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|--|
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UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION

Washington,D.C. 20549

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|--|
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Form10-Q

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

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

OR

|        |                                                                                        |
|--------|----------------------------------------------------------------------------------------|
|   | 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 ofincorporation ororganization) |  |  | (IRS EmployerIdentificationNo.) |
| 7North Street Staten Island, New York 10302-1205            |
| (Addressof principal executiveoffices)                      |
| (718)442-7000                                               |
| (Registrant’stelephone number, including areacode)    |
|                                                             |

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|--|
|  |  |  |  |
|  |

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

Indicate by check mark whether theregistrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. (as defined in Rule 12b-2 of the ExchangeAct).

Large acceleratedfiler       Acceleratedfiler       Non-acceleratedfiler   

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

Indicate by check mark whether theregistrant has filed all documents and reports required to be filed bySection 12, 13 or 15(d) of the Securities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed bya court. Yes     No 

The number ofoutstanding shares of the registrant’s common stock, par value$0.01 per share, as of February  13,  2007 was945,263

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INDEX

|                             |  |  |                                                                                                                           |  |  |         |
|-----------------------------|--|--|---------------------------------------------------------------------------------------------------------------------------|--|--|---------|
|                        |  |  |                                                                                                                      |  |  | PageNo. |
| PART I:FINANCIALINFORMATION |  |  |                                                                                                                      |
| Item1.                      |  |  | FinancialStatements                                                                                                       |  |  | 3       |
|                        |  |  | ConsolidatedBalance Sheets — December 31, 2006 (unaudited) and June 30,2006                                         |  |  | 3       |
|                        |  |  | ConsolidatedStatements of Operations (unaudited) — Three Months Endedand Six Months Ended December 31, 2006 and2005 |  |  | 4       |
|                        |  |  | ConsolidatedStatements of Cash Flows (unaudited) — Six Months EndedDecember 31, 2006 and2005                        |  |  | 5       |
|                        |  |  | Notes toConsolidated FinancialStatements                                                                                  |  |  | 7       |
| Item2.                      |  |  | Management’s Discussion and Analysis of FinancialCondition and Results ofOperations                                 |  |  | 11      |
| Item3.                      |  |  | Quantitative and Qualitative Disclosures about MarketRisk                                                                 |  |  | 17      |
| Item 4.                     |  |  | ControlsandProcedures                                                                                                     |  |  | 17      |
|                        |  |  |                                                                                                                      |  |  |    |
| PARTII: OTHER INFORMATION   |  |  |                                                                                                                      |
| Item1.                      |  |  | LegalProceedings                                                                                                          |  |  | 19      |
| Item1A.                     |  |  | Risk Factors                                                                                                              |  |  | 19      |
| Item2.                      |  |  | Unregistered Sales of Equity Securities and Use ofProceeds                                                                |  |  | 19      |
| Item3.                      |  |  | Defaults upon SeniorSecurities                                                                                            |  |  | 19      |
| Item4.                      |  |  | Submission of Matters to a Vote of SecurityHolders                                                                        |  |  | 19      |
| Item 5.                     |  |  | OtherInformation                                                                                                          |  |  | 19      |
| Item6.                      |  |  | Exhibits and Reports on Form8-K                                                                                           |  |  | 19      |
|                             |

2

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Table of Contents

PARTI.

FINANCIAL INFORMATION

ItemI.    Financial Statements

Atlantic ExpressTransportation Corp. and Subsidiaries Consolidated BalanceSheets

|                                                                                                     |  |  |                 |   |              |              |  |  |  |   |              |   |
|-----------------------------------------------------------------------------------------------------|--|--|-----------------|---|--------------|--------------|--|--|--|---|--------------|---|
|                                                                                                |  |  | December31,2006 |   |              | June 30,2006 |
|                                                                                                |  |  | (unaudited)     |   |              |         |
| Assets                                                                                              |  |  |                 |   |         |              |  |  |  |   |         |   |
| Currentassets:                                                                                      |  |  |                 |   |         |              |  |  |  |   |         |   |
| Cash and cashequivalents                                                                            |  |  |                 | $ | 6,682,571    |              |  |  |  | $ | 501,271      |   |
| Accountsreceivable, net of allowance for doubtful accounts of $1,217,228 and$1,760,310,respectively |  |  |                 |   | 53,457,408   |              |  |  |  |   | 46,084,799   |   |
| Inventories                                                                                         |  |  |                 |   | 2,737,304    |              |  |  |  |   | 2,763,901    |   |
| Assetsheld forsale                                                                                  |  |  |                 |   | —      |              |  |  |  |   | 6,222,679    |   |
| Prepaidinsurance                                                                                    |  |  |                 |   | 21,895,439   |              |  |  |  |   | 34,881,384   |   |
| Prepaidexpenses and other currentassets                                                             |  |  |                 |   | 6,044,120    |              |  |  |  |   | 3,740,504    |   |
| Totalcurrentassets                                                                                  |  |  |                 |   | 90,816,842   |              |  |  |  |   | 94,194,538   |   |
| Property,plant and equipment, at cost, lessaccumulateddepreciation                                  |  |  |                 |   | 87,068,014   |              |  |  |  |   | 93,477,922   |   |
| Otherassets:                                                                                        |  |  |                 |   |         |              |  |  |  |   |         |   |
| Restricted cash and cashequivalents                                                                 |  |  |                 |   | 645,000      |              |  |  |  |   | 3,728,146    |   |
| Restrictedmarketablesecurities                                                                      |  |  |                 |   | —      |              |  |  |  |   | 4,428,627    |   |
| Transportationcontract rights,net                                                                   |  |  |                 |   | 2,905,214    |              |  |  |  |   | 3,162,134    |   |
| Deferredfinancing costs,net                                                                         |  |  |                 |   | 4,421,516    |              |  |  |  |   | 6,200,525    |   |
| Deposits andother non-currentassets                                                                 |  |  |                 |   | 11,464,645   |              |  |  |  |   | 8,234,313    |   |
| Totalotherassets                                                                                    |  |  |                 |   | 19,436,375   |              |  |  |  |   | 25,753,745   |   |
| TOTALASSETS                                                                                         |  |  |                 | $ | 197,321,231  |              |  |  |  | $ | 213,426,205  |   |
| Liabilitiesand Shareholder’sDeficit                                                           |  |  |                 |   |         |              |  |  |  |   |         |   |
| Currentliabilities:                                                                                 |  |  |                 |   |         |              |  |  |  |   |         |   |
| Current portion oflong-termdebt                                                                     |  |  |                 | $ | 18,050,474   |              |  |  |  | $ | 22,196,184   |   |
| Currentportion of capital leaseobligations                                                          |  |  |                 |   | 1,532,995    |              |  |  |  |   | 1,625,172    |   |
| Insurancefinancingpayable                                                                           |  |  |                 |   | 785,831      |              |  |  |  |   | 4,086,924    |   |
| Controlleddisbursements account—checks issued notfunded                                       |  |  |                 |   | 5,129,689    |              |  |  |  |   | 2,202,664    |   |
| Accountspayable, accrued expenses and other currentliabilities                                      |  |  |                 |   | 21,350,180   |              |  |  |  |   | 26,222,915   |   |
| Accruedcompensation                                                                                 |  |  |                 |   | 5,018,403    |              |  |  |  |   | 3,166,608    |   |
| Currentportion of insurancereserves                                                                 |  |  |                 |   | 909,436      |              |  |  |  |   | 1,458,766    |   |
| Accruedinterest                                                                                     |  |  |                 |   | 5,478,556    |              |  |  |  |   | 5,429,594    |   |
| Payableto creditors under the plan of reorganization—currentportion                           |  |  |                 |   | 1,440,890    |              |  |  |  |   | 2,128,413    |   |
| Totalcurrentliabilities                                                                             |  |  |                 |   | 59,696,454   |              |  |  |  |   | 68,517,240   |   |
| Long-termdebt, net of currentportion                                                                |  |  |                 |   | 137,241,020  |              |  |  |  |   | 135,885,374  |   |
| Capitallease obligations, net of currentportion                                                     |  |  |                 |   | 2,878,184    |              |  |  |  |   | 3,340,907    |   |
| Insurancereserves, net of currentportion                                                            |  |  |                 |   | 467,617      |              |  |  |  |   | 457,434      |   |
| Deferredincome, net of current portion and other long-termliabilities                               |  |  |                 |   | 3,492,409    |              |  |  |  |   | 3,328,464    |   |
| Deferredstate and local incometaxes                                                                 |  |  |                 |   | 622,000      |              |  |  |  |   | 622,000      |   |
| Payable tocreditors under the plan of reorganization, net of currentportion                         |  |  |                 |   | 1,312,054    |              |  |  |  |   | 1,307,959    |   |
| Totalliabilities                                                                                    |  |  |                 |   | 205,709,738  |              |  |  |  |   | 213,459,378  |   |
| Commitmentsandcontingencies                                                                         |  |  |                 |   |         |              |  |  |  |   |         |   |
| Shareholder’sdeficit:                                                                         |  |  |                 |   |         |              |  |  |  |   |         |   |
| Common stock, par value$.01 per share, authorized shares 1,303,200; issued and outstanding945,263   |  |  |                 |   | 9,453        |              |  |  |  |   | 9,453        |   |
| Additionalpaid-incapital                                                                            |  |  |                 |   | 114,939,064  |              |  |  |  |   | 114,939,064  |   |
| Accumulateddeficit                                                                                  |  |  |                 |   | (123,337,024 | )            |  |  |  |   | (114,816,797 | ) |
| Accumulatedother comprehensiveloss                                                                  |  |  |                 |   | —      |              |  |  |  |   | (164,893     | ) |
| Totalshareholder’s deficit                                                                    |  |  |                 |   | (8,388,507   | )            |  |  |  |   | (33,173      | ) |
| TOTALLIABILITIES AND SHAREHOLDER’SDEFICIT                                                     |  |  |                 | $ | 197,321,231  |              |  |  |  | $ | 213,426,205  |   |
|                                                                                                     |

Seeaccompanying notes to condensed consolidated financialstatements.

3

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Table of Contents

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

|                                                           |  |  |                               |   |             |                            |  |  |      |   |             |      |  |  |  |   |             |   |  |  |  |   |             |   |
|-----------------------------------------------------------|--|--|-------------------------------|---|-------------|----------------------------|--|--|------|---|-------------|------|--|--|--|---|-------------|---|--|--|--|---|-------------|---|
|                                                      |  |  | ThreeMonths EndedDecember 31, |   |             | Six MonthsEndedDecember31, |
|                                                      |  |  | 2006                          |   |             | 2005                       |  |  | 2006 |   |             | 2005 |
| Revenues:                                                 |  |  |                               |   |        |                            |  |  |      |   |        |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Schoolbusoperations                                       |  |  |                               | $ | 107,470,959 |                            |  |  |      | $ | 98,533,740  |      |  |  |  | $ | 165,275,321 |   |  |  |  | $ | 154,120,401 |   |
| Paratransitand transitoperations                          |  |  |                               |   | 11,513,449  |                            |  |  |      |   | 10,985,109  |      |  |  |  |   | 23,472,491  |   |  |  |  |   | 22,685,502  |   |
| Totalrevenues                                             |  |  |                               |   | 118,984,408 |                            |  |  |      |   | 109,518,849 |      |  |  |  |   | 188,747,812 |   |  |  |  |   | 176,805,903 |   |
| Costsandexpenses:                                         |  |  |                               |   |        |                            |  |  |      |   |        |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Costof operations—School busoperations              |  |  |                               |   | 92,316,550  |                            |  |  |      |   | 87,192,952  |      |  |  |  |   | 150,762,139 |   |  |  |  |   | 142,982,164 |   |
| Costof operations—Paratransit and transitoperations |  |  |                               |   | 10,468,370  |                            |  |  |      |   | 9,721,440   |      |  |  |  |   | 20,975,820  |   |  |  |  |   | 19,886,024  |   |
| Generalandadministrative                                  |  |  |                               |   | 4,484,576   |                            |  |  |      |   | 4,933,621   |      |  |  |  |   | 8,405,669   |   |  |  |  |   | 9,562,832   |   |
| Depreciationandamortization                               |  |  |                               |   | 4,611,618   |                            |  |  |      |   | 5,680,015   |      |  |  |  |   | 9,175,172   |   |  |  |  |   | 11,751,895  |   |
| Totaloperating costs andexpenses                          |  |  |                               |   | 111,881,114 |                            |  |  |      |   | 107,528,028 |      |  |  |  |   | 189,318,800 |   |  |  |  |   | 184,182,915 |   |
| Income(loss) fromoperations                               |  |  |                               |   | 7,103,294   |                            |  |  |      |   | 1,990,821   |      |  |  |  |   | (570,988    | ) |  |  |  |   | (7,377,012  | ) |
| Otherexpense:                                             |  |  |                               |   |        |                            |  |  |      |   |        |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Interestexpense                                           |  |  |                               |   | (7,071,874  | )                          |  |  |      |   | (6,597,064  | )    |  |  |  |   | (13,252,955 | ) |  |  |  |   | (13,023,771 | ) |
| Reorganizationcosts                                       |  |  |                               |   | (37,892     | )                          |  |  |      |   | (33,224     | )    |  |  |  |   | (36,470     | ) |  |  |  |   | (92,460     | ) |
| Otherloss                                                 |  |  |                               |   | (14,671     | )                          |  |  |      |   | (139,259    | )    |  |  |  |   | (272,381    | ) |  |  |  |   | (101,179    | ) |
| Lossbefore discontinuedoperations                         |  |  |                               |   | (21,143     | )                          |  |  |      |   | (4,778,726  | )    |  |  |  |   | (14,132,794 | ) |  |  |  |   | (20,594,422 | ) |
| Gain(loss) from discontinuedoperations                    |  |  |                               |   | —     |                            |  |  |      |   | (1,076      | )    |  |  |  |   | 5,612,567   |   |  |  |  |   | (2,400      | ) |
| Netloss                                                   |  |  |                               | $ | (21,143     | )                          |  |  |      | $ | (4,779,802  | )    |  |  |  |   | (8,520,227  | ) |  |  |  | $ | (20,596,822 | ) |
|                                                           |

Seeaccompanying notes to consolidated financial statements.

4

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Table of Contents

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

|                                                                                      |  |  |                            |   |            |      |  |  |  |   |             |   |
|--------------------------------------------------------------------------------------|--|--|----------------------------|---|------------|------|--|--|--|---|-------------|---|
|                                                                                 |  |  | SixMonths EndedDecember31, |
|                                                                                 |  |  | 2006                       |   |            | 2005 |
| Cashflows from operatingactivities:                                                  |  |  |                            |   |       |      |  |  |  |   |        |   |
| Netloss                                                                              |  |  |                            | $ | (8,520,227 | )    |  |  |  | $ | (20,596,822 | ) |
| Adjustmentsto reconcile net loss to net cash used in operatingactivities:            |  |  |                            |   |       |      |  |  |  |   |        |   |
| Losson sales of marketable securities andinvestments                                 |  |  |                            |   | 67,841     |      |  |  |  |   | 6,836       |   |
| Depreciation                                                                         |  |  |                            |   | 8,918,252  |      |  |  |  |   | 10,775,713  |   |
| Fixedassetimpairment                                                                 |  |  |                            |   | —    |      |  |  |  |   | 445,137     |   |
| Amortization                                                                         |  |  |                            |   | 2,161,788  |      |  |  |  |   | 2,406,130   |   |
| Originalissue discountinterest                                                       |  |  |                            |   | 487,074    |      |  |  |  |   | 487,075     |   |
| Reserve fordoubtful accountsreceivable                                               |  |  |                            |   | 60,000     |      |  |  |  |   | 60,000      |   |
| Gain onsale ofbusiness                                                               |  |  |                            |   | (5,868,473 | )    |  |  |  |   | —     |   |
| Loss onsales of fixed assets,net                                                     |  |  |                            |   | 271,623    |      |  |  |  |   | 97,062      |   |
| Decrease(increase) in:                                                               |  |  |                            |   |       |      |  |  |  |   |        |   |
| Accountsreceivable                                                                   |  |  |                            |   | (7,432,609 | )    |  |  |  |   | (716,364    | ) |
| Inventories                                                                          |  |  |                            |   | 26,597     |      |  |  |  |   | (131,360    | ) |
| Prepaidexpenses and other currentassets                                              |  |  |                            |   | 10,921,541 |      |  |  |  |   | 6,397,268   |   |
| Depositsand other non-currentassets                                                  |  |  |                            |   | (3,230,332 | )    |  |  |  |   | (3,158,276  | ) |
| Increase(decrease) in:                                                               |  |  |                            |   |       |      |  |  |  |   |        |   |
| Accounts payable,accrued expenses, accrued compensation and other currentliabilities |  |  |                            |   | (2,212,944 | )    |  |  |  |   | (2,872,215  | ) |
| Controlleddisbursementaccount                                                        |  |  |                            |   | 2,927,025  |      |  |  |  |   | 675,735     |   |
| Insurancefinancingpayable                                                            |  |  |                            |   | (3,301,093 | )    |  |  |  |   | (2,792,142  | ) |
| Payableto creditors under plan ofreorganization                                      |  |  |                            |   | (683,428   | )    |  |  |  |   | (378,270    | ) |
| Insurancereserves and other long-termliabilities                                     |  |  |                            |   | (375,202   | )    |  |  |  |   | (696,505    | ) |
| Netcash used in operatingactivities                                                  |  |  |                            |   | (5,782,567 | )    |  |  |  |   | (9,990,998  | ) |
| Cashflows from investingactivities:                                                  |  |  |                            |   |       |      |  |  |  |   |        |   |
| Additions toproperty, plant andequipment                                             |  |  |                            |   | (2,663,269 | )    |  |  |  |   | (2,987,751  | ) |
| Purchaseof transportation contractrights                                             |  |  |                            |   | —    |      |  |  |  |   | (1,421,772  | ) |
| Proceedsfrom sale ofbusiness                                                         |  |  |                            |   | 11,760,113 |      |  |  |  |   | —     |   |
| Proceedsfrom sales of fixedassets                                                    |  |  |                            |   | 565,657    |      |  |  |  |   | 7,045,453   |   |
| Decrease inrestricted cash and cashequivalents                                       |  |  |                            |   | 3,083,146  |      |  |  |  |   | 1,700,835   |   |
| Purchasesof marketablesecurities                                                     |  |  |                            |   | (547,507   | )    |  |  |  |   | (2,738,990  | ) |
| Proceedsfrom sales or redemptions of marketablesecurities                            |  |  |                            |   | 5,072,704  |      |  |  |  |   | 2,555,399   |   |
| Netcash provided by investingactivities                                              |  |  |                            |   | 17,270,844 |      |  |  |  |   | 4,153,174   |   |
|                                                                                      |

Continued

5

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Table of Contents

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

|                                                                      |  |  |                            |   |            |      |  |  |  |   |            |   |
|----------------------------------------------------------------------|--|--|----------------------------|---|------------|------|--|--|--|---|------------|---|
|                                                                 |  |  | SixMonths EndedDecember31, |
|                                                                 |  |  | 2006                       |   |            | 2005 |
| Cash flows from financingactivities:                                 |  |  |                            |   |       |      |  |  |  |   |       |   |
| Payments on seniorcredit facility,net                                |  |  |                            | $ | (3,971,529 | )    |  |  |  | $ | (1,607,947 | ) |
| Distributionto parentcompany                                         |  |  |                            |   | —    |      |  |  |  |   | (110,000   | ) |
| Proceedsfrom sale of commonstock                                     |  |  |                            |   | —    |      |  |  |  |   | 4,900,000  |   |
| Principalpayments on borrowings and capital leaseobligations         |  |  |                            |   | (1,209,071 | )    |  |  |  |   | (1,568,234 | ) |
| Deferredfinancingcosts                                               |  |  |                            |   | (126,377   | )    |  |  |  |   | (277,173   | ) |
| Netcash provided by (used in) financingactivities                    |  |  |                            |   | (5,306,977 | )    |  |  |  |   | 1,336,646  |   |
| Netincrease (decrease) in cash and cashequivalents                   |  |  |                            |   | 6,181,300  |      |  |  |  |   | (4,501,178 | ) |
| Cashand cash equivalents, beginning ofyear                           |  |  |                            |   | 501,271    |      |  |  |  |   | 6,834,961  |   |
| Cashand cash equivalents, end ofperiod                               |  |  |                            | $ | 6,682,571  |      |  |  |  | $ | 2,333,783  |   |
| Supplementaldisclosures of cash flowinformation:                     |  |  |                            |   |       |      |  |  |  |   |       |   |
| Cashpaid during the periodfor:                                       |  |  |                            |   |       |      |  |  |  |   |       |   |
| Interest                                                             |  |  |                            | $ | 9,922,225  |      |  |  |  | $ | 10,047,887 |   |
| Incometaxes                                                          |  |  |                            | $ | 88,227     |      |  |  |  | $ | 69,842     |   |
| Supplementaldisclosures of non-cash investing and financingactivity: |  |  |                            |   |       |      |  |  |  |   |       |   |
| Loans incurred forpurchases of property, plant andequipment          |  |  |                            | $ | 590,528    |      |  |  |  | $ | —    |   |
|                                                                 |  |  |                            |   |       |      |  |  |  |   |       |   |
|                                                                      |

Seeaccompanying notes to consolidated financialstatements.

6

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Table of Contents

AtlanticExpress Transportation Corp. and Subsidiaries Notes toConsolidated Financial Statements

1.    Basis ofAccounting

These consolidated financial statements should beread in conjunction with the consolidated financial statements andrelated notes contained in Atlantic Express TransportationCorp.’s (the ‘‘Company’s’’)financial statements as of and for the year ended June30,  2006 as filed on the Company’s Annual Report on Form10-K. In the opinion of management, all adjustments and accruals(consisting only of normal recurring adjustments), which are necessaryfor a fair presentation of operating results are reflected in theaccompanying financial statements. Operating results for the periodspresented are not necessarily indicative of the results for the fullfiscal year.

2.    Sale of Business

On July27,  2006, T-NT Bus Service, Inc., a subsidiary of the Company(‘‘T-NT’’), completed the sale ofsubstantially all of its assets for a gross purchase price of$12.6  million. In addition, Domenic Gatto, the Company’sChief Executive Officer and President received $100,000 asconsideration for entering into a five year non-competition agreement.The Company recognized a gain on the sale of these assets ofapproximately $5.6  million, net for the three months endedSeptember  30,  2006 which is included in gain fromdiscontinued operations. The operating results of T-NT were notrestated as discontinued operations for the three months endedSeptember  30,  2005 due to immateriality.

3.    PIK Interest

On September 30, 2006, theCompany did not satisfy the maintenance of net leverage test under theIndenture governing its outstanding senior secured notes due 2008 (the‘‘Notes’’). As a result, the Company isrequired to pay additional interest at a rate of 2% per annum inthe form of payment in kind (‘‘PIK’’)notes. All PIK notes have identical terms as the Notes. The Company isalso required to pay the 2% per annum of PIK interest to theholders of its outstanding Third Priority Secured Note. The Companywill issue the PIK notes on each remaining semi-annual interest paymentdate of April  15 and October  15, beginning April15,  2007. Because the obligation to pay additional interest onthe Notes began effective as of September  30,  2006, theinitial issuance of PIK notes will cover additional interest from thatdate for a period which will exceed six months. Subsequent issuances ofPIK notes on semi-annual interest payment dates will cover additionalinterest for the corresponding six monthperiod.

4.    Insurance Collateral Requirements

InDecember  2006, one of the Company’s insurance carriersreleased approximately $10.0  million in excess collateral basedupon retrospective adjustments for various years. Approximately$5.2  million was a credit issued to the Company and $4.8million was a reduction in a letter of credit held by the insurancecompany. This letter of credit was collateralized by restricted cashwhich is now available for working capital.

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5.    Debt

The followingrepresents the debt outstanding at December  31,  2006 andJune 30,2006:

|                                                                                                                           |  |  |                 |   |             |             |  |  |  |   |             |   |
|---------------------------------------------------------------------------------------------------------------------------|--|--|-----------------|---|-------------|-------------|--|--|--|---|-------------|---|
|                                                                                                                      |  |  | December31,2006 |   |             | June30,2006 |
|                                                                                                                      |  |  | (unaudited)     |   |             |        |
| 12%Senior Secured Notes, due 2008 with cash interest payableOctober 15th andApril 15th(a)                       |  |  |                 | $ | 105,525,000 |             |  |  |  | $ | 105,000,000 |   |
| SeniorSecured Floating Rate Notes, due 2008 with cash interest payableOctober 15th andApril 15th(a)             |  |  |                 |   | 10,049,000  |             |  |  |  |   | 10,000,000  |   |
| Less:original issue discount associated with the issuance of warrants,net(a)                                              |  |  |                 |   | (878,262    | )           |  |  |  |   | (1,217,391  | ) |
| Newsenior creditfacility(b)                                                                                               |  |  |                 |   | 13,784,173  |             |  |  |  |   | 17,755,702  |   |
| 15%senior unsecured termnote(c)                                                                                           |  |  |                 |   | 4,900,000   |             |  |  |  |   | 4,900,000   |   |
| Letterof creditadvance                                                                                                    |  |  |                 |   | 3,500,000   |             |  |  |  |   | 3,500,000   |   |
| 10%Third Priority Senior Secured Notes due 2008 with cash interest payableOctober  15, and April15th(d)                   |  |  |                 |   | 15,352,510  |             |  |  |  |   | 15,168,474  |   |
| Less:original issue discount associated with the issuance of warrants,net(d)                                              |  |  |                 |   | (357,539    | )           |  |  |  |   | (505,484    | ) |
| Variousnotes payable, primarily secured by transportation equipment, withinterest rates ranging from 8% –10.3% |  |  |                 |   | 3,416,612   |             |  |  |  |   | 3,480,257   |   |
|                                                                                                                      |  |  |                 |   | 155,291,494 |             |  |  |  |   | 158,081,558 |   |
| Lesscurrentportion                                                                                                        |  |  |                 |   | 18,050,474  |             |  |  |  |   | 22,196,184  |   |
| Long-termdebt, net of currentportion                                                                                      |  |  |                 | $ | 137,241,020 |             |  |  |  | $ | 135,885,374 |   |
|                                                                                                                           |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (a) | OnApril 22, 2004 AETC issued the Notes. The Notes were issued aspart of an investment unit consisting of $1,000 principal amount of theoutstanding Notes and one warrant (the‘‘Warrants’’) to purchase one share of ourcommon stock at an exercise price of $0.01 per share.$2.7 million of the purchase price of the units was allocated tothe Warrants based upon a valuation by an independent financialinstitution. The original issue discount (the‘‘OID’’) is being amortized over the life ofthe Notes. |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Annual interest on the SeniorSecured Floating Rate Notes is equal to the applicable LIBOR rate plusa margin of 9.2%. Interest payments on the Notes, which arerequired semi-annually through their maturity date, commenced onOctober 15, 2004. In addition, from September 30, 2006,the Company is required to pay additional PIK interest on the Notes of2% per annum, since it did not meet the leverage test requiredin the Indenture (see note 3). |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The Notes andrelated subsidiary guarantees are senior secured obligations and rankequal in right of payment to all other existing and future seniorindebtedness and senior in right of payment to all of theCompany’s and its guarantor subsidiaries’ existing andfuture subordinated indebtedness. The Notes are secured by a firstpriority lien on substantially all of the Company’s and itsguarantor subsidiaries’ unencumbered owned real properties and onsubstantially all of the Company’s and its guarantorsubsidiaries’ owned motor vehicles, and a second priority lien onthe Company’s and its guarantor subsidiaries’ assets thatsecure their obligations under the senior credit facility on a firstpriority basis. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Concurrentlywith the issuance of the Notes, the Company entered into a seniorcredit facility with Wachovia Bank, N.A. with up to$20.0 million of borrowing availability under a revolving creditfacility. In addition there was initially a $10.0 million letterof credit facility. On September  19,  2006 our seniorlender approved the extension of our senior credit facility toFebruary  29,  2008 and on October  12,  2006the amendment was executed. The LTM EBITDA covenant was increased to$24.0  million effective April  2007, $25.0  millioneffective May  2007 and $26.0  million effectiveJune  30,  2007 and thereafter. The Accounts Purchase andSales Agreement |

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | was also extended to February29,  2008. In addition, our revolving line of credit wasincreased by $10.0  million to $30.0  million effectiveOctober  12,  2006.. Our senior credit facility is securedby a first priority lien on substantially all of the Company’sand all of its guarantor subsidiaries’ assets, other than thefirst lien real property and motor vehicle collateral securing theNotes and certain excluded assets, and by a second priority lien on thefirst lien real property. |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The borrowingcapacity under the revolving credit facility is based on 85% ofthe net amount of our eligible accounts receivable. Loans under therevolving credit facility bear interest at prime rate plus 1%per annum or, if we elect, the 3-month LIBOR rate plus 3.25% perannum. However, the $3.5 million portion of our senior creditfacility, which is the supplemental loan amount, bears interest at12% per annum. Letters of credit are subject to a fee of2% per annum, payable monthly in arrears, and any amounts paidby lenders for a letter of credit will bear the same rate as loansunder our revolving facility. The Company is required to pay aservicing fee of $10,000 per month, plus pay Wachovia a monthly fee of0.5% on any unused portion of its senior credit facility. Oursenior credit facility contains an EBITDA maintenance covenant,limitations on capital expenditures, as well as other events ofdefault. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (c) | On August 5,2004 the Company received $4.9  million from GSC II Holdings(AE), LLC and GSC Recovery II, LP (collectively,‘‘GSC’’) in exchange for a senior unsecuredterm note (the ‘‘GSC Note’’). The GSC Notebears interest at 15% per annum and is payable monthly, inarrears, commencing August 31, 2004 until September 2004and quarterly, in arrears, thereafter. On September  21, 2006 theholder of the GSC Note approved an extension of the maturity date fromApril  23,  2007 to February  22,  2008. TheGSC Note contains identical covenants as our senior credit facility andmatures the earlier of February  22,  2008 or such date asexcess availability as defined by our senior credit facility is inexcess of $7.0 million, after giving effect to the repayment ofprincipal of the GSC Note. In connection with this transaction, GSC,Wachovia and the Company signed a subordination agreement, whereby theparties agree that the Company may pay interest if excess availabilityis not less than $1.0 million and pay principal if excessavailability is in excess of $7.0 million, after giving effectto the respective repayments and no event of default (as defined in oursenior credit facility) shall exist or have occurred and be continuing.No principal payments were made to GSC under the GSC Note. OnOctober  17,  2005 this note was assigned to the holder ofthe Company’s $15.0 million third priority senior securednotes due 2008 (the ‘‘AdditionalIndebtedness’’). Interest payable was changed to annuallyon October  17,  2006 and quarterlythereafter. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (d) | On March 3,2005, concurrently with the execution of a supplemental Indenture, theCompany issued the Additional Indebtedness. The Additional Indebtednesswas issued with warrants to acquire 40,752 shares, or 5%, of theCompany’s then outstanding common stock (the‘‘Additional Warrants’’). $0.9 millionof the purchase price was allocated to the Additional Warrants, whichwas based upon a valuation model prepared by an independent financialinstitution that was used for the Warrants issued with the Notes. Theoriginal issue discount is being amortized over the life of theAdditional Indebtedness. Interest on the Additional Indebtedness is10% per annum in cash and PIK interest of 1% per annum,payable semi-annually in arrears on April 15 andOctober 15, which commenced on April 15, 2005. TheAdditional Indebtedness is secured by a third priority lien on all ofthe Company’s and its guarantor subsidiaries’ real propertyand a third priority lien on those assets that secure the Company andits guarantor subsidiaries’ obligations under our senior creditfacility on a first priority basis. The holders of the AdditionalIndebtedness are allowed to vote and consent together as one class withthe holders of the Notes, except in matters regarding the registrationrights agreement. Although the Additional Indebtedness is not and willnot be registered with the SEC, the Additional Warrants haveregistration rights. In addition, from September 30, 2006, theCompany is required to pay additional PIK interest on this note of2% per annum, since it did not meet the leverage test requiredin the Indenture (see note 3). |

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6.    New Accounting Standards

In June 2006, the FASB issued Financial Interpretation No.(FIN) 48, ‘‘Accounting for Uncertainty inIncome Taxes.’’ FIN 48 clarifies the accounting foruncertainty in income taxes recognized in an enterprise’sfinancial statements in accordance with SFAS 109,‘‘Accounting for Income Taxes.’’ FIN48 prescribes a recognition threshold and measurement attribute for thefinancial statement recognition and measurement of a tax position takenor expected to be taken in a tax return. It also provides guidance onderecognizing, classification, interest and penalties, accounting ininterim periods, disclosure, and transition. The requirements of FIN 48are effective for our fiscal year beginning July 1, 2007. We arein the process of evaluating this guidance and therefore have not yetdetermined the impact that FIN 48 will have on our financial positionor results of operations upon adoption.

In September2006, the FASB issued SFAS No. 157, Fair Value Measurements, whichdefines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles, and expands disclosures aboutfair value measurements. SFAS No. 157 does not require any new fairvalue measurements, but provides guidance on how to measure fair valueby providing a fair value hierarchy used to classify the source of theinformation. This statement is effective for us beginning July1,  2008. We are currently assessing the potential impact thatthe adoption of SFAS No. 157 will have on our financialstatements.

7.    Subsequent Events

EffectiveJanuary  29,  2007 the New York City Department ofEducation (the ‘‘DOE’’) reduced the numberof routes in New York City for certain DOE contractors, including theCompany. The Company believes this action will not have a materialeffect on its earnings or cash flows for the remainder of the fiscalyear.

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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 providerof school bus transportation in the United States and the leadingprovider in New York City, the largest market in which we operate. Wehave contracts with approximately 120 school districts in New York,Missouri, Massachusetts, California, Pennsylvania, New Jersey, andIllinois. For fiscal 2007, we have contracts to provide paratransitservices in New York to physically and mentally challenged passengerswho are unable to use standard public transportation. We also provideother transportation services, including fixed route transit, expresscommuter line and charter and tour buses through our coach services. Asof December  31,  2006, we had a fleet of approximately5,800 vehicles operating from approximately 50 facilities.

School bus transportation services accounted for 87.6% and87.2% of our revenues from continuing operations for the sixmonths ended December  31,  2006 and 2005, respectively.Our school bus transportation contracts have provided a relativelypredictable and stable stream of revenues over their terms, whichgenerally initially range from one to five years. Since 1979, we haveachieved 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 theschool districts we service, (3) the preference of schooldistricts to maintain continuity of service with their current provencontractor rather than risk the uncertainty associated with areplacement and (4) the disadvantage of prospective competitors,who generally would have to make substantially greater investments thanwe would in new equipment and who may experience difficulty obtainingsuitable parking and maintenance facilities in our primary markets,especially in the New York City greater metropolitan area.

Paratransit and transit services accounted for 12.4% and12.8% of our revenues from continuing operations for the sixmonths ended December  31,  2006 and 2005, respectively.The terms of our paratransit and transit contracts are initially forfive years. These contracts are awarded by public transit systemsthrough a public bidding or request for proposal(‘‘RFP’’) process. We are generally entitled toa specified charge per hour of vehicle service together with otherfixed charges.

Results ofOperations(1)

|                                            |  |  |                                  |   |       |                             |  |  |      |  |       |      |  |  |  |   |       |   |  |  |  |  |       |    |  |  |  |   |       |   |  |  |  |  |       |    |  |  |  |   |       |   |  |  |  |  |       |    |
|--------------------------------------------|--|--|----------------------------------|---|-------|-----------------------------|--|--|------|--|-------|------|--|--|--|---|-------|---|--|--|--|--|-------|----|--|--|--|---|-------|---|--|--|--|--|-------|----|--|--|--|---|-------|---|--|--|--|--|-------|----|
|                                       |  |  | ThreeMonths Ended December  31,  |   |       | Six Months EndedDecember31, |
|                                       |  |  | 2006                             |   |       | 2005                        |  |  | 2006 |  |       | 2005 |
|                                       |  |  | (unaudited)                      |   |       | (unaudited)                 |
|                                       |  |  | (inmillions, except percentages) |
| Revenues                                   |  |  |                                  | $ | 119.0 |                             |  |  |      |  | 100.0 | %    |  |  |  | $ | 109.5 |   |  |  |  |  | 100.0 | %  |  |  |  | $ | 188.7 |   |  |  |  |  | 100.0 | %  |  |  |  | $ | 176.8 |   |  |  |  |  | 100.0 | %  |
| Costofoperations                           |  |  |                                  |   | 102.8 |                             |  |  |      |  | 86.4  | %    |  |  |  |   | 96.9  |   |  |  |  |  | 88.5  | %  |  |  |  |   | 171.7 |   |  |  |  |  | 91.0  | %  |  |  |  |   | 162.9 |   |  |  |  |  | 92.1  | %  |
| Generalandadministrative                   |  |  |                                  |   | 4.5   |                             |  |  |      |  | 3.8   | %    |  |  |  |   | 4.9   |   |  |  |  |  | 4.5   | %  |  |  |  |   | 8.4   |   |  |  |  |  | 4.5   | %  |  |  |  |   | 9.6   |   |  |  |  |  | 5.4   | %  |
| Depreciationandamortization                |  |  |                                  |   | 4.6   |                             |  |  |      |  | 3.9   | %    |  |  |  |   | 5.7   |   |  |  |  |  | 5.2   | %  |  |  |  |   | 9.2   |   |  |  |  |  | 4.9   | %  |  |  |  |   | 11.8  |   |  |  |  |  | 6.6   | %  |
| Income(loss) from continuingoperations     |  |  |                                  |   | 7.1   |                             |  |  |      |  | 6.0   | %    |  |  |  |   | 2.0   |   |  |  |  |  | 1.8   | %  |  |  |  |   | (0.6  | ) |  |  |  |  | (0.3  | )% |  |  |  |   | (7.4  | ) |  |  |  |  | (4.2  | )% |
| Interestexpense                            |  |  |                                  |   | 7.1   |                             |  |  |      |  | 5.9   | %    |  |  |  |   | 6.6   |   |  |  |  |  | 6.0   | %  |  |  |  |   | 13.3  |   |  |  |  |  | 7.0   | %  |  |  |  |   | 13.0  |   |  |  |  |  | 7.4   | %  |
| Income(loss) before discontinuedoperations |  |  |                                  |   | (0.0  | )                           |  |  |      |  | (0.0  | )%   |  |  |  |   | (4.8  | ) |  |  |  |  | (4.4  | )% |  |  |  |   | (14.1 | ) |  |  |  |  | (7.5  | )% |  |  |  |   | (20.6 | ) |  |  |  |  | (11.6 | )% |
|                                            |

|  |
|--|
|  |  |
|  |

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

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

Revenues.    Revenues from school busoperations were $107.5 million for the three months endedDecember  31,  2006 compared to $98.5 million forthe three months ended December  31,  2005, an increase of$8.9 million, or 9.1%. This increase was due to$4.3  million of price increases and 

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$7.9  million of service requirementincreases due primarily to three more revenue days and approximately140 new routes in New York City operations offset by $3.3million in lost or sold contracts

Revenues from paratransit andtransit operations were $11.5  million for the three months endedDecember  31,  2006 compared to $11.0 million forthe three months ended December  31,  2005, an increase of$0.5  million or 4.8%. This increase was due to$0.5  million of price increases and increases in servicerequirements from existing contracts.

Cost ofOperations.    Cost of operations of school bus operations were$92.3  million for the three  months ended December31,  2006 compared to $87.2  million for the three monthsended December  31, 2005, an increase of $5.1 million or5.9%. Salaries and wages were $51.7  million for the threemonths ended December  31,  2006 compared to $49.2million for the three months ended December  31,  2005, anincrease of $2.5 million or 5.1%. This increase wasprimarily due to more employees needed to service additional routes inNew York City. As a percentage of revenues, salaries and wagesdecreased to 48.1% from 49.9%. Employee fringe benefitsincreased by $1.0  million. Vehicle lease expense increased by$2.1  million as the Company continues to finance its vehiclerequirements through the use of operating leases. As a percentage ofrevenues, cost of operations decreased to 85.9% from88.5% for the three months ended December  31,2005.

Cost of operations of paratransit and transit operationswere $10.5 million for the three months ended December31,  2006 compared to $9.7  million for the three monthsended December  31,  2005, an increase of$0.8 million or 7.7%. This increase was primarily due toan increase in salaries and wages and employee fringe benefits of$0.3  million and an increase in parts and maintenance ofvehicles of $0.2  million. As a percentage of revenues, salariesand wages decreased to 52.0% from 52.8%. As a percentageof revenues, cost of operations increased to 90.9% from88.5% for the three months ended December  31,2005.

General and administrative expenses.    Generaland administrative expenses from school bus operations were $3.8million for the three months ended December  31,  2006compared to $4.4  million for the three months endedDecember  31,  2005, a decrease of $0.6  million or13.5%. This decrease was primarily due to a $0.4  milliondecrease in professional fees which were incurred primarily forestablishing vehicle lease financing facilities. As a percentage ofrevenues, general and administrative expenses decreased to 3.5%from 4.4% for the three months ended and December31,  2005.

General and administrative expenses fromparatransit and transit operations were $0.7  million for thethree months ended December  31,  2006 compared to$0.6  million for the three months ended December31,  2005, an increase of $0.1  million or 24.4%.This increase was primarily due to an increase in administrativepayroll and fringe benefits. As a percentage of revenues, general andadministrative expenses increased to 6.2% from 5.2% forthe three months ended December  31,2005.

Depreciation and amortization.    Depreciationand amortization expense from school bus operations was$4.3 million for the three months ended December31,  2006 compared to $5.2 million for the three monthsended December  31,  2005, a decrease of$1.0 million, or 18.2%. This decrease was primarily dueto the Company having $1.0  million of lower depreciation expensedue to following items; a $0.3  million decrease in depreciationdue to the sale of assets in prior periods, $0.3  milliondecrease due to assets impaired in prior periods and $0.4million decrease attributable to fully depreciated assets.

Depreciation and amortization expense from paratransit and transitoperations was $0.3 million for the three months endedDecember  31,  2006 compared to $0.5  million for thethree months ended December  31,  2005, a decrease of$0.2 million, or 25.9%.

Income (loss) fromoperations.    Income from school bus operations was$7.1  million for the three months ended December31,  2006 compared to $1.8  million for the three monthsended December  31, 2005, an increase of $5.4 million, or305.8%, due to the net effect of the items discussedabove.

Loss from paratransit and transit operations was minimalfor the three months ended December  31,  2006 compared toincome of $0.2 million for the three months ended December 31,2005, a decrease of $0.2  million, or 100.2%, due to thenet effect of the items discussed above.

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Interest expense.    Interestexpense from continuing operations was $7.1  million for thethree  months ended December  31,  2006 compared to$6.6 million for the three months ended December31,  2005, an increase of $0.5 million, or 7.2%.The increase was primarily due to $0.6  million in payment inkind (‘‘PIK’’) interest due to the Companynot satisfying the maintenance of net leverage test on September30,  2006 under the Indenture governing its outstanding seniorsecured notes due 2008 the Notes.

Loss before discontinuedoperations.    Due to the net effect of the items discussedabove we experienced a minimal loss before discontinued operations forthe three months ended December 31, 2006, compared to a loss of$4.8  million for the three months ended December 31, 2005, adecrease in loss of $4.8 million.

Results ofOperations – Six Months Ended December  31,  2006Compared to Six Months Ended December  31,2005

Revenues.    Revenues from school busoperations were $165.3 million for the six months endedDecember  31,  2006 compared to $154.1 million forthe six months ended December  31,  2005, an increase of$11.2 million, or 7.2%. This increase was due to$6.0  million of price increases and $9.9  million ofservice requirement increases due primarily to five more revenue daysand approximately 140 new routes in New York City operations offset by$4.8  million in lost or sold contracts

Revenues fromparatransit and transit operations were $23.5  million for thesix months ended December  31,  2006 compared to$22.7 million for the six months ended December31,  2005, an increase of $0.8  million or 3.5%.This increase was due to $0.8  million of price increases andincreases in service requirements from existing contracts.

Cost of Operations.    Cost of operations of school busoperations were $150.7  million for the six months endedDecember  31,  2006 compared to $143.0  million forthe six months ended December  31, 2005, an increase of$7.8 million or 5.4%. Salaries and wages were$81.6  million for the  six months ended December31,  2006 compared to $79.3  million for the six monthsended December  31, 2005, an increase of $2.2 million or2.8%. This increase was primarily due to more employees neededto service additional routes and an increase in payroll days in NewYork City. As a percentage of revenues, salaries and wages decreased to49.4% for the six months ended December 31, 2006, from51.5% for the six months ended December  31,  2005.Employee fringe benefits increased by $1.3  million, rent expenseincreased by $0.8  million and vehicle lease expense increased by$3.7  million (as the Company continues to finance its vehiclerequirements through the use of operating leases) for the six monthsended December  31,  2006, compared to the six months endedDecember  31,  2005. As a percentage of revenues, cost ofoperations decreased to 91.2% for the six months endedDecember  31, 2006, from 92.8% for the six months endedDecember  31,  2005.

Cost of operations ofparatransit and transit operations were $21.0 million for thesix months ended December  31,  2006 compared to$19.9  million for the six months ended December31,  2005, an increase of $1.1 million or 5.5%.This increase was primarily due to an increase in salaries and wages,employee fringe benefits and an increase in parts and maintenance ofvehicles. As a percentage of revenues, salaries and wages decreased to51.1% for the six months ended December  31,  2006,from 51.3% for the six months ended December  31,2005. As a percentage of revenues, cost of operations increased to89.9% for the six months ended December  31,  2006,from 87.7% for the six months ended December  31,2005.

General and administrative expenses.    Generaland administrative expenses from school bus operations were $7.1million for the six months ended December  31,  2006compared to $8.5  million for the six months endedDecember  31,  2005, a decrease of $1.4  million or16.2%. This decrease was primarily due to a decreases inadministrative payroll including a $0.5  million contract renewalbonus paid to certain executives in connection with the extensionagreement with the New York City Department of Education (the‘‘DOE’’) and $0.5  million in costsfor establishing vehicle lease financing facilities for the six monthsended December  31,  2005. As a percentage of revenues,general and administrative expenses decreased to 4.3% for thesix months ended December  31,  2006, from 5.5% forthe six months ended and December  31,2005.

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General and administrative expenses fromparatransit and transit operations were $1.3  million for the sixmonths ended December  31,  2006 compared to $1.1million for the six months ended December  31,  2005, anincrease of $0.2  million or 18.7%. This increase wasprimarily due to an increase in administrative payroll and fringebenefits. As a percentage of revenues, general and administrativeexpenses increased to 5.6% for the six months endedDecember  31,  2006, from 4.9% for the six monthsended December  31,  2005.

Depreciation andamortization.    Depreciation and amortization expense fromschool bus operations was $8.5 million for the six months endedDecember  31,  2006 compared to $11.0 million forthe six months ended December  31,  2005, a decrease of$2.5 million, or 22.5%. This decrease was primarily dueto $0.4  million of impairment to fixed assets for the six monthsended December  31, 2005 and the Company having $2.1million of lower depreciation expense due to following items: a$0.6  million decrease in depreciation due to the sale of assetsin prior periods, $0.8  million decrease due to assets impairedin prior periods and $0.7  million decrease as some of the assetsare now fully depreciated. The Company continues to finance its vehiclerequirements through the use of operating leases (see‘‘—Cost of Operations’’ above).

Depreciation and amortization expense from paratransit and transitoperations was $0.7 million for the six months endedDecember  31,  2006 compared to $0.8  million for thesix months ended December  31,  2005, a decrease of$0.1 million, or 13.4%.

Income (loss) fromoperations.    Loss from school bus operations was$1.1 million for the six months ended December  31,2006 compared to a $8.3  million loss for the six months endedDecember  31,  2005, a decrease in loss of$7.2 million, or 87.1%, due to the net effect of theitems discussed above.

Income from paratransit and transitoperations was $0.5 million for the six months endedDecember  31,  2006 compared to $0.9 million for thesix months ended December  31,  2005, a decrease of$0.4  million, or 45.0%, due to the net effect of theitems discussed above.

Interest expense.    Interestexpense from continuing operations was $13.3  million for the sixmonths ended December  31,  2006 compared to $13.0million for the six months ended December  31, 2005, an increaseof $0.2 million, or 1.8%. The increase was primarily dueto $0.6  million in PIK interest, offset by a $0.4  milliondecrease in interest expense on all other debt.

Loss beforediscontinued operations.    Due to the net effect of the itemsdiscussed above we experienced a loss before discontinued operations of$14.1 million for the six months ended December31,  2006, compared to a loss of $20.6  million for the sixmonths ended December  31,  2005, a decrease in loss of$6.5 million.

Gain (loss) from discontinuedoperations.    We experienced a gain from discontinuedoperations of $5.6  million, net from the sale of T-NT BusService Inc. for the six months ended December 31, 2006 compared to aminimal loss from discontinued operations for the six months endedDecember  31,  2005.

Liquidity and CapitalResources

The statements regarding the Company’santicipated capital expenditures and service requirements are‘‘forward looking’’ statements whichinvolve unknown risks and uncertainties, such as the Company’sability to meet or exceed its growth plans and/or available financing,which may cause actual capital expenditures to differ materially fromcurrently anticipated amounts.

The Company operated a fleet ofapproximately 5,800 vehicles as of December  31,  2006 andconsumes substantial quantities of fuel for its operations. Based onthe Company’s current operations, an increase in fuel costs of10 cents per gallon will increase its cost of fuel purchased byapproximately $1.0  million on an annual basis.

TheCompany anticipates approximately $5.0  million of non-vehiclecapital expenditures for the fiscal year ending June  30,2007, of which $2.3  million were made for the six months endedDecember  31, 2006. The Company has met substantially all of itsvehicle capital expenditures 

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requirements by the use of operating leases.Vehicle lease expense increased $3.7  million for the six monthsended December  31,  2006 from the six months endedDecember  31,  2005. The Company anticipates its vehiclelease expense will increase approximately $6.3  million for thefiscal year ending June  30,  2007.

On July27,  2006, T-NT, a subsidiary of the Company, completed the saleof substantially all of its assets for a gross purchase price of$12.6  million. In addition, Domenic Gatto, the Company’sChief Executive Officer and President, received $100,000 asconsideration for entering into a five-year non-competition agreement.The Company recognized a gain on the sale of these assets ofapproximately $5.9  million in the first quarter of fiscal year2007 which was included in gain from discontinued operations.

OnSeptember  21,  2006 the holder of the $4.9  millionsenior unsecured note approved an extension of the maturity date fromApril  23,  2007 to February  22,2008.

On September  30,  2006, the Company did notsatisfy the maintenance of net leverage test under the Indenturegoverning its outstanding Notes. As a result, the Company is requiredto pay additional interest at a rate of 2% per annum in the formof PIK notes. All PIK notes have identical terms to Notes on which theyare payable. The Company is also required to pay the 2% perannum of PIK interest to the holders of its outstanding Third PrioritySecured Note as a result of not satisfying a comparable maintenance ofnet leverage test applicable to those notes. The Company will issue thePIK notes on each remaining semi-annual interest payment date ofApril  15 and October  15, beginning April15,  2007. Because the obligation to pay additional interest inthe form of PIK notes began effective as of October  1,2006, the initial issuance of PIK notes will cover additional interestfrom that date for a period which will exceed six months. Subsequentissuances of PIK notes on semi-annual interest payment dates will coveradditional interest for the corresponding six month period.

OnOctober  12,  2006, the Company amended its senior creditfacility to increase its maximum borrowing activity under the revolvingcredit facility by $10.0  million from $20.0  million to$30.0. In addition, the senior credit facility was further amended byextending the termination date from April  22,  2007 toFebruary  29,  2008.

In December  2006, one ofthe Company’s insurance carriers released approximately$10.0  million in excess collateral based upon retrospectiveadjustments for various years. Approximately $5.2  million was acredit issued to the Company and $4.8  million was a reduction ina letter of credit held by the insurance company. This letter of creditwas collateralized by restricted cash which is now available forworking capital.

The Company, in addition to normal workingcapital requirements, has significant interest obligations and capitalexpenditure requirements to finance its operations. The Company alsouses 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 itsincreased senior credit facility, the release of the insurancecollateral and the proceeds from the sale of T-NT, together with itsexisting cash and cash flow from operations will be sufficient to fundthe Company’s anticipated liquidity requirements for the nextfiscal year.

As of December  31,  2006, totalcurrent assets were $90.8  million and total current liabilitieswere $59.7  million. At December  31,  2006, theCompany’s debt under its $30.0  million senior creditfacility was $13.8  million, including the $3.5  millionsupplemental loan, and it had $12.5  million of borrowingavailability, based on the Company’s borrowing basecalculations. The Company’s letter of credit line was fullyutilized. On February  9,  2007, the Company had a creditbalance of $5.5  million under its senior credit facility, and ithad $25.3  million in borrowing availability, based upon thecredit balance and Company’s borrowing base calculations. Inaddition the Company had $5.2  million invested in money marketfunds. On February  9,  2007, the Company had $115.0million aggregate principal amount outstanding of the Notes and$15.0  million outstanding of the Third Priority Senior SecuredNote.

Net cash used in operating activities.    Netcash used in operating activities was $5.8  million for the sixmonths ended December  31,  2006, resulting primarily from$18.3  million used in operating 

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activities partially offset from cashprovided due to changes in the components of working capital of$0.9  million (primarily a decrease in prepaid expenses and othercurrent assets of $10.9  million and an increase in controlleddisbursements of $2.9  million, partially offset by a decrease of$2.2  million of accounts payable, accrued expenses, accruedcompensation and other current liabilities, a decrease in insurancefinancing payable of $3.3  million and an increase in accountsreceivable by $7.4  million) and by non-cash items of$11.1  million of depreciation and amortization and $0.5million of amortization of original issue discount.

Net cash usedin operating activities was $10.0  million for the six monthsended December  31, 2005, resulting primarily from $24.7million used in operating activities partially offset from cashprovided due to changes in the components of working capital of$0.6  million (primarily a decrease in prepaid expenses and othercurrent assets of $6.6  million and an increase in controlleddisbursements of $0.7  million, partially offset by a decrease of$2.9  million of accounts payable, accrued expenses, accruedcompensation and other current liabilities, a decrease in insurancefinancing payable of $2.8  million and an increase in accountsreceivable by $0.7  million) and by non-cash items of$13.2  million of depreciation and amortization, $0.4million of fixed asset impairment and $0.5  million ofamortization of original issue discount.

Net cash provided byinvesting activities.    For the six months endedDecember  31,  2006, the net cash provided by investingactivities was $17.3  million resulting primarily from$11.8  million of proceeds from the sale of business, $3.1million decrease in restricted cash and $5.1  million of proceedsfrom sales or redemptions of marketable securities, partially offset bythe $2.7  million of capital expenditures, which were financedfrom operating cash flows.

Net cash provided by investingactivities was $4.2  million for the six months endedDecember  31,  2005, resulting primarily from $7.0million from the sale and leaseback of our Los Angeles, Californiafacility and the sale of property in St Louis, Missouri, $1.7million decrease in restricted cash and $2.6  million of proceedsfrom sales or redemptions of marketable securities, partially offset bythe purchase of $1.4  million of transportation contract rights,$2.7  million in purchases of marketable securities and$3.0  million of capital expenditures, which were financed fromoperating cash flows.

Net cash provided by (used in)financing activities.    Net cash used in financing activitiestotaled $5.3  million for the six months ended December31,  2006 due primarily to $4.0  million net payments underthe senior credit facility and $1.2  million in payments onborrowings under capital leases and purchase money mortgages.

Net cash provided by financing activities totaled $1.3million for the six months ended December  31,  2005 dueprimarily to $4.9  million of proceeds from the sale of 293,663shares of our common stock to AETG, partially offset by $1.6million in payments on borrowings under capital leases and purchasemoney mortgages, $0.3  million in deferred financing costs and$1.6  million of net payments under the senior creditfacility.

Commitments and Contingencies

Referenceis made to Note 16 ‘‘Commitments andContingencies’’ of Notes to Consolidated FinancialStatements in the Company’s Annual Report on Form 10-K for thefiscal year ended June  30,  2006 for a description of theCompany’s material commitments.

Critical AccountingPolicies

In presenting our consolidated financial statements inconformity with U.S. generally accepted accounting principles, we arerequired to make estimates and judgments that affect the amountsreported therein. Some of the estimates and assumptions we are requiredto make relate to matters that are inherently uncertain as they pertainto future events. We base these estimates on historical experience andon various other assumptions that we believe to be reasonable andappropriate. Actual results may differ significantly from theseestimates. A discussion of our critical accounting policies and therelated judgments and estimates affecting the preparation of ourconsolidated financial 

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statements is included in theCompany’s Annual Report on Form 10-K for the fiscal year endedJune  30,  2006. There have been no material changes to ourcritical accounting policies as of December  31,2006.

Disclosure Regarding Forward-LookingStatements

This report contains forward-looking statements.These statements relate to future events or our future financialperformance, and involve known and unknown risks, uncertainties andother factors that may cause our actual results, levels of activity,performance or achievements to be materially different from any futureresults, levels of activity, performance or achievements expressed orimplied by these forward-looking statements. In some cases, you canidentify forward-looking statements by terminology 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 may differ.

Item3.    Quantitative and Qualitative Disclosures About MarketRisk

In the normal course of operations, we are exposed tomarket risks arising from adverse changes in interest rates. Marketrisk is defined for these purposes as the potential change in the fairvalue of financial assets or liabilities resulting from an adversemovement in interest rates.

We operated a fleet of approximately5,800 vehicles as of December  31,  2006 and consumesubstantial quantities of fuel for our operations. Based on our currentoperations, an increase in fuel costs of ten cents per gallon willincrease our cost of fuel purchased by approximately$1.0 million on an annual basis. From time to time in the past,we have entered into hedging contracts to protect ourselves fromfluctuations in the cost of fuel, and we have or may seek to do thesame in the future. We currently have fuel hedging agreements in placefor approximately 350,000 gallons of fuel, but we continually evaluateentering into more agreements if we believe increases in fuel costs arelikely. No assurance can be given that we will be able to adequatelyprotect ourselves from fluctuating fuel costs even if we enter intohedging contracts.

As of December  31,  2006, ouronly material variable rate borrowings are the Senior Secured FloatingRate Notes (LIBOR plus 9.2% interest) and $26.5 millionof the $30.0 million of borrowings under our$30.0 million senior credit facility (prime plus 1%interest). As of December  31,  2006, we had approximately$13.8 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 December  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 to ensurethat information required to be disclosed by the Company in reports itfiles or submits under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in theSEC’s rules and forms, and that such information is accumulatedand communicated to the Company’s management, including itsChief Executive Officer and Chief Financial Officer, as appropriate toallow timely decisions regarding required disclosure.

As of theend of the period covered by this Form 10-Q, the Company again carriedout an evaluation, under the supervision and with the participation ofthe Company’s management, including 

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its Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the design and operation ofthe Company’s disclosure controls and procedures. Based on theforegoing, the Company’s Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosurecontrols and procedures were still ineffective as of the end of theperiod covered by this Form 10-Q. The Company continues to review itsdisclosure controls and procedures in order to improve theireffectiveness. Although the process is ongoing, the Company hasidentified a need to modify its financial period closing from asequential to a more simultaneous process, to reduce the time necessaryto properly complete its financial statement preparation and review. Asthe review process continues, the Company may identify other areas forimprovement. The Company has implemented improvements, but cannot yetdetermine when all improvements will be completed or have the intendedeffect.

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

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PARTII.

OTHER INFORMATION

Item 1.    LegalProceedings

None.

Item 1A.    RiskFactors

Our operations and financial results aresubject to various risks and uncertainties that could adversely affectour business, financial condition, results of operations, and tradingprice of the Notes. Please refer to the Company’s Annual Reporton Form 10-K for fiscal year 2006 for additional information concerningthese risk factors and other uncertainties that could negatively impactthe Company. There have been no material changes to those risk factorsas previously disclosed.

Item 2.    Unregistered Sales ofEquity Securities and Use of Proceeds

None.

Item3.    Defaults upon Senior Securities

None.

Item 4.     Submission of Matters to a Vote of SecurityHolders

None.

Item 5.     OtherInformation

None.

Item 6.     Exhibits

The following documents are filed as Exhibits tothisreport:

|            |  |  |                                                                      |
|------------|--|--|----------------------------------------------------------------------|
| 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: February13,  2007  |  |  | By: /s/ DomenicGatto                                 |
|                     |  |  | DomenicGattoChief Executive Officer(Principal ExecutiveOfficer)                                                                                                                                                      |
| Date:February  13,  2007 |  |  | 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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