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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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Form 10-Q/A
(Amendment No. 1)

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|[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

OR

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|[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to

Commission File Number:    0-24247

Atlantic Express Transportation Corp.

(Exact name of registrant as specified in its charter)

New York


13-392-4567(State or other jurisdiction of
incorporation or organization)


(IRS Employer
Identification No.)


7 North Street Staten Island, New York 10302-1205

(Address of principal executive offices)

(718) 442-7000

(Registrant’s telephone number, including area code)

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

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

Large accelerated filer[ ]Accelerated filer[ ]Non-accelerated filer[X]Smaller reporting company[ ]

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

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

The number of outstanding shares of the registrant’s common stock, par value $0.01 per share, as of May 14, 2008 was 1,032,293

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Explanatory Note

The purpose of this Amendment No. 1 on  Form 10-Q/A is to amend the Registrant’s Quarterly Report on Form 10-Q previously filed with the United States Securities and Exchange Commission on May 14, 2008 solely to correct the line ‘‘Due from senior credit facility’’ on the consolidated statement of cash flows to insert brackets inadvertently omitted from the amount shown for the nine month period ended March 31, 2008.

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INDEX

Page
No.PART I:     FINANCIAL INFORMATIONItem 1.


Financial Statements


3Consolidated Balance Sheets — March 31, 2008 (unaudited) and June 30, 2007


3Consolidated Statements of Operations (unaudited) — Three and Nine Months Ended March 31, 2008 and 2007


4Consolidated Statements of Cash Flows (unaudited) — Nine Months Ended March 31, 2008 and 2007


5Notes to Consolidated Financial Statements (unaudited)


6Item 2.


Management’s Discussion and Analysis of Financial Condition and Results of Operations


10Item 3.


Quantitative and Qualitative Disclosures about Market Risk


16Item 4.


Controls and Procedures


17Item 4T.


Controls and Procedures


17PART II:     OTHER INFORMATIONItem 1.


Legal Proceedings


18Item 1A.


Risk Factors


18Item 2.


Unregistered Sales of Equity Securities and Use of Proceeds


18Item 3.


Defaults upon Senior Securities


19Item 4.


Submission of Matters to a Vote of Security Holders


19Item 5.


Other Information


19Item 6.


Exhibits


19


2

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PART I.

FINANCIAL INFORMATION

Item I.Financial Statements

Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Balance Sheets

March 31,


June 30,2008


2007(unaudited)AssetsCurrent assets:Cash and cash equivalents



$
2,559,195




$
6,881,838Senior credit facility credit balance




3,352,251





—Accounts receivable, net of allowance for doubtful accounts of $1,367,227 and $1,277,227, respectively




52,518,339





50,786,814Inventories




3,225,744





2,808,661Prepaid insurance




25,977,041





30,697,527Prepaid expenses and other current assets




5,253,011





4,191,206Total current assets




92,885,581





95,366,046Property, plant and equipment, at cost, less accumulated depreciation




86,964,963





91,982,062Other assets:Restricted cash and cash equivalents




—





675,642Transportation contract rights, net




1,994,956





2,648,294Deferred financing costs, net




6,320,214





7,408,570Deposits and other non-current assets




6,551,859





8,645,236Total other assets




14,867,029





19,377,742$
194,717,573




$
206,725,850Liabilities and Shareholder’s (Deficit)Current:Current portion of long-term debt



$
755,274




$
754,503Current portion of capital lease obligations




1,552,045





1,615,448Insurance financing payable




5,211,535





4,071,955Controlled disbursements account – checks issued not funded




1,735,545





1,901,363Accounts payable, accrued expenses and other current liabilities




18,017,931





13,974,241Accrued compensation




8,134,766





2,962,784Current portion of insurance reserves




267,000





833,862Accrued interest




10,728,733





3,023,105Payable to creditors under the plan of reorganization – current portion




1,299,200





1,299,200Total current liabilities




47,702,029





30,436,461Long-term debt, net of current portion




184,570,902





187,567,072Capital lease obligations, net of current portion




757,379





1,725,526Interest rate swap




10,068,056





—Insurance reserves, net of current portion




550,010





189,339Deferred income, net of current portion and other long-term liabilities




3,558,198





3,495,591Deferred state and local income taxes




220,000





322,000Payable to creditors under the plan of reorganization, net of current portion




77,395





77,395Total liabilities




247,503,969





223,813,384Commitments and contingenciesShareholder’s (deficit):Common stock, par value $.01 per share, authorized shares 1,303,200; issued and outstanding 945,263




9,453





9,453Additional paid-in capital




114,939,064





114,939,064Accumulated deficit




(167,734,913
)




(132,036,051
)Total shareholder’s (deficit)




(52,786,396
)




(17,087,534
)$
194,717,573




$
206,725,850


See accompanying notes to consolidated financial statements.

3

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

Three Months Ended
March 31,


Nine Months Ended
March 31,2008


2007


2008


2007Revenues:School bus operations



$
110,872,790




$
111,279,929




$
274,525,920




$
276,555,250Paratransit and transit operations




11,129,473





11,151,739





33,903,350





34,624,230Total revenues




122,002,263





122,431,668





308,429,270





311,179,480Costs and expenses:Cost of operations – School bus operations




100,823,608





96,844,422





254,819,526





247,770,364Cost of operations – Paratransit and transit operations




10,088,891





10,132,696





30,696,446





31,124,510General and administrative




4,742,335





4,764,776





13,346,785





13,370,447Depreciation and amortization




4,763,002





4,664,293





14,121,866





13,839,465Contract rights impairment




267,958





—





267,958





—Total operating costs and expenses




120,685,794





116,406,187





313,252,581





306,104,786Income (loss) from operations




1,316,469





6,025,481





(4,823,311
)




5,074,694Other income (expense):Interest expense:Interest




(6,379,051
)




(5,815,712
)




(19,141,695
)




(17,163,279
)Deferred financing costs




(390,914
)




(982,094
)




(1,171,565
)




(2,887,481
)Change in fair market value of interest rate swap




(4,574,274
)




—





(10,529,840
)




—Reorganization costs




(8,793
)




(15,024
)




(77,675
)




(51,495
)Other income




63,787





73,452





174,224





180,870Loss before income taxes and discontinued operations




(9,972,776
)




(713,897
)




(35,569,862
)




(14,846,691
)Provision for (benefit from) income taxes




27,000





—





(21,000
)




—Loss before discontinued operations




(9,999,776
)




(713,897
)




(35,548,862
)




(14,846,691
)Gain from discontinued operations




—





—





—





5,612,567Net loss



$
(9,999,776
)



$
(713,897
)



$
(35,548,862
)



$
(9,234,124
)


See accompanying notes to consolidated financial statements.

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

Nine Months Ended
March 31,2008


2007Cash flows from operating activities:Net loss



$
(35,548,862
)



$
(9,234,124
)Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Loss on sales of marketable securities and investments




—





67,841Depreciation




13,736,486





13,454,084Amortization




1,556,945





3,272,342Original issue discount interest




423,306





730,611Change in fair market value of interest rate swap




10,529,840





—PIK interest expense




—





1,443,825Contract rights impairment




267,958





—Reserve for doubtful accounts receivable




90,000





90,000Gain on sale of business




—





(5,776,646
)Loss (gain) on sales of fixed assets, net




(239,578
)




207,457Deferred state and local income taxes




(102,000
)




—Decrease (increase) in:Due from senior credit facility




(3,352,251
)




—Accounts receivable




(1,821,525
)




(13,215,318
)Inventories




(417,083
)




51,109Prepaid expenses and other current assets




3,196,898





946,194Deposits and other non-current assets




2,093,377





(2,735,867
)Increase (decrease) in:Accounts payable, accrued expenses, accrued compensation and other current liabilities




16,921,300





8,299,622Controlled disbursement account




(165,818
)




618,166Insurance financing payable




1,139,580





2,070,416Payable to creditors under plan of reorganization




—





(809,416
)Insurance reserves and other long-term liabilities




(143,584
)




(673,654
)Net cash provided by (used in) operating activities




8,164,989





(1,193,358
)Cash flows from investing activities:Additions to property, plant and equipment




(8,580,276
)




(3,783,928
)Proceeds from sale of business




—





11,760,113Proceeds from sales of fixed assets




307,088





606,707Decrease (increase) in restricted cash and cash equivalents




675,642





3,060,471Purchases of marketable securities




—





(547,507
)Proceeds from sales or redemptions of marketable securities




—





5,072,704Net cash provided by (used in) investing activities




(7,597,546
)




16,168,560Cash flows from financing activities:Proceeds from payments on senior credit facility, net



$
(3,027,791
)



$
(7,207,715
)Distribution to parent company




(150,000
)




—Principal payments on borrowings and capital lease obligations




(1,629,086
)




(1,961,954
)Deferred financing costs




(83,209
)




(126,377
)Net cash used in financing activities




(4,890,086
)




(9,296,046
)Net increase (decrease) in cash and cash equivalents




(4,322,643
)




5,679,156Cash and cash equivalents, beginning of year




6,881,838





501,271Cash and cash equivalents, end of period



$
2,559,195




$
6,180,427Supplemental disclosures of cash flow information:Cash paid during the period for:Interest



$
10,990,336




$
10,774,032Income taxes



$
85,491




$
113,841Supplemental disclosures of non-cash investing and financing activity:Loans incurred for purchases of property, plant and equipment



$
206,623




$
590,528


See accompanying notes to consolidated financial statements.

5

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Atlantic Express Transportation Corp. and Subsidiaries
Notes to Consolidated Financial Statements

1.    Basis of Accounting

Our accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principals generally accepted in the United States (‘‘U.S. GAAP’’) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by U.S. GAAP for complete financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in Atlantic Express Transportation Corp.’s (the ‘‘Company’s’’) financial statements as of and for the year ended June 30, 2007 as filed on the Company’s Annual Report on Form 10-K. In the opinion of management, all adjustments and accruals (consisting only of normal recurring adjustments) that are necessary for a fair presentation of operating results are reflected in the accompanying financial statements. Operating results for the periods presented are not necessarily indicative of the results for the full fiscal year. The June 30, 2007 consolidated balance sheet has been derived from audited consolidated financial statements as of that date.

2.    Interest Rate Swap

Effective as of May 15, 2007, we entered into an interest swap agreement (the ‘‘Swap’’) to reduce our exposure to interest rate fluctuations on our Senior Secured Notes due 2012 (the ‘‘Notes’’), which bear interest at LIBOR plus a margin of 7.25%. The Swap has a notional amount of $185 million with a fixed rate of 5.21% thereby effectively converting the floating rate notes to a fixed rate obligation of 12.46%. The Swap will expire in April 15, 2010. On the interest payment dates of the notes, the difference between LIBOR and 5.21% is required to be settled in cash. In accordance with SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, the Swap does not qualify for ‘‘Cash Flow Hedge Accounting’’ treatment since the documentation of the accounting treatment was not done contemporaneously with entering into the agreement. The reduction in the fair market value of this interest swap agreement of approximately $10.5 million is reflected as an addition to interest expense for the nine months ended March 31, 2008.

Our obligation under the Swap is secured by the collateral securing our amended and restated credit facility and in connection therewith total reserves of approximately $9.8 million, $10.1 million and $7.7 million for March 2008, April 2008 and May 2008, respectively, were established against our borrowing base. In February 2008, our senior credit facility was amended to change the calculation of the borrowing base for the purpose of the calculation of excess availability, solely in relation to testing the EBITDA covenant, (see note 3 (b) ) to exclude the first $5.0 million of reserves established in connection with our Swap. This change is effective from January 1, 2008 until February 15, 2009. Based upon this amendment, the Company did not need to test the EBITDA covenant through May 14, 2008.

3.    Debt

The following represents the debt outstanding at March 31, 2008 and June 30, 2007:

March 31,
2008


June 30,
2007Senior Secured Floating Rate Notes, due 2012 with cash interest payable October 15thand April 15th(a)



$
185,000,000




$
185,000,000Less: original issue discount associated with the issuance of the Notes, net (a)




(2,281,143
)




(2,704,449
)Senior credit facility (b)




—





3,027,793Various notes payable, primarily secured by transportation equipment, with interest rates ranging from 8% – 10.3%




2,607,319





2,998,231185,326,176





188,321,575Less current portion




755,274





754,503Long-term debt, net of current portion



$
184,570,902




$
187,567,072


6

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|(a) | On May 15, 2007 the Company issued the Notes with an original issue discount of $2,775,000, which is being amortized over the term of the Notes. The net proceeds of the Notes were used to repay existing indebtedness and for certain other corporate purposes.
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Annual interest on the Notes is equal to the applicable LIBOR rate plus a margin of 7.25%. The applicable LIBOR rate on March 31, 2008 was 5.22%. Interest payments that are required semiannually through their maturity date on April 15, 2012 commenced on October 15, 2007. Effective as of May 15, 2007, we entered into the Swap to reduce our exposure to interest rate fluctuations on the Notes. (see note 2)

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

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

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

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

On July 13, 2007 an exchange offer was completed and the Notes were registered with the Securities and Exchange Commission (the ‘‘SEC’’).

|(b) | Concurrently with the issuance of the Notes, the Company and substantially all of its subsidiaries also amended and restated its existing senior credit facility with Wachovia to provide up to $35.0 million of borrowing availability under a revolving credit facility, subject to customary borrowing conditions, plus a $10.0 million letter of credit facility. The Amended and Restated Credit Facility is secured by a first priority lien on substantially all of the Company’s and its subsidiaries’ assets, other than collateral securing the Notes on a first priority basis, and by a second priority lien on the real property securing the Notes on a first priority basis. In addition, the term of the credit facility was extended from February 29, 2008 to December 31, 2011. The Amended and Restated Credit Facility contains certain financial covenants, including a minimum last twelve month (‘‘LTM’’) EBITDA covenant of $26.0 million, which will only be tested if excess availability falls below certain levels. The Company’s LTM EBITDA was $21.6 million as of March 31, 2008, however the Company has maintained an availability over the required threshold and therefore was not subject to the test for the three months ended March 31, 2008 or through May 14, 2008. The Amended and Restated Credit Facility also contains customary events of default.
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The borrowing capacity under the Amended and Restated Credit Facility is based upon 85% of the net amount of eligible accounts receivable less reserves. Loans under the facility bear interest at the prime rate that was 5.25% at March 31, 2008. Letters of credit are subject to a fee of 1% per annum payable monthly in arrears and any amounts paid by lenders for letters of credit will bear the same rate as loans under our revolving facility. The Company paid a closing fee of $400,000 which is being amortized over the term of the financing and is required to pay a servicing fee of $10,000 per month, plus a monthly fee of 0.5% on any unused portion of its senior credit facility.

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At March 31, 2008, the Company had a credit balance under its $35.0 million senior credit facility of $3.4 million, and it had $22.3 million of borrowing availability after $9.8 million of reserves, based on the Company’s borrowing base calculations.

For the month of May 2008, the senior credit facility has a borrowing base reserve of approximately $7.7 million in connection with our Swap (see note 2). If this reserve increases it may have an adverse effect on the Company’s liquidity, especially during the first and second quarters of fiscal 2009, whereby the Company might have to pursue additional funding alternatives including the sale of certain assets or operations to satisfy our liquidity requirements.

LTM EBITDA was $21.6 million as of March 31, 2008 and we expect LTM EBITDA to be below $26.0 million for the next twelve months. If our excess availability for the purpose of testing the EBITDA covenant (see note 2) falls below certain levels, this will generate a default under our senior credit facility and under certain circumstances cause a cross default under the Notes. Although the Company believes that it would be able to receive a waiver of this default from Wachovia, there can be no assurance that this is the case or what the cost to the Company might be. If the Company would not be able to receive a waiver, then the amount of the senior credit facility would be reclassified to a short-term liability.

4.    Environmental Issues

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

5.    Retrospective Insurance Adjustment

In December 2007, one of the Company’s insurance carriers issued us approximately $9.0 million in credits representing retrospective adjustments as of September 2007 for various years. In January 2008, the insurance company offset $2.2 million of current premiums due in January 2008, added $0.8 million to our cash collateral account held by the insurance company and wired funds for $6.0 million. In addition, the insurance company did not renew a $0.6 million letter of credit held as collateral. This letter of credit was collateralized by $0.7 million of restricted cash that is now available for working capital. The transaction had no effect on the Company’s consolidated statements of operations for the three and nine months ended March 31, 2008.

6.    Transportation Contract Rights

Transportation contract rights are amortized on a straight-line basis over 12 years, which represents the Company’s estimate of the average length of the contracts and expected renewal periods. For the three months ended March 31, 2008 we recorded an impairment charge of $0.3 million to adjust the transportation contract rights to fair value. The requirements for this impairment charge was determined by management’s evaluation that the future undiscounted cash

8

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flows attributable to the underlying assets were unlikely to exceed the carrying value of the transportation contract rights assets for one of the Company’s subsidiaries. Projected cash flows are based on historical results adjusted to reflect management’s best estimate of future market and operating conditions, which may differ from actual cash flow. The impairment charge was the difference between book value of the transportation contract rights and estimated fair value, determined by the estimated future cash flows.

7.    New Accounting Standards

In June 2006, the FASB issued Interpretation 48, ‘‘Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109’’ (‘‘FIN 48’’). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for the fiscal year ending June 30, 2008 year for positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date. The Company has assessed the impact of FIN 48 and it does not have a material effect on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for us for the fiscal year beginning July 1, 2008. We currently believe that adoption of SFAS No. 157 will not have a material impact on our financial statements.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 gives us the irrevocable option to carry many financial assets and liabilities at fair values, with changes in fair value recognized in earnings. This statement is effective for us for the fiscal year beginning July 1, 2008. We currently believe that adoption of SFAS No. 159 will not have a material impact on our financial statements.

In December 2007, the Financial Accounting Standards Board (‘‘FASB’’) issued Statement of Financial Accounting Standards (‘‘SFAS’’) No. 141 (revised 2007),Business Combinations, which replaces SFAS No. 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for us beginning July 1, 2009 and will apply prospectively to business combinations completed on or after that date.

In March 2008, the FASB issued Statement of Financial Accounting Standards (‘‘SFAS’’) No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133,which requires additional disclosures about the objectives of the derivative instruments and hedging activities, the method of accounting for such instruments under SFAS No. 133 and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on our financial position, financial performance, and cash flows. SFAS No. 161 is effective for us beginning January 1, 2009. We are currently assessing the potential impact that adoption of SFAS No. 161 may have on our financial statements.

8.    Subsequent Events

On May 12, 2008, we issued 87,030 shares of our Common Stock, par value $0.01 per share, pursuant to the timely exercise of warrants which had been issued in connection with our previously outstanding 12% Senior Secured Notes due 2008 and Senior Secured Floating Rate Notes due 2008. We received aggregate proceeds of $870.30 as exercise price of the warrants.

9

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

General

Atlantic Express Transportation Corp. (‘‘we’’ or the ‘‘Company’’) is the third largest provider of school bus transportation in the United States and the leading provider in New York City, the largest market in which we operate. We have contracts with approximately 104 school districts in New York, Missouri, Massachusetts, California, Pennsylvania, New Jersey, and Illinois. For fiscal 2008, we have a contract to provide paratransit services in New York to physically and mentally challenged passengers who are unable to use standard public transportation. We also provide other transportation services, including fixed route transit, express commuter line and charter and tour buses through our coach services. As of March 31, 2008, we had a fleet of approximately 5,600 vehicles operating from approximately 50 facilities.

School bus transportation services accounted for 89.0% and 88.9% of our revenues from continuing operations for the nine months ended March 31, 2008 and 2007, respectively. Our school bus transportation contracts have provided a relatively predictable and stable stream of revenues over their terms, which generally initially range from one to five years. Since 1979, we have achieved substantial contract renewals, which we believe is due to (1) our reputation for passenger safety and providing efficient, on-time service, (2) our long-standing relationships with the school districts we service, (3) the preference of school districts to maintain continuity of service with their current proven contractor rather than risk the uncertainty associated with a replacement and (4) the disadvantage of prospective competitors, who generally would have to make substantially greater investments than we would in new equipment and who may experience difficulty obtaining suitable parking and maintenance facilities in our primary markets, especially in the New York City greater metropolitan area.

Paratransit and transit services accounted for 11.0% and 11.1% of our revenues from continuing operations for the nine months ended March 31, 2008 and 2007, respectively. The terms of our paratransit and transit contracts are initially for five years. These contracts are awarded by public transit systems through a public bidding or request for proposal (‘‘RFP’’) process. We are generally entitled to a specified charge per hour of vehicle service together with other fixed charges.

Results of Operations

Three Months Ended March 31,


Nine Months Ended March 31,2008


2007


2008


2007(unaudited)


(unaudited)(in millions, except percentages)Revenues



$
122.0





100.0
%



$
122.4





100.0
%



$
308.4





100.0
%



$
311.2





100.0
%Cost of operations




110.9





90.9
%




107.0





87.4
%




285.5





92.6
%




278.9





89.6
%General and administrative




4.7





3.9
%




4.8





3.9
%




13.3





4.3
%




13.4





4.3
%Depreciation and amortization




4.8





3.9
%




4.7





3.8
%




14.1





4.6
%




13.8





4.4
%Contract rights impairment




0.3





0.2
%




—





—





0.3





0.1
%




—





—Income (loss) from operations




1.3





1.1
%




6.0





4.9
%




(4.8
)




(1.6
)%




5.1





1.6
%Interest expense




11.3





9.3
%




6.8





5.6
%




30.8





10.0
%




20.1





6.4
%Loss before discontinued operations




(10.0
)




(8.2
)%




(0.7
)




(0.6
)%




(35.5
)




(11.5
)%




(14.8
)




(4.8
)%


Results of Operations — Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007

Revenues.Revenues from school bus operations were $110.9 million for the three months ended March 31, 2008 compared to $111.3 million for the three months ended March 31, 2007, a decrease of $0.4 million, or 0.4%. This decrease was due primarily to a reduction of service requirements of $2.9 million, due primarily to less revenue days and a reduction in routes and $1.0 million in lost contracts, partially offset by $1.9 million of price increases, $1.2 million in new contracts and $0.4 million increase in DOE escort pass-through revenue.

10

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Revenues from paratransit and transit operations were $11.1 million for the three months ended March 31, 2008 compared to $11.2 million for the three months ended March 31, 2007, a decrease of 0.2%.

Cost of Operations.Cost of operations of school bus operations was $100.8 million for the three months ended March 31, 2008 compared to $96.8 million for the three months ended March 31, 2007, an increase of $4.0 million or 4.1%. This increase was primarily due to a $2.0 million increase in fuel expense and an increase in wages and health and welfare costs under our New York City labor contract, partially offset by a decrease in workers compensation insurance expense. Salaries and wages were $54.2 million for the three months ended March 31, 2008 compared to $52.5 million for the three months ended March 31, 2007, an increase of $1.6 million due to contractual wage increases partially offset by fewer routes. As a percentage of revenues, salaries and wages increased to 48.9% for the three months ended March 31, 2008, from 47.2% for the three months ended March 31, 2007. As a percentage of revenues, cost of operations increased to 90.9% for the three months ended March 31, 2008, from 87.0% for the three months ended March 31, 2007.

Cost of operations of paratransit and transit operations were $10.1 million for the three months ended March 31, 2008 and 2007, respectively. This decrease was primarily due to salaries and wages, partially offset by a $0.2 million increase in fuel expense. As a percentage of revenues, salaries and wages decreased to 56.2% for the three months ended March 31, 2008, from 57.1% for the three months ended March 31, 2007. As a percentage of revenues, cost of operations decreased to 90.7% for the three months ended March 31, 2008, from 90.9% for the three months ended March 31, 2007.

General and administrative expenses.General and administrative expenses from school bus operations were approximately $4.0 million for the three months ended March 31, 2008 and 2007, respectively. As a percentage of revenues, general and administrative expenses increased to 3.7% for the three months ended March 31, 2008, from 3.6% for the three months ended and March 31, 2007.

General and administrative expenses from paratransit and transit operations were $0.7 million for the three months ended March 31, 2008 and 2007, respectively. As a percentage of revenues, general and administrative expenses decreased to 6.2% for the three months ended March 31, 2008, from 6.4% for the three months ended March 31, 2007.

Depreciation and amortization.Depreciation and amortization expense from school bus operations was $4.4 million for the three months ended March 31, 2008 compared to $4.3 million for the three months ended March 31, 2007, an increase of $0.1 million, or 2.1%.

Contract right impairment.Contract right impairment expense from school bus operations was $0.3 million for the three months ended March 31, 2008.

Operating income (loss) from operations.Operating income from school bus operations was $1.3 million for the three months ended March 31, 2008 compared to $6.1 million for the three months ended March 31, 2007, a decrease of $4.8 million, or 78.1%, due to the net effect of the items discussed above.

Operating loss from paratransit and transit operations was minimal for the three months ended March 31, 2008 compared to $0.1 million operating loss for the three months ended March 31, 2007, a decrease in loss of $0.1 million, due to the net effect of the items discussed above.

Interest expense.Interest expense was $11.3 million for the three months ended March 31, 2008 compared to $6.8 million for the three months ended March 31, 2007, an increase of $4.5 million, or 66.9%. The increase was primarily due to a $4.6 million non-cash change in fair market value of interest rate swap expense, $0.8 million increase in interest expense on the Notes compared to previous long-term borrowings, offset partially by a $0.2 million decrease in senior credit facility interest and a $0.6 million decrease in deferred financing expense.

Loss before provision for income taxes and discontinued operations.Due to the net effect of the items discussed above we experienced a loss of $10.0 million for the three months ended March 31, 2008, compared to a loss of $0.7 million for the three months ended March 31, 2007, an increase in loss of $9.3 million.

11

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Results of Operations — Nine Months Ended March 31, 2008 Compared to Nine Months Ended March 31, 2007

Revenues.Revenues from school bus operations were $274.5 million for the nine months ended March 31, 2008 compared to $276.6 million for the nine months ended March 31, 2007, a decrease of $2.0 million, or 0.7%. This decrease was due to a reduction of service requirements of $7.3 million, due primarily to less revenue days and a reduction in DOE routes, a reduction in summer revenues of $0.5 million and $2.3 million in lost contracts, partially offset by $4.3 million of price increases, $2.8 million in new contracts and $1.0 million increase in DOE escort pass-through revenue.

Revenues from paratransit and transit operations were $33.9 million for the nine months ended March 31, 2008 compared to $34.6 million for the nine months ended March 31, 2007, a decrease of $0.7 million or 2.1%. This decrease was primarily a reduction of service requirements due to a ten day labor strike that affected our paratransit operations in December 2007, partially offset by price increases of $0.6 million.

Cost of Operations.Cost of operations of school bus operations was $254.8 million for the nine months ended March 31, 2008 compared to $247.8 million for the nine months ended March 31, 2007, an increase of $7.0 million or 2.8%. This increase was primarily due to a $3.8 million increase in fuel expense and increases in wages and health and welfare costs under our New York City labor contract, partially offset by decreases in vehicle and workers compensation insurance expense. Salaries and wages were $138.1 million for the nine months ended March 31, 2008 compared to $134.1 million for the nine months ended March 31, 2007, an increase of $4.0 million or 3.0% due to contractual wage increases partially offset by fewer routes. As a percentage of revenues, salaries and wages increased to 50.3% for the nine months ended March 31, 2008, from 48.5% for the nine months ended March 31, 2007. As a percentage of revenues, cost of operations increased to 92.8% for the nine months ended March 31, 2008, from 89.6% for the nine months ended March 31, 2007.

Cost of operations of paratransit and transit operations were $30.7 million for the nine months ended March 31, 2008 compared to $31.1 million for the nine months ended March 31, 2007, a decrease of $0.4 million or 1.4%. This decrease was primarily due to a $0.7 million decrease in driver wages, due primarily to a ten day labor strike that affected our paratransit operations in December 2007 and a $0.3 million decrease in liquidated damages, partially offset by a $0.5 million increase in fuel expense. As a percentage of revenues, salaries and wages decreased to 51.0% for the nine months ended March 31, 2008, from 51.3% for the nine months ended March 31, 2007. As a percentage of revenues, cost of operations increased to 90.5% for the nine months ended March 31, 2008, from 89.9% for the nine months ended March 31, 2007.

General and administrative expenses.General and administrative expenses from school bus operations were $11.2 million for the nine months ended March 31, 2008 compared to $11.3 million for the nine months ended March 31, 2007, a decrease of $0.1 million or 0.7%. As a percentage of revenues, general and administrative expenses were 4.1% for both the nine months ended March 31, 2008 and 2007.

General and administrative expenses from paratransit and transit operations were $2.1 million for the nine months ended March 31, 2008 and March 31, 2007, respectively. As a percentage of revenues, general and administrative expenses increased to 6.3% for the nine months ended March 31, 2008, from 6.0% for the nine months ended March 31, 2007.

Depreciation and amortization.Depreciation and amortization expense from school bus operations was $13.0 million for the nine months ended March 31, 2008 compared to $12.8 million for the nine months ended March 31, 2007, an increase of $0.2 million, or 2.1%.

Depreciation and amortization expense from paratransit and transit operations was $1.1 million for the nine months ended March 31, 2008 and for the nine months ended March 31, 2007, respectively.

Contract right impairment.Contract right impairment expense from school bus operations was $0.3 million for the nine months ended March 31, 2008.

12

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Operating income (loss) from operations.Operating loss from school bus operations was $4.8 million for the nine months ended March 31, 2008 compared to income of $4.7 million for the nine months ended March 31, 2007, a difference of $9.5 million, or 202.9% due to the net effect of the items discussed above.

Operating income from paratransit and transit operations was minimal compared to $0.4 million for the nine months ended March 31, 2007, a decrease of $0.4 million, or 97.0%, due to the net effect of the items discussed above.

Interest expense.Interest expense was $30.8 million for the nine months ended March 31, 2008 compared to $20.1 million for the nine months ended March 31, 2007, an increase of $10.8 million, or 53.8%. The increase was primarily due to a $10.5 million non-cash change in fair market value of interest rate swap expense, $3.0 million increase in interest expense on the Notes compared to previous long-term borrowings, offset partially by a $0.8 million decrease in senior credit facility interest and a $1.7 million decrease in deferred financing expense.

Loss before benefit from income taxes and discontinued operations.Due to the net effect of the items discussed above we experienced a loss of $35.6 million for the nine months ended March 31, 2008 compared to a loss of $14.8 million for the nine months ended March 31, 2007, an increase in loss of $20.7 million.

Gain (loss) from discontinued operations.We experienced a gain from discontinued operations of $5.6 million, net of the sale of fixed assets, for the nine months ended March 31, 2007.

Liquidity and Capital Resources

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

The Company anticipates capital expenditures for the fiscal year ending June 30, 2008 of approximately $10 million (including approximately $5 million of non-vehicle capital expenditures), of which $8.8 million were made during the nine months ended March 31, 2008. The Company plans to meet the majority of its vehicle requirements by leasing as it did for the fiscal year ended June 30, 2007. Vehicle lease expense increased $0.5 million for the nine months ended March 31, 2008, from the nine months ended March 31, 2007. The Company anticipates its vehicle lease expense will increase by approximately $0.7 million for the fiscal year ending June 30, 2008.

On May 15, 2007 the Company issued $185.0 million aggregate principal amount of Senior Secured Floating Rate Notes due 2012 (the ‘‘Notes’’). The Notes were issued with an original issue discount of $2.8 million, which is being amortized over the term of the Notes. The net proceeds of the Notes were used to repay $116.3 million of our previously outstanding 12% Senior Secured Notes due 2008 and Senior Secured Floating Rate Notes due 2008 (collectively the ‘‘Old Notes’’), $15.5 million for the third-priority senior secured notes, $4.9 million of the senior unsecured notes, repayment of $3.5 million for the letter of credit advance, $1.6 million of PIK interest converted into debt, $12.1 million for the buyout of vehicle operating leases and $4.8 million for outstanding administrative priority claims and the rest was used for other corporate purposes.

Effective as of May 15, 2007, we entered into an interest swap agreement (the ‘‘Swap’’) to reduce our exposure to interest rate fluctuations on our Senior Secured Notes due 2012 (the ‘‘Notes’’), which bear interest at LIBOR plus a margin of 7.25%. The Swap has a notional amount of $185 million with a fixed rate of 5.21% thereby effectively converting the floating rate notes to a fixed rate obligation of 12.46%. The Swap will expire in April 15, 2010. On the interest payment dates of the Notes, the difference between LIBOR and 5.21% is required to be settled in cash. In accordance with SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, the Swap does not qualify for ‘‘Cash Flow Hedge Accounting’’ treatment since the documentation of the accounting treatment was not done contemporaneously with entering into the agreement. The reduction in the fair market value of this interest swap agreement of approximately $10.5 million is reflected as an addition to interest expense for the nine months ended March 31, 2008.

13

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Our obligation under the Swap is secured by the collateral securing our amended and restated credit facility and in connection therewith total reserves of approximately $9.8 million, $10.1 million and $7.7 million for March 2008, April 2008 and May 2008, respectively, were established against our borrowing base. In February 2008, our senior credit facility was amended to change the calculation of the borrowing base for the purpose of the calculation of excess availability, solely in relation to testing the EBITDA covenant, (see note 3 (b) ) to exclude the first $5.0 million of reserves established in connection with our Swap. This change is effective from January 1, 2008 until February 15, 2009. Based upon this amendment, the Company did not need to test the EBITDA covenant through May 14, 2008.

Concurrently with the issuance of the Notes, the Company and substantially all of its subsidiaries also amended and restated its existing senior credit facility with Wachovia, as agent, to provide up to $35.0 million of borrowing availability under a revolving credit facility, subject to customary borrowing conditions, plus a $10.0 million letters of credit facility. The Amended and Restated Credit Facility is secured by a first priority lien on substantially all of the Company’s and its subsidiaries’ assets, other than collateral securing the Notes on a first priority basis. In addition, the term of the credit facility was extended from February 29, 2008 to December 31, 2011. The Amended and Restated Credit Facility contains customary events of default and starting August 1, 2007 contains a minimum last 12 month (‘‘LTM’’) EBITDA covenant of $26.0 million, which will only be tested if excess availability falls below certain levels. The LTM EBITDA was $21.6 million as of March 31, 2008, but was not tested because the Company met the availability requirements.

The borrowing capacity under the Amended and Restated Credit Facility is based upon 85% of the net amount of eligible accounts receivable less reserves. Our senior lender has established borrowing base reserves of approximately $9.8 million, $10.1 million and $7.7 in March 2008, April 2008 and May 2008, respectively, in connection with our Swap (see note 2). Loans under the facility bear interest at the prime rate (the prime rate at March 31, 2008 was 5.25%). Letters of credit are subject to a fee of 1% per annum payable monthly in arrears and any amounts paid by lenders for letters of credit will bear the same rate as loans under our revolving facility. The Company paid a closing fee of $400,000 and is required to pay a servicing fee of $10,000 per month, plus pay a monthly fee of 0.5% on any unused portion of its senior credit facility.

In December 2007, one of the Company’s insurance carriers issued us approximately $9.0 million in credits representing retrospective adjustments as of September 2007 for various years. In January 2008, the insurance company offset $2.2 million of current premiums due in January 2008, added $0.8 million to our cash collateral account held by the insurance company and wired funds for $6.0 million. In addition, the insurance company did not renew a $0.7 million letter of credit held as collateral. This letter of credit was collateralized by restricted cash that is now available for working capital.

Under the terms of its contract with the DOE (its largest customer) the Company received a CPI increase of 21⁄2% for the fiscal year ending June 30, 2008. However, a change in the configuration of routes for the current year effectively reduces this increase to less than 11⁄2%. In addition, the contracted labor and benefit percentage increases for the current fiscal year exceeds this revenue increase and will have a negative impact on margins.

The Company operated a fleet of approximately 5,600 vehicles as of March 31, 2008 and uses substantial quantities of fuel in its operations. The price of NYMEX crude oil on March 31, 2007 was approximately $66 a barrel and as of May 6, 2008 the price was approximately $122 a barrel. The Company’s fuel expense for the nine months ended March 31, 2008 was $19.9 million compared to $15.7 million for the nine months ended March 31, 2007, an increase of $4.2 million, or 27.1%. Based on the Company’s current operations, an increase in fuel costs of 10 cents per gallon will increase its cost of fuel purchased by approximately $1.0 million on an annual basis. If the cost of fuel continues to increase it will have an adverse effect on the Company’s liquidity.

The Company, in addition to normal working capital requirements, has significant interest obligations and capital expenditure requirements to finance its operations. Our senior lender has established borrowing base reserves of approximately $9.8 million, $10.1 million and $7.7 million in

14

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March 2008, April 2008 and May 2008, respectively, in connection with our Swap (see note 2). If these reserves increase they may have an adverse effect on the Company’s liquidity especially during the first and second quarters of fiscal 2009.

The Company believes that borrowings under the Amended and Restated Credit Facility, retrospective insurance credits received from its insurance company together with its existing cash and cash flow from operations may not be sufficient to fund the Company’s anticipated liquidity requirements for the next twelve months and the Company would have to pursue additional funding alternatives, including the sale of certain assets or operations, in order to improve its liquidity position.

LTM EBITDA was $21.6 million as of March 31, 2008 and we expect LTM EBITDA to be below $26.0 million for the next twelve months. If our excess availability for the purpose of testing the EBITDA covenant (see note 2) falls below certain levels, this will generate a default under our senior credit facility and under certain circumstances cause a cross default under the Notes. Although the Company believes that it would be able to receive a waiver of this default from Wachovia, there can be no assurance that this is the case or what the cost to the Company might be. If the Company would not be able to receive a waiver, then the amount of the senior credit facility would be reclassified to a short-term liability.

As of March 31, 2008, total current assets were $92.9 million and total current liabilities were $47.7 million. At March 31, 2008, the Company had a credit balance under its $35.0 million senior credit facility of $3.4 million, and it had $22.3 million of borrowing availability after $9.8 million of reserves, based on the Company’s borrowing base calculations. Approximately $9.3 million of the Company’s $10.0 million letter of credit facility was used as of the same date. On May 7, 2008, under our senior credit facility the Company had a credit balance of $3.1 million, and it had $17.8 million in borrowing availability after $7.7 million of reserves, based upon the Company’s borrowing base calculations.

Net cash provided by (used in) operating activities.Net cash provided by operating activities was $8.2 million for the nine months ended March 31, 2008, resulting primarily from cash provided by changes in the components of working capital of $15.5 million, and by non cash items of $26.5 million (primarily $15.3 million of depreciation and amortization and $10.5 million of interest swap expense) partially offset by from $33.8 million used in operating activities.

Net cash used in operating activities was $1.2 million for the nine months ended March 31, 2007, resulting primarily from $18.9 million used in operating activities and $1.2 million cash used in changes in the components of working capital, partially offset by non cash items of $16.7 million of depreciation and amortization, $1.4 million of PIK interest and $0.7 million of amortization of original issue discount.

Net cash used by investing activities.For the nine months ended March 31, 2008, the net cash used by investing activities was $7.6 million resulting primarily from $8.8 million of capital expenditures of which $0.2 million were financed by purchase money mortgages and $8.6 million were financed from operating cash flows.

For the nine months ended March 31, 2007, the net cash provided by investing activities was $16.2 million resulting primarily from $11.8 million of proceeds from the sale of assets, $3.1 million decrease in restricted cash and $5.1 million of proceeds from sales or redemptions of marketable securities, partially offset by the $4.4 million of capital expenditures. Of these, $0.6 million of capital expenditures were directly financed with purchase money debt and the balance was financed from operating cash flows.

Net cash used in financing activities.Net cash used in financing activities totaled $4.9 million for the nine months ended March 31, 2008 due primarily to $3.0 million of net payments under the senior credit facility and $1.6 million in payments on borrowings and capital lease obligations.

Net cash used in financing activities totaled $9.3 million for the nine months ended March 31, 2007 due primarily to $7.2 million net payments under the senior credit facility and $2.0 million in payments on borrowings and capital lease obligations.

15

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Commitments and Contingencies

Reference is made to Note 16 ‘‘Commitments and Contingencies’’ of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2007 for a description of the Company’s material commitments.

Critical Accounting Policies

In presenting our consolidated financial statements in conformity with U.S. generally accepted accounting principles, we are required to make estimates and judgments that affect the amounts reported therein. Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate. Actual results may differ significantly from these estimates. A discussion of our critical accounting policies and the related judgments and estimates affecting the preparation of our consolidated financial statements is included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2007. There have been no material changes to our critical accounting policies as of March 31, 2008.

Disclosure Regarding Forward-Looking Statements

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

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

Item 3.Quantitative and Qualitative Disclosures About Market Risk

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

We operated a fleet of approximately 5,600 vehicles as of March 31, 2008 and consume substantial quantities of fuel for our operations. Based on our current operations, an increase in fuel costs of ten cents per gallon will increase our cost of fuel purchased by approximately $1.0 million on an annual basis. From time to time in the past, we have entered into hedging contracts to protect ourselves from fluctuations in the cost of fuel, and we may seek to do the same in the future. We currently do not have any fuel hedging agreements in place, but we continually evaluate entering into such agreements if we believe increases in fuel costs are likely. No assurance can be given that we will be able to adequately protect ourselves from fluctuating fuel costs even if we enter into hedging contracts.

As of March 31, 2008, our only variable rate borrowings are the Notes (LIBOR plus 7.25% interest) and the Amended and Restated Credit Facility (prime rate). On May 15, 2007 we reduced our exposure to interest rate fluctuations on our Notes by entering into the Swap. The Swap has a notional amount of $185 million with a fixed rate of 5.21% thereby effectively converting the floating rate notes to a fixed rate obligation of 12.46%. The Swap will expire on April 15, 2010. On the interest payment dates of the Notes, the difference between LIBOR and 5.21% is required to be settled in

16

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cash. As of March 31, 2008 the fair market value of the Swap was a $10.1 million liability. Our obligation under the Swap is secured by the collateral securing our amended and restated credit facility. As of March 31, 2008, based upon our variable interest rate borrowings, a 100 basis point increase in interest rates, applied to our maximum variable rate borrowings, would have no material effect on cash flows until periods commencing April 16, 2010.

Item 4.Controls and Procedures

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

As of the end of the period covered by this Form 10-Q, the Company again carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were still ineffective as of the end of the period covered by this Form 10-Q. The Company continues to review its disclosure controls and procedures in order to improve their effectiveness. Although the process is ongoing, the Company has identified a need to modify its financial period closing from a sequential to a more simultaneous process, to reduce the time necessary to properly complete its financial statement preparation and review. As the review process continues, the Company may identify other areas for improvement.

There were no changes in our internal controls over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. The Company has engaged a consultant in connection with the process of becoming compliant under Sarbanes-Oxley section 404 (‘‘SOX’’). The Company is working towards being SOX compliant by June 30, 2008 but can not guarantee that it will be successful by that date.

Item 4T.Controls and Procedures

Not applicable.

17

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PART II.

OTHER INFORMATION

Item 1.Legal Proceedings

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

Item 1A.Risk Factors

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, and trading price of the Notes. Please refer to the Company’s Annual Report on Form 10-K for fiscal year 2007 for additional information concerning these risk factors and other uncertainties that could negatively impact the Company.

Our senior lender has established borrowing base reserves of approximately $9.8 million $10.1 million and $7.7 million in March 2008, April 2008 and May 2008, respectively in connection with our Swap (see note 2). If these reserves increase they may have an adverse effect on the Company’s liquidity especially during the first and second quarters of fiscal 2009.

In addition, to the extent that these reserves in excess of $5.0 million reduce the company’s excess availability as defined below certain levels, LTM EBITDA under $26.0 million would generate a default under our senior credit facility and under certain circumstances cause a cross default under the Notes. Although the Company believes that it would be able to receive a waiver of this default from Wachovia, there can be no assurance that this is the case or what the cost to the Company might be. If the Company would not be able to receive a waiver, then the amount of the senior credit facility would be reclassified to a short-term liability.

The Company believes that borrowings under the Amended and Restated Credit Facility, retrospective insurance credits received from its insurance company together with its existing cash and cash flow from operations may not be sufficient to fund the Company’s anticipated liquidity requirements for the next twelve months and the Company would have to pursue additional funding alternatives, including the sale of certain assets or operations, in order to improve its liquidity position.

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

On May 12, 2008, we issued 87,030 shares of our Common Stock, par value $0.01 per share, pursuant to the timely exercise of warrants which had been issued in connection with our previously outstanding 12% Senior Secured Notes due 2008 and Senior Secured Floating Rate Notes due 2008.

18

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We received aggregate proceeds of $870.30 as exercise price of the warrants, which proceeds will be used for general corporate purposes. The issuance of the shares upon exercise of the warrants was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.

Item 3.Defaults upon Senior Securities

None.

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

None.

Item 5.Other Information

None.

Item 6.Exhibits

The following documents are filed as Exhibits to this report:

Exhibit No.


Description10
.1



Amendment No. 1 to Third Amendment and Restated Loan and Security Agreement, dated as of January 1, 200831
.1



Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer31
.2



Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer32
.1



Section 1350 Certification of Principal Executive Officer32
.2



Section 1350 Certification of Principal Financial Officer


19

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SIGNATURE

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

ATLANTIC EXPRESS TRANSPORTATION CORP.Date: May 14, 2008


By:


/s/ Domenic GattoDomenic Gatto
Chief Executive Officer
(Principal Executive Officer)Date: May 14, 2008


By:


/s/ Nathan SchlenkerNathan Schlenker
Chief Financial Officer
(Principal Financial and
Principal Accounting Officer)


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EXHIBIT INDEX

Exhibit No.


Description10
.1



Amendment No. 1 to Third Amendment and Restated Loan and Security Agreement, dated as of January 1, 200831
.1



Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer31
.2



Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer32
.1



Section 1350 Certification of Principal Executive Officer32
.2



Section 1350 Certification of Principal Financial Officer


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