      Principles of Consolidation

      The consolidated financial statements include the accounts of AETC and its
subsidiaries.  All material  intercompany  transactions  and balances  have been
eliminated.

      Revenue Recognition

      Transportation  Operations - Revenues  are  recognized  when  services are
performed.

      Bus Sales Operations - Revenues are recognized when vehicles are delivered
to customers.

      Property, Plant and Equipment

      Property, plant and equipment are stated at cost and depreciated utilizing
the straight-line  method over the lives of the related assets. The useful lives
of property,  plant and equipment for purposes of computing  depreciation are as
follows:

                                                                  Years
                                                                  -----
      Building and improvements ........................         15-31.5
      Transportation equipment .........................           5-15
      Other ............................................           3-7

      Marketable Securities

      In accordance with Financial Accounting Standards Board Statement No. 115,
AETC  determines  the  classification  of  securities  as   held-to-maturity  or
available-for-sale at the time of purchase,  and reevaluates such designation as
of each balance sheet date.  Securities are classified as held-to-maturity  when
AETC has the  positive  intent and ability to hold the  securities  to maturity.
Held-to-maturity  securities are stated at cost,  adjusted for  amortization  of
premiums and  discounts to maturity.  Marketable  securities  not  classified as
held-to-maturity  are  classified  as   available-for-sale.   Available-for-sale
securities are carried at fair value, with unrealized gains and losses, reported
as a separate component of stockholder's  equity. The cost of securities sold is
based on the specific identification method.

      Cash Equivalents

      Cash equivalents  consist of short-term,  highly liquid  investments which
are readily convertible into cash.


                                      F-9
<PAGE>

      Inventories

      Inventories primarily consist of new and used buses held for resale, fuel,
parts and supplies  which are valued at the lower of cost or market value.  Cost
is  determined  by  specific  identification  for new and  used  buses  and on a
first-in, first-out ("FIFO") basis on the balance.

      Transportation Contract Rights

      Transportation  contract rights primarily  represent the value the Company
assigns to the excess of cost of  investments  in school bus companies in excess
of the book value of these  companies.  In  addition,  AETC has  purchased  from
unrelated third parties certain  transportation  contract rights with respect to
revenue  contracts and travel routes.  These costs are amortized over the lesser
of the expected life of the contracts or 12 years. The Company reviews the value
assigned to  transportation  contract  rights annually to determine if they have
been impaired in value.  The amount of any impairment  would be charged  against
income.  Accumulated  amortization  at June 30, 2001 and 2000 was $6,883,139 and
$4,647,987, respectively.

      Deferred Financing, Goodwill and Other Costs

      Deferred  financing costs are amortized over the life of the related debt.
Goodwill  is  amortized  over 40 years and all other  costs are  amortized  on a
straight-line  basis over five years.  The Company reviews the value assigned to
the above  mentioned  assets annually to determine if they have been impaired in
value. The amount of any impairment would be charged against income. Accumulated
amortization   at  June  30,  2001  and  2000  was  $7,956,807  and  $7,093,185,
respectively.

      Insurance Reserves

      Insurance  reserves of $7,905,033  and  $5,001,336 as of June 30, 2001 and
2000,  respectively,  represent  claim  reserve  liabilities  for the  Company's
self-insurance   programs.  Until  December  31,  1998  and  1999,  the  Company
maintained  self-insurance  programs for auto liability and workers compensation
claims respectively,  for the first $250,000 of any one occurrence. In addition,
the Company  purchased  aggregate and specific stop loss insurance.  On December
29, 1999, the Company re-instated its self-insurance  program for auto liability
claims for the first  $250,000  of any one  occurrence  through  Atlantic  North
Casualty  Company   ("Atlantic   North")  its  wholly  owned  captive  insurance
subsidiary.  For this policy,  Atlantic  North's total maximum claims  liability
($3.9  million  for the year ended June 30,  2001) is fully  funded by  premiums
charged to  operating  subsidiaries.  The current  portion of these  liabilities
represents the payments expected to be made during the next fiscal year. On June
30, 2001, the Company terminated its self-insurance  program for auto liability.
On  January  1, 2001 the  Company  reinstated  its  self-insurance  program  for
worker's  compensation  insurance  deductibles  through Atlantic North. For this
policy,  Atlantic  North's total maximum claims liability is partially funded by
premiums  charged to operating  companies,  which,  in turn,  are limited to the
amount of the deductible on the Company's worker's compensation insurance policy
($12.1 million).

      Income Taxes

      AETC follows the liability method under Statement of Financial  Accounting
Standards  ("SFAS")  No.  109,   "Accounting  for  Income  Taxes."  The  primary
objectives of  accounting  for taxes under SFAS No. 109 are to (a) recognize the
amount of tax  payable  for the  current  year and (b)  recognize  the amount of
deferred tax liability or asset for the future tax  consequences  of events that
have been reflected in AETC's financial statements or tax returns.

      AETC files  consolidated  federal and state  income tax  returns  with its
parent,  affiliates and fellow  subsidiaries.  The income tax charge or benefits
allocated to AETC is based upon the  proportion of AETC's income or loss to that
of the consolidated group.


                                      F-10
<PAGE>

      Use of Estimates

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect  the  reported  amounts  of  assets  and  liabilities,
disclosures  of contingent  assets and  liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

      Fair Value of Financial Instruments

      The  carrying  value  of  financial  instruments  including  cash and cash
equivalents,  accounts receivable  including  retainage,  notes receivable,  and
accounts payable  approximated their fair value as of June 30, 2001 and 2000 due
to either their short  maturity or terms  similar to those  available to similar
companies   in  the  open   market.   Marketable   securities,   classified   as
available-for-sale,  are valued at quoted  market  value.  The fair value of the
Company's 10 3/4% Senior Secured Notes is approximately $ 73 million as compared
to the book carrying value of $120 million.  The fair value is calculated  using
the  quoted  market  price on June 30,  2001.  Although  fair value is less than
carrying value, settlement at the fair value may not be possible.

      Long-Lived Assets

      Long-lived  assets,  such as  intangible  assets and  property,  plant and
equipment,  are evaluated for impairment when events or changes in circumstances
indicate that the carrying amounts of the assets may not be recoverable  through
the estimated  undiscounted future cash flows from the use of these assets. When
any such  impairment  exists,  the related  assets will be written down to their
fair value.  In the opinion of management,  no  write-downs  have been necessary
through June 30, 2001.

      New Accounting Pronouncements

      On July 1, 1999, the Company  adopted SOP 98-5  "Reporting on the Costs of
Start-Up  Activities",  and  recorded a $0.3 million  charge for the  cumulative
effect of a change in accounting  principle,  net of, benefit from income taxes,
for the year ended June 30, 2000.

      In June 2001 the Financial  Accounting  Standards Board approved Statement
of Financial Accounting Standard ("SFAS") No. 141, "Business Combinations",  and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 prospectively
prohibits the pooling of interest method of accounting for business combinations
initiated  after  June  30,  2001.  SFAS No.  142  requires  companies  to cease
amortizing  goodwill that existed at June 30, 2001. Any goodwill  resulting from
acquisitions  completed after June 30, 2001 will not be amortized.  SFAS No. 142
also  establishes a new method of testing  goodwill for  impairment on an annual
basis or on an interim  basis if an event  occurs or  circumstances  change that
would reduce the fair value of a reporting  unit below its carrying  value.  The
Company is required to adopt SFAS No. 142 on July 1, 2001.  The adoption of SFAS
No. 142 will result in the  Company's  discontinuation  of  amortization  of its
goodwill;  however,  the  Company  will be  required  to test its  goodwill  for
impairment  under the new  standard  beginning  in the first  fiscal  quarter of
adoption,  which could have an adverse effect on the Company's future results of
operations if an impairment  occurs. The Company is in the process of evaluating
the financial statement impact of adoption of SFAS No. 142.

3. Acquisition of AETG

      On October 27, 1998, the holders of a majority in principal  amount of the
Company's 10 3/4% Senior  Secured  Notes due 2004 (the "Notes")  consented to an
amendment to the Indenture relating to the Notes which in substance exempted the
transactions  contemplated by a  Recapitalization  and Stock Purchase  Agreement
(the  "Recapitalization")  from the  definition of "Change of Control" under the


                                      F-11
<PAGE>

Indenture.  On  November  4, 1998 the  Recapitalization  was  consummated.  As a
result,  GSCP II Holdings (AE), LLC ("Buyer"),  an affiliate of Greenwich Street
Capital  Partners,  Inc.,  a New York based  private  equity  fund,  acquired an
approximately   88%  equity  interest  in  a  recapitalized   Atlantic   Express
Transportation Group, Inc. ("AETG") which owns all of the issued and outstanding
shares of capital stock of the Company

4. Offer to Purchase and Consent Solicitation

      On December 21, 2000, the holders of a majority in principal amount of the
Company's 10 3/4% Senior  Secured  Notes due 2004 (the "Notes")  consented to an
Offer to Purchase (the "Offer") and Consent Solicitation (the "Consent") whereby
the Company purchased $30.0 million aggregate  principal amount of the Notes and
the  Noteholders  consented to an amendment to the Indenture  which in substance
permitted the Company to increase the amount of debt that may be incurred  under
the Indenture,  without regard to the Interest Coverage Ratio, to $125.0 million
from $30.0  million.  In connection  therewith,  the Company  received a capital
contribution  from  AETG of (i) all of the  issued  and  outstanding  shares  of
capital  stock of Atlantic  Transit,  Corp.  ("ATC")  and (ii) $10.0  million of
additional  equity  (collectively  the  "Contribution").  As  a  result  of  the
Contribution,  ATC and its  subsidiaries  have pledged their stock to secure the
Notes and have become  guarantors of the Notes.  In addition,  the Indenture has
been  amended to include (i) an annual  leverage  test,  which if not met by the
Company,  could  increase the interest  rate payable by 0.50% per annum;  (ii) a
provision  that  provides for  limitation  of  acquisition  debt incurred by the
Company in any fiscal year and (iii)  amendments to the limitation on restricted
payments and limitations on transactions with affiliates covenants.

5. New Credit Facility

      On December 21, 2000,  concurrently with the Offer and Consent referred to
in Note 4, the Company  terminated its existing  $30.0 million  credit  facility
with Congress  Financial  Corporation  ("Congress") and entered into a new three
year,  $125.0 million  revolving credit facility (the "Facility") with Congress.
Borrowings  under the Facility are available for working  capital,  acquisitions
and general  corporate  purposes,  including  letters of credit,  subject to the
borrowing  conditions  contained therein.  Borrowings also were used to fund the
Offer and the Consent payment, as well as expenses of the Offer and Consent.

      The  Facility  is  secured by first  priority  security  interests  in all
present and future  assets of the Company  except for the stock of the Company's
direct and indirect  subsidiaries which are required to be pledged to secure the
Notes. As required by the Indenture,  the Notes are secured by a second priority
security interest in the same collateral. The interest rate per annum applicable
to the Facility is either the prime rate,  as announced by First Union  National
Bank plus 0.75%, or at the Company's  option,  the adjusted  Eurodollar rate (as
defined)  plus  2.75%.  The weighed  average  interest  rate on the  outstanding
borrowings as of June 30, 2001 was 6.75%. The Company is required to pay certain
fees in connection with the Facility including but not limited to an unused line
fee of 0.50% on the undrawn portion of the Facility.

      The Facility contains negative covenants similar to those contained in the
Notes plus the  requirement to maintain  minimum  annual  adjusted net worth and
earnings  before income taxes,  depreciation  and  amortization,  plus customary
events of default.

6. Pooling of Interest

      In connection with the Offer and Consent and the Facility (see Notes 4 and
5) the  Company  received  a  capital  contribution  of all  of the  issued  and
outstanding shares of ATC. Since both the Company and ATC were owned by a common
shareholder,  this  acquisition  was treated as similar to a pooling of interest
for accounting purposes.


                                      F-12
<PAGE>

7. Retainage

      Pursuant  to  certain  municipal  school  bus  contracts  and  paratransit
contracts,  certain  contractual  amounts  (retainage) are withheld by customers
from billings as a guarantee of  performance  by AETC. At June 30, 2001 and 2000
retainage of $6,505,673 and $4,774,817,  respectively,  is classified as current
and is included in accounts receivable in the accompanying  consolidated balance
sheets.  In addition,  $1,058,559 of retainage is classified as non-current  for
the fiscal year ended June 30, 2000, and is classified as current for the fiscal
year ended June 30, 2001.

8. Inventories

      Inventories are comprised of the following:

                                                        June 30,
                                             -----------------------------
                                                 2001              2000
                                             -----------       -----------
      Parts and fuel .................       $ 5,235,312       $ 5,735,321
      Buses held for sale ............         9,249,668         4,940,285
                                             -----------       -----------
                                             $14,484,980       $10,675,606
                                             ===========       ===========

      On August  11,  1999,  after  receiving  a fairness  opinion  issued by an
investment bank of national standing,  Central New York Coach Sales and Service,
Inc. and Jersey Bus Sales,  Inc., both wholly owned  subsidiaries of the Company
(collectively   "Central")   entered  into  an  agreement   with   Atlantic  Bus
Distributors,  Inc. ("ABD"), a wholly owned subsidiary of AETG, to order certain
buses  through  ABD.  Central is  required  to deposit  20% of the cost of these
vehicles   simultaneously   with  ABD's  receipt  of  these  vehicles  from  the
manufacturers  and pay the  balance  to ABD  upon  Central's  delivery  of these
vehicles  to its  customers  or within  120 days,  whichever  comes  first.  The
purchase  price of each bus  equals  the price at which ABD  purchased  such bus
together with any costs  incurred by ABD in connection  with the purchase of any
such  vehicles.  During the year ended June 30,  2001,  total  payments  made by
Central under this agreement were $66,984,954. In addition, as of June 30, 2001,
Central was obligated to purchase  $18,385,862 of vehicles from ABD.  During the
year ended June 30, 2000,  total payments made by Central were  $29,281,254.  In
addition,  as of June 30, 2000, Central was obligated to purchase $11,189,109 of
vehicles from ABD.

      As of June 30, 2001 and 2000,  $1,949,086  and  $866,916  of deposits  are
classified as prepaid expenses, respectively.

9. Cash and Cash Equivalents

      Included in cash and cash equivalents is $1,048,000 and $1,739,235 at June
30, 2001 and 2000, respectively,  which represents cash equivalents of a captive
insurance  company   subsidiary  which  are  only  available  for  use  by  that
subsidiary.

10. Property, Plant and Equipment

      Property, plant and equipment consists of the following:

                                                        June 30,
                                              ----------------------------
                                                  2001            2000
                                              ------------    ------------
      Land ...............................    $  9,873,258    $  9,840,258
      Building and improvements ..........      27,813,682      24,945,125
      Transportation equipment ...........     229,135,000     210,325,004
      Machinery and equipment ............      30,834,440      23,870,079
      Furniture and fixtures .............       5,172,507       3,951,992
                                              ------------    ------------
                                               302,828,887     272,932,458
      Less: Accumulated depreciation .....     127,173,697     114,147,710
                                              ------------    ------------
                                              $175,655,190    $158,784,748
                                              ============    ============


                                      F-13
<PAGE>

11. Marketable Securities

      The amortized cost and estimated  fair value of the marketable  securities
are as follows:

                                                     June 30, 2001
                                        ----------------------------------------
                                                        Gross
                                                      Unrealized
                                            Cost      gain (loss)    Fair value
                                        -----------   -----------    -----------
Available-for-sale:
  Equity securities .................   $ 7,991,724   $(1,533,427)   $ 6,458,297
  U.S. Treasury and other
    government debt
    securities ......................     5,520,087           953      5,521,040
                                        -----------   -----------    -----------
      Total marketable securities ...   $13,511,811   $(1,532,474)   $11,979,337
                                        ===========   ===========    ===========

                                                     June 30, 2000
                                        ----------------------------------------
                                                        Gross
                                                      Unrealized
                                            Cost         Gain        Fair value
                                        -----------   -----------    -----------
Available-for-sale:
  Equity securities .................   $ 4,657,718   $   936,390    $ 5,594,108
  U.S. Treasury and other
    government debt
    securities ......................     2,646,644       (88,091)     2,558,553
                                        -----------   -----------    -----------
      Total marketable securities ...   $ 7,304,362   $   848,299    $ 8,152,661
                                        ===========   ===========    ===========

      The above marketable securities are held by a captive insurance subsidiary
and are  available  for use only by that  company.  At June 30, 2001  marketable
securities  of  approximately  $8.0 million are pledged as  collateral  for $6.6
million of letters of credit issued by the captive insurance company.

      While  all of the  marketable  securities  are  available  for  use in the
ordinary  course  of  business  of the  captive  insurance  company  subsidiary,
$5,282,000 has been classified as current in accordance  with that  subsidiary's
cash on hand and expected payments of claims in the next fiscal year.

      Contractual maturity dates of the above securities are as follows:

                                                    Cost       Fair Value
                                                 -----------   -----------
      2002 ...................................   $   116,740   $   121,237
      2003 ...................................       140,898       142,997
      2004-2008 ..............................     2,110,376     2,103,262
      2013-2029 ..............................     3,152,073     3,153,544
      No maturity date (equity securities) ...     7,991,724     6,458,297
                                                 -----------   -----------
                                                 $13,511,811   $11,979,337
                                                 ===========   ===========

      Net realized gains  (losses) on marketable  securities for the years ended
June 30, 2001, 2000 and 1999 amounted to  approximately  $(365,000),  $1,221,000
and  $1,274,000,  respectively,  and are included in revenues or expenses of the
captive insurance company.


                                      F-14
<PAGE>

12. Debt

      The following represents the debt outstanding at June 30, 2001 and 2000.

                                                              June 30,
                                                    ----------------------------
                                                        2001            2000
                                                    ------------    ------------
10 3/4% Senior Secured Notes, due
 February 2004, with interest payable
 on February 1 and August 1 annually(a) ........    $120,000,000    $150,000,000
8% mortgage on real estate located in
 Chittenango, New York, due July 1, 2002(b) ....         617,372         650,694
8% mortgage on real estate located in
 Bordentown, New Jersey, due July 1, 2002(b) ...       1,247,360       1,314,686
Revolving line of credit(c) ....................     116,689,626      18,744,362
Revolving line of credit(d) ....................              --      36,200,000
Various notes payable, primarily secured
 by transportation equipment, with
 interest rates ranging from 8%-9.3% ...........       7,877,787       9,468,699
                                                    ------------    ------------
                                                     246,432,145     216,378,441
Less: Current portion ..........................       1,795,144       1,907,563
                                                    ------------    ------------
                                                    $244,637,001    $214,470,878
                                                    ------------    ------------

----------
(a)   On February 4, 1997, AETC issued  $110,000,000  of 10 3/4% Senior  Secured
      Notes due 2004 (the "Original  Notes").  The net proceeds from the sale of
      the Original Notes were used to repay its existing  indebtedness,  buy-out
      certain  leases  and for  certain  other  corporate  purposes.  Such notes
      contain various covenants, including limitations on payments of dividends.

      In August 1997,  AETC issued  $40,000,000  aggregate  principal  amount of
      10 3/4% Senior  Secured  Notes  due 2004  (the  "Additional  Notes").  The
      Additional Notes were issued at a premium of $1.4 million,  which is being
      amortized over the term of the Additional Notes.

      On December 21, 2000, in connection with the Offer, the Company  purchased
      $30.0 million aggregate principal amount of the Notes (see Note 4).

(b)   In  connection  with the  acquisition  of Central New York Coach Sales and
      Services,  Inc.  and Jersey Bus Sales,  Inc.  and  related  real  property
      (collectively  "Central"),  AETC  purchased  from  Mr.  Denney,  a  former
      shareholder  of Central,  the real  properties  of Central which served as
      their  primary  operating  facilities  in New  York  and New  Jersey.  The
      mortgage  notes  are  amortized  over 15 years  with a  five-year  balloon
      payment  due July 2002.  Mr.  Denney  remains  employed  as  President  of
      Central.

(c)   The  Facility  is  secured by first  priority  security  interests  in all
      present  and  future  assets of the  Company  except  for the stock of the
      Company's  direct  and  indirect  subsidiaries  which are  required  to be
      pledged to secure the Notes.  As required by the Indenture,  the Notes are
      secured by a second priority security interest in the same collateral. The
      interest  rate per annum  applicable to the Facility is either prime rate,
      as announced by First Union National Bank plus 0.75%,  or at the Company's
      option, the adjusted  Eurodollar rate (as defined) plus 2.75%. The Company
      is required to pay certain fees in connection with the Facility  including
      but not limited to an unused  line fee of 0.50% on the undrawn  portion of
      the Facility (see Note 5).

(d)   On April  28,  1999,  ATC  entered  into a $25  million  revolving  credit
      agreement  (the  "Scotia  Facility")  with  the  Bank of Nova  Scotia.  On
      February 17, 2000, the parties mutually agreed to increase the facility to
      $45 million.  Borrowings  under the Scotia  Facility  were  available  for


                                      F-15
<PAGE>

      acquisitions,   for  working  capital  and  general  corporate   purposes,
      including letters of credit, subject to the borrowing conditions contained
      therein.

      ATC's debt under the Scotia  Facility as of June 30, 2000 was  $36,200,000
      with interest rates varying from 8.94% to 9.5%.

      On December 21, 2000,  the Scotia  Facility was repaid in its entirety and
      was terminated in connection with the Facility (see Note 5).

      Aggregate yearly  maturities of long-term debt as of June 30, 2001, are as
follows:

                                                                  Total
                                                              ------------
      2002 .............................................      $  1,795,144
      2003 .............................................         3,484,569
      2004 .............................................       238,926,822
      2005 .............................................         1,276,463
      2006 .............................................           907,529
      Thereafter .......................................            41,618
                                                              ------------
      Total ............................................      $246,432,145
                                                              ============

13. Income Taxes

      The provisions (benefits) for income taxes consist of the following:

                                            Years ended June 30,
                                -----------------------------------------
                                    2001           2000           1999
                                -----------    -----------    -----------
      Current:
       Federal ..............   $        --    $        --    $        --
       State and local ......       457,364             --             --
                                -----------    -----------    -----------
                                    457,364             --             --
      Deferred taxes ........    (6,091,297)    (1,320,728)    (1,398,089)
                                -----------    -----------    -----------
                                $(5,633,933)   $(1,320,728)   $(1,398,089)
                                ===========    ===========    ===========

      Deferred tax assets/(liabilities) are comprised of the following:

                                                       June 30,
                                             ----------------------------
                                                 2001            2000
                                             ------------    ------------
      Deferred tax assets:
       Allowance for doubtful receivables    $    528,750    $    769,050
       Loss and tax credit carryforwards .     43,804,024      32,614,637
       Contract rights and other .........      2,141,560       1,303,812
                                             ------------    ------------
                                               46,474,334      34,687,499
                                             ------------    ------------

      Deferred tax liabilities:
       Depreciation ......................    (35,428,510)    (29,987,222)
       Goodwill amortization .............     (1,000,359)       (746,109)
                                             ------------    ------------
                                              (36,428,869)    (30,733,331)
                                             ------------    ------------
      Deferred tax assets (net) ..........   $ 10,045,465    $  3,954,168
                                             ============    ============

      The actual tax expense  (benefit) differs from the tax expense computed by
applying the U.S. corporate rate of 34% as follows:


                                      F-16
<PAGE>

                                                 Years ended June 30,
                                        ---------------------------------------
                                            2001          2000          1999
                                        -----------   -----------   -----------
Tax benefit at statutory rate .......   $(4,602,313)  $(1,440,996)  $(1,056,334)
State and local tax expense (benefit)    (1,031,620)     (847,307)     (341,755)
Valuation reserve for tax credit
carryforward ........................            --       967,575            --
 amounts
                                        -----------   -----------   -----------
Actual tax benefit ..................   $(5,633,933)  $(1,320,728)  $(1,398,089)
                                        ===========   ===========   ===========

      For tax  purposes,  the  Company  had  available,  at June 30,  2001,  net
operating loss ("NOL")  carryforwards  for regular  federal and state income tax
purposes  of  approximately  $80  million,  which  expire  during the years 2011
through 2020. In conjunction  with the Alternate  Minimum Tax ("AMT") rules, the
Company had available AMT credit carryforwards for tax purposes of approximately
$1.3 million,  which may be used  indefinitely  to reduce regular federal income
taxes.

      At June 30, 2001 and 2000, net future tax deductions and NOL carryforwards
comprised  the federal and state net  deferred tax asset.  The Company  believes
that it is more  likely  than  not  that  all of the NOL  carryforwards  will be
utilized  prior to their  expiration.  This  belief is based upon the  Company's
estimate of future earnings,  the inclusion with the consolidated  return of its
parent and the expected timing of temporary difference reversal.

14. Nonrecurring Charge

      In November 1998, the  stockholders  of AETG paid $2.7 million of fees and
expenses in connection with the Amendment to the Indenture (see Note 3) of which
approximately  $1.5 million of bondholder consent fees were recorded as deferred
financing  expenses  and  approximately  $1.2  million  has been  recorded  as a
non-recurring   charge  with  a  corresponding  $2.7  million   contribution  to
additional paid-in capital.

15. Related Party Transactions

      AETC had amounts due from AETG of $805,540  and  $837,300 at June 30, 2001
and 2000, respectively. During the years ended June 30, 2001 and 2000, AETC paid
advisory fees to an affiliate of the major stockholder of $452,657 and $500,000,
respectively.  No advisory fees were paid to related  parties for the year ended
June 30, 1999.  AETC  incurred  rent expense of $228,000 for the year ended June
30,  1999,  $232,200  for the year ended June 30, 2000 and $253,200 for the year
ended June 30, 2001 in connection  with leases of real  property from  affiliate
companies.

16. Commitments and Contingencies

      Leases

      Minimum  rental  commitments  as  of  June  30,  2001  for  noncancellable
equipment and real property operating leases are as follows:


                                      F-17
<PAGE>

                                      Year ended June 30, 2001
                            ----------------------------------------------
                                            Transportation
                                               and other
                            Real property      equipment          Total
                            -------------   --------------     -----------
      2002 ...............   $ 4,745,585      $ 2,687,351      $ 7,432,936
      2003 ...............     4,069,319        2,161,584        6,230,903
      2004 ...............     3,892,319        1,432,383        5,324,702
      2005 ...............     3,202,343        1,333,371        4,535,714
      2006 ...............     2,279,993        1,042,614        3,322,607
      Thereafter .........     8,678,890        1,675,442       10,354,332
                             -----------      -----------      -----------
                             $26,868,449      $10,332,745      $37,201,194
                             ===========      ===========      ===========

      During  the year  ended June 30,  2001,  as part of its  normal  course of
business,   AETC  entered  into  various  rental  and  purchase  agreements  for
replacement  vehicles  and  additional  vehicles to satisfy  new  transportation
contracts.

      Total  rental  charges  included in cost of  operations  were  $6,843,921,
$6,170,273  and  $5,237,110  for the years ended June 30,  2001,  2000 and 1999,
respectively.

      Litigation

      In April 2000, AETG and the Company settled their litigation with National
Express Group, PLC. In connection  therewith,  the Company has recorded a credit
of $4.8  million to general and  administrative  expenses  during the year ended
June 30, 2000.

      AETC is a defendant with respect to various claims involving accidents and
other  issues  arising in the normal  conduct of its  business.  Management  and
counsel believe the ultimate resolution of these claims will not have a material
impact on the financial position or results of operations of AETC.

      Outstanding Letters of Credit

      Letters  of  credit  totaling  approximately   $6,862,000  and  $3,620,000
(including  $6.6  million  and $3.4  million  issued  by the  captive  insurance
company,  respectively)  (see Note 11) were  outstanding as of June 30, 2001 and
2000,  respectively.  The  letters of credit  serve  primarily  as  security  in
connection with financial obligations.

      Performance Security

      AETC's transportation contracts generally provide for performance security
in one or more of the following forms:  performance bonds, letters of credit and
cash retainages. Under current arrangements, AETC secures the performance of its
New York Board of Education  contracts through the use of performance bonds plus
cash retainages of 5% of amounts due to AETC.

      In most  instances,  AETC has opted to satisfy  its  security  performance
requirements by posting  performance  bonds. At June 30, 2001, AETC has provided
performance bonds aggregating approximately $60 million.

      Employment Agreements

      AETC has  employment  agreements  with certain  executives  of the company
which  require  annual  payments  of  approximately  $650,000  per year  through
November 2, 2002.

17. Retirement Plans

      AETC sponsors a tax qualified 401(k) plan whereby  eligible  employees can
invest up to 15% of base earnings  subject to a specified  maximum among several
investment  alternatives.  An employer matching  contribution up to a maximum of
2.5% of the employee's  compensation is also invested.  AETC's  contribution was
approximately $346,000, $310,000 and $164,000 for the years ended June 30, 2001,
2000 and 1999, respectively.


                                      F-18
<PAGE>

      AETC has a qualified Profit Sharing Plan for eligible employees (primarily
drivers,  mechanics  and  escorts  not  covered by union  deferred  compensation
plans).  AETC's contributions are based upon hours worked.  Participants are not
allowed to make deferred  contributions.  AETC's  contribution was approximately
$110,000, $95,000 and $108,000 for the years ended June 30, 2001, 2000 and 1999,
respectively.

      In fiscal 1998,  AETC  instituted a Deferred  Compensation  Plan providing
deferred compensation to its highly compensated  employees.  AETC contributes 5%
of the  participant's  compensation to the Deferred  Compensation  Plan.  AETC's
contribution  was  approximately  $95,000,  $130,000  and $100,000 for the years
ended June 30, 2001, 2000 and 1999, respectively.

18. Major Customer and Concentration of Credit Risk

      For the years ended June 30, 2001, 2000 and 1999 revenues derived from the
New York Board of Education were approximately  34.7%, 33.3%, and 38.1% of total
Transportation Operations revenues,  respectively. As of June 30, 2001 and 2000,
AETC  had  accounts  receivable   including  retainage  from  this  customer  of
$16,443,363 and $13,893,354, respectively.

      At June 30,  2001 and 2000,  substantially  all cash and cash  equivalents
were on deposit with one major financial institution.

19. Subsequent Events

      In August  2001,  the Company was awarded a five year  contract  (with two
one-year renewal  options) by the New York City Transit  Authority (the "T.A.").
Pursuant to the terms of the contract, the T.A. will provide all of the required
vehicles and as a result,  the Company will not be required to make  significant
capital expenditures  relating to the contract.  This contract which is expected
to commence in  December  2001  provides  for a pass  through of all  automobile
liability  insurance costs to the T.A. The Company's  existing contract with the
T.A.  which was due to expire in May 2001 was extended  for up to seven  months.
This  extension also included a fuel  adjustment  clause in addition to the pass
through of any automobile liability insurance increases incurred by the Company.

      In  August  2001,  the  Company  signed  an  Assignment,   Assumption  and
Subcontract  of Paratransit  Services (the  "Agreement")  with the  Southeastern
Pennsylvania  Transportation  Authority ("SEPTA") and Anderson Travel, Inc. (the
"Assignee")  whereby  the  Company  granted  the  Assignee  all of  its  rights,
obligation and interest to and under a paratransit contract with SEPTA which was
due to expire on March 15, 2002 and in addition retained the Assignee to perform
all of its obligations under a second  paratransit  contract between the Company
and SEPTA which was due to expire in October 2001.  The Company  negotiated  the
Agreement when SEPTA  declined to reimburse the Company for material  amounts of
automobile   liability  insurance  costs  for  the  paratransit   operations  in
Pennsylvania  which would have caused the Company to incur significant losses in
the  operations of these two  contracts.  Revenues for these  contracts  totaled
approximately  $12.7  million and $13.0  million for the fiscal years ended June
30, 2001 and June 30, 2000, respectively.

      In July  2001 the  Company  entered  into an  agreement  (the  "Receivable
Agreement")  with  Congress,   to  sell  Congress,   without  recourse,   up  to
approximately  $5.9 million of accounts  receivable  of the  Company.  Under the
Receivable Agreement, Congress purchases receivables at the gross amount of such
accounts  (less  three  and  one-quarter   percent   purchase   commission)  and
immediately credits 85% of this amount to the Company,  with the balance paid to
the Company upon Congress  receiving  cumulative  collections on all receivables
purchased in excess of the purchase price previously credited.

      In September  2001,  AETG made an additional  capital  contribution to the
Company of $5.5 million.


                                      F-19
<PAGE>

20. Segment Information

      AETC's  business is comprised of  Transportation  Operations and Bus Sales
Operations  conducted  in various  states  throughout  the U.S.  The  summarized
segment information,  as of and for the years ended June 30, 2001, 2000 and 1999
are as follows:

                                             Year ended June 30, 2001
                                   ---------------------------------------------
                                   Transportation    Bus Sales
                                     Operations      Operations        Total
                                   -------------    -----------    ------------
Revenues .........................  $352,321,191    $89,256,672    $441,577,863
Cost of operations ...............   291,041,645     83,121,907     374,163,552
Income from operations ...........    14,449,740        989,517      15,439,257
Loss before non-recurring items,
 benefit from income taxes and
 cumulative effect of a change in
 accounting principle ............   (10,699,177)    (2,837,039)    (13,536,216)
Total assets .....................   305,075,570     41,055,676     346,131,246
Capital Expenditures .............    32,485,067        284,030      32,769,097
Depreciation and amortization ....    22,319,795        842,223      23,162,018

                                             Year ended June 30, 2000
                                   ---------------------------------------------
                                   Transportation    Bus Sales
                                     Operations      Operations        Total
                                   -------------    -----------    ------------
Revenues .........................  $317,293,121    $85,078,295    $402,371,416
Cost of operations ...............   259,560,915     77,454,772     337,015,687
Income from operations ...........    18,458,443      2,832,370      21,290,813
Loss before non-recurring items,
 benefit from income taxes and
 cumulative effect of a change in
 accounting principle ............    (4,340,743)      (197,991)     (4,538,734)
Total assets .....................   263,963,828     34,439,917     298,403,745
Capital Expenditures .............    33,104,640        346,836      33,451,476
Depreciation and amortization ....    17,985,737        854,798      18,840,535

                                             Year ended June 30, 1999
                                   ---------------------------------------------
                                   Transportation    Bus Sales
                                     Operations      Operations        Total
                                   -------------    -----------    ------------
Revenues .........................  $248,610,791    $81,739,086    $330,349,877
Cost of operations ...............   201,945,717     73,845,585     275,791,302
Income from operations ...........    15,739,438      3,316,424      19,055,862
Income (loss) before non-recurring
 items, benefit from income taxes
 and cumulative effect of a change
 in accounting principle .........    (2,778,004)       894,299      (1,883,705)
Total assets .....................   215,056,674     40,392,815     255,449,489
Capital Expenditures .............    29,410,503        615,447      30,025,950
Depreciation and amortization ....    12,076,434        837,405      12,913,839


                                      F-20
<PAGE>


21. Supplemental Financial Information

      The following are condensed  consolidating financial statements as of June
30,  2001,  2000  and  1999  regarding  AETC (on a  stand-alone  basis  and on a
consolidated  basis) and  Guarantors  and  Non-Guarantors  of the Senior Secured
Notes (see Note 12(a)).

                      Condensed Consolidating Balance Sheet
                                  June 30, 2001

<TABLE>
<CAPTION>
                             Atlantic
                              Express                        Non-
                          Transportation    Guarantor     Guarantor    Elimination
                               Corp.      Subsidiaries   Subsidiaries    Entries        Consolidated
                           ------------   ------------   ------------  -------------    ------------
<S>                        <C>            <C>            <C>           <C>              <C>
Current assets .........   $  4,725,601   $100,566,814   $ 6,460,874   $  (3,276,500)   $108,476,789
Investment in affiliates     92,492,921             --            --     (92,492,921)             --
Total assets ...........    301,839,696    307,402,943    13,832,020    (276,943,413)    346,131,246
Current liabilities ....     15,963,375     28,912,128     9,623,723      (3,276,500)     51,222,726
Total liabilities ......    253,271,435    251,790,020    11,198,759    (218,057,100)    298,203,114
Stockholder's equity ...     48,568,261     55,612,923     2,633,261     (58,886,313)     47,928,132
</TABLE>

                 Condensed Consolidating Statement of Operations
                            Year ended June 30, 2001

<TABLE>
<CAPTION>
                                 Atlantic
                                  Express                        Non-
                              Transportation    Guarantor     Guarantor     Elimination
                                   Corp.      Subsidiaries   Subsidiaries     Entries      Consolidated
                               ------------   ------------   ------------   -----------    ------------
<S>                            <C>            <C>             <C>           <C>            <C>
Net revenues ................  $        --    $441,659,901    $7,175,417    $(7,257,455)   $441,577,863
Income (loss) from operations           --      15,726,091      (286,834)            --      15,439,257
Loss before benefit from
 income taxes ...............           --     (13,249,382)     (286,834)            --     (13,536,216)
Net income (loss) of ........   (7,902,283)             --            --      7,902,283              --
subsidiaries
Net income (loss) ...........   (7,902,283)     (7,744,524)     (157,759)     7,902,283      (7,902,283)
</TABLE>

                 Condensed Consolidating Statement of Cash Flows
                            Year ended June 30, 2001

<TABLE>
<CAPTION>
                                   Atlantic
                                    Express                          Non-
                                Transportation     Guarantor      Guarantor     Elimination
                                     Corp.       Subsidiaries    Subsidiaries     Entries     Consolidated
                                 ------------    ------------    ------------   -----------   ------------
<S>                              <C>             <C>             <C>            <C>           <C>
Net cash provided by (used
  in) operating activities ...   $(28,511,513)   $ 19,014,671    $ 5,881,301    $        --   $ (3,615,541)
Net cash provided by (used in)
  investing activities .......    (38,492,451)      6,227,980     (6,572,301)            --    (38,836,772)
Net cash provided by (used
  in) financing activities ...     66,939,964     (28,163,833)            --             --     38,776,131
Decrease in cash and cash
  equivalents ................        (64,000)     (2,921,182)      (691,000)            --     (3,676,182)
Cash and cash equivalents,
  beginning of period ........        150,000       3,696,901      1,739,000             --      5,585,901
                                 -------------------------------------------------------------------------
Cash and cash equivalents,
  end of period ..............         86,000         775,719      1,048,000             --      1,909,719
</TABLE>


                                      F-21
<PAGE>

                      Condensed Consolidating Balance Sheet
                                  June 30, 2000

<TABLE>
<CAPTION>
                             Atlantic
                              Express                        Non-
                          Transportation    Guarantor     Guarantor    Elimination
                               Corp.      Subsidiaries   Subsidiaries    Entries        Consolidated
                           ------------   ------------   ------------  ------------     ------------
<S>                        <C>            <C>            <C>           <C>              <C>
Current assets .........   $  5,460,699   $ 74,061,252   $ 3,257,092   $          --    $ 82,779,043
Investment in affiliates     80,817,265             --            --     (80,817,265)             --
Total assets ...........    241,329,031    271,299,654    10,209,264    (224,434,204)    298,403,745
Current liabilities ....      6,949,572     22,792,839     3,208,001              --      32,950,412
Total liabilities ......    182,396,073    207,942,207     5,819,797    (146,087,520)    250,070,557
Stockholder's equity ...     58,932,958     63,357,447     4,389,467     (78,346,684)     48,333,188
</TABLE>

                 Condensed Consolidating Statement of Operations
                            Year ended June 30, 2000

<TABLE>
<CAPTION>
                                      Atlantic
                                       Express                         Non-
                                   Transportation    Guarantor      Guarantor    Elimination
                                        Corp.      Subsidiaries    Subsidiaries    Entries      Consolidated
                                   --------------  ------------    ------------  -----------    ------------
<S>                                 <C>            <C>              <C>          <C>            <C>
Net revenues ....................   $        --    $ 400,918,844    $3,452,288   $(1,999,716)   $ 402,371,416
Income from operations ..........     3,345,000       17,144,660       801,153            --       21,290,813
Income (loss) before
 nonrecurring items,
 benefit from income
 taxes and cumulative
 effect of a change in
 accounting principle ...........     3,345,000       (8,684,887)      801,153            --       (4,538,734)
Cumulative effect of a change
 in accounting principle, net
 of benefit from income taxes ...            --         (300,511)           --            --         (300,511)
Net income (loss) of subsidiaries    (4,636,567)              --            --     4,636,567               --
Net income (loss) ...............    (3,764,392)      (5,077,201)      440,634     4,636,567       (3,764,392)
</TABLE>

                 Condensed Consolidating Statement of Cash Flows
                            Year ended June 30, 2000

<TABLE>
<CAPTION>
                                        Atlantic
                                         Express                         Non-
                                     Transportation     Guarantor      Guarantor     Elimination
                                          Corp.       Subsidiaries    Subsidiaries     Entries      Consolidated
                                      ------------    ------------    ------------   ------------   ------------
<S>                                   <C>             <C>             <C>            <C>            <C>
Net cash provided by (used
 in) operating activities .........   $ (3,422,794)   $ 18,987,096    $(1,620,688)   $     --       $ 13,943,614
Net cash provided by (used in)
 investing activities .............    (20,752,309)    (25,373,632)     2,701,688          --        (43,424,253)
Net cash provided by (used
 in) financing activities .........     24,649,237       7,835,931             --          --         32,485,168
Increase in cash and cash
 equivalents ......................        474,134       1,449,395      1,081,000          --          3,004,529
Cash and cash equivalents,
 beginning of period ..............       (324,134)      2,247,506        658,000          --          2,581,372
                                      --------------------------------------------------------------------------
Cash and cash equivalents,
 end of period ....................        150,000       3,696,901      1,739,000          --       $  5,585,901
</TABLE>


                                      F-22
<PAGE>

                 Condensed Consolidating Statement of Operations
                            Year ended June 30, 1999

<TABLE>
<CAPTION>
                                  Atlantic
                                   Express                         Non-
                               Transportation    Guarantor      Guarantor    Elimination
                                    Corp.      Subsidiaries    Subsidiaries    Entries      Consolidated
                               --------------  ------------    ------------  -----------    ------------
<S>                             <C>            <C>              <C>          <C>            <C>
Net revenues ................   $        --    $ 328,818,543    $4,616,870   $(3,085,536)   $ 330,349,877
Income (loss) from operations    (1,010,769)      19,121,390       945,241            --       19,055,862
Income (loss) before
 nonrecurring items,
 benefit from income
 taxes and cumulative
 effect of a change in
 accounting principle .......    (1,367,762)      (1,453,292)      937,349            --       (1,883,705)
Recapitalization expense ....    (1,223,161)              --            --            --       (1,223,161)
Net loss of subsidiaries ....      (449,285)              --            --       449,285               --
Net income (loss) ...........    (1,708,777)        (964,827)      515,542       449,285       (1,708,777)
</TABLE>

                 Condensed Consolidating Statement of Cash Flows
                            Year ended June 30, 1999

<TABLE>
<CAPTION>
                                   Atlantic
                                    Express                          Non-
                                Transportation     Guarantor      Guarantor     Elimination
                                     Corp.       Subsidiaries    Subsidiaries     Entries       Consolidated
                                --------------   ------------    ------------   -----------     ------------
<S>                              <C>             <C>             <C>            <C>             <C>
Net cash provided by (used
 in) operating activities ....   $(25,481,355)   $ 20,012,551    $(2,096,515)   $       --      $ (7,565,319)
Net cash provided by (used in)
 investing activities ........     (4,839,488)    (28,039,542)       (70,528)           --       (32,949,558)
Net cash provided by (used
in) financing activities .....     23,063,799       6,259,913             --            --        29,323,712
Decrease in cash and cash
 equivalents .................     (7,257,044)     (1,767,078)    (2,167,043)           --       (11,191,165)
Cash and cash equivalents,
 beginning of period .........      6,932,910       4,014,584      2,825,043            --        13,772,537
                                 ---------------------------------------------------------------------------
Cash and cash equivalents,
 end of period ...............       (324,134)      2,247,506        658,000            --         2,581,372
</TABLE>


                                      F-23
<PAGE>

                      Atlantic Express Transportation Corp.
                Schedule II -- Valuation and Qualifying Accounts
                For the Years ended June 30, 1999, 2000 and 2001

<TABLE>
<CAPTION>
                                                                                Net
                                            Balance at                       Write-offs    Balance at
                                             Beginning        Charges        Charged to     End of
                                             of Period       to Income       Allowance      Period
                                            ----------       ----------     -----------   ----------
<S>                                          <C>             <C>            <C>           <C>
Year ended June 30, 1999:
 allowance for doubtful accounts .......     $1,520,000      $120,000       $     --      $1,640,000
Year ended June 30, 2000:
 allowance for doubtful accounts .......      1,640,000       120,000         51,000       1,709,000
Year ended June 30, 2001:
 allowance for doubtful accounts .......      1,709,000       120,000        654,000       1,175,000
</TABLE>


                                      F-24
<PAGE>

                                  EXHIBIT INDEX

    Exhibit
    Number                            Description                          Page
    ------                            -----------                          ----
    3.1           Restated  Certificate of  Incorporation of the Company
                  (filed as exhibit 3.1 to the  Company's  Annual Report
                  on Form  10-K for the  year  ended  June 30,  1997 and
                  incorporated herein by reference) ....................

    3.2           By-laws of the  Company  (filed as exhibit  3.2 to the
                  Company's  Annual  Report  on Form  10-K  for the year
                  ended  June  30,  1997  and  incorporated   herein  by
                  reference) ...........................................

    10.1          Registration  Rights  Agreement dated February 4, 1997
                  between  the  Company,   the  Guarantors  (as  defined
                  therein)  and  the  Initial   Purchaser   (as  defined
                  therein)  (filed  as  exhibit  10.1  to the  Company's
                  Annual Report on Form 10-K for the year ended June 30,
                  1997 and incorporated herein by reference) ...........

    10.2          Loan and Security  Agreement dated February 4, 1997 by
                  and between Congress  Financial  Corporation,  certain
                  subsidiaries  of the  Company  as  borrowers  and  the
                  Company as  guarantor  (filed as  exhibit  10.2 to the
                  Company's  Annual  Report  on Form  10-K  for the year
                  ended  June  30,  1997  and  incorporated   herein  by
                  reference) ...........................................

    10.2.1        Amendment  dated  as of  May  18,  1998  to  Loan  and
                  Security  Agreement  by and among  Congress  Financial
                  Corporation,  certain  subsidiaries  of the Company as
                  borrowers  and the  Company  as  guarantor  (filed  as
                  exhibit 10.2.1 to the Company's  Annual Report on Form
                  10-K for the year ended June 30, 1998 and incorporated
                  herein by reference) .................................

    10.2.2        Second  Amendment dated as of May 28, 1999 to Loan and
                  Security  Agreement  by and among  Congress  Financial
                  Corporation,  certain  subsidiaries  of the Company as
                  borrowers  and the  Company  as  guarantor  (filed  as
                  exhibit 10.2.2 to the Company's  Annual Report on Form
                  10-K for the year ended June 30, 1999 and incorporated
                  herein by reference) .................................

    10.3          General  Security  Agreement dated February 4, 1997 by
                  and among the Company and the  Guarantors  (as defined
                  therein)  in favor of Congress  Financial  Corporation
                  (filed as exhibit 10.3 to the Company's  Annual Report
                  on Form 10-K for the year then ended June 30, 1997 and
                  incorporated herein by reference) ....................

    10.4          Collateral    Assignment   of   Trademarks   (Security
                  Agreement)  dated as of February  7, 1997  between the
                  Company and Congress  Financial (filed as exhibit 10.4
                  to the  Company's  Annual  Report on Form 10-K for the
                  year ended June 30,  1997 and  incorporated  herein by
                  reference) ...........................................

    10.5          Amended and Restated Employment  Agreement dated as of
                  November 4, 1998 among the  Company,  AETG and Domenic
                  Gatto (filed as exhibit 10.5 to the  Company's  Annual
                  Report on Form 10-K for the year ended  June 30,  1999
                  and incorporated herein by reference) ................

    10.8          Amended and Restated Employment  Agreement dated as of
                  November  4, 1998 among the  Company,  AETG and Nathan
                  Schlenker  (filed  as  exhibit  10.8 to the  Company's
                  Annual Report on Form 10-K for the year ended June 30,
                  1999 and incorporated herein by reference) ...........

    10.9          Lease  dated  August 5, 1986  between  Bonnie  Heights
                  Realty  Corp and Amboy Bus Co.,  Inc.  and  Notices of
                  Opinion to Renew dated  December  26, 1989 and May 10,
                  1996  respectively,  by Amboy  Bus Co.,  Inc.  for the
                  facility  at 1752 Shore  Parkway,  Brooklyn,  New York
                  (filed as exhibit 10.9 to the Company's  Annual Report
                  on Form  10-K for the  year  ended  June 30,  1997 and
                  incorporated herein by reference) ....................

    10.11         Lease dated August 1, 1995 between Stamar Realty Corp.
                  and 180 Jamaica Corp. for the facility at 107-10 180th
                  Street,  Jamaica,  New York (filed as exhibit 10.11 to
                  the Company's  Annual Report on Form 10-K for the year
                  ended  June  30,  1997  and  incorporated   herein  by
                  reference ............................................
<PAGE>

    Exhibit
    Number                            Description                          Page
    ------                            -----------                          ----
    10.12         The Board of Education of the City of New York, serial
                  no 0070,  dated July 19, 1978 (filed as exhibit  10.12
                  to the  Company's  Annual  Report on Form 10-K for the
                  year ended June 30,  1997 and  incorporated  herein by
                  reference) ...........................................

    10.13         The Board of Education of the City of New York, serial
                  no 8108  (filed  as  exhibit  10.13  to the  Company's
                  Annual Report on Form 10-K for the year ended June 30,
                  1997 and incorporated herein by reference) ...........

    10.14         Extension and Eighth Amendment of Contract for Special
                  Education Pupil  Transportation  Services,  dated June
                  19, 1996 by and between The Board of  Education of the
                  City of New  York,  Amboy  Bus Co.,  Inc.  and  Staten
                  Island  Bus  Co.   (filed  as  exhibit  10.14  to  the
                  Company's  Annual  Report  on Form  10-K  for the year
                  ended  June  30,  1997  and  incorporated   herein  by
                  reference) ...........................................

    10.15         The Board of Education of the City of New York, serial
                  no 9888  (filed  as  exhibit  10.15  to the  Company's
                  Annual Report on Form 10-K for the year ended June 30,
                  1997 and incorporated herein by reference) ...........

    10.16         Extension  and Sixth  Amendment  of the  Contract  for
                  Regular Education Pupil Transportation Services, dated
                  January 2, 1996 by and between The Board of  Education
                  of the City of New York and Amboy Bus Co., Inc. (filed
                  as exhibit  10.16 to the  Company's  Annual  Report on
                  Form  10-K  for the  year  ended  June  30,  1997  and
                  incorporated herein by reference) ....................

    10.17         New York City Transit  Authority  Contract  #94E5461B,
                  Five  Borough  Paratransit  Carrier  Service:  Part  I
                  Contract  Terms and Conditions and Attachment I: Price
                  Schedule  (filed  as  exhibit  10.17 to the  Company's
                  Annual Report on Form 10-K for the year ended June 30,
                  1997 and incorporated herein by reference) ...........

    10.18         Indenture  dated as of  February  4,  1997,  including
                  Note, between the Company,  the Guarantors (as defined
                  therein) and The Bank of New York,  as trustee  (filed
                  as exhibit  10.18 to the  Company's  Annual  Report on
                  Form  10-K  for the  year  ended  June  30,  1997  and
                  incorporated herein by reference) ....................

    10.19         First Amendment to the Security Agreement, dated as of
                  August 14, 1997 among the Company,  the Guarantors (as
                  defined  therein)  and in favor of Congress  Financial
                  Corporation  (filed as exhibit  10.19 to the Company's
                  Annual Report on Form 10-K for the year ended June 30,
                  1997 and incorporated herein by reference) ...........

    10.20         First Supplemental  Indenture,  dated as of August 14,
                  1997, between the Company,  the Guarantors (as defined
                  therein) and The Bank of New York, as trustee)  (filed
                  as exhibit  10.20 to the  Company's  Annual  Report on
                  Form  10-K  for the  year  ended  June  30,  1997  and
                  incorporated herein by reference) ....................

    10.21         Second  Supplemental  Indenture,  dated as of December
                  12,  1997,  among  the  Company,  the  Guarantors  (as
                  defined  therein) and The Bank of New York, as trustee
                  (filed as exhibit 10.21 to the Company's Annual Report
                  on Form  10-K for the  year  ended  June 30,  1998 and
                  incorporated herein by reference) ....................

    10.22         Second Amendment to the Security  Agreement,  dated as
                  of December 12, 1997 among the Company, the Guarantors
                  (as  defined   therein)   and  in  favor  of  Congress
                  Financial  Corporation  (filed as exhibit 10.22 to the
                  Company's  Annual  Report  on Form  10-K  for the year
                  ended  June  30,  1999  and  incorporated   herein  by
                  reference) ...........................................

    10.23         Third Supplemental Indenture,  dated as of October 28,
                  1998,  among the Company,  the  Guarantors (as defined
                  therein) and The Bank of New York,  as trustee  (filed
                  as exhibit 1.1 to the Company's Current Report on Form
                  8-K filed November 10, 1998 and incorporated herein by
                  reference) ...........................................
<PAGE>

    Exhibit
    Number                            Description                          Page
    ------                            -----------                          ----
    10.24         Fourth Supplemental  Indenture,  dated as of April 28,
                  1999,  among the Company,  the  Guarantors (as defined
                  therein) and The Bank of New York,  as trustee  (filed
                  as exhibit  10.24 to the  Company's  Annual  Report on
                  Form  10-K  for the  year  ended  June  30,  1999  and
                  incorporated herein by reference) ....................

    10.25         Third Amendment to the Security Agreement, dated as of
                  April 28, 1999 among the Company,  the  Guarantors (as
                  defined  therein)  and in favor of Congress  Financial
                  Corporation  (filed as exhibit  10.25 to the Company's
                  Annual Report on Form 10-K for the year ended June 30,
                  1999 and incorporated herein by reference) ...........

    10.26         Note  Purchase  Agreement  dated October 2, 1998 among
                  the Company,  Domenic Gatto, Michael Gatto and Patrick
                  Gatto (filed as exhibit 10.26 to the Company's  Annual
                  Report on Form 10-K for the year ended  June 30,  1999
                  and incorporated herein by reference) ................

    10.27         Accounts  Purchase  and Sale  Agreement  dated June 8,
                  1999  among  the  Company,  the  Sellers  (as  defined
                  therein) and Congress Financial  Corporation (filed as
                  Exhibit 10.27 to the  Company's  Annual Report on Form
                  10-K for the year ended June 30, 1999 and incorporated
                  herein by reference) .................................

    10.28         Third  Amendment  dated  January  25, 2000 to Loan and
                  Security  Agreement  by and among  Congress  Financial
                  Corporation,  certain  subsidiaries  of the Company as
                  borrowers  and the  Company  as  Guarantor  (filed  as
                  exhibit 10.1 to the Company's Quarterly Report on Form
                  10-Q  for the  period  ended  December  31,  1999  and
                  incorporated herein by reference) ....................

    10.29         First  Amendment  dated  as of  January  25,  2000  to
                  Accounts  Purchase and Sales  Agreement among Congress
                  Financial   Corporation,   the   Company  and  certain
                  subsidiaries  of the  Company  as  sellers  (filed  as
                  exhibit 10.2 to the Company's Quarterly Report on Form
                  10-Q  for the  period  ended  December  31,  1999  and
                  incorporated herein by reference) ....................

    10.30         Extension  and Ninth  Amendment of Contract of General
                  Education  Pupils,  dated  September  7,  2000  by and
                  between The Board of Education of the City of New York
                  and Amboy Bus Co., Inc (filed as exhibit  10.30 to the
                  Company's  Annual  Report  on Form  10-K  for the year
                  ended  June  30,  2000  and  incorporated   herein  by
                  reference) ...........................................

    10.31         Extension  and  Eleventh   Amendment  of  Contract  of
                  Special Education Pupil Transportation Services, dated
                  as of  September  7, 2000 by and  between The Board of
                  Education of the City of New York,  Amboy Bus Co., Inc
                  and Staten Island Bus Co., Inc (filed as exhibit 10.31
                  to the  Company's  Annual  Report on Form 10-K for the
                  year ended June 30,  2000 and  incorporated  herein by
                  reference) ...........................................

    10.32         Employment  Agreement  dated as of July 19, 2000 among
                  the  Company,  AETG and  Nathan  Schlenker  (filed  as
                  exhibit 10.32 to the  Company's  Annual Report on Form
                  10-K for the year ended June 30, 2000 and incorporated
                  herein by reference) .................................

    10.33         Fifth Supplemental Indenture, dated as of December 20,
                  2000,  among the Company,  the  Guarantors (as defined
                  therein) and The Bank of New York,  as trustee  (filed
                  as exhibit 10.33 to the Company's  Quarterly Report on
                  Form 10-Q for the period  ended  December 31, 2000 and
                  incorporated herein by reference) ....................

    10.34         Fourth  Amendment to Security  Agreement,  dated as of
                  December 22, 2000,  among the Company,  the Guarantors
                  (as  defined  therein)  and The Bank of New  York,  as
                  trustee  (filed  as  exhibit  10.34  to the  Company's
                  Quarterly  Report  on Form 10-Q for the  period  ended
                  December   31,   2000  and   incorporated   herein  by
                  reference) ...........................................

    10.35         Loan and Security Agreement,  dated as of December 22,
                  2000,  among the Company,  subsidiaries of the Company
                  and Congress  Financial  Corporation (filed as exhibit
                  10.35 to the Company's  Quarterly  Report on Form 10-Q
                  for  the   period   ended   December   31,   2000  and
                  incorporated herein by reference) ....................
<PAGE>

    Exhibit
    Number                            Description                          Page
    ------                            -----------                          ----
    10.36    *    Sixth Supplemental  Indenture,  dated as of August 15,
                  2001,  among the Company,  the  Guarantors (as defined
                  therein) and The Bank of New York, as trustee ........

    10.37    *    Fifth  Amendment  to Security  Agreement,  dated as of
                  August 15, 2001, among the Company, the Guarantors (as
                  defined therein) and The Bank of New York, as trustee.

    10.38    *    First Amendment to Loan and Security Agreement,  dated
                  as of  August, 2001,  among the Company,  subsidiaries
                  of the Company and Congress Financial Corporation ....

    21       *    Subsidiaries of the Company ..........................

---------
*     Filed with this Form 10K