**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**











**Form
      10-Q**





R
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT****OF
                1934****For
                the quarterly period ended September 30, 2008****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**
            
            **13-392-4567***(State
                or other jurisdiction of incorporation or*
              *organization)*
            
            *(IRS
                Employer Identification No.)*





**7
      North Street Staten Island, New York 10302-1205**


*(Address
      of principal executive offices)*





**(718)
      442-7000**


*(Registrant’s
      telephone number, including area code)*











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





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





Large
      accelerated filer £ Accelerated filer £ Non-accelerated filer R Smaller
      reporting company £





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes £ No R





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 R No £





The
      number of outstanding shares of the registrant’s common stock, par value $0.01
      per share, as of November 13, 2008 was 1,052,665









INDEX





**Page**
              **No.**PART
                I: FINANCIAL INFORMATIONItem
                1.
            Financial
                Statements
            
            3Consolidated
                Balance Sheets— September 30, 2008 (unaudited) and June 30,
                2008
            
            3Consolidated
                Statements of Operations (unaudited) — Three Months Ended September 30,
                2008 and 2007
            
            4Consolidated
                Statements of Cash Flows (unaudited) — Three Months EndedSeptember
                30, 2008 and 2007
            
            5Notes
                to Consolidated Financial Statements (unaudited)
            
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            11Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            17Item
                4.
            Controls
                and Procedures
            
            17Item
                4T.
            Controls
                and Procedures
            
            17PART
                II: OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            
            19Item
                1A.
            Risk
                Factors
            
            19Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            19Item
                3.
            Defaults
                upon Senior Securities
            
            19Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            19Item
                5.
            Other
                Information
            
            19Item
                6.
            Exhibits
            
            20




2




**PART
      I.**





**FINANCIAL
      INFORMATION**





**Item
      I.** ***Financial Statements***




**Atlantic
      Express Transportation Corp. and Subsidiaries**


**Consolidated
      Balance Sheets**


**September 30,**
              
              **June 30,****2008**
              
              **2008****Assets**
              
              (unaudited)Current
                  assets:Cash
                  and cash equivalents
              
              $
              5,721,021
              
              $
              2,682,752Accounts
                  receivable, net of allowance for doubtful accounts of $1,439,877
                  and
                  $1,409,877, respectively
              
              
              48,581,395
              
              
              48,422,466Inventories
              
              
              3,176,820
              
              
              3,508,576Prepaid
                  insurance
              
              
              21,318,869
              
              
              23,716,875Prepaid
                  expenses and other current assets
              
              
              6,971,403
              
              
              4,286,973Total
                  current assets
              
              
              85,769,508
              
              
              82,617,642Property,
                  plant and equipment, at cost, less accumulated
                  depreciation
              
              
              81,093,169
              
              
              83,042,309Other
                  assets:Transportation
                  contract rights, net
              
              
              1,786,129
              
              
              1,866,496Deferred
                  financing costs, net
              
              
              5,542,386
              
              
              5,936,307Deposits
                  and other non-current assets
              
              
              7,170,396
              
              
              6,590,993Total
                  other assets
              
              
              14,498,911
              
              
              14,393,796$
              181,361,588
              
              $
              180,053,747**Liabilities
                  and Shareholders’ Deficit**Current:Current
                  portion of long-term debt
              
              $
              1,092,428
              
              $
              766,232Current
                  portion of capital lease obligations
              
              
              1,514,983
              
              
              1,463,690Insurance
                  financing payable
              
              
              1,417,062
              
              
              3,247,089Controlled
                  disbursements account—checks issued not funded
              
              
              1,733,182
              
              
              3,303,864Accounts
                  payable, accrued expenses and other current liabilities
              
              
              14,551,320
              
              
              11,953,216Accrued
                  compensation
              
              
              6,955,161
              
              
              4,553,718Current
                  portion of insurance reserves
              
              
              410,000
              
              
              314,000Accrued
                  interest
              
              
              10,610,821
              
              
              5,123,377Payable
                  to creditors under the plan of reorganization
              
              
              115,993
              
              
              137,389Total
                  current liabilities
              
              
              38,400,950
              
              
              30,862,575Long-term
                  debt, net of current portion
              
              
              201,915,081
              
              
              190,465,857Capital
                  lease obligations, net of current portion
              
              
              258,883
              
              
              261,846Insurance
                  reserves, net of current portion
              
              
              252,559
              
              
              486,394Interest
                  rate swap
              
              
              4,715,794
              
              
              5,786,069Deferred
                  income, net of current portion and other long-term
                  liabilities
              
              
              3,582,121
              
              
              3,566,722Deferred
                  state and local income taxes
              
              
              —
              
              
              220,000Total
                  liabilities
              
              
              249,125,388
              
              
              231,649,463Commitments
                  and contingenciesShareholders’
                  deficit:Common
                  stock, par value $.01 per share, authorized shares 1,303,200; issued
                  and
                  outstanding 1,052,665 and 1,032,293, respectively
              
              
              10,527
              
              
              10,323Additional
                  paid-in capital
              
              
              114,939,064
              
              
              114,939,064Accumulated
                  deficit
              
              
              (182,713,391
              )
              
              (166,545,103
              )Total
                  shareholders’ deficit
              
              
              (67,763,800
              )
              
              (51,595,716
              )$
              181,361,588
              
              $
              180,053,747




See
      accompanying notes to consolidated financial statements.




3




**Atlantic
      Express Transportation Corp. and Subsidiaries**


**Consolidated
      Statements of Operations**


(Unaudited)





Three Months Ended
              September 30,**2008**
            
            **2007**Revenues:School
                bus operations
            
            $
            59,481,129
            
            $
            54,870,933Paratransit
                and transit operations
            
            
            12,779,163
            
            
            12,127,469Total
                revenues
            
            
            72,260,292
            
            
            66,998,402Costs
                and expenses:Cost
                of operations—School bus operations
            
            
            62,921,039
            
            
            58,873,716Cost
                of operations—Paratransit and transit operations
            
            
            11,982,549
            
            
            10,601,210General
                and administrative
            
            
            4,138,274
            
            
            4,028,985Depreciation
                and amortization
            
            
            4,357,752
            
            
            4,657,671Total
                operating costs and expenses
            
            
            83,399,614
            
            
            78,161,582Loss
                from operations
            
            
            (11,139,322
            )
            
            (11,163,180
            )Other
                income (expense):Interest
                expense:Interest
            
            
            (5,961,877
            )
            
            (6,313,347
            )Deferred
                financing costs
            
            
            (393,920
            )
            
            (389,414
            )Change
                in fair market value of interest rate swap
            
            
            1,070,274
            
            
            (3,148,998
            )Reorganization
                costs
            
            
            (12,505
            )
            
            (45,891
            )Other
                income
            
            
            49,062
            
            
            93,992Loss
                before benefit from income taxes
            
            
            (16,388,288
            )
            
            (20,966,838
            )Benefit
                from income taxes
            
            
            220,000
            
            
            75,000Net
                loss
            
            $
            (16,168,288
            )
            $
            (20,891,838
            )





See
      accompanying notes to consolidated financial statements.




4




**Atlantic
      Express Transportation Corp. and Subsidiaries**


**Consolidated
      Statements of Cash Flows**


**(Unaudited)**





Three Months Ended
              September 30,**2008**
            
            **2007****Cash
                flows from operating activities:**Net
                loss
            
            $
            (16,168,288
            )
            $
            (20,891,838
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
            
            
            4,277,385
            
            
            4,529,211Amortization
            
            
            474,287
            
            
            517,874Original
                issue discount interest
            
            
            141,102
            
            
            141,102Change
                in fair market value of interest rate swap
            
            
            (1,070,274
            )
            
            3,148,998Reserve
                for doubtful accounts receivable
            
            
            30,000
            
            
            30,000Deferred
                state and local income taxes
            
            
            (220,000
            )
            
            (102,000
            )Loss
                (gain) on sales of fixed assets, net
            
            
            92,199
            
            
            (39,886
            )Decrease
                (increase) in:Accounts
                receivable
            
            
            (188,929
            )
            
            1,643,284Inventories
            
            
            331,756
            
            
            (77,090
            )Prepaid
                expenses and other current assets
            
            
            (286,423
            )
            
            (2,777,322
            )Deposits
                and other non-current assets
            
            
            (579,403
            )
            
            1,643,172Increase
                (decrease) in:Accounts
                payable, accrued expenses, accrued compensation and other current
                liabilities
            
            
            4,999,548
            
            
            2,616,610Controlled
                disbursement account
            
            
            (1,570,682
            )
            
            293,548Accrued
                interest
            
            
            5,487,444
            
            
            5,765,711Insurance
                financing payable
            
            
            (1,830,027
            )
            
            (2,086,023
            )Payable
                to creditors under plan of reorganization
            
            
            (21,396
            )
            
            —Insurance
                reserves and other long-term liabilities
            
            
            (122,437
            )
            
            (115,440
            )Net
                cash used in operating activities
            
            
            (6,224,138
            )
            
            (5,760,089
            )**Cash
                flows from investing activities:**Additions
                to property, plant and equipment
            
            
            (1,401,966
            )
            
            (5,957,934
            )Proceeds
                from sales of fixed assets
            
            
            19,800
            
            
            59,450Decrease
                in restricted cash and cash equivalents
            
            
            —
            
            
            (7,898
            )Net
                cash used in investing activities
            
            
            (1,382,166
            )
            
            (5,906,382
            )




Continued




5




**Atlantic
      Express Transportation Corp. and Subsidiaries**


**Consolidated
      Statements of Cash Flows**


**(Unaudited)**





**Three
                Months Ended**
              **September
                30,****2008**
            
            **2007****Cash
                flows from financing activities:**Proceeds
                from senior credit facility, net
            
            $
            10,700,494
            
            $
            9,084,395Principal
                payments on borrowings and capital lease obligations
            
            
            (56,125
            )
            
            (23,871
            )Proceeds
                from issuance of common stock
            
            
            204
            
            
            —Deferred
                financing costs
            
            
            —
            
            
            (71,573
            )Net
                cash provided by financing activities
            
            
            10,644,573
            
            
            8,988,951Net
                increase (decrease) in cash and cash equivalents
            
            
            3,038,269
            
            
            (2,677,520
            )Cash
                and cash equivalents, beginning of year
            
            
            2,682,752
            
            
            6,881,838Cash
                and cash equivalents, end of period
            
            $
            5,721,021
            
            $
            4,204,318**Supplemental
                disclosures of cash flow information:**Cash
                paid during the period for:Interest
            
            $
            285,001
            
            $
            383,338Income
                taxes
            
            $
            —
            
            $
            50,608**Supplemental
                disclosures of non-cash investing and financing
                activity:**Trade-in
                value of vehicles exchanged
            
            $
            980,000
            
            $
            —Acquisition
                cost of vehicles exchanged
            
            $
            609,073
            
            $
            —Loans
                incurred for purchases of property, plant and equipment
            
            $
            1,038,279
            
            $
            206,623





See
      accompanying notes to consolidated financial statements.




6




**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 Atlantic
      Express Transportation Corp.’s (the “Company’s”) financial statements as of and
      for the year ended June 30, 2008 as filed on the Company’s Annual Report on Form
      10-K. In the opinion of management, all adjustments and accruals, (consisting
      only of normal recurring adjustments) which are necessary for a fair
      presentation of operating results are reflected in the accompanying financial
      statements. Operating results for the periods presented are not necessarily
      indicative of the results for the full fiscal year.




**2.**
            **Interest
                Rate Swap**





Effective
      as of May 15, 2007, we entered into an interest swap agreement (the “Swap”) to
      reduce our exposure to interest rate fluctuations on our Senior Secured Notes
      due 2012 (the “Notes”), which bear interest at LIBOR plus a margin of 7.25%. The
      Swap has a notional amount of $185 million with a fixed rate of 5.21% instead
      of
      LIBOR thereby effectively converting the floating rate notes to a fixed rate
      obligation of 12.46%. The Swap will expire on April 15, 2010. On the interest
      payment dates of the notes, the difference between LIBOR and 5.21% will be
      settled in cash. In accordance with SFAS No. 133, *Accounting
      for Derivative Instruments and Hedging Activities,* the Swap
      does not qualify for "Cash Flow Hedge Accounting" treatment since the
      documentation of the accounting treatment was not done contemporaneously with
      entering into the agreement. The change in the fair market value of this
      interest swap agreement for the three months ended September 30, 2008 as valued
      by Wachovia Bank, National Association (“Wachovia”) of $1,070,274 is reflected
      as a reduction to interest expense for the three month period. Our obligation
      under the Swap is secured by the collateral securing our amended and restated
      credit facility.





**3.**
            **Debt**





The
      following represents the debt outstanding at September 30, 2008 and
      June 30, 2008:





**September 30,**
            
            **June 30,****2008**
            
            **2008**(unaudited)Senior
                Secured Floating Rate Notes due 2012 with cash interest payable
                October 15th and
                April 15th(a)
            
            $
            185,000,000
            
            $
            185,000,000Less:
                original issue discount associated with the issuance of the Notes,
                net
                (a)
            
            
            (1,998,939
            )
            
            (2,140,041
            )Amended
                and Restated Credit Facility (b)
            
            
            16,652,768
            
            
            5,952,274Various
                notes payable, primarily secured by transportation equipment, with
                interest rates ranging from 8% - 10.3%
            
            
            3,353,680
            
            
            2,419,856203,007,509
            
            
            191,232,089Less
                current portion
            
            
            1,092,428
            
            
            766,232Long-term
                debt, net of current portion
            
            $
            201,915,081
            
            $
            190,465,857




7




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





Annual
      interest on the Notes is equal to the applicable LIBOR rate plus a margin of
      7.25%. The applicable LIBOR rate is determined by using the second London
      banking day prior to the first day of such interest accrual period. The
      applicable LIBOR rates for the October 15, 2008 and the April 15, 2009 payments
      were 2.71% and 4.38%, respectively. Interest payments are required semiannually
      through their maturity date on April 15, 2012 and commenced on October 15,
      2007.
      Effective as of May 15, 2007, we entered into the Swap to reduce our exposure
      to
      interest rate fluctuations on the Notes ( see
      Note
      2 ).




In
      connection with the issuance of the Notes, the Company incurred $6.8 million
      of
      transaction costs that are being amortized on a straight-line basis over the
      term of the financing.





The
      indenture governing the Notes provides for optional redemption and contains
      covenants typical of such arrangements including limitations on incurrence
      of
      additional indebtedness.




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




The
      Notes
      and the guarantees are secured by a first priority lien on all but one of the
      Company’s and the Company’s guarantor subsidiaries’ owned real properties and
      hereafter acquired real properties and on substantially all of the Company’s and
      the Company’s guarantor subsidiaries’ owned motor vehicles, other than those
      constituting excluded assets, and by a second priority lien on those of the
      Company’s assets and the assets of the Company’s guarantor subsidiaries which
      secure the Company’s and their obligations under the Company’s amended revolving
      credit facility (the “Amended and Restated Credit Facility”) on a first priority
      basis.




On
      July
      13, 2007 an SEC registered exchange offer was completed with respect to the
      Notes.




(b)
            Concurrently
                with the issuance of the Notes, the Company and substantially all
                of its
                subsidiaries also amended and restated its existing senior credit
                facility
                with Wachovia to provide up to $35.0 million of borrowing availability
                under a revolving credit facility, subject to customary borrowing
                conditions, plus a $10.0 million letter of credit facility. The Amended
                and Restated Credit Facility is secured by a first priority lien
                on
                substantially all of the Company’s and its subsidiaries’ assets, other
                than collateral securing the Notes on a first priority basis, and
                by a
                second priority lien on the real property securing the Notes on a
                first
                priority basis. In addition, the term of the credit facility was
                extended
                to December 31, 2011. The Amended and Restated Credit Facility contains
                certain financial covenants, including a minimum last 12 month (“LTM”)
                EBITDA covenant of $26.0 million, which will only be tested if excess
                availability falls below certain levels. The Company’s LTM EBITDA was
                $18.0 million as of September 30, 2008, however the Company has maintained
                an availability over the required threshold and therefore was not
                subject
                to the test for any periods through November 13, 2008. The Amended
                and
                Restated Credit Facility also contains customary events of default.




8




The
      borrowing capacity under the Amended and Restated Credit Facility is based
      upon
      85% of the net amount of eligible accounts receivable less reserves. Loans
      under
      the facility bear interest at the prime rate which was 5.0% at September 30,
      2008. Letters of credit are subject to a fee of 1% per annum payable monthly
      in
      arrears and any amounts paid by lenders for letters of credit will bear the
      same
      rate as loans under our revolving facility. The Company paid a closing fee
      of
      $400,000 which is being amortized over the term of the financing and is required
      to pay a servicing fee of $10,000 per month, plus a monthly fee of 0.5% on
      any
      unused portion of its Amended and Restated Credit Facility.





At
      September 30, 2008, the Company’s debt under its $35.0 million Amended and
      Restated Credit Facility was approximately $16.7 million, and it had $3.1
      million of borrowing availability after $7.8 million of reserves, based on
      the
      Company’s borrowing base calculations.





The
      Company’s obligation under the Swap is secured by the collateral securing our
      Amended and Restated Credit Facility and in connection therewith total reserves
      of approximately $4.5 million and $5.3 million for October and November 2008,
      respectively, were established against the Company’s borrowing base. In February
      2008, the Company’s senior credit facility was amended to change the calculation
      of the borrowing base for the purpose of the calculation of excess availability,
      solely in relation to testing the EBITDA covenant, to exclude the first $5.0
      million of reserves established in connection with our Swap. This change is
      effective until February 15, 2009. Until
      August 28, 2008, excess availability was required to be at least $5.0 million
      at
      all times during the period from July 1 to August 31 of any year, and $8.0
      million for the balance of the fiscal year. As of August 28, 2008 the senior
      credit facility was amended to extend the period where excess availability
      required is $5.0 million from August 31 of any year to September 15 of any
      year.
      As of September 25, 2008, the senior credit facility was further amended such
      that the excess availability requirement is as follows: (i) $5,000,000 at all
      times during the period from July 1, 2008 to September 15, 2008, (ii) $8,000,000
      at all times during the period from September 16, 2008 to September 30,
      2008, (iii) $4,500,000 at all times during the period from October 1, 2008
      to July 31, 2009, (iv) $4,000,000 at all times during the period from August
      1,
      2009 to September 15, 2009, (v) $4,500,000 at all times during the period from
      September 16, 2009 to November 1, 2009, (vi) $8,000,000 at all times during
      the period from November 2, 2009 to June 30, 2010, (vii) $5,000,000 at
      all times during the period from July 1 to September 15 of any year (commencing
      in 2010), and (viii) $8,000,000 at all times during the period from
      September 16 of any year (commencing in 2010) through June 30 of the immediately
      following year.  Based
      upon these amendments, the Company did not need to test the EBITDA covenant
      through November 13, 2008. If the reserve in connection with the Swap increases
      it may have an adverse effect on the Company’s liquidity, whereby the Company
      might have to pursue additional funding alternatives including the sale of
      certain assets or operations to satisfy our liquidity requirements.




LTM
                EBITDA was $18.0 million as of September 30, 2008 and we expect LTM
                EBITDA
                to be below $26.0 million for the next twelve months. If our excess
                availability for the purpose of testing the EBITDA covenant falls
                below
                certain levels, this will generate a default under our Amended and
                Restated Credit Facility and under certain circumstances cause a
                cross
                default under the Notes. Although the Company believes that it would
                be
                able to receive a waiver of this default from Wachovia, there can
                be no
                assurance that this is the case or what the cost to the Company might
                be.
                If the Company would not be able to receive a waiver, then the amount
                of
                the Amended and Restated Credit Facility would be reclassified to
                a
                short-term liability.




**4**
            **Equity**





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




9




**5**
            **Environmental
                Issues**




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





**6.**
            **New
                Accounting Standards**




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 157, “Fair Value Measurements”, which defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles, and expands disclosures about fair value measurements.
      SFAS No. 157 does not require any new fair value measurements, but provides
      guidance on how to measure fair value by providing a fair value hierarchy used
      to classify the source of the information. This statement was effective for
      the
      Company for the fiscal year beginning July 1, 2008 and had
      no material impact
      on
      its consolidated financial statements.





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




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




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





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




10




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




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




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





**General**





Atlantic
      Express Transportation Corp. (“we” or the “Company”) is the third largest
      provider of school bus transportation in the United States and the leading
      provider in New York City, the largest market in which we operate. We have
      contracts with approximately 100 school districts in New York, Missouri,
      Massachusetts, California, Pennsylvania and New Jersey. For fiscal 2009, we
      have
      a contract to provide paratransit services in New York to physically and
      mentally challenged passengers who are unable to use standard public
      transportation. We also provide other transportation services, including fixed
      route transit, express commuter line and charter and tour buses through our
      coach services. As of September 30, 2008, we had a fleet of approximately 5,600
      vehicles operating from approximately 50  facilities.





School
      bus transportation services accounted for 82.3% and 81.9% of our revenues from
      operations for the three months ended September 30, 2008 and 2007, respectively.
      Our school bus transportation contracts have provided a relatively predictable
      and stable stream of revenues over their terms, which generally initially range
      from one to five years. Since 1979, we have achieved substantial contract
      renewals, which we believe is due to (1) our reputation for passenger
      safety and providing efficient, on-time service, (2) our long-standing
      relationships with the school districts we service, (3) the preference of
      school districts to maintain continuity of service with their current proven
      contractor rather than risk the uncertainty associated with a replacement and
      (4) the disadvantage of prospective competitors, who generally would have
      to make substantially greater investments than we would in new equipment and
      who
      may experience difficulty obtaining suitable parking and maintenance facilities
      in our primary markets, especially in the New York City greater metropolitan
      area.




11




Paratransit
      and transit services
      accounted for 17.7% and 18.1% of our revenues from operations for the three
      months ended September 30, 2008 and 2007, respectively. The terms of our
      paratransit and transit contracts are initially for five years. These contracts
      are awarded by public transit systems through a public bidding or request for
      proposal ("RFP") process. We are generally entitled to a specified charge per
      hour of vehicle service together with other fixed charges.




**Results
      of Operations**




**Three Months Ended September 30,****2008**
            
            **2007****(unaudited)****(in millions, except percentages)**Revenues
            
            $
            72.3
            
            
            100.0
            %
            $
            67.0
            
            
            100.0
            %Cost
                of operations
            
            
            74.9
            
            
            103.7
            %
            
            69.5
            
            
            103.7
            %General
                and administrative
            
            
            4.1
            
            
            5.7
            %
            
            4.0
            
            
            6.0
            %Depreciation
                and amortization
            
            
            4.4
            
            
            6.0
            %
            
            4.7
            
            
            7.0
            %Loss
                from operations
            
            
            (11.1
            )
            
            (15.4
            )%
            
            (11.2
            )
            
            (16.7
            )%Interest
                expense
            
            
            5.3
            
            
            7.3
            %
            
            9.9
            
            
            14.7
            %Net
                loss
            
            
            (16.2
            )
            
            (22.4
            )%
            
            (20.9
            )
            
            (31.2
            )%





***Results
      of Operations - Three Months Ended September 30, 2008 Compared to Three Months
      Ended September 30, 2007***





*Revenues.* Revenues
      from school bus operations were $59.5 million for the three months ended
      September 30, 2008 compared to $54.9 million for the three months ended
      September 30, 2007, an increase of $4.6 million, or 8.4%. This increase was
      primarily due to an increase in service requirements of $4.4 million, due
      primarily to approximately three more New York City Department of
      Education (“DOE”)
      revenue days in September ($2.7 million) and an
      increase of summer revenues ($0.7 million), $1.0 million
      of price increases and $0.3 million increase in DOE escort cost reimbursement
      revenue partially offset
      by  $1.2
      million in lost contracts.





Revenues
      from paratransit and transit operations were $12.8 million for the three months
      ended September 30, 2008 compared to $12.1 million for the three months
      ended September 30, 2007, an increase of $0.7 million or 5.4%. This increase
      was
      due to price increases and increases in service requirements from existing
      contracts.




*Cost
      of Operations.* Cost of
      operations of school bus operations was $62.9 million for the three months
      ended
      September 30, 2008 compared to $58.9 million for the three months ended
      September 30, 2007, an increase of $4.0 million or 6.9%. This increase was
      primarily due to an increases of $1.5 million in fuel expense, $1.3 million
      of
      salaries and wages, $0.8 million of employee fringe benefit costs and $0.6
      million of vehicle lease expense. As a percentage of revenues, salaries and
      wages decreased to 52.7% for the three months ended September 30, 2008, from
      54.8% for the three months ended September 30, 2007. As a percentage of
      revenues, cost of operations decreased to 105.8% for the three months ended
      September 30, 2008, from 107.3% for the three months ended September 30,
      2007.





Cost
      of
      operations of paratransit and transit operations were $12.0 million for the
      three months ended September 30, 2008 compared to $10.6 million for the three
      months ended September 30, 2007, an increase of $1.4 million or 13.0%. This
      increase was primarily due to an increases of $0.4 million in fuel expense,
      $0.6
      million of salaries and wages, $0.2 million of employee fringe benefit costs
      and
      $0.2 million of vehicle lease expense. As a percentage of revenues, salaries
      and
      wages increased to 51.0% for the three months ended September 30, 2008, from
      49.2% for the three months ended September 30, 2007. As a percentage of
      revenues, cost of operations increased to 93.8% for the three months ended
      September 30, 2008, from 87.4% for the three months ended September 30,
      2007.




12




*General
      and administrative expenses.* General
      and administrative expenses from school bus operations were $3.5 million for
      the
      three months ended September 30, 2008 compared to $3.3 million for the three
      months ended September 30, 2007, an increase of $0.2 million or 6.6%. This
      increase was primarily due to an increases of $0.2 million in legal and
      professional fees. As a percentage of school bus operations revenues, general
      and administrative expenses decreased to 5.9% for the three months ended
      September 30, 2008, from 6.0% for the three months ended and September 30,
      2007.





General
      and administrative expenses from paratransit and transit operations were $0.6
      million for the three months ended September 30, 2008 compared to $0.7 million
      for the three months ended September 30, 2007, a decrease of $0.1 million or
      15.4%. As a percentage of paratransit and transit operations revenues, general
      and administrative expenses decreased to 4.7% for the three months ended
      September 30, 2008, from 5.9% for the three months ended September 30,
      2007.





*Depreciation
      and amortization.* Depreciation and amortization expense from school bus operations was
      $4.1 million for the three months ended September 30, 2008 compared to
      $4.3 million for the three months ended September 30, 2007, a decrease of
      $0.2 million, or 5.3% as some of the assets are now fully depreciated.





Depreciation
      and amortization expense from paratransit and transit operations was
      $0.3 million for the three months ended September 30, 2008 and 2007,
      respectively.





*Operating
      income (loss) from operations.* Operating loss from school bus operations was $11.1 million for the three
      months ended September 30, 2008 compared to $11.6 million loss for the three
      months ended September 30, 2007, a decrease in loss of $0.6 million, or
      4.9%, due to the net effect of the items discussed above.





Operating
      loss from paratransit and transit operations was $0.1 million for the three
      months ended September 30, 2008 compared to income of $0.5 million for the
      three months ended September 30, 2007, an increase in loss of $0.5 million,
      or
      118.5%, due to the net effect of the items discussed above.





*Interest
      expense.* Interest
      expense was $5.3 million for the three months ended September 30, 2008 compared
      to $9.9 million for the three months ended September 30, 2007, a decrease
      of $4.6 million, or 46.3%. The decrease was primarily due to a $4.2 million
      non-cash change in fair market value of interest rate swap.





*Loss
      before benefit from income taxes.* Due to
      the net effect of the items discussed above we experienced a loss before a
      benefit from income taxes of $16.4 million for the three months ended
      September 30, 2008 compared to a loss of $21.0 million for the three months
      ended September 30, 2007, a decrease in loss of $4.6 million.





**Liquidity
      and Capital Resources**





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





The
      Company operated a fleet of approximately 5,600 vehicles as of September 30,
      2008 and consumes substantial quantities of fuel for its operations. Based
      on
      the Company’s current operations, an increase in fuel costs of 10 cents per
      gallon will increase its cost of fuel purchased by approximately $0.9 million
      on
      an annual basis.




13




The
      Company anticipates capital expenditures for the fiscal year ending June 30,
      2009 of approximately $7.0 million (including approximately $5 million of
      non-vehicle capital expenditures), of which $2.4 million ($1.0 million were
      financed by purchase money mortgages and $1.4 million were financed from
      operating cash flows) were made during the three months ended September 30,
      2008. The Company has met the majority of its vehicle requirements for the
      fiscal year ended June 30, 2009 by
      the
      use of operating leases as
      it did
      for the fiscal year ended June 30, 2008. V ehicle
      lease expense increased $0.8 million for the three months ended September 30,
      2008, from the three months ended September 30, 2007. The Company anticipates
      its vehicle lease expense will increase by approximately $3.3 million for the
      fiscal year ending June 30, 2009.




On
      May
      15, 2007 the Company issued $185.0 million aggregate principal amount of Senior
      Secured Floating Rate Notes due 2012 (the “notes”). The notes were issued with
      an original issue discount of $2.8 million, which is being amortized over the
      term of the notes. The net proceeds of the notes were used to repay $116.3
      million of our
      previously outstanding notes ,
      $15.5
      million of the third-priority senior secured notes, $4.9 million of the senior
      unsecured notes, repayment of a $3.5 million letter of credit advance, $1.6
      million of PIK interest converted into debt, $12.1 million for the buyout of
      vehicle operating leases and $4.8 million for outstanding administrative
      priority claims. The balance was used for other corporate purposes.





Effective
      as of May 15, 2007, we entered into an interest swap agreement (the “Swap”) to
      reduce our exposure to interest rate fluctuations on the notes, which bear
      interest at LIBOR plus a margin of 7.25%. The Swap has a notional amount of
      $185
      million with a fixed rate of 5.21% instead of LIBOR thereby effectively
      converting the floating rate notes to a fixed rate obligation of 12.46%. The
      Swap will expire in April 15, 2010. On the interest payment dates of the notes,
      the difference between LIBOR and 5.21% is required to be settled in cash. In
      accordance with SFAS No. 133, *Accounting
      for Derivative Instruments and Hedging Activities,* the Swap
      does not qualify for "Cash Flow Hedge Accounting" treatment since the
      documentation of the accounting treatment was not done contemporaneously with
      entering into the agreement. The change in the fair market value of this
      interest swap agreement for the three months ended September 30, 2008 as valued
      by Wachovia of $1,070,274 is reflected as a reduction to interest expense for
      the three month period. Our obligation under the Swap is secured by the
      collateral securing our amended and restated credit facility.





Our
      obligation under the Swap is secured by the collateral securing our Amended
      and
      Restated Credit Facility and in connection therewith total reserves of
      approximately $4.5 million and $5.3 million for October 2008 and November 2008,
      respectively, were established against our borrowing base. In February 2008,
      our
      senior credit facility was amended to change the calculation of the borrowing
      base for the purpose of the calculation of excess availability, solely in
      relation to testing the EBITDA covenant (see Note 3 (b) to Notes to Consolidated
      Financial Statements included elsewhere in this Form 10-Q) to exclude the first
      $5.0 million of reserves established in connection with our Swap. This change
      is
      effective from January 1, 2008 until February 15, 2009. Until August 28, 2008,
      excess availability was required to be at least $5.0 million at all times during
      the period from July 1 to August 31 of any year, and $8.0 million for the
      balance of the fiscal year. As of August 28, 2008, the senior credit facility
      was amended to extend the period where excess availability required is $5.0
      million from August 31 of any year to September 15 of any year. As of September
      25, 2008, the senior credit facility was further amended such that the excess
      availability requirement is as follows: (i) $5,000,000 at all times during
      the
      period from July 1, 2008 to September 15, 2008, (ii) $8,000,000 at all times
      during the period from September 16, 2008 to September 30, 2008,
      (iii) $4,500,000 at all times during the period from October 1, 2008 to
      July 31, 2009, (iv) $4,000,000 at all times during the period from August 1,
      2009 to September 15, 2009, (v) $4,500,000 at all times during the period from
      September 16, 2009 to November 1, 2009, (vi) $8,000,000 at all times during
      the period from November 2, 2009 to June 30, 2010, (vii) $5,000,000 at
      all times during the period from July 1 to September 15 of any year (commencing
      in 2010), and (viii) $8,000,000 at all times during the period from
      September 16 of any year (commencing in 2010) through June 30 of the immediately
      following year. Based upon these amendments, the Company did not need to test
      the EBITDA covenant through November 13, 2008.





Concurrently
      with the issuance of the notes, the Company and substantially all of its
      subsidiaries also amended and restated its existing senior credit facility
      with
      Wachovia as agent, to provide up to $35.0 million of borrowing availability
      under a revolving credit facility, subject to customary borrowing conditions,
      plus a $10.0 million letters of credit facility. The Amended and Restated Credit
      Facility is secured by a first priority lien on substantially all of the
      Company’s and its subsidiaries’ assets, other than collateral securing the Notes
      on a first priority basis. In addition, the term of the credit facility was
      extended from February 29, 2008 to December 31, 2011. The Amended and Restated
      Credit Facility contains customary events of default and contains a minimum
      last
      12 month (“LTM”) EBITDA covenant of $26.0 million, which will only be tested if
      excess availability falls below certain levels. The LTM EBITDA was $18.0 million
      as of September 30, 2008, but was not tested because the Company met the
      availability requirements.




14




The
      borrowing capacity under the Amended and Restated Credit Facility is based
      upon
      85% of the net amount of eligible accounts receivable less reserves. Our senior
      lender has established borrowing base reserves of approximately $4.5 million
      and
      $5.3 million for October 2008 and November 2008, respectively, in connection
      with our Swap (see Notes 2 and 3(b) to Notes to Consolidated Financial
      Statements included elsewhere in this Form 10-Q). Loans under the facility
      bear
      interest at the prime rate (the prime rate at September 30, 2008 was 5.0%).
      Letters of credit are subject to a fee of 1% per annum payable monthly in
      arrears and any amounts paid by lenders for letters of credit will bear the
      same
      rate as loans under our revolving facility. The Company paid a closing fee
      of
      $400,000 and is required to pay a servicing fee of $10,000 per month, plus
      pay a
      monthly fee of 0.5% on any unused portion of its Amended and Restated Credit
      Facility.





Under
      the
      terms of our contract with the DOE (our largest customer) the Company has
      received a CPI increase of 4% for the fiscal year ending June 30, 2009. However,
      because of a reduction in the number of routes and a change in the configuration
      of routes for the year the increase was effectively reduced to 3.7% at September
      30, 2008.





The
      Company, in addition to normal working capital requirements, has significant
      interest obligations and capital expenditure requirements to finance its
      operations. Our senior lender has established borrowing base reserves of
      approximately $4.5 million and $5.3 million for October 2008 and November 2008,
      respectively, in connection with our Swap (see Notes 2 and 3(b) to Notes to
      Consolidated Financial Statements included elsewhere in this Form 10-Q). If
      these reserves increase they may have a significant adverse effect on the
      Company’s liquidity.




For
      the
      fiscal year ending June 30, 2009 there will be two less DOE revenue days as
      well
      as one additional payroll day compared to the fiscal year ended June 30, 2008.
      This will have a negative impact on the Company’s margins. The Company believes
      that borrowings under the Amended and Restated Credit Facility and anticipated
      retrospective insurance credits to be received from its insurance company
      together with its existing cash and cash flow from operations may not be
      sufficient to fund the Company’s anticipated liquidity requirements for the next
      year and the Company may need to pursue additional funding alternatives,
      including the sale of certain assets or operations, in order to improve its
      liquidity position.





LTM
      EBITDA was $18.0 million as of September 30, 2008 and we expect LTM EBITDA
      to be
      below $26.0 million for the next twelve months. If our excess availability
      for
      the purpose of testing the EBITDA covenant (see Note 3(b) to Notes to
      Consolidated Financial Statements included elsewhere in this Form 10-Q) falls
      below certain levels, this will generate a default under our Amended and
      Restated Credit Facility and under certain circumstances cause a cross default
      under the notes. Although the Company believes that it would be able to receive
      a waiver of this default from Wachovia, there can be no assurance that this
      is
      the case or what the cost to the Company might be. If the Company would not
      be
      able to receive a waiver, then the amount of the Amended and Restated Credit
      Facility would be reclassified to a current liability.





As
      of
      September 30, 2008, total current assets were $85.8 million and total current
      liabilities were $38.4 million. At September 30, 2008, the Company’s debt under
      its $35.0 million senior credit facility was $16.7 million, and it had $3.1
      million of borrowing availability, based on the Company’s borrowing base
      calculations. Approximately $9.3 million of the Company’s $10.0 million letter
      of credit facility was used. On November 10, 2008, under our senior credit
      facility the Company had a loan balance of $6.7 million, and it had $7.4 million
      in borrowing availability, based upon the Company’s borrowing base calculations.




15




*Net
      cash used in operating activities.* Net
      cash
      used in operating activities was $6.2 million for the three months ended
      September 30, 2008, resulting primarily from $16.8 million used in operating
      activities and a $1.1 million non-cash reduction of interest swap expense
      partially offset by cash provided by changes in the components of working
      capital of $6.9 million, and by non-cash items of $4.8 million of depreciation
      and amortization.




** Net
      cash
      used in operating activities was $5.8 million for the three months ended
      September 30, 2007, resulting primarily from $19.5 million used in operating
      activities partially offset by cash provided by changes in the components of
      working capital of $5.4 million, and by non-cash items of $8.3 ($5.0 million
      of
      depreciation and amortization, $3.1 million of interest swap expense and $0.1
      million of amortization of original issue discount).





*Net
      cash used by investing activities.* For
      the
      three months ended September 30, 2008, the net cash used by investing activities
      was $1.4 million resulting primarily from $2.4 million of capital expenditures
      of which $1.0 million were financed by purchase money mortgages and $1.4 million
      were financed from operating cash flows.





** For
      the
      three months ended September 30, 2007, the net cash used by investing activities
      was $5.9 million resulting primarily from $6.2 million of capital expenditures
      of which $0.2 million were financed by purchase money mortgages and $6.0 million
      were financed from operating cash flows.





*Net
      cash provided by financing activities.* Net
      cash
      provided by financing activities totaled $10.6 million for the three months
      ended September 30, 2008 due primarily to $10.7 million of net borrowings under
      the senior credit facility.





Net
      cash
      provided by financing activities totaled $9.0 million for the three months
      ended
      September 30, 2007 due primarily to $9.1 million of net borrowings under the
      senior credit facility.




**Commitments
      and Contingencies**




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





**Critical
      Accounting Policies**




In
      presenting our consolidated financial statements in conformity with U.S.
      generally accepted accounting principles, we are required to make estimates
      and
      judgments that affect the amounts reported therein. Some of the estimates and
      assumptions we are required to make relate to matters that are inherently
      uncertain as they pertain to future events. We base these estimates on
      historical experience and on various other assumptions that we believe to be
      reasonable and appropriate. Actual results may differ significantly from these
      estimates. **A
      discussion of our critical accounting policies and the related judgments and
      estimates affecting the preparation of our consolidated financial statements
      is
      included in the Company’s Annual Report on Form 10-K for** the
      fiscal year ended June 30, 2008. **There
      have been no material changes to our critical accounting policies as of
      September 30 , 2008.**




**Disclosure
      Regarding Forward-Looking Statements**





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




16




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





**Item
      3.** ***Quantitative and Qualitative Disclosures About Market
      Risk***





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





We
      operated a fleet of approximately 5,600 vehicles as of September 30, 2008 and
      consume substantial quantities of fuel for our operations. Based on our current
      operations, an increase in fuel costs of ten cents per gallon will increase
      our
      cost of fuel purchased by approximately $0.9 million on an annual basis.
      From time to time in the past, we have entered into hedging contracts to protect
      ourselves from fluctuations in the cost of fuel. We currently have hedged
      approximately 25% of our expected fuel requirements in New York City through
      June 30, 2009 and we continually evaluate entering into additional such
      agreements if we believe increases in fuel costs are likely. No assurance can
      be
      given that we will be able to adequately protect ourselves from fluctuating
      fuel
      costs even if we enter into hedging contracts.





As
      of September 30,
      2008, our only variable rate borrowings are the notes (LIBOR plus 7.25%
      interest) and the Amended and Restated Credit Facility (prime rate). On May
      15,
      2007 we reduced our exposure to interest rate fluctuations on our
      notes by
      entering into the
      Swap.
      The Swap has a notional amount of $185 million with a fixed rate of 5.21%
      instead of LIBOR thereby effectively converting the floating rate notes to
      a
      fixed rate obligation of 12.46%. The Swap will expire on April 15, 2010. On
      the
      interest payment dates of the notes, the difference between LIBOR and 5.21%
      will
      be settled in cash. As of September 30, 2008 the fair market value of the Swap
      as valued by Wachovia was a $4.7 liability. Our obligation under the Swap is
      secured by the collateral securing our Amended and Restated Credit Facility. As
      of September 30,
      2008, based upon our variable interest rate borrowings, a 100 basis point
      increase in interest rates, applied to our maximum variable rate borrowings,
      would have no material effect on interest expense or corresponding cash flows
      until periods commencing April 16, 2010.





**Item
      4.** ***Controls and Procedures***





Not
      applicable





**Item
      4T.** ***Controls
      and Procedures***





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




17




As
      of the
      end of the period covered by this Form 10-Q, we carried out an evaluation under
      the supervision and with the participation of our management, including the
      Chief Executive Officer and the Chief Financial Officer, of the effectiveness
      of
      the design and operation of our disclosure controls and procedures as defined
      in
      Exchange Act Rules 13a-15(e) and 15d-15(e).  Disclosure controls and
      procedures are designed to ensure that information required to be disclosed
      in
      our reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”)
      is recorded, processed, summarized and reported within the time periods
      specified in the SEC’s rules and forms and that such information is accumulated
      and communicated to our management, including the Chief Executive Officer and
      Chief Financial Officer, to allow timely decisions regarding required
      disclosure.  Based on this evaluation, our Chief Executive Officer and
      Chief Financial Officer concluded that the design and operation of our
      disclosure controls and procedures were effective as of September 30, 2008.





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




18




**PART
      II.**





**OTHER
      INFORMATION**





**Item
      1.** ***Legal Proceedings***





By
      letter
      dated August 31, 2008, Fiore Bus Service, Inc., a subsidiary of the Company,
      was
      notified by the US Environmental Protection Agency, or EPA, of a potential
      liability in connection with the remediation of the Sutton Brook Disposal Area
      Superfund site in Tewksbury, Massachusetts. EPA has estimated that the cost
      to
      remediate this site is approximately $30 million and is seeking an agreement
      from the identified potentially responsible parties, or PRPs, including Fiore,
      to undertake the remediation of the site and has also demanded reimbursement
      of
      EPA's expenses and oversight costs, which EPA has stated to be approximately
      $5.2 million for work performed to date. Under the federal Comprehensive
      Environmental Response, Compensation and Liability Act, persons who are
      identified as PRPs such as Fiore may be subject to strict, joint and several
      liability for the entire cost of cleaning up environmental contamination at
      sites where hazardous substances have been released. The Company had acquired
      Fiore in 1998 and the allegations regarding Fiore relate to events which
      occurred during the 1980s. The Company has taken the position that any liability
      Fiore may have had regarding the remediation of the Sutton Brook site was
      discharged in its Chapter 11 bankruptcy reorganization. While Fiore intends
      to
      pursue this defense vigorously and believes that its ultimate allocation of
      costs for this site, if any, should not be material, we can offer no assurance
      that the bankruptcy defense will be upheld in court or that Fiore's share of
      any
      liability will not be material.





**Item
      1A.** ***Risk Factors***




Our
      operations and financial results are subject to various risks and uncertainties
      that could adversely affect our business, financial condition, results of
      operations, and trading price of the Notes. Please refer to the Company’s Annual
      Report on Form 10-K for fiscal year 2008 for additional information concerning
      these risk factors and other uncertainties that could negatively impact the
      Company. There have been no material changes to those risk factors as previously
      disclosed.





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





In
      July
      2008, we issued 20,362 shares of our common stock, par value $0.01 per share,
      pursuant to the exercise of warrants which had been issued in connection with
      our previously outstanding third priority senior secured notes and received
      an
      aggregate proceeds of $204 as exercise price of warrants, which proceeds were
      used for general corporate purposes. The issuance of the shares upon exercise
      of
      the warrants was exempt from registration pursuant to Section 4(2) of the
      Securities Act of 1933, as amended.





**Item
      3.** ***Defaults upon Senior Securities***




None.





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




None.





**Item
      5.** ***Other Information***




None.




19




**Item
      6.** ***Exhibits***




The
      following documents are filed as Exhibits to this report:





**Exhibit**
              **No.**
            
            **Description**3.1
            
            Rule
                13a-14(a)/15d-14(a) Certification of Principal Executive Officer3.2
            
            Rule
                13a-14(a)/15d-14(a) Certification of Principal Financial Officer3.3
            
            Section
                1350 Certification of Principal Executive Officer3.4
            
            Section
                1350 Certification of Principal Financial Officer




**SIGNATURE**





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





**ATLANTIC
                EXPRESS TRANSPORTATION**
              **CORP.**Date:
                November 13, 2008
            By:
            /s/
                Domenic GattoDomenic
                Gatto
              Chief
                Executive Officer
              (Principal
                Executive Officer)Date:
                November 13, 2008
            By:
            /s/
                Nathan SchlenkerNathan
                Schlenker
              Chief
                Financial Officer
              (Principal
                Financial and Principal Accounting
              Officer)




20




**EXHIBIT
      INDEX**





**Exhibit**
              **No.**
            
            **Description**3.1
            
            Rule
                13a-14(a)/15d-14(a) Certification of Principal Executive Officer3.2
            
            Rule
                13a-14(a)/15d-14(a) Certification of Principal Financial Officer3.3
            
            Section
                1350 Certification of Principal Executive Officer3.4
            
            Section
                1350 Certification of Principal Financial Officer




21