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UNITEDSTATES SECURITIES AND EXCHANGE COMMISSIONWashington,D.C. 20549

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Form10-Q

|        |                                                                                       |
|--------|---------------------------------------------------------------------------------------|
|   | QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 |

|        |                                              |
|--------|----------------------------------------------|
|   | For the quarterly period endedMarch  31,2006 |

OR

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|--------|----------------------------------------------------------------------------------------|
|   | TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 |

|        |                                                                                                                                                                                    |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | For the transition period from             to              |

Commission FileNumber:    0-24247

Atlantic Express TransportationCorp.(Exact name of registrant as specified in itscharter)

|                                                              |  |                                  |  |  |  |  |
|--------------------------------------------------------------|--|----------------------------------|--|--|--|--|
| NewYork                                                      |  | 13-392-4567                      |
| (Stateor other jurisdiction of incorporation ororganization) |  | (IRSEmployer Identification No.) |
|                                                              |

7 North StreetStaten Island, New York 10302-1205(Address of principalexecutive offices)

(718) 442-7000(Registrant’s telephone number, including areacode)

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Indicate by check markwhether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes     No

Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, or a non-accelerated filer (asdefined in Rule 12b-2 of the Exchange Act).

Largeaccelerated filer     Accelerated filer    Non-accelerated filer 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes     No

Indicate by check mark whether the registrant has filedall documents and reports required to be filed by Section 12, 13 or15(d) of the Securities Exchange Act of 1934 subsequent to thedistribution of securities under a plan confirmed by a court. Yes    No 

The number of outstanding shares ofthe registrant’s common stock, par value $0.01 per share, as ofMay  12,  2006 was945,263

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INDEX

|                             |  |                                                                                                                         |  |         |  |        |  |  |  |  |  |  |  |  |
|-----------------------------|--|-------------------------------------------------------------------------------------------------------------------------|--|---------|--|--------|--|--|--|--|--|--|--|--|
|                        |  |                                                                                                                    |  | PageNo. |  |   |
| PARTI: FINANCIALINFORMATION |  | 3                                                                                                                       |  |    |
| Item1.                      |  | FinancialStatements                                                                                                     |  | 3       |  |   |
|                        |  | Consolidated BalanceSheets — March 31, 2006 (unaudited) and June 30,2005                                          |  | 3       |  |   |
|                        |  | Consolidated Statements ofOperations (unaudited) — Three Months Ended and Nine Months EndedMarch 31, 2006 and2005 |  | 4       |  |   |
|                        |  | Consolidated Statements ofCash Flows (unaudited) — Nine months Ended March 31, 2006and 2005                       |  | 5       |  |   |
|                        |  | Notes to ConsolidatedFinancial Statements (unaudited)                                                                   |  | 7       |  |   |
| Item2.                      |  | Management's Discussion and Analysis of FinancialCondition and Results of Operations                                    |  | 9       |  |   |
| Item3.                      |  | Quantitative and Qualitative Disclosures about MarketRisk                                                               |  | 18      |  |   |
| Item 4.                     |  | Controls andProcedures                                                                                                  |  | 18      |  |   |
|                        |  |                                                                                                                    |  |    |  |   |
| PARTII: OTHER INFORMATION   |  | 19                                                                                                                      |  |    |
| Item1.                      |  | Legal Proceedings                                                                                                       |  | 19      |  |   |
| Item1A.                     |  | Risk Factors                                                                                                            |  | 19      |  |   |
| Item2.                      |  | Unregistered Sales of Equity Securities and Use ofProceeds                                                              |  | 19      |  |   |
| Item 3.                     |  | Defaults uponSenior Securities                                                                                          |  | 19      |  |   |
| Item4.                      |  | Submission of Matters to a Vote of SecurityHolders                                                                      |  | 19      |  |   |
| Item 5.                     |  | OtherInformation                                                                                                        |  | 19      |  |   |
| Item 6.                     |  | Exhibits                                                                                                                |  | 19      |  |   |
|                             |

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Table of Contents

PART I.

FINANCIAL INFORMATION

ItemI.    Financial Statements

Atlantic ExpressTransportation Corp. and Subsidiaries Consolidated BalanceSheets

|                                                                                                     |  |              |              |             |  |        |             |         |  |  |
|-----------------------------------------------------------------------------------------------------|--|--------------|--------------|-------------|--|--------|-------------|---------|--|--|
|                                                                                                |  | March31,2006 |              | June30,2005 |
|                                                                                                |  | (unaudited)  |              |        |
| Assets                                                                                              |  |         |         |        |  |   |        |    |
| Currentassets:                                                                                      |  |         |         |        |  |   |        |    |
| Cash and cashequivalents                                                                            |  | $            | 2,741,959    |        |  | $      | 6,834,961   |    |
| Accountsreceivable, net of allowance for doubtful accounts of $1,730,310 and$1,704,850,respectively |  |         | 54,806,167   |        |  |   | 44,831,587  |    |
| Inventories                                                                                         |  |         | 2,989,104    |        |  |   | 2,859,415   |    |
| Prepaidinsurance                                                                                    |  |         | 35,195,022   |        |  |   | 31,425,704  |    |
| Prepaidexpenses and other currentassets                                                             |  |         | 4,241,092    |        |  |   | 3,222,345   |    |
| Totalcurrentassets                                                                                  |  |         | 99,973,344   |        |  |   | 89,174,012  |    |
| Property,plant and equipment, at cost, less accumulateddepreciation                                 |  |         | 102,764,215  |        |  |   | 129,938,411 |    |
| Otherassets:                                                                                        |  |         |         |        |  |   |        |    |
| Restricted cash and cashequivalents                                                                 |  |         | 3,674,753    |        |  |   | 5,263,733   |    |
| Restrictedmarketablesecurities                                                                      |  |         | 4,481,527    |        |  |   | 4,560,313   |    |
| Transportationcontract rights,net                                                                   |  |         | 4,917,865    |        |  |   | 3,988,048   |    |
| Deferredfinancing costs,net                                                                         |  |         | 7,070,222    |        |  |   | 9,586,228   |    |
| Deposits andother non-currentassets                                                                 |  |         | 8,060,779    |        |  |   | 4,494,719   |    |
| Totalotherassets                                                                                    |  |         | 28,205,146   |        |  |   | 27,893,041  |    |
|                                                                                                |  | $            | 230,942,705  |        |  | $      | 247,005,464 |    |
| Liabilitiesand shareholder'sequity                                                                  |  |         |         |        |  |   |        |    |
| Currentliabilities:                                                                                 |  |         |         |        |  |   |        |    |
| Current portion oflong-termdebt                                                                     |  | $            | 24,244,715   |        |  | $      | 24,820,652  |    |
| Currentportion of capital leaseobligations                                                          |  |         | 1,467,003    |        |  |   | 1,356,354   |    |
| Insurancefinancingpayable                                                                           |  |         | 6,179,761    |        |  |   | 3,984,116   |    |
| Controlleddisbursements account—checks issued notfunded                                       |  |         | 4,429,670    |        |  |   | 4,725,722   |    |
| Accountspayable, accrued expenses and other currentliabilities                                      |  |         | 25,954,536   |        |  |   | 24,061,465  |    |
| Accruedcompensation                                                                                 |  |         | 6,778,408    |        |  |   | 6,986,704   |    |
| Currentportion of insurancereserves                                                                 |  |         | 1,057,491    |        |  |   | 2,130,008   |    |
| Accruedinterest                                                                                     |  |         | 8,918,221    |        |  |   | 4,406,189   |    |
| Payableto creditors under the plan ofreorganization                                                 |  |         | 1,883,141    |        |  |   | 1,810,085   |    |
| Totalcurrentliabilities                                                                             |  |         | 80,912,946   |        |  |   | 74,281,295  |    |
| Long-termdebt, net of currentportion                                                                |  |         | 135,896,192  |        |  |   | 135,316,642 |    |
| Capitallease obligations, net of currentportion                                                     |  |         | 4,021,302    |        |  |   | 4,966,079   |    |
| Insurancereserves, net of currentportion                                                            |  |         | 1,054,801    |        |  |   | 1,179,807   |    |
| Deferredincome, net of current portion and other long-termliabilities                               |  |         | 3,265,074    |        |  |   | 2,415,869   |    |
| Deferredstate and local incometaxes                                                                 |  |         | 622,000      |        |  |   | 622,000     |    |
| Payable tocreditors under the plan of reorganization, net of currentportion                         |  |         | 2,584,113    |        |  |   | 3,247,270   |    |
| Totalliabilities..                                                                                  |  |         | 228,356,428  |        |  |   | 222,028,962 |    |
| Commitmentsandcontingencies                                                                         |  |         |         |        |  |   |        |    |
| Shareholder'sequity:                                                                                |  |         |         |        |  |   |        |    |
| Common stock, par value$.01 per share, authorized shares 1,303,200; issued and outstanding945,263   |  |         | 9,453        |        |  |   | 6,516       |    |
| Additionalpaid-incapital                                                                            |  |         | 114,939,064  |        |  |   | 110,042,001 |    |
| Accumulateddeficit                                                                                  |  |         | (112,252,925 | )      |  |   | (85,155,726 | )  |
| Accumulatedother comprehensive income(loss)                                                         |  |         | (109,315     | )      |  |   | 83,711      |    |
| Totalshareholder's equity                                                                           |  |         | 2,586,277    |        |  |   | 24,976,502  |    |
| TOTALLIABILITIES AND SHAREHOLDER'SEQUITY                                                            |  | $            | 230,942,705  |        |  | $      | 247,005,464 |    |
|                                                                                                     |

Seeaccompanying notes to condensed consolidated financialstatements.

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Atlantic Express Transportation Corp. andSubsidiaries Consolidated Statements of Operations(Unaudited)

|                                                                  |  |                             |             |                            |  |        |             |         |  |        |             |         |  |        |             |         |  |  |
|------------------------------------------------------------------|--|-----------------------------|-------------|----------------------------|--|--------|-------------|---------|--|--------|-------------|---------|--|--------|-------------|---------|--|--|
|                                                             |  | ThreeMonths Ended March 31, |             | Nine Months Ended March31, |
|                                                             |  | 2006                        |             | 2005                       |  | 2006   |             | 2005    |
| Revenues:                                                        |  |                        |        |                       |  |   |        |    |  |   |        |    |  |   |        |    |
| Schoolbusoperations                                              |  | $                           | 108,126,057 |                       |  | $      | 92,813,213  |    |  | $      | 262,246,458 |    |  | $      | 227,415,090 |    |
| Paratransitand transitoperations                                 |  |                        | 10,919,097  |                       |  |   | 9,812,306   |    |  |   | 33,604,599  |    |  |   | 32,843,027  |    |
| Totalrevenues                                                    |  |                        | 119,045,154 |                       |  |   | 102,625,519 |    |  |   | 295,851,057 |    |  |   | 260,258,117 |    |
| Costsandexpenses:                                                |  |                        |        |                       |  |   |        |    |  |   |        |    |  |   |        |    |
| Costof operations—School busoperations                     |  |                        | 94,033,430  |                       |  |   | 84,665,015  |    |  |   | 237,015,594 |    |  |   | 213,373,555 |    |
| Costof operations—Paratransit and transitoperations        |  |                        | 9,785,541   |                       |  |   | 8,746,076   |    |  |   | 29,671,565  |    |  |   | 28,850,205  |    |
| Generalandadministrative                                         |  |                        | 4,433,121   |                       |  |   | 4,220,927   |    |  |   | 13,995,953  |    |  |   | 12,606,756  |    |
| Depreciation,amortization andimpairments                         |  |                        | 9,926,070   |                       |  |   | 6,158,708   |    |  |   | 21,677,965  |    |  |   | 18,368,405  |    |
| Totaloperating costs andexpenses                                 |  |                        | 118,178,162 |                       |  |   | 103,790,726 |    |  |   | 302,361,077 |    |  |   | 273,198,921 |    |
| Income(loss) fromoperations                                      |  |                        | 866,992     |                       |  |   | (1,165,207  | )  |  |   | (6,510,020  | )  |  |   | (12,940,804 | )  |
| Otherexpense:                                                    |  |                        |        |                       |  |   |        |    |  |   |        |    |  |   |        |    |
| Interest                                                         |  |                        | (6,224,748  | )                     |  |   | (6,120,515  | )  |  |   | (19,248,519 | )  |  |   | (16,709,926 | )  |
| Reorganizationcosts                                              |  |                        | (70,304     | )                     |  |   | (110,313    | )  |  |   | (162,764    | )  |  |   | (805,891    | )  |
| Other                                                            |  |                        | (962,317    | )                     |  |   | (24,672     | )  |  |   | (1,063,496  | )  |  |   | (612,756    | )  |
| Lossbefore provision for income taxes and discontinuedoperations |  |                        | (6,390,377  | )                     |  |   | (7,420,707  | )  |  |   | (26,984,799 | )  |  |   | (31,069,377 | )  |
| Provisionfor incometaxes                                         |  |                        | —     |                       |  |   | 36,000      |    |  |   | —     |    |  |   | 108,000     |    |
| Lossbefore discontinuedoperations                                |  |                        | (6,390,377  | )                     |  |   | (7,456,707  | )  |  |   | (26,984,799 | )  |  |   | (31,177,377 | )  |
| Lossfrom discontinuedoperations                                  |  |                        | —     |                       |  |   | (41,074     | )  |  |   | (2,400      | )  |  |   | (208,282    | )  |
| Netloss                                                          |  | $                           | (6,390,377  | )                     |  | $      | (7,497,781  | )  |  |   | (26,987,199 | )  |  | $      | (31,385,659 | )  |
|                                                                  |

Seeaccompanying notes to condensed consolidated financialstatements.

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Atlantic Express Transportation Corp. andSubsidiaries Consolidated Statements of Cash Flows(Unaudited)

|                                                                                      |  |                           |             |         |  |        |             |         |  |  |
|--------------------------------------------------------------------------------------|--|---------------------------|-------------|---------|--|--------|-------------|---------|--|--|
|                                                                                 |  | NineMonths Ended March31, |
|                                                                                 |  | 2006                      |             | 2005    |
| Cashflows from operatingactivities                                                   |  |                      |        |    |  |   |        |    |
| Netloss                                                                              |  | $                         | (26,987,199 | )  |  | $      | (31,385,659 | )  |
| Adjustmentsto reconcile net loss to net cash used in operatingactivities:            |  |                      |        |    |  |   |        |    |
| Loss (gain) onsales of marketable securities andinvestments                          |  |                      | 12,840      |    |  |   | (13,796     | )  |
| Depreciation                                                                         |  |                      | 16,177,691  |    |  |   | 17,511,437  |    |
| Fixedassetimpairment                                                                 |  |                      | 4,745,137   |    |  |   | —     |    |
| Amortization                                                                         |  |                      | 3,580,448   |    |  |   | 3,016,469   |    |
| Originalissue discountinterest                                                       |  |                      | 730,612     |    |  |   | 533,355     |    |
| Reservefor doubtful accountsreceivable                                               |  |                      | 90,000      |    |  |   | 390,000     |    |
| Losson sales of fixedassets                                                          |  |                      | 1,058,434   |    |  |   | 502,885     |    |
| Decrease(increase) in:                                                               |  |                      |        |    |  |   |        |    |
| Restrictedcash and cashequivalents                                                   |  |                      | —     |    |  |   | 1,110,516   |    |
| Accountsreceivable                                                                   |  |                      | (10,064,580 | )  |  |   | (6,395,323  | )  |
| Inventories                                                                          |  |                      | (129,689    | )  |  |   | (158,640    | )  |
| Prepaidexpenses and other currentassets                                              |  |                      | (4,626,893  | )  |  |   | (6,901,633  | )  |
| Duefrom affiliates,net                                                               |  |                      | (224,276    | )  |  |   | —     |    |
| Depositand other non-currentassets                                                   |  |                      | (3,572,743  | )  |  |   | (423,949    | )  |
| Increase(decrease) in:                                                               |  |                      |        |    |  |   |        |    |
| Accountspayable, accrued expenses, accrued compensation and other currentliabilities |  |                      | 6,236,324   |    |  |   | 10,708,721  |    |
| Controlleddisbursementaccount                                                        |  |                      | (296,052    | )  |  |   | (1,128,867  | )  |
| Insurancefinancingpayable                                                            |  |                      | 2,195,646   |    |  |   | 1,986,199   |    |
| Payableto creditors under plan ofreorganization                                      |  |                      | (590,101    | )  |  |   | —     |    |
| Insurancereserve and other long-termliabilities                                      |  |                      | (946,411    | )  |  |   | (1,440,392  | )  |
| Netcash used in operatingactivities                                                  |  |                      | (12,610,812 | )  |  |   | (12,088,677 | )  |
| Cashflows from investingactivities                                                   |  |                      |        |    |  |   |        |    |
| Additions toproperty, plant andequipment                                             |  |                      | (4,597,129  | )  |  |   | (3,749,258  | )  |
| Purchaseof transportation contractrights                                             |  |                      | (1,678,272  | )  |  |   | —     |    |
| Proceedsfrom sales of fixedassets                                                    |  |                      | 10,986,495  |    |  |   | 287,376     |    |
| (Increase)decrease in restricted cash and cashequivalents                            |  |                      | 1,588,980   |    |  |   | (566,098    | )  |
| Purchasesof marketablesecurities                                                     |  |                      | (3,164,115  | )  |  |   | (6,983,833  | )  |
| Proceedsfrom sales or redemptions of marketablesecurities                            |  |                      | 3,032,730   |    |  |   | 7,353,027   |    |
| Netcash provided by (used in) investingactivities                                    |  | $                         | 6,168,689   |    |  | $      | (3,658,786  | )  |
|                                                                                      |

Seeaccompanying notes to condensed consolidated financialstatements.

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Atlantic Express Transportation Corp. andSubsidiaries Consolidated Statements of Cash Flows(Unaudited)

|                                                                      |  |                           |            |         |  |        |            |         |  |  |
|----------------------------------------------------------------------|--|---------------------------|------------|---------|--|--------|------------|---------|--|--|
|                                                                 |  | NineMonths Ended March31, |
|                                                                 |  | 2006                      |            | 2005    |
| Cashflows from financingactivities                                   |  |                      |       |    |  |   |       |    |
| Net proceeds fromsenior creditfacility                               |  | $                         | 322,729    |    |  | $      | 5,728,327  |    |
| Proceedsfrom sale of commonstock                                     |  |                      | 4,900,000  |    |  |   | —    |    |
| Proceedsfrom third priority senior securednotes                      |  |                      | —    |    |  |   | 14,925,000 |    |
| Proceedsfrom senior unsecurednotes                                   |  |                      | —    |    |  |   | 4,900,000  |    |
| Distributionsto parentcompany                                        |  |                      | (110,000   | )  |  |   | (100,000   | )  |
| Principalpayments on borrowings and capital leaseobligations         |  |                      | (2,458,609 | )  |  |   | (2,205,303 | )  |
| Deferredfinancing                                                    |  |                      | (304,999   | )  |  |   | (3,369,484 | )  |
| Netcash provided by financingactivities                              |  |                      | 2,349,121  |    |  |   | 19,878,540 |    |
| Netincrease (decrease) in cash and cashequivalents                   |  |                      | (4,093,002 | )  |  |   | 4,131,077  |    |
| Cashand cash equivalents, beginning ofyear                           |  |                      | 6,834,961  |    |  |   | 3,741,683  |    |
| Cashand cash equivalents, end ofperiod                               |  | $                         | 2,741,959  |    |  | $      | 7,872,760  |    |
| Supplementaldisclosures of cash flowinformation                      |  |                      |       |    |  |   |       |    |
| Cashpaid during the periodfor:                                       |  |                      |       |    |  |   |       |    |
| Interest                                                             |  | $                         | 11,071,624 |    |  | $      | 9,434,836  |    |
| Incometaxes                                                          |  |                      | 87,792     |    |  |   | 87,756     |    |
| Original issuediscount associated with issuances ofwarrants          |  |                      | —    |    |  |   | 900,000    |    |
| Loansincurred for purchase of vehicles                               |  |                      | 461,510    |    |  |   | —    |    |
| Letter of credit advancefor insurance lossfund                       |  |                      | —    |    |  |   | 3,500,000  |    |
| Capital leaseobligations incurred for purchase ofvehicles            |  |                      | —    |    |  |   | 1,115,874  |    |
| Deferredfinancing costs paid from third priority senior securednotes |  |                      | —    |    |  |   | 75,000     |    |
|                                                                      |

Seeaccompanying notes to condensed consolidated financialstatements.

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Atlantic ExpressTransportation Corp. and Subsidiaries Notes to ConsolidatedFinancial Statements

1.    Basis of Accounting

Theaccompanying Consolidated Financial Statements have been preparedpursuant to the rules and regulations of the Securities and ExchangeCommission ("SEC"). Certain information andfootnote disclosures normally included in financial statements preparedin accordance with generally accepted accounting principles have beenomitted pursuant to such rules and regulations. However, the Companybelieves that the disclosures are adequate to make the informationpresented not misleading. These consolidated financial statementsshould be read in conjunction with the consolidated financialstatements and related notes contained in Atlantic ExpressTransportation Corp.’s (the‘‘Company’s’’) financial statementsas of and for the year ended June  30,  2005 as filed onthe Company’s Special Financial Report on Form 15d-2. In theopinion of management, all adjustments and accruals, (consisting onlyof normal recurring adjustments) which are necessary for a fairpresentation of operating results are reflected in the accompanyingfinancial statements. Operating results for the periods presented arenot necessarily indicative of the results for the full fiscalyear.

2.    Sale and leaseback 

OnJanuary 11, 2006, Midway Leasing, Inc.(‘‘Midway’’), a subsidiary of the Company,completed the sale and leaseback of its owned real property located inStaten Island, New York. Pursuant to the Contract of Sale, Midway soldto the purchaser its owned real property in Staten Island, New York fora gross purchase price of $4,200,000. In connection with thesale of the real property, the Company agreed to leaseback the premisesfrom the purchaser for a term of 10 years. The lease calls formonthly payments of $29,750 with annual increases of 2.0%. TheCompany will be responsible for all real property taxes, certaininsurance costs and utilities. The Company incurred a loss onthe sale of approximately $0.9  million.

3.    UnitedFederation of Teachers Routes

As a result of a new contractbetween the New York City Department of Education (the‘‘DOE’’) and the United Federation ofTeachers (the ‘‘UFT’’), the Company wasawarded an additional 140 routes (the ‘‘UFTRoutes’’) commencing February  6,  2006. TheCompany estimates that these routes will increase revenue byapproximately $13.5  million on an annualbasis.

4.    Contribution of Capital

On October 17,2005, the Company sold 293,663 shares of its common stock par value$0.01 per share, to Atlantic Express Transportation Group, Inc.("AETG") for an aggregate purchase price of$4.9 million. The Company is a wholly owned subsidiary of AETG. AETGobtained $3.7 million of the proceeds of the $4.9 million investmentfrom GSC and $1.2 million from the holder of the Company's10% Third Priority Notes due2008.

5.    ConsentSolicitation

On March  31,  2006 the holders of amajority in principal amount of the Company’s 12% SeniorSecured Notes due 2008 and Senior Secured Floating Rate Notes due 2008(collectively the ‘‘Notes’’) consented toamendments to the Indenture (the ‘‘SupplementalIndenture’’) which (i) amended the definition of the term‘‘Asset Sale’’ to exclude the sale ofaccounts receivable; (ii) amended the definition of the term‘‘Permitted Indebtedness’’ to increase thesize of the permitted bank debt basket from $20.0  million to$30.0  million effective September  25,  2006; (iii)amended the ‘‘Limitation on Asset Sales’’covenant to require the Company to apply 80% of net cashproceeds of asset sales in excess of $10.0  million occurringafter the date of the Supplemental Indenture to offer to repurchase theNotes and the 10% Third Priority Secured Notes due 2008 (the‘‘Third Priority Notes’’); (iv)amended the ‘‘Maintenance of ConsolidatedEBITDA’’ covenant such that it will not apply until thefour consecutive quarters ending December  31,  2006 andwill require minimum ‘‘ConsolidatedEBITDA’’, as defined in the Indenture governing theNotes, of $23.0  million. The holders of Third 

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Priority Secured Notes also consented to thesame changes as the changes contained in the Supplemental Indenture. Noconsideration was paid to the consentingholders.

6.    Fixed Asset Impairment

The Company,upon reviewing its contracts for expected revenue and ebitda, has takenan impairment charge of $4.3  million on the assets associatedwith these contracts to write down these assets to their estimated fairvalue.

7.    New Accounting Standards

There havebeen no new accounting pronouncements or significant changes toaccounting pronouncements during the quarter ended March31,  2006 that the Company expects will have a material impact onthe Company's financial statements. See Note 2 to Notes toConsolidated Financial Statements included in the Company'sSpecial Financial Report on Form 15d-2.

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Item 2.    Management’sDiscussion and Analysis of Financial Condition and Results ofOperations

General

Atlantic Express TransportationCorp. (‘‘we’’ or the ‘‘Company’’) is the fourth largest provider of school bustransportation in the United States and the leading provider in NewYork City, the largest market in which we operate. We have contractswith 112 school districts in New York, Missouri, Massachusetts,California, Pennsylvania, New Jersey, and Illinois. For fiscal 2006, wehave contracts to provide paratransit services in New York City tophysically and mentally challenged passengers who are unable to usestandard public transportation. We also provide other transportationservices, including fixed route transit, express commuter line andcharter and tour buses through our coach services. As of March31,  2006, we had a fleet of approximately 6,100 vehiclesoperating from approximately 46 facilities.

Contractswith the Company’s largest customer, the DOE, were extendedeffective July  1,  2005 for an additional five yearsthrough June 30, 2010. School bus transportation servicesaccounted for 88.6% and 87.4% of our revenues fromoperations for the nine months ended March  31,  2006 and2005, respectively. Our school bus transportation contracts haveprovided a relatively predictable and stable stream of revenues overtheir terms, which generally initially range from one to five years.Since 1979, we have achieved substantial contract renewals, which webelieve is due to (1) our reputation for passenger safety andproviding efficient, on-time service, (2) our long-standingrelationships with the school districts we service, (3) thepreference of school districts to maintain continuity of service withtheir current proven contractor rather than risk the uncertaintyassociated with a replacement and (4) the disadvantage ofprospective competitors, who generally would have to make substantiallygreater investments than we would in new equipment and who mayexperience difficulty obtaining suitable parking and maintenancefacilities in our primary markets, especially in the New York greatermetropolitan area.

The paratransit and transit servicesoperations accounted for 11.4% and 12.6% of our revenuesfrom operations for the nine months ended March  31,  2006and 2005, respectively. The terms of our paratransit and transitcontracts are initially for five years. These contracts are awarded bypublic transit systems through a public bidding or request for proposal(‘‘RFP’’) process. We are generallyentitled to a specified charge per hour of vehicle service togetherwith other fixed charges. The method of contract compensation alsovaries.

Results ofOperations(1)

|                                        |  |                                 |       |                           |  |        |       |          |  |        |       |         |  |        |       |          |  |        |       |         |  |        |       |          |  |        |       |         |  |        |       |          |  |  |
|----------------------------------------|--|---------------------------------|-------|---------------------------|--|--------|-------|----------|--|--------|-------|---------|--|--------|-------|----------|--|--------|-------|---------|--|--------|-------|----------|--|--------|-------|---------|--|--------|-------|----------|--|--|
|                                   |  | ThreeMonths Ended March  31,    |       | Nine Months EndedMarch31, |
|                                   |  | 2006                            |       | 2005                      |  | 2006   |       | 2005     |
|                                   |  | (unaudited)                     |       | (unaudited)               |
|                                   |  | (inmillions, exceptpercentages) |
| Revenues                               |  | $                               | 119.0 |                      |  |   | 100.0 | %   |  | $      | 102.6 |    |  |   | 100.0 | %   |  | $      | 295.9 |    |  |   | 100.0 | %   |  | $      | 260.3 |    |  |   | 100.0 | %   |
| Costofoperations                       |  |                            | 103.8 |                      |  |   | 87.2  | %   |  |   | 93.4  |    |  |   | 91.0  | %   |  |   | 266.7 |    |  |   | 90.1  | %   |  |   | 242.2 |    |  |   | 93.1  | %   |
| Generalandadministrative               |  |                            | 4.4   |                      |  |   | 3.7   | %   |  |   | 4.2   |    |  |   | 4.1   | %   |  |   | 14.0  |    |  |   | 4.7   | %   |  |   | 12.6  |    |  |   | 4.8   | %   |
| Depreciationandamortization            |  |                            | 9.9   |                      |  |   | 8.3   | %   |  |   | 6.2   |    |  |   | 6.0   | %   |  |   | 21.7  |    |  |   | 7.3   | %   |  |   | 18.4  |    |  |   | 7.1   | %   |
| Income(loss) from continuingoperations |  |                            | 0.9   |                      |  |   | 0.7   | %   |  |   | (1.2  | )  |  |   | (1.1  | )%  |  |   | (6.5  | )  |  |   | (2.2  | )%  |  |   | (12.9 | )  |  |   | (5.0  | )%  |
| Interestexpense                        |  |                            | 6.2   |                      |  |   | 5.2   | %   |  |   | 6.1   |    |  |   | 6.0   | %   |  |   | 19.2  |    |  |   | 6.5   | %   |  |   | 16.7  |    |  |   | 6.4   | %   |
| Lossbefore discontinuedoperations      |  |                            | (6.4  | )                    |  |   | (5.4  | )%  |  |   | (7.5  | )  |  |   | (7.3  | )%  |  |   | (27.0 | )  |  |   | (9.1  | )%  |  |   | (31.2 | )  |  |   | (12.0 | )%  |
|                                        |

|  |
|--|
|  |  |
|  |

|     |                                            |
|-----|--------------------------------------------|
| (1) | Allfigures are from continuing operations. |

Results ofOperations – Three Months Ended March  31,  2006Compared to Three Months Ended March  31,2005

Revenues.    Revenues from school busoperations were $108.1 million for the three months endedMarch  31,  2006 compared to $92.8 million for thethree months ended March  31,  2005, an increase of

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$15.3 million, or 16.5%. Thisincrease was due to $6.8  million of price increases dueprimarily to the new DOE contract (excluding increases in DOE escortrevenues), and $5.5  million in service requirement increases dueprimarily to new routes and more revenue days in New York City. Inaddition, under the terms of its current contract with the DOE, theCompany receives full reimbursement of all escort costs plus a fivepercent administrative fee. This change increased revenue  by$3.9  million. These increases were offset by $0.9  millionin lost contracts.

Revenues from paratransit and transitoperations were $10.9 million for the three months endedMarch  31,  2006 compared to $9.8 million for thethree months ended March  31,  2005, an increase of$1.1  million or 11.3%. This increase was due to priceincreases and increases in service requirements from existing contractsfor the three months ended March  31,  2006, compared tothe three months ended March  31,  2005.

Cost ofOperations.    Cost of operations of school bus operations were$94.0  million for the three months ended March  31,2006 compared to $84.7  million for the three months endedMarch  31,  2005, an increase of $9.4 million or11.1%. Salaries and wages were $51.3  million for thethree months ended March  31,  2006 compared to$46.8  million for the three months ended March  31,2005, an increase of $4.5 million or 9.6%. Salaries andwages increased primarily due to added employees needed to service theadditional routes in New York City. As a percentage of revenues,salaries and wages decreased to 47.4% for the three months endedMarch  31,  2006, from 50.4% for the three monthsended March  31,  2005. Fuel expense, due primarily tohigher fuel prices, increased $1.3  million, vehicle leaseexpense increased $1.3  million due to the Company leasing itsnew vehicle requirements for the current year and vehicle insuranceincreased $0.8  million, for the three months ended March31,  2006, compared to the three months ended March31,  2005. As a percentage of revenues, cost of operationsdecreased to 87.0% for the three months ended March31,  2006, from 91.2% for the three months endedMarch  31,  2005.

Cost of operations of paratransitand transit operations were $9.8 million for the three monthsended March  31,  2006 compared to $8.8 million forthe three months ended March  31,  2005, an increase of$1.0 million or 11.9%. This increase was primarily due toan increase in salaries and wages of $0.4  million and anincrease in liquidated damages of $0.4  million. As a percentageof revenues, salaries and wages decreased to 51.6% for the threemonths ended March  31,  2006 compared to 52.9% forthe three months ended March  31,  2005.

Generaland administrative expenses.    General and administrativeexpenses from school bus operations were $3.9  million for thethree months ended March  31,  2006 compared to $3.7million for the three months ended March  31,  2005, anincrease of $0.2  million or 5.4%. This increase wasprimarily due to increases in administrative payroll and fringebenefits costs and advertising. As a percentage of school busoperations revenues, general and administrative expenses decreased to3.6% for the three months ended March  31,  2006,from 3.9% for the three months ended and March  31,2005.

General and administrative expenses from paratransit andtransit operations were $0.6  million for the three months endedMarch  31,  2006 and for the three months endedMarch  31,  2005. As a percentage of paratransit andtransit operations revenues, general and administrative expensesdecreased to 5.3% for the three months ended March31,  2006, from 5.7% for the three months endedMarch  31,  2005.

Depreciation andamortization.    Depreciation and amortization expense fromschool bus operations was $9.5 million for the three monthsended March  31,  2006 compared to $5.7 million forthe three months ended March  31,  2005, an increase of$3.9 million, or 68.1%. This increase was primarily dueto a $4.3  million impairment charge on fixed assets partiallyoffset by $0.4  million lower depreciation expense as some of theequipment is now fully depreciated and current year’s vehiclerequirements were financed with operating leases.

Depreciationand amortization expense from paratransit and transit operations was$0.4 million for the three months ended March  31,2006 compared to $0.5 million for the three months endedMarch  31,  2005, a decrease of $0.1 million, or16.7%. This decrease was primarily due to lower 

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depreciation expense as some of the equipmentis now fully depreciated and current year vehicle requirements werefinanced with operating leases.

Operating income (loss) fromoperations.    Operating income from school bus operations was$0.7 million for the three months ended March  31,2006 compared to an operating loss of $1.2 million for the threemonths ended March  31,  2005, an increase in income of$1.9 million, due to the net effect of the items discussedabove.

Operating income from paratransit and transit operationswas $0.1 million for the three months ended March31,  2006 compared to a minimal income for the three months endedMarch  31,  2005, an increase of $0.1  million, dueto the net effect of the items discussed above.

Interestexpense.    Interest expense from operations was $6.2million for the three months ended March  31,  2006compared to $6.1 million for the three months ended March31,  2005, an increase of $0.1 million, or 1.7%.The increase was primarily due to an increase in deferred financingexpenses.

Reorganization costs.    Reorganizationcosts were $0.1  million for the three months ended March31,  2006 and the three months ended March  31,2005.

Loss before provision for income taxes and discontinuedoperations.    Due to the net effect of the items discussedabove we experienced a loss before provision for income taxes anddiscontinued operations of $6.4 million for the three monthsended March  31,  2006, compared to a loss of $7.4million for the three months ended March  31,  2005, adecrease in loss of $1.0 million.

Results ofOperations – Nine Months Ended March  31,  2006Compared to Nine Months Ended March  31,2005

Revenues.    Revenues from school busoperations were $262.2 million for the nine months endedMarch  31,  2006 compared to $227.4 million for thenine months ended March  31,  2005, an increase of$34.8 million, or 15.3%. This increase was due to$14.0  million of price increases due primarily to the new DOEcontract (excluding increases in DOE escort revenue), and servicerequirement increases of $10.4  million due primarily toadditional routes and more revenue days in New York City, offset by$2.3  million in lost contracts. In addition, under the terms ofits current contract with the DOE, the Company receives fullreimbursement of all escort costs plus a five percent administrativefee. This change increased revenue by $12.7  million, whichincluded a $1.2  million reimbursement for the July and Augusthealth and welfare costs under the current contract with the DOE, whichwas expensed by the Company when incurred. The Company previouslyexpensed these costs equally over the school year (September throughJune).

Revenues from paratransit and transit operations were$33.6 million for the nine months ended March  31,2006 compared to $32.8 million for the nine months endedMarch  31,  2005, an increase of $0.8  million or2.3%. This increase was due primarily to $4.2  million ofprice increases and increases in service requirements from existingcontracts, partially offset by $2.5  million in lost contractsand $0.9  million reduction in revenue in connection withcustomer reimbursement of fuel charges for the nine months endedMarch  31,  2005, compared to the nine months endedMarch  31,  2006 when the customer provided its ownfuel.

Cost of Operations.    Cost of operations ofschool bus operations were $237.0  million for the nine monthsended March  31,  2006 compared to $213.4  millionfor the nine months ended March  31,  2005, an increase of$23.6 million or 11.1%. Salaries and wages were$130.6  million for the nine months ended March  31,2006 compared to $120.3  million for the nine months endedMarch  31,  2005, an increase of $10.4 million or8.6%. This increase was due primarily due to more employeesneeded to service additional routes and an increase in payroll days inNew York City. As a percentage of revenues, salaries and wagesdecreased to 49.8% for the nine months ended March31,  2006, from 52.9% for the nine months endedMarch  31,  2005. Employee fringe benefits increased$3.6 million for the nine months ended March  31,2006. The increase was due primarily to $2.4  million increasesin health and welfare costs , including $1.2  million foremployee fringe benefits which were attributable to escort costs thatwere reimbursable from the DOE (see above) and an increase of$1.2  million payroll taxes due to higher wages. Fuel expenseincreased $3.5  million, vehicle lease expense increased

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$2.6  million, rent expense increased$1.3  million, liquidated damages increased $0.9  millionand vehicle insurance increased $0.8  million for the nine monthsended March  31,  2006, compared to the nine months endedMarch  31,  2005. As a percentage of revenues, cost ofoperations decreased to 90.4% for the nine months endedMarch  31,  2006, from 93.8% for the nine monthsended March  31,  2005.

Cost of operations ofparatransit and transit operations were $29.7 million for thenine months ended March  31,  2006 compared to$28.9 million for the nine months ended March  31,2005, an increase of $0.8 million or 2.9%. This increasewas primarily due to an increase in liquidated damages of $0.7million and an increase in salaries and wages of $0.4  million,partially offset by decrease in fuel expense of $0.6  million,due to the customer providing its own fuel for the nine months endedMarch  31,  2006 compared to the nine months endedMarch  31,  2005. As a percentage of revenues, cost ofoperations increased to 88.3% for the nine months endedMarch  31,  2006, from 87.8% for the nine monthsended March  31,  2005.

General and administrativeexpenses.    General and administrative expenses from schoolbus operations were $12.3  million for the nine months endedMarch  31,  2006 compared to $10.8  million for thenine months ended March  31,  2005, an increase of$1.5  million or 14.4%. This increase was primarily due toa $0.7  million increase in administrative payroll, including a$0.5  million contract renewal bonus in relation to the extensionagreement with the DOE and $1.1  million increase in professionalfees, including $0.5  million in costs for acquiring vehiclelease facilities, offset by a reduction in bad debt expense of$0.3  million. As a percentage of school bus operations revenues,general and administrative expenses was 4.7% for the nine monthsended March  31,  2006 and for the nine months ended andMarch  31,  2005.

General and administrative expensesfrom paratransit and transit operations were $1.7  millionfor  the nine months ended March  31,  2006 comparedto $1.8  million for the nine months ended March31,  2005, a decrease of $0.2  million or 0.6%. Thisdecrease was primarily due to reductions in administrative payroll andfringe benefits as a result of a lost contract. As a percentage ofparatransit and transit operations revenues, general and administrativeexpenses decreased to 5.0% for the nine months endedMarch  31,  2006, from 5.6% for the nine monthsended March  31,  2005.

Depreciation andamortization.    Depreciation and amortization expense fromschool bus operations was $20.5 million for the nine monthsended March  31,  2006 compared to $16.9 million forthe nine months ended March  31,  2005, an increase of$3.6 million, or 21.4%. This increase was primarily dueto a $4.7  million impairment charge on fixed assets partiallyoffset by $1.1  million lower depreciation expense as some of theequipment is now fully depreciated and current year’s vehiclerequirements were financed with operating leases.

Depreciationand amortization expense from paratransit and transit operations was$1.2 million for the nine months ended March  31,2006 compared to $1.5 million for the nine months endedMarch  31,  2005, a decrease of $0.3 million, or19.8%. This decrease was due to lower depreciation expense assome of the equipment is now fully depreciated and current year vehiclerequirements were financed with operating leases.

Operatingincome (loss) from operations.    Operating loss from schoolbus operations was $7.6  million for the nine months endedMarch  31,  2006 compared to $13.6 million loss forthe nine months ended March  31,  2005, a decrease in lossof $6.0 million, or 44.4%, due to the net effect of theitems discussed above.

Operating income from paratransit andtransit operations was $1.0 million for the nine months endedMarch  31,  2006 compared to $0.6 million for thenine months ended March  31,  2005, an increase of$0.4  million, or 61.6%, due to the net effect of theitems discussed above.

Interest expense.    Interestexpense from operations was $19.2  million for the nine monthsended March  31,  2006 compared to $16.7 million forthe nine months ended March  31,  2005, an increase of$2.5 million, or 15.2%. The increase was primarily due to$1.3  million in interest expense on our $15.0  million of10% third priority senior secured notes due 2008 (the‘‘Additional Indebtedness’’), $0.1million of higher interest rates on our $10.0  million seniorsecured floating rate notes, due 2008 (the ‘‘FloatingNotes’’), a $0.3  million increase in interestexpense on our senior credit facility, due primarily to higher interestrates, and a $0.7  million increase in deferred financingexpenses.

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Reorganizationcosts.    Reorganization costs were $0.2  million for thenine months ended March  31,  2006 compared to $0.8million for the nine months ended March  31,  2005, areduction of $0.6  million.

Loss before provision forincome taxes and discontinued operations.    Due to the neteffect of the items discussed above we experienced a loss beforeprovision for income taxes and discontinued operations of $27.0million for the nine months ended March  31,  2006,compared to a loss of $31.1  million for the nine months endedMarch  31,  2005, a decrease in loss of$4.1 million.

Income (loss) from discontinuedoperations.    We experienced a minimal loss from discontinuedoperations for the nine months ended March  31,  2006compared to a loss from discontinued operations of $0.2 millionfor the nine months ended March  31,2005.

Liquidity and Capital Resources

Thestatements regarding the Company’s anticipated capitalexpenditures and service requirements are ‘‘forwardlooking’’ statements which involve unknown risks anduncertainties, such as the Company’s ability to meet or exceedits growth plans and/or available financing, which may cause actualcapital expenditures to differ materially from currently anticipatedamounts.

On November  2,  2005 the Company amendedits receivable agreement with Wachovia, to sell Wachovia, withoutrecourse, up to a maximum $8.2  million (previously $5.9million) of accounts receivable. This increased amount is available tothe Company from November  2,  2005 through July1,  2006, at which time the maximum receivables to be sold willrevert back to the $5.9  million. The President and ChiefExecutive Officer of the Company increased his existing personalguarantee in full support of the agreement and received an additional$50,000 guarantee fee. As of March  31,  2006 the Companyhad no sold receivables and as of May  9,  2006 the Companysold $3.7  million of gross receivables.

The Companyoperated a fleet of approximately 6,100 vehicles as of March31,  2006 and consumes substantial quantities of fuel for itsoperations. Based on the Company’s current operations, anincrease in fuel costs of 10 cents per gallon will increase its cost offuel purchased by approximately $1.0  million on an annualbasis.

The Company anticipates total capital expenditures ofapproximately $6.5  million (primarily non-vehicle capitalexpenditures) in fiscal 2006, of which $5.1  million of capitalexpenditures were made in the nine months ended March  31,2006. The Company expects to meet its new vehicle requirements for theremainder of fiscal 2006 and for fiscal 2007 by leasing these vehicles.Vehicle lease expense increased $2.6  million for the nine monthsended March  31,  2006, compared to the nine months endedMarch  31,  2005.

On October  17,  2005,the Company sold 293,663 shares of its common stock, par value $.01 pershare, to AETG, for an aggregate purchase price of $4.9  million.The Company is a wholly-owned subsidiary of AETG. AETG obtained$3.7  million of the $4.9  million investment from GSC and$1.2  million from the holder of the AdditionalIndebtedness.

On January 11, 2006, the Company, completedthe sale and leaseback of its owned real property located in StatenIsland, New York. Pursuant to the Contract of Sale, MidwayLeasing sold to the purchaser its owned real property in Staten Island,New York for a gross purchase price of $4,200,000. In connectionwith the sale of the real property, the Company agreed to leaseback thepremises from the purchaser for a term of 10 years. The leasecalls for monthly payments of $29,750 with annual increases of2.0%. The Company will be responsible for all real propertytaxes, certain insurance costs and utilities. 

BeginningFebruary  6,  2006, the DOE increased the number of routesunder the Company’s contract by approximately 140 routes. Thiswas a result of the DOE’s new contract with the UFT. The Companyestimates that revenue will increase by approximately $13.5million on an annual basis as a result.

On March31,  2006 the holders of a majority in principal amount of theCompany’s Notes consented to amendments to the Indenture which(i) amended the definition of the term ‘‘AssetSale’’ 

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to exclude the sale of accounts receivable;(ii) amended the definition of the term ‘‘PermittedIndebtedness’’ to increase the size of the permitted bankdebt basket from $20.0  million to $30.0  million effectiveSeptember  25,  2006; (iii) amended the‘‘Limitation on Asset Sales’’ covenant torequire the Company to apply 80% of net cash proceeds in excessof $10.0 from asset sales occurring after the date of the SupplementalIndenture to offer to repurchase the Notes and the Third PriorityNotes; (iv) amended the ‘‘Maintenance of ConsolidatedEBITDA’’ covenant such that it will not apply until thefour consecutive quarters ending December  31,  2006 andwill require minimum ‘‘ConsolidatedEBITDA’’, as defined in the Indenture governing theNotes, of $23.0  million. The holders of Third Priority SecuredNotes also consented to the same changes as the changes contained inthe Supplemental Indenture.

The Company’s level ofindebtedness may make it more difficult for it to satisfy itsobligations with respect to the Notes because a substantial portion ofthe Company’s cash flow from operations will be dedicated todebt service payments. Accordingly, the Company’s cash flowavailability to fund increases in working capital and capitalexpenditures may be restricted, as will its flexibility in planningfor, or reacting to, changes in its business, industry or generaladverse economic conditions.

The Company believes that due toincreased revenues and related working capital requirements it willneed a $10.0  million increase in its senior credit facility forthe year ending June  30,  2007. The terms of ourSupplemental Indenture permit this increase (see above). Although theCompany believes it will be successful in obtaining this increase, noassurance can be given whether or when it will do so. In addition theCompany believes it will be successful in the sale of certain assets oroperations that it is pursuing to meet its anticipated cash flowrequirements for the coming year, although again no assurance can begiven in this regard.

The Company, in addition to normal workingcapital requirements, has significant interest obligations and capitalexpenditure requirements to finance its operations. In addition, theCompany uses substantial amounts of fuel in its operations. Significantincreases in the cost of fuel will have a material effect on itsoperations. The Company believes that the borrowings under its seniorcredit facility with the anticipated increase in its senior creditfacility, proceeds from sales under its receivable agreement, theanticipated proceeds from the sale of certain assets or operations,together with its existing cash and cash flow from operations and thecontinuing effect of its extension agreement with the DOE, plus theanticipated effect of the UFT Routes will be sufficient to fund theCompany’s anticipated liquidity requirements for the nextyear.

As of March  31,  2006, total current assetswere $100.0  million and total current liabilities were$80.9  million. At March  31,  2006, theCompany’s debt under its $20.0  million senior creditfacility was $19.7  million, including the $3.5  millionsupplemental loan, and it had $0.3  million of borrowingavailability, based on the Company’s borrowing basecalculations. The Company’s letter of credit line was fullyutilized. On May  9,  2006, the Company’s debt underthe senior credit facility was $10.8  million (including the$3.5  million supplemental loan) and it had $8.4  millionin borrowing availability, based upon the Company’s borrowingbase calculations. On May  9,  2006, the Company had$115.0  million outstanding of the Notes and $15.0  millionoutstanding of the Additional Indebtedness.

Net cash used inoperating activities.    Net cash used in operating activitieswas $12.6  million for the nine months ended March31,  2006, resulting primarily from $31.2  million used inoperating activities plus $6.7  million cash used due to changesin the components of working capital (primarily an increase in accountsreceivable of $10.1  million and an increase in prepaid expensesand other current assets of $4.6  million, partially offset by anincrease $6.2  million of accounts payable, accrued expenses,accrued compensation and other current liabilities, and an increase ininsurance financing payable of $2.2  million), partially offsetby non−cash items of $19.8  million of depreciation andamortization, $4.7  million of fixed asset impairment and$0.7  million of amortization of original issuediscount.

Net cash used by operating activities was $12.1million for the nine months ended March  31,  2005,primarily from $31.3  million used in operating activities and a$1.9  million use of cash resulting from changes in thecomponents of working capital (primarily an increase in accountsreceivable of 

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$6.4  million and an increase inprepaid expenses and other current assets of $6.9  million,partially offset by an increase $10.7  million of accountspayable, accrued expenses, accrued compensation and other currentliabilities, and an increase in insurance financing payable of$2.0  million), partially offset by non cash items of$20.5  million of depreciation and amortization and $0.5million of amortization of original issue discount.

Net cashprovided by (used in) investing activities.    For the ninemonths ended March  31,  2006, the net cash provided byinvesting activities was $6.2  million resulting primarily fromthe sale and leaseback of our California facility, the sale andleaseback of our Staten Island, NY facility and the sale of property inSt Louis, Missouri, partially offset by the purchase of $1.7million of transportation contract rights and $5.1  million ofcapital expenditures. Of these, $0.5  million of capitalexpenditures were directly financed with purchase money debt and thebalance were financed from operating cash flows. Purchase of marketablesecurities were $3.2  million for the nine months endedMarch  31,  2006 and proceeds from sale of redemption ofmarketable securities were $3.0  million.

For the ninemonths ended March  31,  2005, the net cash used ininvesting activities was $3.7  million resulting primarily fromthe Company making $4.9  million of capital expenditures toacquire additional vehicles, other property and equipment. Of these,$1.1  million of capital expenditures were directly financed withcapital leases and the balance were financed from operating cash flows.Purchase of marketable securities were $7.0  million for the ninemonths ended March  31,  2006 and proceeds from sale ofredemption of marketable securities were $7.4million.

Net cash provided by financingactivities.    Net cash provided in financing activitiestotaled $2.3  million for the nine months ended March31,  2006 due primarily to $4.9  million of proceeds fromthe sale of stock and $0.3  million net proceeds under the seniorcredit facility, partially offset by $2.5  million in payments onborrowings under capital leases and purchase money mortgages and$0.3  million in deferred financing costs.

Net cashprovided by financing activities totaled $19.9  million for thenine months ended March  31,  2005 due primarily to theissuance of the $15.0  million of new borrowings from ThirdPriority Notes, the issuance of the $4.9  million of newborrowing from a senior unsecured note and $5.7  million netborrowing under the senior credit facility, partially offset by$2.2  million in payments on borrowings under capital leases andpurchase money mortgages and $3.4  million in deferred financingcosts.

Commitments and Contingencies

Reference ismade to Note 16 ‘‘Commitments andContingencies’’ of Notes to the Consolidated FinancialStatements in the Company’s Special Financial Report on Form15d-2 for the fiscal year ended June  30,  2005 for adescription of the Company’s material commitments andcontingencies.

Critical Accounting Policies

Inpresenting our consolidated financial statements in conformity withU.S. generally accepted accounting principles, we are required to makeestimates and judgments that affect the amounts reported therein. Someof the estimates and assumptions we are required to make relate tomatters that are inherently uncertain as they pertain to future events.We base these estimates on historical experience and on various otherassumptions that we believe to be reasonable and appropriate. Actualresults may differ significantly from these estimates. The following isa description of our accounting policies that we believe requiresubjective and complex judgments, and could potentially have a materialeffect on our reported financial condition or results of operation.

Property, Plant and Equipment.    We depreciate ourproperty, plant and equipment over their useful lives, which range from3 to 31.5 years, on a straight-line basis. These useful livesare based upon our estimates of the periods that the assets willprovide economic benefit. Our policy is to review the carrying value ofour long-lived assets whenever events or changes in circumstances occurthat indicate the carrying value may not be recoverable. Our definitelife assets will continue to be depreciated or amortized over theirestimated useful lives and are subject to the impairment criteria asrequired by SFAS No. 144.

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Transportation ContractRights.    Transportation contract rights primarily representthe value we assigned to the cost of investments in school buscompanies in excess of the book value of the companies acquired. Inaddition, we have purchased from unrelated third parties certaintransportation contract rights with respect to revenue contracts andtravel routes. Transportation contract rights are assessed forimpairment at least annually and whenever events or changes incircumstances indicate that the carrying value may not be recoverable.Important factors that could trigger an impairment review includesignificant underperformance relative to historical or projected futureoperating results, significant changes in the use of the acquiredassets or the strategy of the overall business, and significantnegative industry or economic trends. If indicators of impairment arepresent, management evaluates the carrying value of the intangibles inrelation to the projection of future undiscounted cash flows of theunderlying assets. Projected cash flows are based on historical resultsadjusted to reflect management's best estimate of future marketand operating conditions, which may differ from actual cash flow.Transportation contract rights are amortized on a straight-line basisover 12 years, which represents our company's estimate of theaverage length of the contracts and expected renewal periods. Therequirements for these impairment charges were determined bymanagement's evaluation that the future undiscounted cash flowsattributable to the underlying assets were unlikely to exceed thecarrying value of the transportation contract rights assets for certainof the school bus companies. The impairment charges were the differencebetween book value of the transportation contract rights and estimatedfair value, determined as the estimated future cash flows.

Income Taxes.    We follow the liability method underSFAS No. 109, ‘‘Accounting for IncomeTaxes.’’ The primary objectives of accounting for taxesunder SFAS No. 109 are to (1) recognize the amount of taxpayable for the current year and (2) recognize the amount ofdeferred tax liability or asset for the future tax consequencesattributable to temporary differences between the financialstatements' carrying amounts of existing assets and liabilitiesand their respective tax bases and of events that have been reflectedin our financial statements or tax returns. When the realization of adeferred tax asset is not considered to be more likely than not, avaluation allowance is recorded against that deferred tax asset.

We have net deferred tax assets resulting primarily from netoperating losses (‘‘NOL’’) that will reducetaxable income in future periods. SFAS No. 109 requires that avaluation allowance be established when it is ‘‘morelikely than not’’ that all or a portion of net deferredtax assets will not be realized. A review of all available positive andnegative evidence needs to be considered, including expected reversalsof significant deductible temporary differences, a company'srecent financial performance, the market environment in which a companyoperates, tax planning strategies and the length of the NOLcarryforward period. Management believes that the realization of aportion of the deferred tax assets is not considered to be more likelythan not and accordingly, has provided a valuation allowance.

Wefile consolidated federal and state income tax returns with our parentand its affiliates. The income tax charge or benefits allocated to usis based upon an allocation method determined by the group under itstax sharing agreement. The balance identified as deferred tax assetsand liabilities can, in substance, be considered the equivalent toamounts due from and due to this affiliated group based upon theapplication of this method.

Allowance for DoubtfulAccounts.    We maintain an allowance for estimated lossesresulting from the inability of our customers to make requiredpayments. We estimate uncollectible amounts based upon historical baddebts, current customer receivable balances, age of customer receivablebalances, the customer's financial condition and current economictrends. If the actual uncollected amounts were to significantly exceedthe estimated allowance, our results of operations would be materiallyadversely affected.

Revenue Recognition.    Revenuesfrom school bus and paratransit and transit operations are recognizedwhen services are provided. We bill our customers on a monthly basisbased upon the completion of bus routes for school bus operations andservice hours for paratransit and transit operations, which in bothcases are typically based upon contracts or extension agreements wehave with our customers.

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Insurance Coverage andReserves.    The Company’s primary automobile andworkers compensation coverages ($1.0  million per occurrence) areadministered through a third party insurance company. Under the termsof such arrangements, the Company funds, through monthly installments,loss funds specified by the insurance company. The Company isresponsible for the first $500,000 of each loss. The loss funds plusfronting charges consisting of claims handling, administrative, risktransfer charges and taxes are charged to a prepaid asset account.Operating costs are charged and prepaid assets are reduced by estimatedclaim loss costs and amortization of fronting charges. Quarterly theCompany receives from the insurance company a calculation of ultimateclaims liability based upon actually computed reserves usingdevelopment factors taking into consideration claims history to arriveat incurred but not reported claims. Charges to operations are adjustedto reflect these calculations.

For the nine months endingMarch  31,  2006 the following adjustments have beenmade:

|                                 |  |        |             |         |  |  |
|---------------------------------|--|--------|-------------|---------|--|--|
| Automobileliability adjustments |  | $      | 965,048     |    |
| Workerscompensation adjustments |  |   | ($1,320,981 | )  |
|                                 |

Inaddition to the primary coverage mentioned above the company has$10.0  million of umbrella coverage (up to $25.0  millionin two specific subsidiaries), in excess of its primary $1.0million. Under the coverage terms of its current policy, The Companyhas a self-insured retention of the first $3.0  million ofclaims.

Previously, the Company self-insured its obligations thatmay arise under workers compensation and automobile liability claims.Provisions for such obligations are provided for asfollows:

Reserve requirements for deductible amounts for thethree months ended March  31,  2006 were based uponvaluations supplied by our insurance company. Such valuations computedreserve requirements based upon estimated ultimate claim losses,including those incurred but not reported. Charges to operations areadjusted, if necessary, to reflect these valuations.

Thefollowing table reflects the activity in this account for the ninemonths ended March  31,2006:

|                                           |  |              |            |         |  |  |
|-------------------------------------------|--|--------------|------------|---------|--|--|
|                                      |  | TotalReserve |
| Balance, June 30,2005                |  | $            | 3,309,815  |    |
| Expense                                   |  |         | 154,833    |    |
| Paymentsagainst thereserve                |  |         | (1,352,356 | )  |
| Balance,March  31,2006                    |  | $            | 2,112,292  |    |
|  Currentportion of insurance reserve |  | $            | 1,057,491  |    |
| Longterm portion of insurancereserve      |  |         | 1,054,801  |    |
| Totalinsurancereserve                     |  | $            | 2,112,292  |    |
|                                           |

DisclosureRegarding Forward-Looking Statements

This report containsforward-looking statements. These statements relate to future events orour 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 materiallydifferent from any future results, levels of activity, performance orachievements expressed or implied by these forward-looking statements.In some cases, you can identify forward-looking statements byterminology such as ‘‘may,’’‘‘will,’’‘‘should,’’‘‘expects,’’‘‘intends,’’‘‘plans,’’‘‘anticipates,’’‘‘believes,’’‘‘estimates,’’‘‘predicts,’’‘‘potential,’’‘‘continue’’ or the negative of these termsor other comparable terminology. These statements are only predictions.Actual events or results may differ materially.

Although webelieve that the expectations reflected in the forward-lookingstatements are reasonable, we cannot guarantee future results, levelsof activity, performance or achievements. These forward-lookingstatements are made as of the date of this report and, except asrequired under the federal securities laws and the rules andregulations of the SEC, we assume no obligation to update or revisethem or to provide reasons why actual results maydiffer.

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Item 3.    Quantitative andQualitative Disclosures About Market Risk

In the normalcourse of operations, we are exposed to market risks arising fromadverse changes in interest rates. Market risk is defined for thesepurposes as the potential change in the fair value of financial assetsor liabilities resulting from an adverse movement in interestrates.

We operated a fleet of approximately 6,100 vehicles as ofMarch  31,  2006 and consume substantial quantities of fuelfor our operations. Based on our current operations, an increase infuel costs of 10 cents per gallon will increase our cost of fuelpurchased by approximately $1.0 million on an annual basis. Fromtime to time in the past, we have entered into hedging contracts toprotect ourselves from fluctuations in the cost of fuel, and we mayseek to do the same in the future. We currently do not have any fuelhedging agreements in place, but we continually evaluate entering intosuch agreements. No assurance can be given that we will be able toadequately protect ourselves from fluctuating fuel costs even if weenter into hedging contracts.

As of March  31,2006, our only material variable rate borrowings are the Floating Notes(LIBOR plus 9.2% interest) and $16.5 million of the$20.0 million senior credit facility (prime plus 1%interest). As of March  31,  2006, we had approximately$19.7 million (of which $3.5 million has a fixed interestrate of 12%) of borrowings outstanding under our senior creditfacility and a $3.5  million advance under the letter of creditfacility. A 100 basis point increase in interest rates, applied to ourvariable rate borrowings as of March  31,  2006, wouldresult in an annual increase in interest expense and a correspondingreduction in cash flow of approximately $0.3 million.

Item 4.    Controls and Procedures

The Companymaintains disclosure controls and procedures (as defined in Rule15d-15(e) under the Securities Exchange Act of 1934, as amended (the‘‘Exchange Act’’)) that are designed toensure that information required to be disclosed by the Company inreports it files or submits under the Exchange Act is recorded,processed, summarized and reported within the time periods specified inthe SEC’s rules and forms, and that such information isaccumulated and communicated to the Company’s management,including its Chief Executive Officer and Chief Financial Officer, asappropriate to allow timely decisions regarding requireddisclosure.

As of the end of the period covered by this report,the Company again carried out an evaluation, under the supervision andwith the participation of the Company’s management, includingits Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of the Company’sdisclosure controls and procedures. Based on the foregoing, theCompany’s Chief Executive Officer and Chief Financial Officerconcluded that the Company’s disclosure controls and procedureswere still ineffective as of the end of the period covered by thisreport. The Company continues to review its disclosure controls andprocedures in order to improve their effectiveness. Although theprocess is ongoing, the Company has identified a need to modify itsfinancial period closing from a sequential to a more simultaneousprocess, to reduce the time necessary to properly complete itsfinancial statement preparation and review. As the review processcontinues, the Company may identify other areas for improvement. TheCompany has implemented improvements, but cannot yet determine when allimprovements will be completed or have the intended effect.

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

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PART II.

OTHERINFORMATION

Item 1.    LegalProceedings

None.

Item 1A.    RiskFactors

Not Applicable.

Item2.    Unregistered Sales of Equity Securities and Use ofProceeds

None.

Item 3.    Defaults upon SeniorSecurities

None.

Item 4.    Submission ofMatters to a Vote of Security Holders

None.

Item5.    Other Information

None.

Item6.    Exhibits 

The following documents arefiled as Exhibits to thisreport:

|            |  |                                                                      |  |  |  |  |
|------------|--|----------------------------------------------------------------------|--|--|--|--|
| ExhibitNo. |  | Description                                                          |
| 3.1        |  | Rule13a-14(a)/15d-14(a) Certification of Principal ExecutiveOfficer  |
| 3.2        |  | Rule 13a-14(a)/15d-14(a)Certification of Principal Financial Officer |
| 3.3        |  | Section 1350 Certification of Principal ExecutiveOfficer             |
| 3.4        |  | Section 1350 Certification ofPrincipal FinancialOfficer              |
|            |

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SIGNATURE

Pursuantto the requirements of the Securities Exchange Act of 1934, as amended,Atlantic Express Transportation Corp. has caused this report to besigned on its behalf by the undersigned, thereunto dulyauthorized.

|                    |  |                                                                                                                                                                                                                         |  |  |  |  |
|--------------------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
|               |  | ATLANTICEXPRESS TRANSPORTATIONCORP.                                                                                                                                                                                     |
| Date: May12,  2006 |  | By: /s/ DomenicGatto                                    |
|               |  | DomenicGattoChief Executive Officer(Principal ExecutiveOfficer)                                                                                                                                                         |
| Date: May12,  2006 |  | By: /s/ NathanSchlenker                                 |
|               |  | NathanSchlenkerChief Financial Officer(Principal Financial andPrincipal AccountingOfficer)                                                                                                                              |
|                    |

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EXHIBITINDEX

|            |  |                                                                      |  |  |  |  |
|------------|--|----------------------------------------------------------------------|--|--|--|--|
| ExhibitNo. |  | Description                                                          |
| 3.1        |  | Rule13a-14(a)/15d-14(a) Certification of Principal ExecutiveOfficer  |
| 3.2        |  | Rule 13a-14(a)/15d-14(a)Certification of Principal Financial Officer |
| 3.3        |  | Section 1350 Certification of Principal ExecutiveOfficer             |
| 3.4        |  | Section 1350 Certification ofPrincipal FinancialOfficer              |
|            |

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