================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-Q/A

         (Mark One )

         [X] Quarterly  report pursuant to Section 13 or 15(d) of the Securities
             Exchange Act of 1934

         For the quarterly period ended December 31, 1998 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)


--------------------------------------------------------------------------------
         (Former Name, Former Address and Former Fiscal Year, if Changed
                               Since Last Report)

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

                   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  issuer's
classes of common stock, as of the latest practicable date.

100 Shares of Common Stock, no par value.

================================================================================


<PAGE>

                                TABLE OF CONTENTS


PART I. Financial Information


                                                                            Page
                                                                            ----
  ITEM 1. Financial Statements:

  Consolidated Balance Sheets at June 30, 1998 (audited) and
       December 31, 1998 (unaudited)........................................   1

  Consolidated Statements of Operations for the Three Month and
       Six Month Periods Ended December 31, 1997 (unaudited) and
       1998 (unaudited).....................................................   2

  Consolidated Statements of Comprehensive Income (Loss) for the
       Three Months and Six Months Ended December 31, 1997 (unaudited) and
       1998 (unaudited).....................................................   3

  Consolidated Statements of Cash Flows for the Six Month Periods
       Ended December 31, 1997 (unaudited) and 1998 (unaudited).............   4

  Notes to Consolidated Financial Statements (unaudited).................... 5-8

  ITEM 2. Management's Discussion and Analysis of Financial Condition
          and Results of Operations.........................................9-12


PART II. Other Information                                                    13


Signatures..................................................................  14

Index to Exhibits........................................................... E-1


<PAGE>


             Atlantic Express Transportation Corp. and Subsidiaries

                           Consolidated Balance Sheets
<TABLE>
<CAPTION>

                                                                        June 30,     December 31,
                                                                          1998           1998
                                                                      ------------   ------------
                                                                       (audited)      (unaudited)
<S>                                                                   <C>            <C>
Assets
Current:
     Cash and cash equivalents ....................................   $ 13,772,537   $  2,491,118
     Current portion of marketable securities .....................        850,000      2,700,000
     Accounts receivable, net of allowance for doubtful accounts ..     37,310,006     40,962,184
     Inventories ..................................................     10,762,839      9,913,095
     Notes receivable .............................................      1,182,425        124,839
     Prepaid expenses and other current assets ....................      5,692,610      6,990,474
                                                                      ------------   ------------
           Total current assets ...................................     69,570,417     63,181,710
                                                                      ------------   ------------
Property, plant and equipment, less accumulated depreciation ......     99,887,054    125,345,670
                                                                      ------------   ------------
Other assets:
     Goodwill, net ................................................     12,469,422     12,306,468
     Notes receivable from affiliates .............................        510,000             --
     Investments ..................................................        229,000        229,000
     Marketable securities ........................................      7,027,937      7,450,835
     Deferred lease expense .......................................        334,115        276,811
     Transportation contract rights, net ..........................      3,807,743      7,955,742
     Deferred financing and organization costs, net ...............      8,310,723      9,011,941
     Due from affiliates ..........................................        672,589        831,117
     Notes receivable .............................................         25,000         22,339
     Deposit and other noncurrent assets ..........................      1,394,301      1,721,051
     Deferred tax assets ..........................................      2,087,000      3,822,146
     Covenant not to compete, net .................................        160,000        245,000
                                                                      ------------   ------------
           Total other assets .....................................     37,027,830     43,872,450
                                                                      ------------   ------------
                                                                      $206,485,301   $232,399,830
                                                                      ============   ============


Liabilities and Stockholder's Equity
Current:
     Current portion of long-term debt ............................   $    641,574   $  1,272,948
     Accounts payable .............................................      2,250,615      2,924,060
     Accrued compensation .........................................      4,703,334      4,457,427
     Current portion of insurance reserve .........................      3,657,442      3,760,000
     Accrued interest .............................................      6,776,630      6,899,913
     Other accrued expenses and current liabilities ...............      4,158,333      3,592,410
                                                                      ------------   ------------
           Total current liabilities ..............................     22,187,928     22,906,758
                                                                      ------------   ------------
Long-term debt, net of current portion ............................    157,284,116    181,246,282
                                                                      ------------   ------------
Premium on bond issuance ..........................................      1,202,550      1,094,850
                                                                      ------------   ------------
Other long-term liabilities .......................................      5,641,135      6,116,526
                                                                      ------------   ------------

Stockholder's equity:
     Common stock, no par value - shares authorized 200; issued and
           outstanding 100 ........................................        250,000        250,000
     Additional paid-in capital ...................................     13,188,926     15,898,517
     Retained earnings ............................................      6,354,353      3,559,226
     Accumulated other comprehensive income:
           Unrealized gain on marketable securities, net ..........        376,293      1,327,671
                                                                      ------------   ------------
               Total stockholder's equity .........................     20,169,572     21,035,414
                                                                      ------------   ------------
                                                                      $206,485,301   $232,399,830
                                                                      ============   ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       1
<PAGE>



             Atlantic Express Transportation Corp. and Subsidiaries

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>

                                                  Three Months Ended                 Six Months Ended
                                                     December 31,                       December 31,
                                            ------------------------------    ------------------------------
                                                 1997             1998              1997            1998
                                            -------------    -------------    -------------    -------------
                                                     (unaudited)                        (unaudited)

<S>                                         <C>              <C>              <C>              <C>
Revenues ................................   $  68,138,099    $  84,968,315    $ 127,291,475    $ 156,001,102
                                            -------------    -------------    -------------    -------------

Costs and expenses:

     Cost of operations .................      57,915,037       68,403,973      109,169,121      133,060,046

     General and administrative .........       7,000,890        5,606,220       10,773,210       10,190,642

     Depreciation and amortization ......       3,419,061        3,123,996        6,711,340        5,979,982
                                            -------------    -------------    -------------    -------------
                                               68,334,988       77,134,189      126,653,671      149,230,670
                                            -------------    -------------    -------------    -------------
       Income (loss) from operations ....        (196,889)       7,834,126          637,804        6,770,432

Interest ................................      (4,919,498)      (5,322,261)      (9,057,169)     (10,139,864)

Other income (expense) ..................         124,748          (72,999)         232,902          (72,999)
                                            -------------    -------------    -------------    -------------
       Income (loss) before nonrecurring
         item and provision (benefit) for
         income taxes ...................      (4,991,639)       2,438,866       (8,186,463)      (3,442,431)

Nonrecurring item .......................              --       (1,223,161)              --       (1,223,161)
                                            -------------    -------------    -------------    -------------

       Income (loss) before provision
         (benefit) for income taxes .....      (4,991,639)       1,215,705       (8,186,463)      (4,665,592)


Provision (benefit) for income taxes ....      (2,342,083)         547,068       (3,683,910)      (2,099,515)
                                            -------------    -------------    -------------    -------------

       Net income (loss) ................   $  (2,649,556)   $     668,637    $  (4,502,553)   $  (2,566,077)
                                            =============    =============    =============    =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       2
<PAGE>



             Atlantic Express Transportation Corp. and Subsidiaries

             Consolidated Statements of Comprehensive Income (Loss)

<TABLE>
<CAPTION>

                                                                       Three Months Ended            Six Months Ended
                                                                           December 31,                 December 31,
                                                                  ---------------------------  ---------------------------
                                                                       1997           1998          1997          1998
                                                                  -------------  ------------  -------------  ------------
                                                                           (unaudited)                  (unaudited)
<S>                                                               <C>            <C>           <C>            <C>
Net income (loss) .............................................   $(2,649,556)   $   668,637   $(4,502,553)   $(2,566,077)

Other comprehensive income (loss):

     Unrealized gain (loss) on marketable
         securities...................................               (168,528)     1,561,228        86,357        951,378
                                                                  -----------    -----------   -----------    -----------
Comprehensive income (loss) ...................................   $(2,818,084)   $ 2,229,865   $(4,416,196)   $(1,614,699)
                                                                  ===========    ===========   ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                                             Six Months Ended
                                                                                                               December 31,
                                                                                                       -----------------------------
                                                                                                            1997            1998
                                                                                                       ------------    ------------
                                                                                                                 (unaudited)
<S>                                                                                                    <C>             <C>
Cash flows from operating activities:
     Net income (loss)..............................................................................   $ (4,502,553)   $ (2,566,077)
Adjustments to reconcile net loss to net cash provided by operating
  activities:
       Gain on sale of marketable securities .......................................................       (232,902)       (194,329)
       Deferred income taxes .......................................................................     (3,683,860)     (2,099,515)
       Depreciation ................................................................................      5,857,519       5,401,850
       Amortization ................................................................................      1,835,166       1,263,915
       Write-off of accounts receivable ............................................................        480,000              --
       Reserve for doubtful accounts receivable ....................................................      1,270,000          60,000
       Interest accrued on notes receivable ........................................................       (157,775)             --
       Transfer from restricted cash ...............................................................        914,408              --
       Nonrecurring item ...........................................................................             --       1,223,161
       Decrease (increase) in:
         Accounts receivable and retainage (net of receivables sold) ...............................       (575,882)     (3,092,168)
         Inventories ...............................................................................      1,557,316       1,014,617
         Prepaid expenses and other current assets .................................................     (2,646,982)     (1,209,744)
         Deferred lease expense ....................................................................         75,202          57,304
         Deposits and other noncurrent assets ......................................................       (113,901)        200,699
       Increase (decrease) in:
         Accounts payable ..........................................................................       (388,852)        595,259
         Accrued expenses and other current liabilities ............................................      5,429,580      (1,975,650)
         Other long-term liabilities ...............................................................        752,364         475,390
                                                                                                       ------------    ------------
         Net cash provided (used in) operating activities ..........................................      5,868,848        (845,288)
                                                                                                       ------------    ------------

Cash flows from investing activities:
     Acquisition of subsidiaries (net of cash acquired of $207,441 and $1,100,009
        in 1997 and 1998 respectively)..............................................................    (21,519,397)     (6,014,361)
     Proceeds from sale of fixed assets ............................................................        234,064          33,887
     Additions to property, plant and equipment ....................................................    (15,426,604)    (18,745,242)
     Purchase of transportation contract rights ....................................................        (39,665)        (70,215)
     Due from affiliates ...........................................................................       (564,422)       (158,528)
     Notes receivable ..............................................................................       (643,042)      1,570,247
     Marketable securities sold (purchased), net ...................................................     (2,167,328)     (1,127,191)
                                                                                                       ------------    ------------
         Net cash used in investing activities .....................................................    (40,126,394)    (24,511,403)
                                                                                                       ------------    ------------

Cash flows from financing activities:
     Proceeds of additional borrowings .............................................................     45,770,000      19,355,307
     Principal payments on borrowings ..............................................................    (13,252,118)     (5,000,991)
     Deferred financing and organization costs .....................................................     (3,567,213)        (49,995)
     Other .........................................................................................       (379,756)       (229,049)
                                                                                                       ------------    ------------
         Net cash provided by financing activities .................................................     28,570,913      14,075,272
                                                                                                       ------------    ------------
Net decrease in cash and cash equivalents ..........................................................     (5,686,633)    (11,281,419)
Cash and cash equivalents, beginning of period .....................................................     16,818,889      13,772,537
                                                                                                       ------------    ------------
Cash and cash equivalents, end of period ...........................................................   $ 11,132,256    $  2,491,118
                                                                                                       ============    ============

Supplemental  disclosures of cash flow information:
     Cash paid during the period for:
         Interest...................................................................................   $  6,320,900    $  9,521,069
         Income taxes ..............................................................................        331,527         182,068

Supplemental schedule of noncash investing and financing activities:
     Loans incurred for purchase of property, plant and equipment ..................................   $  6,368,900    $  5,686,617
     Additional paid-in capital contributed for bondholder consent fees and
       expenses ....................................................................................             --       2,709,591
     Transfer of bus from inventory to fixed assets ................................................         47,558             --

                 See accompanying notes to financial statements.
</TABLE>


                                       4
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                   Notes to Consolidated Financial Statements

1. Basis of Accounting

      These consolidated financial statements should be read in conjunction with
the  consolidated  financial  statements  and  related  notes  contained  in the
Company's  financial  statements  as of and for the year ended June 30,  1998 as
filed on Form 10-K. In the opinion of management,  all  adjustments and accruals
(consisting only of normal recurring adjustments) which are necessary for a fair
presentation of operating  results are reflected in the  accompanying  financial
statements.

      Certain  amounts  in  the  fiscal  1998  financial  statements  have  been
reclassified to conform with current period presentation.

      Operating results for the periods presented are not necessarily indicative
of the results for the full fiscal year.

2. New Accounting Pronouncement

      Effective  July 1, 1998,  the Company  adopted  SFAS No.  130,  "Reporting
Comprehensive  Income",  which  requires that all  components  of  comprehensive
income  (loss) and total  comprehensive  income (loss) be reported on one of the
following: a statement of income and comprehensive income (loss), a statement of
comprehensive income (loss) or a statement of stockholder's  equity. The Company
is reporting this information on a separate  statement of  comprehensive  income
(loss) which includes all changes to stockholder's  equity,  except those due to
investments by owners (changes in paid in capital) and  distributions  to owners
(dividends).  This statement did not change the current accounting treatment for
components of comprehensive income.

3. Inventories

         Inventories comprised the following:
                                                   June 30,        December 31,
                                                     1998              1998
                                                ------------     --------------

         Parts and fuel.......................  $  3,921,237     $  4,105,675
         Buses................................     6,841,602        5,807,420
                                                 -----------     ------------
                                                $ 10,762,839     $  9,913,095
                                                ============     ============


4. Change of Control of the Company and Nonrecurring Item

      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, 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.

         In November 1998 the shareholders of AETG paid $2.7 million of fees and
      expenses in connection with the Amendment to the Indenture of which
approximately  $1.5 million of  bondholder  consent  fees have been  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.


                                       5
<PAGE>

Supplemental Financial Information

         The   following  are  unaudited   condensed   consolidating   financial
statements  regarding the Company (on a stand-alone  basis and on a consolidated
basis) and its subsidiaries which are Guarantors and Non-Guarantors of the Notes
as of and for the six  months  ended  December  31,  1998,  and a  consolidating
balance sheet as of June 30, 1998 and consolidating statements of operations for
the three months  ended  December 31, 1998 and 1997 and for the six months ended
December 31, 1997, and consolidating  statement of cash flows for the six months
ended December 31, 1997.


                      Condensed Consolidating Balance Sheet
                                December 31, 1998

<TABLE>
<CAPTION>
                               Atlantic
                                Express                          Non-
                            Transportation    Guarantor        Guarantor     Elimination
                                 Corp.       Subsidiaries    Subsidiaries      Entries        Consolidated
                            --------------  -------------   -------------   -------------    -------------
<S>                        <C>              <C>             <C>             <C>              <C>
Current assets ........... $   2,911,199    $  58,353,400   $   6,568,262   $  (4,651,151)   $  63,181,710
Investment in affiliates..    68,340,331               --              --     (68,340,331)              --
Total assets .............   216,521,720      188,048,763      14,788,778    (186,959,431)     232,399,830
Current liabilities ......     8,035,215       14,878,354       4,685,458      (4,692,269)      22,906,758
Total liabilities ........   179,950,126      161,386,314      10,731,984    (140,704,008)     211,364,416
Stockholder's equity .....    36,571,594       26,662,449       4,056,794     (46,255,423)      21,035,414
</TABLE>


                 Condensed Consolidating Statement of Operations
                      Three months ended December 31, 1998

<TABLE>
<CAPTION>
                                            Atlantic
                                             Express                       Non-
                                         Transportation     Guarantor    Guarantor     Elimination
                                             Corp.        Subsidiaries  Subsidiaries     Entries       Consolidated
                                        ---------------  -------------  ------------   ------------    ------------
<S>                                         <C>             <C>              <C>         <C>                <C>
Net revenues .......................    $        --      $ 84,667,851   $  2,273,552   $ (1,973,088)   $ 84,968,315
Income (loss) from  operations .....       (267,415)        7,853,713        247,828             --       7,834,126
Income (loss) before nonrecurring
  item, (provision for) benefit from
  income taxes .....................       (325,706)        2,516,744        247,828             --       2,438,866
Nonrecurring item ..................     (1,223,161)               --             --             --      (1,223,161)
Net income of subsidiaries .........      1,520,514                --             --     (1,520,514)             --
Net income .........................        668,637         1,382,786        137,728     (1,520,514)        668,637
</TABLE>


                 Condensed Consolidating Statement of Operations
                       Six months ended December 31, 1998

<TABLE>
<CAPTION>
                                          Atlantic
                                          Express
                                        Transportation     Guarantor          Non-        Elimination
                                             Corp.       Subsidiaries      Guarantors        Entries       Consolidated
                                       ---------------  -------------    -------------   -------------    -------------
<S>                                         <C>            <C>                 <C>                           <C>
Net revenues .......................   $          --    $ 155,644,406    $   3,442,232   $  (3,085,536)   $ 156,001,102
Income (loss) from operations ......        (320,906)       6,829,282          262,056              --        6,770,432
Income (loss) before nonrecurring
  item, (provision for) benefit from
  income taxes .....................        (379,197)      (3,325,290)         262,056              --       (3,442,431)
Nonrecurring item ..................      (1,223,161)              --               --              --       (1,223,161)
Net loss of subsidiaries ...........      (1,684,780)              --               --       1,684,780               --
Net income (loss) ..................      (2,566,077)      (1,828,911)         144,131       1,684,780       (2,566,077)
</TABLE>


                                       6
<PAGE>

                 Condensed Consolidating Statement of Cash Flows
                       Six months ended December 31, 1998

<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 .........   $ (18,865,166)     $  15,950,730     $  2,069,148      $       --         $   (845,288)
Net cash used in investing
   activities ...................      (5,842,005)       (17,542,207)      (1,127,191)             --          (24,511,403)
Net cash provided by (used in)
   financing activities .........      19,076,263         (5,000,991)              --              --           14,075,272
Increase (decrease) in cash and
   cash equivalents .............      (5,630,908)        (6,592,468)         941,957              --          (11,281,419)
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 ................   $   1,302,002      $  (2,577,884)    $  3,767,000      $       --         $   2,491,118
</TABLE>


                      Condensed Consolidating Balance Sheet
                                  June 30, 1998

<TABLE>
<CAPTION>

                                   Atlantic
                                    Express                               Non-
                                Transportation        Guarantor        Guarantor        Elimination
                                     Corp.          Subsidiaries      Subsidiaries        Entries         Consolidated
                                --------------      ------------      ------------     --------------    --------------
<S>                             <C>                 <C>               <C>               <C>              <C>
Current assets ................ $  13,459,022       $ 47,736,795      $ 8,374,600       $         --     $  69,570,417
Investment in affiliates ......    60,404,818                 --               --        (60,404,818)               --
Total assets ..................   193,219,371        165,426,379       15,993,943       (168,154,392)      206,485,301
Current liabilities ...........     7,688,435          6,743,371        7,756,122                 --        22,187,928
Total liabilities .............   160,355,739        120,676,905       13,032,657       (107,749,572)      186,315,729
Stockholder's equity ..........    32,863,632         44,749,474        2,961,286        (60,404,820)       20,169,572
</TABLE>


                 Condensed Consolidating Statement of Operations
                      Three months ended December 31, 1997

<TABLE>
<CAPTION>

                                         Atlantic
                                         Express                               Non-
                                     Transportation        Guarantor        Guarantor        Elimination
                                          Corp.          Subsidiaries      Subsidiaries        Entries         Consolidated
                                     ----------------    --------------    -------------    ---------------    -------------
<S>                                  <C>                   <C>               <C>              <C>               <C>
Net revenues .......................   $         --       $ 68,138,099      $ 2,520,904      $ (2,520,904)     $ 68,138,099
Income (loss) from operations ......             --           (140,130)         (56,759)               --          (196,889)
Income (loss) before income taxes ..             --         (5,157,648)         166,009                --        (4,991,639)
Net loss of subsidiaries ...........     (2,649,556)                --               --         2,649,556                --
Net income (loss) ..................     (2,649,556)        (2,740,861)          91,305         2,649,556        (2,649,556)
</TABLE>





                                       7
<PAGE>



                 Condensed Consolidating Statement of Operations
                       Six months ended December 31, 1997

<TABLE>
<CAPTION>
                                          Atlantic
                                           Express                               Non-
                                       Transportation         Guarantor        Guarantor        Elimination
                                            Corp.           Subsidiaries      Subsidiaries        Entries         Consolidated
                                      ----------------     --------------    -------------    ---------------    -------------
<S>                                   <C>                  <C>               <C>              <C>                <C>
Net revenues .......................   $          --      $  127,291,475     $ 3,708,814      $ (3,708,814)     $ 127,291,475
Income (loss) from operations ......              --             736,314         (98,510)               --            637,804
Income (loss) before income taxes ..              --          (8,505,199)        318,736                --         (8,186,463)
Net loss of subsidiaries ...........      (4,502,553)                 --              --         4,502,553                 --
Net income (loss) ..................      (4,502,553)         (4,677,858)        175,305         4,502,553         (4,502,553)
</TABLE>



                 Condensed Consolidating Statement of Cash Flows
                       Six months ended December 31, 1997

<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 ..........      $(24,399,331)      $ 27,584,225      $ 2,683,954        $      --        $  5,868,848
Net cash used in investing
  activities ....................       (22,223,082)       (15,735,984)      (2,167,328)              --         (40,126,394)
Net cash provided by (used in
  financing activities ..........        41,713,031        (13,142,118)              --               --          28,570,913
Increase (decrease) in cash and
  cash equivalents ..............        (4,909,382)        (1,293,877)         516,626               --          (5,686,633)
Cash and cash equivalents,
  beginning of period ...........        15,029,114            479,933        1,309,842               --          16,818,889
                                       ------------       ------------      -----------        ---------        ------------
Cash and cash equivalents, end of
     period......................      $ 10,119,732       $   (813,944)     $ 1,826,468        $      --        $ 11,132,256
</TABLE>




                                       8
<PAGE>




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

         The following discussion contains forward-looking statements within the
meaning of the federal  securities  laws and as such  involve  known and unknown
risks and uncertainties.  These statements may use forward-looking words such as
"anticipate",  "estimate",  "expect",  "will"  or  other  similar  words.  These
statements discuss future  expectations or contain projections of future events.
Actual  results may differ  materially  from those  expressed  or implied by the
forward-looking  statements  for various  reasons,  including  general  economic
conditions,  reliance on suppliers,  labor relations and other factors,  many of
which are beyond the Company's control. Readers are cautioned not to place undue
reliance on such forward-looking statements.

Three months ended December 31, 1998 compared to three months ended December 31,
1997.

         Revenues.  Revenues from  Transportation  Operations were $68.5 million
for the three months ended  December 31, 1998  compared to $55.8 million for the
three months ended  December  31, 1997,  an increase of $12.7  million or 22.8%.
This  increase  was due  primarily  to (i) an  increase  in billings on existing
contracts  of $5.8  million;  (ii) the award of new  contracts  which added $3.8
million of revenues;  and (iii) $3.1 million from the  operations  of five newly
acquired subsidiaries. Revenues from Bus Sales Operations were $16.5 million for
the three months ended December 31, 1998 compared to $12.4 million for the three
months ended December 31, 1997, an increase of $4.1 million or 33.1%.

         Gross Profit.  Gross profit from  Transportation  Operations  was $15.0
million for the three  months ended  December 31, 1998  compared to $8.6 million
for the three  months ended  December  31, 1997,  an increase of $6.4 million or
73.6%.  As a  percentage  of revenues,  gross  profit  increased to 21.9% in the
second  quarter of 1998 from 15.5% in the second  quarter of 1997. In the second
quarter of 1997,  there was a one time bonus which  reduced gross profit by $1.7
million or 3.0%. The increase in gross profit  (exclusive of the one time bonus)
of $4.7 million was due primarily to (i) increased  revenues (ii) an increase in
gross  profit  percentage  of 2.6% due  primarily  to a reduction  in health and
welfare,  fuel and vehicle  insurance  expenses  and (iii) gross  profit of $1.2
million generated from operations of newly acquired  subsidiaries.  Gross Profit
for the Bus  Sales  Operations  was $1.6  million  for the  three  months  ended
December  31, 1998 and December 31,  1997.  As a percentage  of revenues,  gross
profit decreased to 9.4% for the three months ended December 31, 1998 from 12.7%
for the three months ended  December  31,  1997.  The  reduction in gross profit
percentage  was due  primarily  to an  increase  in the  current  quarter of the
proportion  of sales made in the New Jersey  market  which has had  historically
lower gross profit margins than the New York market.

         General  and  administrative   expenses.   General  and  administrative
expenses  for the  Transportation  Operations  were $4.6  million  for the three
months  ended  December  31, 1998  compared to $6.0 million for the three months
ended December 31, 1997, a decrease of $1.4 million or 23.5%.  This decrease was
primarily  due to a $1.8 million  provision for doubtful  accounts  taken in the
second  quarter  of  1997  partially  offset  by $0.4  million  of  general  and
administrative expenses incurred by newly acquired subsidiaries. As a percentage
of revenues, general and administrative expenses decreased to 6.7% for the three
months ended  December  31, 1998 from 10.8% for the three months ended  December
31, 1997. General and administrative  expenses for the Bus Sales Operations were
$1.0  million  for the three  months  ended  December  31,  1998 and 1997.  As a
percentage of revenues,  general and  administrative  expenses decreased to 6.2%
for the three  months  ended  December  31, 1998 from 8.1% for the three  months
ended December 31, 1997.

         Depreciation and amortization  expenses.  Depreciation and amortization
expenses  for the  Transportation  Operations  were $2.9  million  for the three
months  ended  December  31, 1998  compared to $3.1 million for the three months
ended  December 31, 1997, a decrease of $0.1  million.  This decrease was due to
the Company  reassessing  (on January 1, 1998) and extending the useful lives of
certain fixed assets which reduced  depreciation by approximately  $0.9 million,
which was partially  offset by increases in depreciation  due to the purchase of
new vehicles.  Depreciation  and  amortization of Bus Sales  Operations was $0.2
million for the second  quarter of 1998  compared to $0.3 million for the second
quarter of 1997.


                                       9
<PAGE>

         Income (loss) from operations.  Income from operations was $7.8 million
for the three months ended December 31, 1998 compared to a loss from  operations
of $0.2  million for the three months  ended  December 31, 1997,  an increase of
$8.0  million.  This  increase was due to the net effect of the items  discussed
above.

         Net interest  expense.  Net  interest  expense was $5.3 million for the
three  months  ended  December  31, 1998  compared to $4.9 million for the three
months  ended  December  31,  1997,  an increase of $0.4  million or 8.2%.  This
increase  was  primarily  due to  increased  interest  in  connection  with  the
Company's revolving line of credit and equipment financing.

         Income  (loss)  before  nonrecurring  item  and  taxes.  Income  before
nonrecurring  item and taxes was $2.4 for the three  months  ended  December 31,
1998 compared to a loss before  nonrecurring  item and taxes of $5.0 million for
the three months ended December 31, 1997, and increase of $7.4 million.

         Nonrecurring  item.  Nonrecurring  item was $1.2  million for the three
months ended December 31, 1998. This  represented  fees and expenses paid by the
shareholders of Atlantic Express Transportation Group, Inc. (the parent of AETC)
for the benefit of the Company.  (See Note 4 of Notes to Consolidated  Financial
Statements).  There  were no  nonrecurring  items  for the  three  months  ended
December 31, 1997.

         Net loss.  The  Company  generated  net income of $0.7  million for the
three months ended  December 31, 1998 compared to a net loss of $2.6 million for
the three months ended December 31, 1997, an increase of $3.3 million due to the
net effect of the items discussed above.

Six months  ended  December 31, 1998  compared to six months ended  December 31,
1997

         Revenues.  Revenues from Transportation  Operations were $104.1 million
for the six months ended December 31, 1998 compared to $87.3 million for the six
months  ended  December 31, 1997,  an increase of $16.8  million or 19.2%.  This
increase was due  primarily to (i) the award of new  contracts  which added $8.3
million of revenues;  (ii) an increase in billings on existing contracts of $4.3
million;  (iii) $3.1 million in revenues from  operations of five newly acquired
subsidiaries and (iv) $1.1 million of additional summer revenues.  Revenues from
Bus Sales  Operations  were $51.9 million for the six months ended  December 31,
1998  compared to $40.0  million for the six months ended  December 31, 1997, an
increase of $11.9 million or 29.8%.

         Gross Profit.  Gross profit from  Transportation  Operations  was $17.3
million for the six months ended December 31, 1998 compared to $13.0 million for
the six months ended December 31, 1997, an increase of $4.4 million or 33.8%. As
a  percentage  of revenues,  gross profit  increased to 16.6% for the six months
ended  December 31, 1998 from 14.8% for the six months ended  December 31, 1997.
In the second  quarter of 1997,  there was a one time bonus which  reduced gross
profit for the six months ended  December 31, 1997 by $1.7 million or 1.9%.  The
increase in gross profit  (exclusive  of the one time bonus) of $2.7 million was
due  primarily  to  (i)  increased  revenues  (ii)  gross  profit  generated  by
operations from newly acquired  subsidiaries  partially  offset by a decrease in
gross profit due to a net reduction in revenue days (primarily in New York City)
for the six months  ended  December  31,  1998.  Gross  profit for the Bus Sales
Operations  was $5.6 million for the six months ended December 31, 1998 compared
to $5.2 million for the six months ended  December 31, 1997, an increase of $0.4
million or 8.6%.  As a percentage of revenues,  gross profit  decreased to 10.8%
for the six months  ended  December 31, 1998 from 12.9% for the six months ended
December 31, 1997. This decrease was due primarily to an increase in the current
six months of the  proportion  of sales in the New Jersey  market  which has had
historically lower gross margins then the New York market.

         General  and  administrative   expenses.   General  and  administrative
expenses for the Transportation  Operations were $8.2 million for the six months
ended  December  31,  1998  compared to $9.0  million  for the six months  ended
December  31,1997,  a  decrease  of $0.8  million  or 8.8%.  This  decrease  was
principally due to a $1.8 million  provision for doubtful  accounts taken in the
second quarter of 1997  partially  offset by increases in  professional  fees of
$0.5 million and $0.4 million of general and administrative expenses incurred by
newly  acquired  subsidiaries.   As  a  percentage  of  revenues,   general  and
administrative  expenses decreased to 7.9% for the six months ended December 31,
1998 from  10.3%  for


                                       10
<PAGE>

the six months ended December 31, 1997. General and administrative  expenses for
the Bus Sales  Operations was $2.0 million for the six months ended December 31,
1998  compared to $1.7  million for the six months ended  December 31, 1997,  an
increase of $0.2  million or 12.2%.  As a percentage  of  revenues,  general and
administrative  expenses decreased to 3.8% for the six months ended December 31,
1998 from 4.4% for the six months ended December 31, 1997.

         Depreciation and amortization  expenses.  Depreciation and amortization
expenses for the Transportation  Operations were $5.6 million for the six months
ended  December  31,  1998  compared to $6.0  million  for the six months  ended
December  31,  1997, a decrease of $0.4  million.  This  decrease was due to the
Company  reassessing  (on  January 1,  1998) and  extending  the useful  life of
certain fixed assets which reduced  depreciation by approximately  $1.8 million,
which was partially  offset by increases in depreciation  due to the purchase of
new vehicles.  Depreciation  and  amortization of Bus Sales Operations were $0.4
million for the six months ended December 31, 1998, compared to $0.7 million for
the six months ended December 31, 1997, a decrease of $0.3 million.

         Income (loss) from operations.  Income from operations was $6.8 million
for the six months ended  December 31, 1998 compared to $0.6 million for the six
months ended  December 31, 1997, an increase of $6.1 million.  This increase was
due to the net effect of the items discussed above.

         Net interest  expense.  Net interest  expense was $10.1 million for the
six months ended  December 31, 1998  compared to $9.1 million for the six months
ended  December  31,  1997,  an  increase of $1.1  million.  This  increase  was
primarily due to increased  interest in connection with the Company's  revolving
line of credit and equipment financing.

         Loss before  nonrecurring item and taxes. Loss before nonrecurring item
and taxes was $3.4 million for the six months ended  December 31, 1998  compared
to $8.2 million for the six months  ended  December 31, 1997, a decrease of $4.7
million.

         Nonrecurring  item.  Nonrecurring  item  was $1.2  million  for the six
months ended December 31, 1998. This  represented  fees and expenses paid by the
shareholders of Atlantic Express Transportation Group, Inc. (the parent of AETC)
for the benefit of the Company.  (See Note 4 of Notes to Consolidated  Financial
Statements).  There were no nonrecurring items for the six months ended December
31, 1997.

         Net loss. The Company  generated a net loss of $2.6 million for the six
months ended  December  31, 1998  compared to a net loss of $4.5 million for the
six months  ended  December  31, 1997, a decrease of $1.9 million due to the net
effect of the items discussed above.

Liquidity and Capital Resources

         Management  anticipates total capital  expenditures of $25.8 million in
fiscal 1999 of which approximately $24.4 million were made by December 31, 1998.
This included  approximately $21.3 million for purchase of new vehicles and $3.1
million for other property and equipment.

         Net Cash  Used In  Operating  Activities.  Net cash  used in  operating
activities was $0.8 million for the six months ended December 31, 1998 primarily
due to a net  loss of $2.6  million,  $4.6  million  of funds  used for  working
capital,  $2.1 million  increase in deferred tax  benefit,  partially  offset by
non-cash items of $7.9 million ($6.7 million  depreciation  and amortization and
$1.2 million non-recurring charge) and $0.6 million increase in other sources of
funds.

         Net  Cash  Used in  Investing  Activities.  For the  six  months  ended
December 31, 1998,  the Company made $24.4  million of capital  expenditures  to
acquire additional  vehicles and equipment.  Of these capital  expenditures $5.7
million were directly financed.  Effective October 1, 1998, the Company acquired
five new  subsidiaries  for $6.0 million  (net of $1.1  million cash  acquired).
These acquisitions were funded from the Company's revolving line of credit.


                                       11
<PAGE>

         Net  Cash  Provided  by  Financing  Activities.  Net cash  provided  by
financing  activities  totaled  $14.1 million due primarily to $19.4 million net
borrowings  under the Company's  revolving line of credit,  partially  offset by
principal payments of $5.0 million on borrowings.

         The  Company  believes  that its  Revolving  Credit  Facility  of $30.0
million (of which $9.2 million was undrawn at December 31, 1998) will provide it
with sufficient liquidity to conduct its operations.

         At December 31, 1998, the Company's total debt and stockholder's equity
were $182.5 million and $20.2 million respectively.

Impact of Year 2000 on the Company's Systems

         The Company has  completed its  assessment  of all of its  computerized
systems and has  determined  what changes,  if any, need to be made so that such
systems, which include information and non-information  technology systems, will
function  properly  with  respect  to dates in the year 2000 and  thereafter  to
ensure that the Company's  financial,  information and  operational  systems are
year 2000  compliant.  The Company has  developed a program to  implement  these
changes,  which consists of the following phases:  (i) developing  solutions for
affected  technology and systems (ii) modifying or replacing affected technology
and systems, (iii) testing and verifying solutions,  (iv) implementing solutions
and (v) developing  contingency  plans.  The Company has completed its year 2000
compliance at 3 of its locations,  including its corporate  office.  The Company
intends to complete its compliance of its remaining  locations by the end of the
calendar year.

         Costs incurred to date directly related to the year 2000 issue have not
been material to the Company.  Having  completed  its  assessment of the changes
required to become year 2000 compliant,  the Company expects that the total cost
of meeting the goals of its year 2000  program  will not be material and will be
expensed as incurred.

         Management is in the process of assessing  the potential  impact of any
year 2000  non-compliant  systems  of its  vendors  or  customers  and has begun
communicating  with those  vendors  and  customers  with whom the  Company  does
significant  business. A third-party's  failure to become year 2000 compliant or
the Company's  inability to become  compatible with third parties with which the
Company has a material  relationship  may have an adverse effect on the Company;
however, the Company does not expect its operations to be materially impacted by
any potential systems problems incurred by such vendors or customers.

         The Company is in the process of developing  its  contingency  plan for
its  facilities to provide for the most  reasonable  likely worst case scenarios
regarding  year  2000  compliance.  This  contingency  plan  is  expected  to be
completed in 1999.

New Accounting Pronouncement

         Effective  July 1, 1998, the Company  adopted SFAS No. 130,  "Reporting
Comprehensive  Income",  which  requires that all  components  of  comprehensive
income  (loss) and total  comprehensive  income (loss) be reported on one of the
following:  a statement  of income and  comprehensive  (loss),  a  statement  of
comprehensive income (loss) or a statement of stockholder's  equity. The Company
is reporting this information on a separate  statement of  comprehensive  income
(loss).  Comprehensive  income  (loss) is comprised of net income (loss) and all
changes to  stockholder's  equity,  except  those due to  investments  by owners
(changes in paid-in  capital)  and  distributions  to owners  (dividends).  This
statement  did not change the current  accounting  treatment  for  components of
comprehensive income.



                                       12
<PAGE>



PART II     OTHER INFORMATION

Item 1.  Legal Proceedings

         None.

Item 2.  Changes in Securities and Use of Proceeds

         None.

Item 3.  Defaults Upon Senior Securities

         None.

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

         None.

Item 5.  Other Information

         None.

Item 6.  Exhibits and Reports on Form 8-K

         a)  Exhibits

         See Exhibit  Index on Page E-1 for  exhibits  filed with this report on
         Form 10-Q.

         b)  Reports on Form 8-K

         The Company filed a Current Report on Form 8-K dated November 10, 1998,
         reporting  under Item 1 the  consummation  of the  Recapitalization  of
         AETG.



                                       13
<PAGE>




                                   SIGNATURES

         In accordance with the  requirements of the Securities and Exchange Act
of 1934,  the  Company has duly caused this report to be signed on behalf by the
undersigned, thereunto duly authorized.





                                           ATLANTIC EXPRESS TRANSPORTATION CORP.


                                           By:  /s/ NATHAN SCHLENKER
                                                -------------------------------
                                                Nathan Schlenker
                                                Chief Financial Officer

November 23, 1999




                                       14
<PAGE>


                                Index to Exhibits


         The following  documents are exhibits to this Quarterly  Report on Form
10-Q. For convenient reference,  each exhibit is listed according to the Exhibit
Table of Regulation  S-K. The page number,  if any,  listed  opposite an exhibit
indicates  the page number in the  sequential  numbering  system on the manually
signed original of this Quarterly  Report on Form 10-Q where such exhibit can be
found.


  Exhibit                                                        Sequential Page
  Number    Exhibit                                                  Number
  ------    -------                                              ---------------

    4.1     Third  Supplemental   Indenture,   dated  as  of
            October 29, 1998, by and among Atlantic  Express
            Transportation   Corp.,   the  Guarantors  named
            therein  and The Bank of New  York,  as  Trustee
            (incorporated by reference to Exhibit 1.1 to the
            Company's  Current  Report  on  Form  8-K  filed
            November 10, 1998).

   27.1     Financial Data Schedule




                                      E-1