================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

         (Mark One)

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

      For the quarterly period ended March 31, 2002 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 March 31, 2002 (unaudited)
    and June 30, 2001 (audited)...........................................     1

  Consolidated Statements of Operations for the Three Month
    and Nine Month Periods Ended March 31, 2002 (unaudited)
    and 2001 (unaudited)..................................................     2

  Consolidated Statement of Stockholder's Equity for the
    Nine Months Ended March 31, 2002 (unaudited)..........................     3

  Consolidated Statements of Cash Flows for the Nine Month
    Periods Ended March 31, 2002 (unaudited) and 2001
    (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

  ITEM 3. Quantitative and Qualitative Disclosures About
    Market Risk...........................................................    13

PART II. Other Information                                                    14

Signatures................................................................    15

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

<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                           Consolidated Balance Sheets

                                                    March 31,       June 30,
                                                     2002             2001
                                                 -------------    -------------
                                                  (unaudited)       (audited)
Assets
Current:
  Cash and cash equivalents ..................   $   1,504,887    $     861,719
  Restricted cash and cash equivalents .......       1,001,000        1,798,000
  Current portion of marketable securities ...       7,004,000        4,532,000
  Accounts receivable, net of allowance
    for doubtful accounts ....................      53,489,692       69,699,369
  Inventories                                       14,137,178       14,484,980
  Notes receivable ...........................          42,924           33,459
  Prepaid expenses and other current
    assets ...................................      23,657,840       17,067,262
                                                 -------------    -------------
        Total current assets .................     100,837,521      108,476,789
                                                 -------------    -------------

Property, plant and equipment, at cost,
  less accumulated depreciation ..............     175,564,687      175,655,190
                                                 -------------    -------------

Other assets:
  Goodwill, net ..............................      11,247,267       11,491,698
  Investments                                          488,150          488,150
  Marketable securities, net of current
    portion ..................................       3,037,937        6,697,337
  Transportation contract rights, net ........      17,932,325       19,577,871
  Deferred financing costs, net ..............       7,751,041        8,791,385
  Due from parent company ....................         785,753          805,540
  Notes receivable ...........................         133,853          166,541
  Deposits and other noncurrent assets .......       4,261,969        3,540,280
  Deferred tax assets ........................      10,045,465       10,045,465
  Covenant not to compete, net ...............         313,000          395,000
                                                 -------------    -------------
        Total other assets ...................      55,996,760       61,999,267
                                                 -------------    -------------
                                                 $ 332,398,968    $ 346,131,246
                                                 =============    =============
Liabilities and Stockholder's Equity
Current:
  Current portion of long-term debt ..........   $   3,536,023    $   1,795,144
  Insurance premium financing payable ........      11,352,382        9,724,226
  Accounts payable ...........................       2,898,752        4,607,497
  Accrued compensation .......................      14,526,248       10,114,488
  Current portion of insurance reserve .......       8,005,000        6,330,000
  Accrued interest ...........................       2,210,381        6,841,781
  Other accrued expenses and current
    liabilities ..............................      10,583,110       11,809,590
                                                 -------------    -------------
        Total current liabilities ............      53,111,896       51,222,726
                                                 -------------    -------------

Long-term debt, net of current portion .......     248,400,838      244,637,001
                                                 -------------    -------------
Premium on bond issuance .....................         333,630          470,115
                                                 -------------    -------------
Other long-term liabilities ..................       3,068,339        1,873,272
                                                 -------------    -------------

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 .................      62,198,517       56,698,517
  Accumulated deficit ........................     (33,212,507)      (7,487,911)
  Accumulated other comprehensive loss .......      (1,751,745)      (1,532,474)
                                                 -------------    -------------
        Total stockholder's equity ...........      27,484,265       47,928,132
                                                 -------------    -------------
                                                 $ 332,398,968    $ 346,131,246
                                                 =============    =============

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


                                       1
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                             Three Months Ended                         Nine Months Ended
                                                                 March 31,                                   March 31,
                                                    -----------------------------------         -----------------------------------
                                                        2002                  2001                  2002                  2001
                                                    -------------         -------------         -------------         -------------
                                                                (unaudited)                                 (unaudited)
<S>                                                 <C>                   <C>                   <C>                   <C>
Revenues:
  Transportation Operations ................        $  94,469,547         $  97,414,432         $ 251,580,403         $ 252,841,563
  Bus Sales Operations .....................           13,362,794            13,471,205            65,870,932            67,695,975
                                                    -------------         -------------         -------------         -------------
Total revenues .............................          107,832,341           110,885,637           317,451,335           320,537,538
                                                    -------------         -------------         -------------         -------------

Costs and expenses:
  Cost of operations -
    Transportation Operations ..............           82,825,311            81,062,943           221,088,127           212,633,197
  Cost of operations - Bus
    Sales Operations .......................           12,270,093            12,799,481            60,180,656            62,623,266
  General and administrative ...............            6,997,265             7,088,554            21,722,343            21,493,695
  Depreciation and amortization ............            6,614,099             5,642,854            19,539,973            17,185,371
                                                    -------------         -------------         -------------         -------------
Total operating costs and expenses .........          108,706,768           106,593,832           322,531,099           313,935,529
                                                    -------------         -------------         -------------         -------------
    Income (loss) from operations ..........             (874,427)            4,291,805            (5,079,764)            6,602,009
Interest expense ...........................            6,272,238             6,977,949            19,901,085            21,733,535
Other expense (income), net ................               63,771              (183,572)              525,647               484,429
                                                    -------------         -------------         -------------         -------------
    Loss before provision for
      (benefit from) income taxes ..........           (7,210,436)           (2,502,572)          (25,506,496)          (15,615,955)
Provision for (benefit from)
  income taxes .............................            8,323,227            (1,126,158)               90,000            (7,027,180)
                                                    -------------         -------------         -------------         -------------
Net loss ...................................        $ (15,533,663)        $  (1,376,414)        $ (25,596,496)        $  (8,588,775)
                                                    =============         =============         =============         =============
</TABLE>

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


                                       2
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                 Consolidated Statement of Stockholder's Equity

                        Nine months ended March 31, 2002

<TABLE>
<CAPTION>
                                                                                     Accumulated
                                                     Additional                         other
                                    Common stock      paid-in        Accumulated    comprehensive    Comprehensive
                                    no par value      capital          Deficit          loss              loss            Total
                                    ------------    ------------    ------------    -------------    -------------     ------------
<S>                                 <C>             <C>             <C>              <C>              <C>              <C>
Balance, June 30, 2001 .........    $    250,000    $ 56,698,517    $ (7,487,911)    $ (1,532,474)                     $ 47,928,132

Contribution from
  parent company ...............            --         5,500,000            --               --       $       --          5,500,000

Dividend paid ..................            --              --          (128,100)            --               --           (128,100)

Net loss .......................            --              --       (25,596,496)            --        (25,596,496)     (25,596,496)

Unrealized loss on
  marketable securities ........            --              --              --           (219,271)        (219,271)        (219,271)

                                                                                                      ------------
Comprehensive loss .............            --              --              --               --       $(25,815,767)            --
                                    ------------    ------------    ------------     ------------     ============     ------------

Balance, March 31, 2002 ........    $    250,000    $ 62,198,517    $(33,212,507)    $ (1,751,745)                     $ 27,484,265
                                    ============    ============    ============     ============                      ============
</TABLE>

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


                                       3
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                      Consolidated Statements of Cash Flows

                                                         Nine Months Ended
                                                            March 31,
                                                  -----------------------------
                                                      2002             2001
                                                  ------------    -------------
                                                           (unaudited)
Cash flows from operating activities:
  Net loss....................................    $(25,596,496)   $  (8,588,775)
Adjustments to reconcile net loss to
  net cash provided by (used in)
  operating activities:
  Gain on sale of marketable securities
    and investments...........................        (259,968)        (413,912)
  Loss on sale of marketable securities
    and investments...........................         795,245          320,781
  Loss on sale of fixed assets................         280,410          270,106
  Deferred income taxes.......................              --       (7,027,180)
  Depreciation................................      17,437,641       15,183,204
  Amortization................................       4,611,465        4,343,155
  Write-off of accounts receivable............              --         (193,760)
  Reserve for doubtful accounts
    receivable................................          90,000           90,000
  Decrease (increase) in:
    Restricted cash and cash equivalents......         797,000        1,071,000
    Accounts receivable.......................      16,119,677       (3,595,307)
    Inventories...............................         347,802       (5,763,381)
    Prepaid expenses and other current
      assets..................................      (6,590,578)      (6,104,858)
    Deposits and other noncurrent assets......        (721,689)       1,014,770
  Increase (decrease) in:
    Accounts payable..........................      (1,708,745)       2,800,417
    Accrued expenses and other current
      liabilities.............................         228,880        4,417,092
    Other long-term liabilities...............       1,195,067       (1,493,197)
                                                  ------------    -------------
  Net cash provided by (used in) operating
    activities................................       7,025,711       (3,669,845)
                                                  ------------    -------------
Cash flows from investing activities:
  Proceeds from sale of fixed assets..........          81,577          467,472
  Additions to property, plant and
    equipment.................................     (17,709,123)     (28,026,563)
  Purchase of transportation contract
    rights....................................         (59,686)        (170,764)
  Payment for covenant not to compete.........         (50,000)         (50,000)
  Due from parent company.....................          19,787          (79,919)
  Proceeds from collection of notes
    receivable................................          23,223           15,901
  Purchases of marketable securities..........      (3,920,284)     (10,854,407)
  Proceeds from sales or redemptions of
    marketable securities.....................       4,327,280        4,094,854
                                                  ------------    -------------
    Net cash used in investing activities.....     (17,287,226)     (34,603,426)
                                                  ------------    -------------

Cash flows from financing activities:
  Capital contributed from parent company.....       5,500,000        4,547,980
  Revolving lines of credit...................       6,774,130      103,440,254
  Principal payments on long-term debt, net...      (1,269,414)     (75,902,427)
  Proceeds from insurance premium financing...      17,802,165        9,478,850
  Payments on insurance premium financing.....     (16,174,009)      (1,333,333)
  Deferred financing costs....................      (1,600,089)      (4,860,266)
  Other.......................................        (128,100)              --
                                                  ------------    -------------
    Net cash provided by financing
      activities..............................      10,904,683       35,371,058
                                                  ------------    -------------
Net increase (decrease) in cash and cash
  equivalents.................................         643,168       (2,902,213)
Cash and cash equivalents, beginning
  of period...................................         861,719        3,846,901
                                                  ------------    -------------
Cash and cash equivalents, end of
  period......................................    $  1,504,887    $     944,688
                                                  ============    =============

Supplemental disclosures of cash flow
  information:
  Cash paid during the period for:
    Interest..................................    $ 21,653,225    $  23,630,929
    Income taxes..............................         254,037          256,380
                                                  ============    =============

Supplemental schedule of noncash investing
  and financing activities:
  Loans incurred for purchase of property,
    plant and equipment.......................    $         --    $     734,078
  Additional paid-in capital contributed
    for buses.................................              --        5,452,020

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


                                       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,  2001 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.  Operating  results for the periods  presented  are not  necessarily
indicative of the results for the full fiscal year.

      2. Inventories

            Inventories  comprised the  following:

                                                   March 31,     June 30,
                                                     2002          2001
                                                 -----------   -----------

            Parts and fuel....................   $ 5,143,330   $ 5,235,312
            Buses held for sale...............     8,993,848     9,249,668
                                                 -----------   -----------
                                                 $14,137,178   $14,484,980
                                                 ===========   ===========

      3. Receivable Agreement

      In July  2001 the  Company  entered  into an  agreement  (the  "Receivable
Agreement")  with  Congress  Financial  Corp.  ("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.
On  January  15,  2002 this  agreement  was  amended to  increase  the amount of
receivables  available for sale to  approximately  $11.3 million until April 30,
2002 and then to revert back to $5.9 million until expiration on May 31, 2002.

      4. Consent Solicitation

      On February 22, 2002, 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 (the "Consent") under which the Notes were issued (as
amended,  the "Indenture") which permitted the Company to increase the amount of
debt that may be incurred  under the  Indenture,  without regard to the Interest
Coverage Ratio (as defined in the Indenture), to $143 million from $125 million.

      5. Amendment to Loan and Security Agreement

      On March 1, 2002,  in connection  with the Consent  referred to in Note 4,
the  Company  amended  its  $125  million  Loan  and  Security   Agreement  (the
"Facility")  to provide an additional  $18 million in  non-revolving  loans (the
"Supplemental  Loans") to the existing  Facility.  The  Supplemental  Loans bear
interest at eighteen  percent per annum.  Congress has no obligation to fund the
Supplemental  Loans unless  Congress is funded in advance by the  Participant to
the  Supplemental  Loans,  GSCP II Holdings  (AE),  LLC  ("GSCP"),  the majority
shareholder of the Company's parent, Atlantic Express Transportation Group, Inc.
Subsequent  to March 31,  2002,  GSCP has funded $8 million of the  Supplemental
Loans and, under the terms of the definitive  documentation for the Supplemental
Loans, has the option but is not obligated to fund the remaining  balance of the
Supplemental Loans.


                                       5
<PAGE>

      6. Valuation Reserve

      Due to continuing  losses incurred by the Company in part  attributable to
the increased costs of automobile liability and workers compensation  insurance,
the  Company  has  determined  that  it may not be able  to  fully  realize  the
previously  recorded tax benefits of such losses.  Accordingly,  the Company has
recorded  in the third  quarter of fiscal  2002 a  valuation  reserve  against a
portion of such deferred income tax assets by charging a valuation  provision of
$11.5  million to income tax expense for the three  months and nine months ended
March 31, 2002.

      7. Contingencies

      Reliance National Indemnity Company ("Reliance"), the Company's automobile
liability insurance carrier for the period of February 28, 1997 through December
31, 1998, has been  determined to be insolvent and placed into  liquidation.  In
such situations, the Company believes various state insurance guaranty funds are
required to provide insurance coverage for the claims that are covered under the
automobile  liability  policies,  subject to certain maximum coverage limits per
claim. In May 2002, the New York State Insurance  Department  Liquidation Bureau
informed the Company that the New York Public Motor Vehicle  Liability  Security
Fund is  financially  strained,  and thus,  it is unable to provide a defense or
indemnification  for claims arising under the Company's Reliance  policies.  The
Company is presently examining the impact of this recent development.

      8. Reclassifications

      Certain  amounts  in  the  prior  year  financial   statements  have  been
reclassified to conform with current year presentation.

      9. New Accounting Pronouncements

      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, 2002.  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.

      In  August  2001,  the FASB  approved  SFAS No.  144,  Accounting  for the
Impairment or Disposal of Long-Lived  Assets.  SFAS No. 144 addresses  financial
accounting  and reporting for the  impairment or disposal of long-lived  assets.
This Statement supersedes FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 144
is effective for the fiscal year beginning July 1, 2002. The Company has not yet
evaluated the impact that this statement may have on its consolidated  financial
statements.

      10. 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 nine months ended March 31, 2002, and a  consolidating  balance sheet as
of June 30, 2001 and consolidating  statements of operations for the nine months
ended March 31, 2002 and 2001 and the consolidating  statement of cash flows for
the nine months ended March 31, 2001.


                                       6
<PAGE>

                      Condensed Consolidating Balance Sheet
                                 March 31, 2002
<TABLE>
<CAPTION>

                                   Atlantic
                                    Express                           Non-
                                Transportation      Guarantor       Guarantor       Elimination
                                     Corp.        Subsidiaries     Subsidiaries       Entries        Consolidated
                                -------------    -------------    -------------    -------------     -------------
<S>                             <C>              <C>              <C>              <C>               <C>

Current assets ..............   $   5,334,537    $  86,738,530    $  14,765,665    $  (6,001,211)    $ 100,837,521
Investment in affiliates ....      66,834,913               --               --      (66,834,913)               --
Total assets ................     276,552,380      297,672,310       18,865,738     (260,691,460)      332,398,968
Current liabilities .........       5,227,471       39,884,247       14,001,389       (6,001,211)       53,111,896
Total liabilities ...........     249,068,115      267,417,748       16,884,721     (228,455,881)      304,914,703
Stockholder's equity ........      27,484,265       30,254,562        1,981,017      (32,235,579)       27,484,265
</TABLE>

                 Condensed Consolidating Statement of Operations
                        Three months ended March 31, 2002
<TABLE>
<CAPTION>

                                   Atlantic
                                    Express                           Non-
                                Transportation      Guarantor       Guarantor       Elimination
                                     Corp.        Subsidiaries     Subsidiaries       Entries        Consolidated
                                -------------    -------------    -------------    -------------     -------------
<S>                             <C>              <C>              <C>              <C>               <C>

Net revenues ................   $          --     $ 107,811,018   $   2,021,727    $  (2,000,404)    $ 107,832,341
Loss from operations ........              --          (843,086)        (31,341)              --          (874,427)
Loss before income taxes ....              --        (7,179,095)        (31,341)              --        (7,210,436)
Net loss of subsidiaries ....     (15,533,663)               --              --       15,533,663                --
Net loss ....................     (15,533,663)      (15,321,588)       (212,075)      15,533,663       (15,533,663)
</TABLE>

                 Condensed Consolidating Statement of Operations
                        Nine months ended March 31, 2002

<TABLE>
<CAPTION>
                                   Atlantic
                                    Express
                                Transportation      Guarantor         Non-          Elimination
                                     Corp.        Subsidiaries      Guarantor         Entries        Consolidated
                                -------------    -------------    -------------    -------------     -------------
<S>                             <C>              <C>              <C>              <C>               <C>

Net revenues ................   $          --     $ 317,728,870   $   4,999,369    $  (5,276,904)    $ 317,451,335
Loss from operations ........              --        (4,646,791)       (432,973)              --        (5,079,764)
Loss before income taxes ....              --       (25,073,523)       (432,973)              --       (25,506,496)
Net loss of subsidiaries ....     (25,596,496)               --              --       25,596,496                --
Net loss ....................     (25,596,496)      (25,163,523)       (432,973)      25,596,496       (25,596,496)
</TABLE>

                 Condensed Consolidating Statement of Cash Flows
                        Nine months ended March 31, 2002
<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 ................   $  (9,999,954)    $ 17,432,661    $     (406,996)  $        --       $   7,025,711
Net cash provided by
  (used in) investing
  activities ................        (632,896)     (17,061,326)          406,996            --         (17,287,226)
Net cash provided by
  financing activities ......      10,577,446          327,237                --            --          10,904,683
Increase (decrease) in
  cash and cash
  equivalents ...............         (55,404)         698,572                --            --             643,168
Cash and cash equivalents,
  beginning of period .......          86,000          775,719                --            --             861,719
                                ----------------------------------------------------------------------------------
Cash and cash equivalents,
  end of period .............          30,596        1,474,291                --            --           1,504,887
</TABLE>


                                       7
<PAGE>

                      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    $ (3,276,5000     $ 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
                        Three months ended March 31, 2001

<TABLE>
<CAPTION>
                                   Atlantic
                                    Express                           Non-
                                Transportation      Guarantor       Guarantor       Elimination
                                     Corp.        Subsidiaries     Subsidiaries       Entries        Consolidated
                                -------------    -------------    -------------    -------------     -------------
<S>                             <C>              <C>              <C>              <C>               <C>

Net revenues.................   $          --     $110,823,689    $    2,700,056   $  (2,638,108)    $ 110,885,637
Income from operations.......              --        4,282,299             9,506              --         4,291,805
Income (loss) before
  income taxes ..............              --       (2,512,078)            9,506              --        (2,502,572)
Net loss of subsidiaries.....      (1,376,414)            --                  --       1,376,414                --
Net income (loss)............      (1,376,414)      (1,381,642)            5,228       1,376,414        (1,376,414)
</TABLE>

                 Condensed Consolidating Statement of Operations
                        Nine months ended March 31, 2001

<TABLE>
<CAPTION>
                                   Atlantic
                                    Express                           Non-
                                Transportation      Guarantor       Guarantor       Elimination
                                     Corp.        Subsidiaries     Subsidiaries       Entries        Consolidated
                                -------------    -------------    -------------    -------------     -------------
<S>                             <C>              <C>              <C>              <C>               <C>

Net revenues ................... $         --    $ 320,249,930    $   4,925,432    $  (4,637,824)    $ 320,537,538
Income from operations .........           --        6,467,209          134,800               --         6,602,009
Income (loss) before
  income taxes .................           --      (15,750,755)         134,800               --       (15,615,955)
Net loss of subsidiaries .......   (8,588,775)              --               --        8,588,775                --
Net income (loss) ..............   (8,588,775)      (8,662,915)          74,140        8,588,775        (8,588,775)
</TABLE>

                 Condensed Consolidating Statement of Cash Flows
                        Nine months ended March 31, 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 ................   $   1,123,121    $(11,552,519)    $   6,759,553    $       --        $  (3,669,845)
Net cash provided by
  (used in) investing
  activities ................     (72,676,152)     44,832,279        (6,759,553)           --          (34,603,426)
Net cash provided by
  (used in) financing
  activities ................      71,458,962     (36,087,904)               --            --           35,371,058
Decrease in cash and cash
 equivalents ................         (94,069)     (2,808,144)               --            --           (2,902,213)
Cash and cash equivalents,
  beginning of period .......         150,000       3,696,901                --            --            3,846,901
                                ----------------------------------------------------------------------------------
Cash and cash equivalents,
     end of period ..........   $      55,931    $    888,757     $          --    $       --        $     944,688
</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 March 31, 2002 compared to three months ended March 31, 2001.

      Revenues.  Revenues from Transportation  Operations were $94.5 million for
the three  months ended March 31, 2002  compared to $97.4  million for the three
months ended March 31, 2001, a decrease of $2.9 million or 3.0%.  This  decrease
was due  primarily to $6.0  million  decrease in revenues  from lost  contracts,
including  $3.1  million  in  relation  to the  cancellation  of  the  Company's
paratransit  contracts  in  Pennsylvania,   partially  offset  by  $1.4  million
additional  revenues  from new  contracts  and $1.7  million  in  contract  rate
increases  and service  requirements  of existing  contracts.  Revenues from Bus
Sales  Operations  were $13.4  million for the three months ended March 31, 2002
compared to $13.5  million for the three months ended March 31, 2001, a decrease
of $0.1 million or 0.8%.  This  decrease was due  primarily to a decrease in new
bus sales.

      Gross  Profit.  Gross  profit  from  Transportation  Operations  was $11.6
million for the three months ended March 31, 2002  compared to $16.4 million for
the three months ended March 31, 2001, a decrease of $4.7 million or 28.8%. As a
percentage  of revenues,  gross  profit  decreased to 12.3% for the three months
ended March 31, 2002 from 16.8% for the three months  ended March 31, 2001.  The
decrease in gross profit  percentage was due primarily to increased  vehicle and
worker's  compensation  insurance costs (2.8%) and increased  health and welfare
and pension costs (1.4%),  partially  offset by a decrease in fuel costs (0.7%).
Gross  profit from Bus Sales  Operations  was $1.1  million for the three months
ended March 31, 2002  compared to $0.7  million for the three months ended March
31,  2001,  an increase of $0.4 million or 62.7%.  As a percentage  of revenues,
gross  profit  increased  to 8.2% for the three months ended March 31, 2002 from
5.0% for the three  months  ended March 31,  2001.  The increase in gross profit
percentage was due to increased margins on sales of new buses,  primarily in the
New York market.

      General and administrative  expenses.  General and administrative expenses
for the  Transportation  Operations were $5.8 million for the three months ended
March 31, 2002  compared to $6.0  million for the three  months  ended March 31,
2001, a decrease of $0.2 million or 3.0%.  The  decrease  was  primarily  due to
decreases  of $0.1  million  in  office  expenses  and $0.1 in  advertising  and
recruitment  expense.  As a percentage of revenues,  general and  administrative
expenses  were 6.2% for both the three months ended March 31, 2002 and March 31,
2001. General and  administrative  expenses for the Bus Sales Operations for the
three months ended March 31, 2002 were $1.2 million compared to $1.1 million for
the three months ended March 31, 2001 an increase of $0.1 million or 8.3%.  This
increase  was due  primarily  to an  increase of $0.1 in office  expenses.  As a
percentage of revenues,  general and  administrative  expenses increased to 8.8%
for the three  months  ended March 31, 2002 from 8.1% for the three months ended
March 31, 2001.

      Depreciation  and  amortization  expenses.  Depreciation  and amortization
expenses  for the  Transportation  Operations  were $6.4  million  for the three
months ended March 31, 2002  compared to $5.4 million for the three months ended
March 31, 2001,  an increase of $1.0 million or 18.0%.  This increase was due to
increased depreciation in relation to the purchase of new vehicles. Depreciation
and  amortization  expenses for the Bus Sales  Operations  were $0.2 million for
both the three months ended March 31, 2002 and March 31, 2001.

      Income (loss) from  operations.  Loss from operations was $0.9 million for
the three  months  ended March 31, 2002  compared  to $4.3  million  income from
operations for the three months ended March 31,


                                       9
<PAGE>

2001, a decrease of $5.2 million from the prior year period.  This  decrease was
due to the net effect of the items discussed above.

      Interest  expense.  Interest expense was $6.3 million for the three months
ended March 31, 2002  compared to $7.0  million for the three months ended March
31, 2001, a decrease of $0.7 million or 10.1%.  This  decrease was due primarily
to lower average interest rates partially offset by higher average indebtedness.

      Provision  for  (benefit  from) income  taxes.  Due to  continuing  losses
incurred  by the  Company  in  part  attributable  to  the  increased  costs  of
automobile  liability  and  workers  compensation  insurance,  the  Company  has
recently  determined  that it may not be able to fully  realize  the  previously
recorded tax benefits of such losses.  Accordingly,  the Company has recorded in
the third quarter of fiscal 2002 a valuation  reserve  against a portion of such
deferred income tax assets by charging a valuation provision of $11.5 million to
income tax expense for the three  months  ended  March 31,  2002.  For the three
months ended March 31, 2001 the Company  recorded a benefit from income taxes of
$1.1 million.

      Net loss. The Company  generated a net loss of $15.5 million for the three
months  ended March 31, 2002  compared to net loss of $1.4 million for the three
months ended March 31, 2001, an increase of $14.2 million. This increase was due
to the net effect of the items discussed above.

Nine months ended March 31, 2002 compared to nine months ended March 31, 2001.

      Revenues.  Revenues from Transportation Operations were $251.6 million for
the nine months  ended March 31,  2002  compared to $252.8  million for the nine
months ended March 31, 2001, a decrease of $1.3 million or 0.5%.  This  decrease
was due  primarily to $12.9  million  decrease in revenues  from lost  contracts
including  $8.6  million  in  relation  to the  cancellation  of  the  Company's
paratransit  contracts in  Pennsylvania  and a $1.2 million  decrease due to the
exit  from an  under  performing  contract,  partially  offset  by $4.1  million
additional  revenues  from new  contracts  and $7.5  million  in  contract  rate
increases  and service  requirements  of existing  contracts.  Revenues from Bus
Sales  Operations  were $65.9  million for the nine months  ended March 31, 2002
compared to $67.7  million for the nine months  ended March 31, 2001, a decrease
of $1.8 million or 2.7%.  This  decrease was due  primarily to a decrease in new
bus sales.

      Gross  Profit.  Gross  profit  from  Transportation  Operations  was $30.5
million for the nine months ended March 31, 2002  compared to $40.2  million for
the nine months ended March 31, 2001, a decrease of $9.7 million or 24.2%.  As a
percentage  of  revenues,  gross  profit  decreased to 12.1% for the nine months
ended March 31, 2002 from 15.9% for the nine months  ended March 31,  2001.  The
decrease in gross profit  percentage was due primarily to increased  vehicle and
worker's  compensation  insurance costs (2.7%) and increased  health and welfare
and pension costs (1.1%),  partially  offset by a decrease in fuel costs (0.7%).
Gross profit from the Bus Sales  Operations was $5.7 million for the nine months
ended March 31, 2002  compared to $5.1  million for the nine months  ended March
31,  2001,  an increase of $0.6 million or 12.2%.  As a percentage  of revenues,
gross  profit  increased  to 8.6% for the nine months  ended March 31, 2002 from
7.5%  for the nine  months  ended  March  31,  2001.  This  increase  was due to
increased margins on sales of new buses, primarily in the New York market.

      General and administrative  expenses.  General and administrative expenses
for the  Transportation  Operations  were $18.4 million for both the nine months
ended  March  31,  2002  and  March  31,  2001.  Increases  of $0.5  million  in
professional  fees and $0.2 in office expenses were offset by a decrease of $0.7
million in  advertising  and  recruitment  expense.  General and  administrative
expenses  for the Bus Sales  Operations  were $3.4  million  for the nine months
ended March 31, 2002  compared to $3.1  million for the nine months  ended March
31, 2001 an increase of $0.2 million or 7.4%. This increase was due primarily to
an increase of $0.2 in office expenses. As a percentage of revenues, general and
administrative  expenses  increased  to 5.1% for the nine months ended March 31,
2002 from 4.6% for the nine months ended March 31, 2001.

      Depreciation  and  amortization  expenses.  Depreciation  and amortization
expenses  for the  Transportation  Operations  were $18.9  million  for the nine
months ended March 31, 2002  compared to $16.5 million for the nine months ended
March 31, 2001,  an increase of $2.4 million or 14.3%.  This


                                       10
<PAGE>

increase  was due to increased  depreciation  in relation to the purchase of new
vehicles.  Depreciation and  amortization  expenses for the Bus Sales Operations
were $0.6  million for both the nine  months  ended March 31, 2002 and March 31,
2001.

      Income (loss) from  operations.  Income (loss) from  operations was $(5.1)
million for the nine months  ended March 31, 2002  compared to $6.6  million for
the nine months ended March 31, 2001, a decrease of $11.7 million. This decrease
in income was due to the net effect of the items discussed above.

      Interest  expense.  Interest expense was $19.9 million for the nine months
ended March 31, 2002  compared to $21.7  million for the nine months ended March
31, 2001, a decrease of $1.8 million or 8.4%.  This decrease was due to (i) $0.7
million  reduction in interest  expense due to repayment of $30.0 million of the
Notes in December  2000 and  replacing  this debt with debt under the  Revolving
Credit  Facility;  and (ii) lower average  interest  rates  partially  offset by
higher average indebtedness.

      Provision  for  (benefit  from) income  taxes.  Due to  continuing  losses
incurred  by the  Company  in  part  attributable  to  the  increased  costs  of
automobile  liability  and  workers  compensation  insurance,  the  Company  has
recently  determined  that it may not be able to fully  realize  the  previously
recorded tax benefits of such losses.  Accordingly,  the Company has recorded in
the third quarter of fiscal 2002 a valuation  reserve  against a portion of such
deferred income tax assets by charging a valuation provision of $11.5 million to
income tax expense for the nine months ended March 31, 2002. For the nine months
ended March 31, 2001 the Company  recorded a benefit  from income  taxes of $7.0
million.

      Net loss.  The Company  generated a net loss of $25.6 million for the nine
months ended March 31, 2002  compared to a net loss of $8.6 million for the nine
months ended March 31, 2001,  an increase of $17.0 million due to the net effect
of the items discussed above.

 Liquidity and Capital Resources

      Management  anticipates  total  capital  expenditures  of $18.9 million in
fiscal 2002, of which  approximately  $17.7 million were made by March 31, 2002.
This  included  $11.2  million for the purchase of new vehicles and $6.5 million
for other property and equipment.

      Net Cash Provided By Operating Activities.  Net cash provided by operating
activities  was $7.0 million for the nine months ended March 31, 2002  primarily
due to the  following:  (i) $9.2  million  of  increases  in source of funds for
working  capital;  (ii) non-cash items of depreciation and amortization of $22.0
million;  (iii) an increase of $1.4 million in other sources of funds; offset by
and (iv) the net loss of $25.6 million.

      Net Cash Used in Investing Activities. For the nine months ended March 31,
2002,  the  Company  made  $17.7  million  of  capital  expenditures  to acquire
additional  vehicles  and  equipment,   purchased  $3.9  million  of  marketable
securities  and received $4.3 million from proceeds of sales and  redemptions of
marketable securities.

      Net Cash Provided by Financing Activities.  Net cash provided by financing
activities  totaled $10.9 million for the nine months ended March 31, 2002,  due
to (i) a  capital  contribution  of $5.5  million  received  from the  Company's
parent, AETG; (ii) $17.8 million proceeds from insurance premium financing;  and
(iii) $6.8 million net increase in borrowings under the Company's revolving line
of credit  partially  offset by $16.2 million  repayments  of insurance  premium
financing,  $1.3 million of principal  payments on borrowings,  and $1.6 million
payments of deferred financing costs.

      On February 27, 2002, the Company  renewed its excess  umbrella  liability
policy  for one year,  at an  increase  of  approximately  $2  million in annual
premiums and a reduction of $50 million in coverage limits. Consistent with past
practices, the Company is paying these premiums on an installment basis over the
policy term.


                                       11
<PAGE>

      On June 28, 2002,  the Company  renewed its primary  automobile  liability
policy for one year, at an increase of approximately $5 million over the amounts
paid for the prior  twelve  months.  The  renewal  requires  payments  in twelve
monthly installments, commencing June 30, 2002.

      As  described in Note 7 to  Consolidated  Financial  Statements,  Reliance
National  Indemnity Company  ("Reliance"),  the Company's  automobile  liability
insurance carrier for the period of February 28, 1997 through December 31, 1998,
has been  determined  to be  insolvent  and  placed  into  liquidation.  In such
situations,  the Company  believes  various state  insurance  guaranty funds are
required to provide insurance coverage for the claims that are covered under the
automobile  liability  policies,  subject to certain maximum coverage limits per
claim. In May 2002, the New York State Insurance  Department  Liquidation Bureau
informed the Company that the New York Public Motor Vehicle  Liability  Security
Fund is  financially  strained,  and thus,  it is unable to provide a defense or
indemnification  for claims arising under the Company's Reliance  policies.  The
Company is presently examining the impact of this recent development. If the New
York Public Motor Vehicle  Liability  Security Fund or similar funds established
by other states fail to cover the Company's claims against Reliance, the Company
could be required to satisfy  the  portion of the  underlying  claims that would
otherwise have been covered by Reliance and therefore  suffer a material adverse
affect.

      Under the terms of its collective  bargaining agreement with Local 1181 of
the Amalgamated  Transit Union, the Company became responsible for an unexpected
increase  in  health  and  welfare   monthly   premiums  for  its  employees  of
approximately  $200,000 per month,  retroactive  to January 2002. The agreement,
which covered approximately 2,700 bus drivers,  escorts, and mechanics rendering
services on behalf of the Board of Education of the City of New York, expired on
June 30, 2002.  There is no  assurance  that the Company will be able to reach a
new collective bargaining agreement prior to the start of the new school year in
September  2002 or that the covered  employees  would continue to work without a
new agreement.  Further, there is no assurance that the terms of a new agreement
would be favorable to the Company. A work stoppage or a significant  increase in
costs under a new agreement could have a material adverse effect on the Company.

      Subsequent  to  March  31,  2002,  the  Company  drew  $8  million  of the
Supplemental Loans,  primarily to fund certain insurance premiums,  an insurance
related  collateral  letter of credit,  and costs  incurred  in  relation to the
Consent and  amendment  of the  Facility.  Congress  has no  obligation  to fund
borrowings under the  Supplemental  Loan unless such borrowings are first funded
by  GSCP II  Holdings  (AE),  LLC  ("GSCP"),  the  majority  shareholder  of the
Company's parent, at GSCP's  discretion.  The Company does not expect to be able
to borrow the remaining  balance of the  Supplemental  Loan. Even if the Company
were able to do so, the  remaining  balance of the  Supplemental  Loan  facility
together  with the  Company's  availability  under its primary  senior bank loan
facility and expected cash flows from operations currently would not be adequate
to fund all of the Company's insurance  requirements,  currently planned capital
expenditures and other currently  anticipated working capital requirements after
taking into account the August 1, 2002 scheduled  interest payment on the Senior
Notes.

      The Company is discussing its liquidity needs with its senior bank lenders
and its financial advisors and is exploring  alternative  sources of funding for
its  operations  and  ways to  improve  its  liquidity  and  capital  structure.
Potential  options  being  considered,  include,  but are not  limited  to,  the
possibility of obtaining additional financing,  the sale of assets, deferring or
eliminating discretionary expenditures, deferring capital expenditures, amending
the  Company's   bank  loan  agreement  and   Supplemental   Loan  facility  and
restructuring  the Senior Notes  (including  restructuring of the August 1, 2002
scheduled  interest  payment  under the Senior  Notes).  The Company can give no
assurance that it will be able to accomplish  the foregoing.  The Company may be
forced to seek  protection  from its creditors,  and to  restructure  and obtain
financing, under Chapter 11 of the United States Bankruptcy Code.

      At March 31, 2002, the Company's total debt and stockholder's  equity were
$251.9 million and $27.5 million, respectively.


                                       12
<PAGE>

Item  3. 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.

      The Company's  earnings are  sensitive to changes in  short-term  interest
rates as a result of its borrowings  under variable rate debt. If interest rates
had  increased  by 100 basis  points for the nine months  ended March 31,  2002,
interest  expense would have  increased by  approximately  $0.9 million and loss
before income taxes would have  increased by  approximately  $0.9 million.  This
analysis does not consider the effects of the reduced level of overall  economic
activity, or 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 nine months
ended March 31, 2002, the total costs would have  increased by $1.0 million,  or
..39% of total transportation operations revenues.


                                       13
<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

            The Company's independent  accounting firm, Arthur Andersen LLP, has
advised the Company that Andersen is discontinuing  its operations and therefore
unable to perform the audit for the fiscal year ended June 30, 2002. The Company
is in the process of engaging a successor firm.

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.

            None.


                                       14
<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/ ALAN J. RUBINFELD
                                             ------------------------------
                                             Alan J. Rubinfeld
                                             Chief Financial Officer

July 22, 2002


                                       15
<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
-------                          -------                         ---------------

 10.39    Seventh Supplemental Indenture, dated as of February
          26, 2002, among the Company, the Guarantors (as
          defined therein) and The Bank of New York, as trustee

 10.40    Sixth Amendment to Security Agreement, dated as of
          February 26, 2002, among the Company, the Guarantors
          (as defined therein) and The Bank of New York, as
          trustee

 10.41    Third Amendment to Loan and Security Agreement, dated
          as of February 26, 2002, among the Company,
          subsidiaries of the Company and Congress Financial
          Corporation

 10.42    Eighth  Supplemental  Indenture,  dated as of March 1,
          2002,  among the Company,  the Guarantors (as defined
          therein) and The Bank of New York, as trustee

 10.43    Fourth Amendment to Loan and Security Agreement, dated
          as of March 1, 2002, among the Company, subsidiaries
          of the Company and Congress Financial Corporation


                                      E-1