<PAGE>
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
 
                           --------------------------
 
                                   FORM 10-K
 
            /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
                    FOR THE FISCAL YEAR ENDED JUNE 30, 1998
 
                                       OR
 
          / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
         FOR THE TRANSITION PERIOD FROM _____________ TO _____________
 
                        COMMISSION FILE NUMBER: 0-24247
 
                           --------------------------
 
                     ATLANTIC EXPRESS TRANSPORTATION CORP.
 
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                         <C>
         NEW YORK                13-392-3467
     (State or other          (I.R.S. Employer
     jurisdiction of           Identification
     incorporation or              Number)
       organization
 
     7 NORTH STREET,
 STATEN ISLAND, NEW YORK         10302-1205
  (Address of principal          (Zip Code)
    executive offices)
 
                 (718) 442-7000
  Registrant's telephone number, including area
                      code
 Securities Registered Pursuant to Section 12(b)
                of the Act: None
 Securities Registered Pursuant to Section 12(g)
                of the Act: None
</TABLE>
 
                           --------------------------
 
    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 if disclosure of delinquent files pursuant to Item
405 of Regulation S-K is not contained here-in, and will not be contained, to
the best of registrant'(1)s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
 
             APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
 
    Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ______  No ____
 
                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)
 
    Indicate the number of shares outstanding of each of the registrant'(1)s
classes of common stock, as of the latest practicable date.
 
    As of September 30, 1998, 100 shares of Common Stock, no par value, were
outstanding; all of which were held by an affiliate.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
                                     None.
 
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<PAGE>
                                    PART I.
 
ITEM 1. BUSINESS
 
    GENERAL
 
    UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO
THE "COMPANY" AND "ATLANTIC" ARE TO ATLANTIC EXPRESS TRANSPORTATION CORP. AND
ITS SUBSIDIARIES, AND, FOR PERIODS PRIOR TO FEBRUARY 4, 1997, THE SUBSIDIARIES
OF ATLANTIC EXPRESS TRANSPORTATION GROUP INC. (TOGETHER WITH ITS PREDECESSORS,
"AETG") ENGAGED IN THE TRANSPORTATION BUSINESS. ATLANTIC CONDUCTS ITS BUSINESS
THROUGH ITS SUBSIDIARIES. REFERENCES TO FISCAL YEARS ARE TO YEARS ENDING JUNE
30.
 
    Atlantic is one of the largest providers of school bus transportation in the
United States. The Company has contracts with 63 school districts in New York,
Missouri, California, Pennsylvania, Connecticut and New Jersey. In addition to
its school bus transportation operations (the "School Bus Division"), the
Company provides services to public transit systems for physically and mentally
challenged passengers (the "Paratransit Division"), transportation for
pre-kindergarten children and Medicaid recipients (the "Pre-K/Medicaid
Division"), express commuter line and charter and tour bus services (the "Coach
Division") (collectively the "Transportation Operations") and sells school buses
and commercial vehicles (the "Bus Sales Operations"). Atlantic has a fleet of
approximately 3,900 vehicles operating from 32 facilities.
 
    Atlantic is a wholly owned subsidiary of AETG. AETG has contributed to the
Company all of the issued and outstanding stock of the subsidiaries of AETG,
other than those subsidiaries that are engaged in AETG's entertainment business.
 
    Atlantic was founded in 1964 as a school bus company based in Staten Island,
New York. Domenic Gatto, Chairman of the Board, Chief Executive Officer and
President of the Company, commenced employment with the Company in 1973 and
purchased the Company in 1974, at which time the Company operated only 16 buses.
In 1979, the Company was awarded two major school bus transportation contracts
by the New York Board of Education, which substantially increased the Company's
revenues. These contracts, which were originally awarded for a period of three
years, have been extended successively through fiscal 2000. From 1982 to 1987,
the Company strengthened its presence in New York City through the acquisition
of 14 regional school bus transportation companies, which, in aggregate,
contributed approximately $27.2 million of revenues in fiscal 1998. In 1986, the
Company won and purchased additional contracts in New York City, which also have
been extended successively through 2000, and which contributed revenues of
approximately $28.3 million in fiscal 1998. From 1986 to 1989, the Company
further strengthened its presence in New York City through the acquisitions of
four local contractors and expanded its operations to Nassau and Suffolk
counties on Long Island, New York, through a combination of acquisitions and
winning new contracts. From 1990 to 1997, the Company consummated six additional
acquisitions in the New York metropolitan area and three acquisitions on Long
Island, New York, which generated approximately $29.1 million of revenues in
fiscal 1998. In addition to the Company's expansion in the New York greater
metropolitan area, the Company extended its operations to Philadelphia in 1993,
where it was the successful bidder for a new contract, which, when combined with
subsequent acquisitions in 1993 and additional new contracts received in 1996
and 1997, contributed approximately $8.9 million of revenues in fiscal 1998.
Continuing its strategy of expanding its operations outside New York City, the
Company established operations in St. Louis (in 1995 and 1996) and in Los
Angeles (in 1997) by winning contracts, which contributed $18.6 and $7.6 million
of revenues, respectively in fiscal 1998.
 
                                       1
<PAGE>
RECENT TRANSACTIONS
 
    CERTAIN OF THE RECENT TRANSACTIONS DISCUSSED BELOW OCCURRED AFTER JUNE 30,
1998, THE END OF THE FISCAL YEAR COVERED BY THIS FORM 10-K. NEVERTHELESS, THE
DISCUSSION HAS BEEN INCLUDED TO PROVIDE A MORE COMPLETE DESCRIPTION OF THE
BUSINESS OF THE COMPANY AS OF THE DATE OF THE FILING OF THIS FORM 10-K.
 
    ACQUISITION OF AETG.  On September 29, 1998, GSCP II Holdings (AE), LLC
("Buyer"), an affiliate of Greenwich Street Capital Partners, Inc., a New York
based private equity fund, signed a Recapitalization and Stock Purchase
Agreement (the "Recapitalization Agreement") with AETG, which owns all of the
issued and outstanding shares of capital stock of the Company, and the
shareholders of AETG, pursuant to which Buyer is to acquire an approximately 
88% equity interest in a recapitalized AETG (the "Recapitalization"). The
Recapitalization Agreement is subject to a variety of conditions, including
obtaining the consent of the holders of a majority of the Company's 10 3/4%
Senior Secured Notes due 2004 (the "Notes") to an amendment to the Indenture
relating to the Notes. Such amendment would in substance exempt the
Recapitalization from the definition of "Change of Control" under the Indenture
so that the Company would not be required as a result of the Recapitalization to
offer to purchase all of the Notes then outstanding at a purchase price equal to
101% of the aggregate principal amount thereof plus accrued interest to the date
of repurchase.
 
    No assurance can be given that the recapitalization will be completed.  If
the Recapitalization takes effect as currently contemplated, AETG's authorized
capital stock will be amended to consist of a single class of common stock,
Buyer will acquire approximately 88% of the common stock of the recapitalized
AETG, and AETG will repurchase all of the shares of AETG held by Michael and
Patrick Gatto and a portion of shares held by Domenic Gatto and Wafra
Acquisition Fund 4, L.P. ("Wafra"), which would leave them with approximately 8%
and 4% of the common stock, respectively. (See Item 12-Security Ownership of
Certain Beneficial Owners and Management).
 
    NEW SCHOOL BUS CONTRACTS.  In March 1998, the Company was awarded additional
contracts for up to 74 school buses by the Los Angeles Unified School District
("LAUSD") and in April 1998, a private school in Los Angeles awarded a 4 vehicle
contract to the Company. In May 1998, Longwood Central School District in New
York awarded the Company a contract for 166 school buses and the City of
Philadelphia School District awarded the Company a contract for 32 school buses.
These contracts require capital expenditures of approximately $12.7 million
including $0.9 million for purchase of real property, $11.6 million for purchase
of vehicles and $0.2 million for real property improvements.
 
    NEW PARATRANSIT CONTACTS.  In July 1997, the Company was awarded a
three-year contract to provide paratransit services in Philadelphia,
Pennsylvania by the Southeastern Pennsylvania Transportation Authority ("SEPTA")
(the "SEPTA Contract"). Pursuant to the SEPTA Contract, SEPTA provided the
Company with all of the required vehicles and, as a result, the Company did not
need to make significant capital expenditures to fulfill its obligations
thereunder.
 
    In September 1998, the Company was awarded a five-year contract to provide
paratransit services in Denver, Colorado by the Regional Transit District of
Denver ("RTD"). Pursuant to the contract, RTD will provide the Company with all
of the required vehicles and, as a result, the Company will not be required to
make significant capital expenditures to fulfill its obligations thereunder.
 
    SALE OF ENTERTAINMENT NOTE.  On October 2, 1998, the Company, after 
receiving a fairness opinion issued by an investment banking firm of national 
standing, entered into an agreement with Domenic Gatto, Michael Gatto and 
Patrick Gatto, shareholders of AETG and executive officers of the Company, to 
purchase from the Company a promissory note made by Westshore Partners 
("Westshore"), Richmond Investors, Inc. ("Richmond") and Staten Entertainment 
Inc. which are subsidiaries of AETG's entertainment division (the 
"Entertainment Note"). The agreement provides for the sale of the Entertainment
Note at book value, plus an amount equal to one-half of the net proceeds 
received from any sale of the assets of Westshore or Richmond within a period 
of 12 months from the closing of such agreement (see Item 13--Certain 
Relationships and Related Transactions).
 
                           TRANSPORTATION OPERATIONS
 
SCHOOL BUS DIVISION
 
    The School Bus Division is Atlantic's largest division. The Company has
contracts to provide school bus transportation in 63 school districts in New
York, Missouri, California, Pennsylvania, Connecticut and
 
                                       2
<PAGE>
New Jersey. The Company's revenues from school bus operations have increased at
a compound annual growth rate of 15.5%, from $90.3 million in fiscal 1994 to
$160.7 million in 1998.
 
    SERVICES.  The Company generally provides services for transportation of
open enrollment ("Regular Education") students through the use of standard
school buses, and transportation for physically or mentally challenged ("Special
Education") students through the use of an assortment of vehicles, including
standard school buses, passenger vans, and lift-gate vehicles, which are capable
of accommodating wheelchair bound students. In most jurisdictions serviced by
the Company, escorts are required to accompany drivers on Special Education
vehicles.
 
    CONTRACTS.  The Company's school bus transportation contracts are awarded by
school districts based on public bidding or request for proposal ("RFP")
process. The Company's school bus transportation contracts have provided a
relatively predictable and stable stream of revenues over their terms, which
range from one to five years. Since 1979, Atlantic has achieved a contract
renewal rate of approximately 98%. Compensation under school bus transportation
contracts is generally based upon a daily rate per vehicle, which is established
either by public bidding or by proposal and negotiation with respect to RFP
contracts. Contracts in New York City provide for the payment of the daily
vehicle rate (which encompasses all costs of the Company, including driver and
escorts) for days of scheduled performance in accordance with the school
calendar and provides for payment in the event of school cancellation as a
result of inclement weather or other emergencies. The number of vehicles
required is determined by the school districts, initially pursuant to its bid
specifications and/or RFP, and is subject to change.
 
    Commencing June 1995, the Company received five-year extensions on all 17 of
its school bus transportation contracts with the Board of Education of the City
of New York (the "New York Board of Education"). To receive these extensions,
the Company agreed to a reduction in its rates in fiscal 1996 and to a ceiling
on the increases in fiscal 1997 and 1998. Thereafter, the contracts provide that
the Company will receive increases based upon the applicable Consumer Price
Index ("CPI") increase.
 
    The Company's school bus transportation contracts generally provide for
performance security in one or more of the following forms: performance bonds,
letters of credit and cash retainages. Under current arrangements, the Company
secures the performance of its New York Board of Education contracts through the
use of performance bonds plus cash retainages of 5% of amounts due to the
Company. In most instances, the Company has opted to satisfy its security
performance requirements by posting performance bonds. At June 30, 1998, the
Company had provided performance bonds aggregating $24.4 million.
 
    CUSTOMERS.  The Company has longstanding relationships with many of the
school districts which it services. School districts with which the Company does
business generally appoint a business manager and/ or transportation supervisor
to oversee school bus transportation operations. Larger school districts have
separate bureaus or divisions, which regulate and supervise the provision of
school bus transportation services. Passenger safety, timeliness and quality of
service are among the factors used by school bus transportation administrators
to evaluate the Company.
 
    In the Company's experience, unless a school district is dissatisfied with
the services of a school bus transportation contractor, school districts tend to
extend existing contracts rather than solicit bids from potential replacement
contractors, unless applicable law or the terms of the contract otherwise
require. Management believes that replacing an existing contractor through a
bidding process generally has resulted in higher prices to districts than
contract extensions because of the significant start-up costs that a replacement
contractor faces. Bidding also exposes a school district to uncertainty in the
quality of service which would be provided by a new contractor.
 
    Historically, school districts awarded school bus transportation contracts
through a public bidding process by which such contracts were required to be
awarded to the lowest responsible bidder, without regard to quality of service.
However, management believes that due, in part, to the poor performance of
certain low-priced school bus transportation contractors, school districts will
increasingly rely on a RFP
 
                                       3
<PAGE>
process, which enables school administrators to broaden the factors considered
when awarding a contract. Factors such as passenger safety, timeliness and
quality of service, among others, are generally considered under the RFP
process. In 1996, the State of New York (where the Company has its largest
concentration of school bus transportation contracts) adopted legislation,
which, for the first time, permits school districts in the State of New York to
select school bus transportation contractors through a RFP process. Management
believes that because of the reputation it has developed in the school bus
transportation industry, it is well positioned to obtain contracts which are
awarded by the RFP process as well as by public bidding.
 
    The Company's 17 contracts with the New York Board of Education have been
successively extended through fiscal 2000. The New York Board of Education
accounted for 33.3%, 46.1%, and 49.8% of the Company's revenues in fiscal 1998,
1997 and 1996, respectively. No other customer contributed greater than 7% of
the Company's revenues during these periods.
 
PARATRANSIT DIVISION
 
    The Paratransit Division is the second largest and fastest growing division
of the Transportation Operations. The Paratransit Division's revenues have
increased from $3.4 million in fiscal 1994 to $30.2 million in fiscal 1998.
Management believes the demand for paratransit services in the United States
will continue to grow over the next several years. Pursuant to the Americans
with Disabilities Act of 1990 (the "ADA"), certain public transit systems are
required to provide comparable services to disabled persons who are unable to
use standard public transportation. The ADA required over 500 public transit
systems in the United States to implement fully operational paratransit systems
by January 1997. Because the ADA was enacted in 1990, the paratransit services
industry is relatively young, with most existing contracts having been awarded
in the last five years. The larger public transit systems in the United States
rely predominantly upon the private sector to perform paratransit services,
while approximately one-half of the small and medium size systems outsource
paratransit transportation services. Management believes many small companies
that have been providing paratransit services may be unable to fulfill the
complex service requirements of paratransit contracts, and thus many of the
contracts presently held by such operators may not be renewed. The Company has
gained substantial experience in satisfying the rigorous demands of such
contracts and plans to compete aggressively to obtain new paratransit contracts
in the next five years as contracts awarded expire. With the exception of
relatively minor contributions for some vehicle acquisition costs, the ADA
requirement to provide paratransit services was an unfunded mandate by the
federal government.
 
    Better known national paratransit providers include Laidlaw Transit, Inc.,
Ryder ATE, a division of Ryder Systems Inc., and the Company. In addition,
paratransit services are also provided by several hundred smaller local
paratransit companies and by local municipalities.
 
    To achieve passenger safety and to satisfy paratransit contract
requirements, the Company has instituted a comprehensive driver-training course,
which encompasses defensive driving, passenger sensitivity, first aid and CPR
procedures, passenger assistance techniques and a comprehensive knowledge of
disabilities of the passengers which the Company transports. The Company has
also developed and implemented complex and comprehensive routing and scheduling
programs in order to provide its paratransit services in accordance with rapid
response times which are contractually mandated. Paratransit services are
primarily funded by public transit systems.
 
    SERVICES.  The Company's paratransit services are rendered based upon
advance call-in requests for transportation, which are generally scheduled by
the Company or an independent third party. At June 30, 1998, the Company had
approximately 430 vehicles consisting of full-size four-door sedan automobiles
and lift-equipped vans to service its paratransit transportation contracts. The
Paratransit Division has developed a substantial degree of expertise in
developing and providing transportation services required by its physically or
mentally challenged passengers in this developing segment of the transportation
industry.
 
                                       4


<PAGE>
    CONTRACTS.  The terms of the Company's paratransit contracts range from one
to five years. The scope of services and contract requirements vary considerably
from one jurisdiction to another. The three general components of paratransit
transportation services are (i) providing the actual transportation services;
(ii) reserving passenger requests for service; and (iii) sorting and scheduling
passenger requests for service. Some of the Company's customers require the
Company to perform all three components of service while other customers perform
one or more of such functions themselves or through third parties. Paratransit
vehicles are either provided by the transit agency or the Company depending upon
the terms of a particular contract. The Company is generally entitled to a
specified charge per hour of vehicle service together with other fixed charges.
Paratransit users pay the Company a fixed amount per trip determined by the
local transit system governmental entity (which may be equal to or based upon
prevailing public transportation fees in the jurisdiction in question), which is
credited against the monthly contract price due from the local transit system.
 
    CUSTOMERS.  The Company presently performs paratransit services under
contracts with public transit systems in New York City; Yonkers, New York;
Louisville, Kentucky; Atlantic City, New Jersey; and Bucks County, Montgomery
County and Philadelphia County, Pennsylvania. Management believes that its New
York City Transit Authority contract is one of the largest paratransit contracts
awarded to date in the United States.
 
PRE-K/MEDICAID DIVISION
 
    The Company provides transportation for physically or mentally challenged
children between the ages of three and five, to and from pre-kindergarten
facilities located in the New York City metropolitan area. At June 30, 1998, the
Company transported approximately 140 children each school day with
approximately 15 vehicles pursuant to contracts with the New York City
Department of Transportation. Each vehicle requires the presence of an escort
who is responsible to assist the children on and off the bus. Escorts are
employed and trained by the Company. The Company is compensated on a per child
basis at rates which were determined pursuant to public bidding. In September
1997, the Company returned five contracts utilizing 18 vehicles and transporting
187 children and elected to extend the balance of its contracts.
 
    The Company also performs contracts with private, not-for-profit
organizations, which are funded under Medicaid, for the transportation of
physically or mentally challenged passengers to and from rehabilitation
facilities. At June 30, 1998, the Company utilized approximately 85 vehicles in
the performance of these contracts and received compensation based upon a daily
rate per person transported, which rates of compensation varied based upon
ambulatory and non-ambulatory passengers.
 
    The Company generated approximately 2.3% of its revenues in fiscal 1998 from
its Pre-K/Medicaid Division.
 
COACH DIVISION
 
    The Company provides express commuter, charter and tour bus transportation
services with a fleet of 34 luxury motor coaches and 14 mini coaches.
 
    For the year ended June 30, 1998, express commuter services were provided to
approximately 650 passengers from a "Park and Ride" facility (which is leased
from an affiliate company in AETG's entertainment business) in Staten Island,
New York to and from Manhattan on a daily basis.
 
    Charter and tour bus operations include single day and multi-day charters
throughout the continental United States and Canada. In addition, the Company
operates scheduled line services between New York City and Atlantic City under
contractual arrangements with tour operators. Luxury coaches are generally
contracted for individual special events. The Company's contracts for coach
services vary based on duration and length of trip. This division generated 2.0%
of the Company's revenues in fiscal 1998.
 
                                       5
<PAGE>
                              BUS SALES OPERATIONS
 
    ACQUISITION OF CENTRAL.  Effective July 1, 1997, the Company acquired 100%
of the common stock of Central New York Coach Sales & Service, Inc. ("Coach")
and Jersey Bus Sales, Inc. ("Jersey") and certain related real property
(together with Coach and Jersey, collectively "Central") for a total
consideration of $26.5 million less Central's long-term indebtedness as of July
1, 1997 which was $4.8 million. Central is the leading authorized distributor of
school buses manufactured by Blue Bird Body Company ("Blue Bird"), which is the
leading manufacturer of school buses in North America. Central also currently
operates 159 school buses in New Jersey. Mr. Thomas Denney, the President and
Chief Executive Officer of Central since July 1978 will continue in such
positions with Central. The Company issued in August 1997 an additional $40.0
million aggregate principal amount of its 103/4% Senior Secured Notes due 2004
(the "Additional Notes"). The additional Notes were issued in a private
placement to fund this acquisition and to fund the Company's entrance into the
Los Angeles market.
 
    The Company's Bus Sales Operations sells school buses and commercial
vehicles within New Jersey and various counties in New York. The Company
generated approximately 22.1% of its revenues in fiscal 1998 from this
operation.
 
FOCUS ON PASSENGER SAFETY AND SERVICE
 
    Management has developed a corporate culture focused on passenger safety and
service. Atlantic participates in the "Safe Bus" program, under which complaints
regarding school bus drivers' performance and safety are registered by an
independent party and forwarded to the Company for remedial action. Unlike many
of its competitors, the Company requires its drivers to wear standardized
uniforms, thereby reinforcing its professional image. In addition, all drivers
are required to attend periodic safety workshops and training programs, which
emphasize defensive driving and courteous behavior. Management believes that its
emphasis on passenger safety and service is a competitive advantage and a major
contributor to its success in winning new contracts.
 
FLEET MANAGEMENT AND MAINTENANCE
 
    At June 30, 1998, the Company had a fleet of 3,924 vehicles and the average
age of the Company's fleet was 5.9 years (6.6 years for school buses, which
account for 59.9% of the Company's fleet). School buses have an average useful
life of approximately 16 years.
 
    At June 30, 1998, the fleet was maintained by the Company's trained
mechanics at its 32 facilities. The Company has a comprehensive preventive
maintenance program for its equipment to minimize equipment down time and
prolong equipment life. Programs implemented by the Company include standard
maintenance, regular safety checks, lubrication, wheel alignments and oil and
filter changes, all of which are performed on a regularly scheduled basis by the
Company's mechanics.
 
    The following is a breakdown of the Company's fleet of vehicles at June 30,
1998:
<TABLE>
<CAPTION>
                                                                                                                   SERVICE
                                                                                     LIFT/RAMP                       AND
                                                         SCHOOL       MINIVANS       EQUIPPED                      SUPPORT
                                                          BUSES       AND CARS       VEHICLES        COACHES      VEHICLES
                                                       -----------  -------------  -------------  -------------  -----------
<S>                                                    <C>          <C>            <C>            <C>            <C>
Owned................................................       2,255           745            387             36            56
Leased...............................................          95            97            220             14            19
                                                            -----            --            ---             --            --
Total................................................       2,350           842            607             50            75
                                                            -----           ---            ---             --            --
                                                            -----           ---            ---             --            --
Average age (years)..................................         6.6           4.8            4.5            5.4           6.1
                                                            -----           ---            ---             --            --
                                                            -----           ---            ---             --            --
 




<CAPTION>
 
                                                         TOTAL
                                                       ---------
<S>                                                    <C>
Owned................................................      3,479
Leased...............................................        445
 
                                                       ---------
Total................................................      3,924
 
                                                       ---------
                                                       ---------
Average age (years)..................................        5.9
 
                                                       ---------
                                                       ---------
</TABLE>
 
                                       6
<PAGE>
    In addition to the vehicles in the table above, the Company operates 164
vehicles provided by SEPTA pursuant to the SEPTA contract.
 
EMPLOYEES
 
    At June 30, 1998, the Company had over 5,800 employees to provide
transportation services, consisting of approximately 4,100 drivers, 800 escorts,
450 mechanics and 25 other employees. In addition, there were approximately 430
employees in executive, operations, clerical and sales functions. The Company's
school bus drivers and escorts are required to undergo background checks, drug
and alcohol testing and fingerprinting as a condition for employment on school
buses. All drivers are licensed to drive school buses and/or motor coaches in
accordance with federal and state licensing requirements.
 
    The Company requires its drivers to complete a thorough and comprehensive
training process in addition to satisfying federal and state requirements. In
some states, such as New York, a special subclass of license is required for
school bus drivers. The Company's paratransit drivers are also required to
complete special training. Drivers undergo a 20-hour basic training course once
a year and a two-hour refresher class twice per year. In addition, drivers are
required to be fingerprinted and pass a defensive driving test, as well as
physical, oral and written tests. Further, all drivers must pass a
pre-employment drug test as well as random drug and alcohol tests during the
course of each year. Pursuant to federal and state law, each year the Company is
required to randomly test 50% of its drivers for drug use and 25% for alcohol
use.
 
    At June 30, 1998, approximately 79% of the Company's employees were members
of various labor unions and the Company was a party to 17 collective bargaining
agreements, seven of which, covering approximately 1,500 employees, expire over
the next three years and one of which, covering 310 employees of the Paratransit
Division, has already expired. In addition, the Company is currently negotiating
three additional collective bargaining agreements covering approximately 300
newly unionized employees of the School Bus Division. Management does not
believe that the results of the current negotiations will have a material
increase in its labor costs, although no assurance can be given as to the
outcome of negotiations. Management believes that its relations with its
employees are satisfactory. The Company has had no strikes or work stoppages in
the past 10 years.
 
    At June 30, 1998, approximately 38% of the Company's bus drivers, escorts
and mechanics were represented by Local 1181 of the Amalgamated Transit Union,
which primarily represents personnel rendering services on behalf of the New
York Board of Education. Labor agreements with Local 1181 require contributions
to the Local 1181 welfare fund and pension plan on behalf of drivers, mechanics
and certain escorts. All contracts awarded by the New York Board of Education
during the past 17 years contain employee protection provisions and require
continued contributions to the Local 1181 pension plan and welfare fund for
rehired employees opting to remain in such plan and such fund. Pursuant to a
plan amendment approved by the Pension Benefit Guarantee Corporation, withdrawal
liability for contributing employers to the plan, such as the Company, is
essentially eliminated, provided that withdrawal is based upon the loss of New
York Board of Education contracts and that the successor contractor becomes a
contributing employer to the plan.
 
                                       7


<PAGE>
RISK MANAGEMENT AND INSURANCE
 
    The Company maintains various forms of liability insurance against claims
made by third parties for bodily injury or property damage resulting from
operations. Such insurance consists of (i) general liability insurance of $56
million per occurrence with no deductible against claims resulting from other
(e.g., non-automobile) liability exposures; (ii) automobile liability insurance
of up to $50 million per occurrence, subject to a $250,000 deductible per
occurrence and an aggregate annual deductible of $4.1 million; and (iii)
statutory workers' compensation and employers' liability insurance, subject to
an aggregate annual deductible of $3.4 million ($250,000 per occurrence). Beyond
the deductibles and per occurrence limits mentioned herein, the automobile
liability coverage provides indemnity for an unlimited number of occurrences and
the general liability coverage provides $56 million aggregate coverage per
location. The Company's insurance policies provide coverage for a one year term
and are, therefore, subject to annual renewal.
 
    The Company self-insures its annual automobile and workers' compensation
insurance deductibles through Atlantic North Casualty Company ("Atlantic
North"), a wholly owned captive insurance company chartered in Vermont. The
Company believes it is able to (i) reduce the premium expense paid to its third-
party insurance carriers and (ii) increase its investment income through the
retention and investment of premium income in excess of amounts paid under
claims in any given period. Atlantic North's total claims liability is partially
funded by premiums charged to operating companies, which, in turn, are limited
to the amount of the combined deductibles on the Company's automobile and
workers' compensation insurance policies (currently $7.5 million annually).
 
    In addition, the Company maintains catastrophic coverage of $20 million per
occurrence, for an unlimited number of occurrences, subject to a $100,000
deductible per occurrence. This insurance provides replacement cost coverage for
losses on the Company's fleet and insurance against business interruptions
resulting from the occurrence of natural catastrophes. The Company also
maintains property insurance for the replacement cost of all of its real and
personal property.
 
COMPETITION
 
    The school bus transportation industry is highly competitive. The Company
competes on the basis of its reputation for passenger safety, quality of service
and price. Management believes it is competitive in each of these areas.
Contracts are generally awarded pursuant to public bidding, where price is the
primary criteria for a contract award. The Company has many competitors in the
school bus transportation business including transportation companies with
resources and facilities substantially greater than those of the Company. The
Company competes with Laidlaw Transit, Inc., a division of Laidlaw, Inc., the
largest private transportation contractor in North America, Ryder Student
Transportation, a division of Ryder System, Inc., the second largest company in
the industry, and Durham Transportation Inc., in addition to other regional and
local companies.
 
ENVIRONMENTAL MATTERS
 
    The Company's operations are subject to a broad range of federal, state and
local environmental laws, ordinances and regulations, including those governing
discharges into the air and water, the storage, handling and disposal of solid
and hazardous wastes, the remediation of soil and groundwater contaminated by
petroleum products or hazardous substances or wastes, and the health and safety
of employees ("Environmental Laws"). In addition, a number of the Company's
facilities are located in metropolitan areas where there is a long history of
industrial and/or commercial use. The Company is taking into account the
requirements of such Environmental Laws in the improvement, modernization,
expansion and start-up of its facilities and therefore has retained a consultant
to implement a program to assure that existing facilities comply with such
requirements. As with most transportation companies, the Company could incur
significant costs related to environmental compliance or remediation; these
costs, however,
 
                                       8
<PAGE>
most likely would be incurred over a period of years. Compliance with
Environmental Laws or more vigorous enforcement policies of regulatory agencies,
or stricter or different interpretations of such laws and future regulatory
action regarding soil or groundwater, may require material expenditures by the
Company.
 
    Under various Environmental Laws a current or previous owner of real estate
or operations conducted thereon may be liable for the costs of removal or
remediation of certain hazardous substances or petroleum products on, under or
in such property, without regard to whether the owner or operator knew of, or
caused, the presence of the contaminants. The presence of (or failure to
properly remediate) such substances may adversely affect the ability to sell or
rent such real estate or to borrow using such real estate as collateral. Persons
who generate, arrange for the disposal or treatment of, hazardous substances 
may be liable for the costs of investigation, remediation or removal of such 
hazardous substances at or from the disposal or treatment facility regardless 
of whether such facility is owned or operated by such person. Finally, the 
owner of a site may be subject to common law claims by third parties based on 
damages and costs resulting from environmental contamination emanating from a 
site.
 
    Certain federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos-containing material ("ACM")
when such materials are in poor condition or in the event of building
remodeling, renovation or demolition. Such laws may impose liability for the
release of ACM and may provide for third parties to seek recovery from owners or
operators of real estate for personal injury associated with ACM. The Company
has not undertaken an environmental assessment or ACM survey at all of its
facilities. However, based on previous inquiries, the Company is aware that ACM
is present at various facilities, some of which may be in a condition requiring
removal or encapsulation at this time.
 
    Underground storage tanks ("USTs") are located at many of the Company's
properties. In the case of USTs operated by previous owner-operators, the
Company has not evaluated whether such USTs were closed in accordance with
applicable legal requirements. The Company retained a consultant to assist it in
implementing a compliance program to assure that its USTs conform to applicable
legal requirements that become effective in December 1998. The Company has
adopted this program and is in the process of implementing it. The Company
estimates the remaining costs of implementing such program will not exceed
$750,000. In addition, property owned and/or operated by the Company may be
impacted by offsite issues, such as leaking USTs or previous or current
industrial operations. Except in certain instances in connection with the
removal of a UST, the Company has not undertaken an analysis of the condition of
the subsurface soils at its properties.
 
    In connection with its ownership and operation of its properties, the
Company may be potentially liable for costs in connection with the matters
discussed above (including costs of investigation and remediation), which costs
could have a material adverse effect on the Company. With respect to Central's
facilities, the Company has sought to reduce the impact of such costs by
obtaining certain representations and indemnities from the sellers of Central.
The indemnity covers environmental matters to the extent that such matters
exceed $200,000 and involve a maximum of $1,000,000. To be indemnified, the
Company must assert any claims within six years of the consummation of the
Central acquisition. The Company has no assurance that the sellers will perform
their indemnification obligations.
 
GOVERNMENT REGULATION
 
    The Company is subject to a wide variety of federal, state and municipal
laws and regulations concerning vehicle standards and equipment maintenance;
qualification, training and testing of employees; and qualification and
maintenance of operating facilities. The Company's vehicles are subject to
federal motor vehicle safety standards established by the National Highway
Traffic Safety Administration ("NHTSA"). Specific standards are promulgated by
the NHTSA with regard to school buses pursuant to the School Bus Safety Act of
1974. The Company's vehicles are also subject to the laws and regulations of
 
                                       9
<PAGE>
each state in which it operates, which are often more stringent than applicable
federal requirements. For example, in New York State, in addition to federal
standards, regulations promulgated by the New York State Department of Motor
Vehicles and the New York State Department of Transportation ("NYSDOT") require
that school buses be equipped with high back seats, left-hand emergency door
exits, 16 gauge side panels and illuminated school bus signs. All school buses
and paratransit vehicles are required to be inspected twice annually by NYSDOT
inspectors in accordance with a rigorous set of standards covering each
mechanical component of the vehicles.
 
    The Company's employees are subject to various federal and state laws and
regulations pertaining to driver qualifications, and drug, alcohol and substance
abuse testing. The Commercial Motor Vehicle Safety Act of 1986 requires drivers
of commercial vehicles, including school buses, motor coaches and paratransit
vehicles, to obtain a commercial driver's license. Many states have additional
licensing requirements for subclasses of drivers such as school bus drivers
and/or paratransit drivers. Under regulations enacted at the state and/or local
levels, the Company's school bus drivers and paratransit drivers are required to
complete certain minimum basic training and follow-up refresher classes
annually. Pursuant to regulations promulgated by the United States Department of
Transportation under the Drug Free Workplace Act of 1988, the Company's drivers
are required to undergo pre-employment drug and alcohol testing, and the Company
is required to conduct random testing for drug and/or alcohol abuse. Similar
drug and alcohol abuse testing is also required under various state laws. The
Company's operating and maintenance facilities for its School Bus Division,
Paratransit Division and Pre-K/Medicaid Division are also required to be
maintained in accordance with regulations promulgated by various federal and
state agencies including departments of education, departments of motor vehicles
and state departments of transportation.
 
                                       10


<PAGE>
ITEM 2. PROPERTIES
 
    The Company is headquartered in Staten Island, New York. Subsidiaries of the
Company provide transportation services and sales from 32 facilities (of which
eight are owned, 22 leased and two which are partially owned and partially
leased) in seven states. The facilities are utilized for bus storage, repair and
maintenance and/or administrative purposes. The following table outlines the
facilities owned or leased by the Company or its subsidiaries at June 30, 1998.
 
<TABLE>
<CAPTION>
AREA                     FACILITY LOCATION           OWNERSHIP   SQUARE FOOTAGE         TYPE OF OPERATION
----------------  --------------------------------  -----------  --------------  --------------------------------
<S>               <C>                               <C>          <C>             <C>
New York          7 North Street                         Owned        131,000    Coach
                  Staten Island
                  52 Bayview Ave.                       Leased         37,500    School Bus
                  Staten Island
                  141 East Service Road                 Leased        300,250    Coach
                  West Shore Expressway
                  Staten Island
                  46-81 Metropolitan Ave.                Owned        203,000    School Bus/Paratransit
                  Ridgewood                                                      Pre-K/Medicaid
                  107-10 180th St.                      Leased        221,000    School Bus
                  Jamaica
                  1752 Shore Parkway                    Leased        225,000    School Bus
                  Brooklyn
                  1380-86 Ralph Avenue                  Leased        186,840    School Bus
                  Brooklyn
                  Exterior St.                          Owned/        177,000    School Bus
                  The Bronx                             Leased
                  c/o Somers Jr. High School            Leased         87,120    School Bus
                  Route 202 Somers
                  86 Alexander Street                   Leased         45,000    Paratransit
                  Yonkers
                  Gnarled Hollow Road                    Owned        128,763    School Bus
                  Setauket
                  44 N. Dunton Ave.                      Owned        199,657    School Bus
                  Medford
                  107 Lawson Blvd.                       Owned        720,000    School Bus
                  Oceanside
                  1620 New Highway                      Leased        161,172    School Bus
                  Farmingdale(1)
                  91 Baiting Place Road                 Leased        130,680    School Bus
                  Farmingdale
                  7765 Lakeport Rd.                      Owned        372,337    Bus-Sales
                  Chittenango
                  2926 Lakeville Road                   Leased          6,000    Bus-Sales
                  Avon
                  7730 Wheeler Rd.                      Leased          9,400    Bus-Sales
                  Chittenango
New Jersey        2628 Fire Road                        Leased         12,000    Paratransit
                  Egg Harbor Township
                  2015 Route 206                         Owned        217,824    Bus-Sales
                  Bordentown
</TABLE>
 
                                       11
<PAGE>
<TABLE>
<CAPTION>
AREA                     FACILITY LOCATION           OWNERSHIP   SQUARE FOOTAGE         TYPE OF OPERATION
----------------  --------------------------------  -----------  --------------  --------------------------------
<S>               <C>                               <C>          <C>             <C>
                  107 How Lane                          Leased          6,800    School Bus
                  New Brunswick
                  222-226 Red Lion Road                 Leased        307,650    Central-School Bus
                  South Hampton
Pennsylvania      3740 East Thompson St.                Leased         54,425    School Bus/Paratransit
                  Philadelphia
                  6940 Norwitch Dr.                     Leased          2,000    School Bus/Paratransit
                  Philadelphia(1)
                  6971 Norwitch Dr.                     Leased         90,291    School Bus/Paratransit
                  Philadelphia
Connecticut       57 South St.                          Leased         78,408    School Bus
                  Ridgefield
Kentucky          925 West Broadway                     Leased         42,385    Paratransit
                  Louisville
Missouri          200 Sidney St.                         Owned        148,104    School Bus
                  St. Louis
                  5411 Brown Ave.                       Leased        208,696    School Bus
                  St. Louis
                  1808 So. 3rd St.                      Leased        115,200    School Bus
                  St. Louis
                  3376 Chauteau St.                     Leased        256,000    School Bus
                  St. Louis
California        201 W. Sotello St.                    Owned/        275,973    School Bus
                  Los Angeles                            Lease
</TABLE>
 
(1) These leases are occupied on a statutory month-to-month basis.
 
ITEM 3. LEGAL PROCEEDINGS
 
    The Company is a plaintiff in a multi-party action against the New York
Board of Education. The action, which is pending in the Supreme Court of the
State of New York, New York County, concerns the method of calculation for
increases to the daily rate of compensation paid to the Company under contract
extension agreements. The New York Board of Education has claimed in preliminary
audits that transportation contractors, including the Company, received contract
payments in prior years, which exceeded the amount to which the contractors were
entitled in accordance with contract rate adjustment procedures. Following the
commencement of the litigation, the Company and other school bus contractors
agreed that on a prospective basis, contractors would accept the lower contract
rate which the New York Board of Education calculated to be due (based upon
cumulative rate adjustments) and that the difference would be held in escrow by
the New York Board of Education. A favorable result in the pending action would
result in a prospective increase in the Company's daily rate of compensation and
the release to the Company of the funds presently held in escrow. An unfavorable
result would not affect the rates of payment which the Company is presently
receiving, but could result in a liability of up to $1.0 million to the New York
Board of Education for claimed overpayments for past years. The Company does not
believe that such pending litigation will have a material adverse effect on the
Company.
 
    The Company is a defendant with respect to various claims involving
accidents and other issues arising in the normal conduct of its business.
Management and counsel believe the ultimate resolution of these claims will not
have a material impact on the Consolidated Financial Statements of the Company.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    None.
 
                                       12
<PAGE>
                                    PART II.
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MARKETS
 
    The Company is a wholly owned subsidiary of AETG. There is no public trading
market for the Company's common stock.
 
    The Company has never paid any cash dividends on its common stock.
 
ITEM 6. SELECTED FINANCIAL DATA
 
    The selected financial data for each of the years in the three-year period
ended June 30, 1998 were derived from the audited historical Consolidated
Financial Statements of the Company included elsewhere in this Form 10-K. The
information contained in this table should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical Consolidated Financial Statements of the Company,
including the notes thereto, included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
                                                                                    YEAR ENDED JUNE 30,
                                                                   -----------------------------------------------------
<S>                                                                <C>        <C>        <C>        <C>        <C>
                                                                    1994(1)     1995       1996       1997       1998
                                                                   ---------  ---------  ---------  ---------  ---------
 
<CAPTION>
                                                                                      ($IN MILLIONS)
<S>                                                                <C>        <C>        <C>        <C>        <C>
OPERATING DATA:
Revenues.........................................................  $   101.5  $   114.0  $   142.6  $   166.1  $   261.9
Income from operations...........................................        5.6        5.8        7.3        7.4       11.8
Income (loss) before extraordinary items.........................        1.9        1.5        1.4       (0.6)      (7.1)
Net Income (loss)................................................       12.3        2.6        1.4       (1.7)      (7.1)
 
BALANCE SHEET DATA (AT END OF PERIOD)(2):
Total assets.....................................................       68.9       83.0      104.4      154.4      206.5
Long-term debt...................................................       28.9       42.3       59.7      110.5      157.9
Total stockholder's equity.......................................       25.5       28.1       29.5       27.6       20.2
</TABLE>
 
------------------------
 
(1) In 1994, certain subsidiaries of the Company emerged from bankruptcy. Net
    income for the year ended June 30, 1994 included $10.4 million extraordinary
    income pertaining to forgiveness of indebtedness.
 
(2) The Company paid no dividends during any of the periods in the table.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS.
 
    THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED
FINANCIAL DATA" AND THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF THE
COMPANY, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS FORM 10-K.
 
GENERAL
 
    Atlantic is one of the largest providers of school bus transportation in the
United States. The Company has contracts with 63 school districts in New York,
Missouri, California, Pennsylvania, Connecticut and New Jersey. In addition to
the School Bus Division, the Company provides services to public transit systems
for physically and mentally challenged passengers through the Paratransit
Division, transportation for pre-kindergarten children and Medicaid recipients
through the Pre-K/Medicaid Division, express commuter line and charter and tour
bus services through the Coach Division (collectively the
 
                                       13
<PAGE>
"Transportation Operations") and sells school buses and commercial vehicles (the
"Bus Sales Operations"). At June 30, 1998, Atlantic had a fleet of 3,924
vehicles operating from 32 facilities.
 
    The School Bus Division accounted for 61.3%, 81.3% and 84.4% of the
Company's revenues for each of fiscal 1998, 1997 and 1996, respectively. The
Company's school bus transportation contracts have provided a relatively
predictable and stable stream of revenues over their terms, which range from one
to five years. Since 1979, Atlantic has achieved a contract renewal rate of
approximately 98%, which management believes is due to (i) its reputation for
passenger safety and providing efficient, on-time service; (ii) its
long-standing relationships with the school districts it services; (iii) 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 (iv) the disadvantage of prospective competitors, who generally
would have to make substantially greater investments than the Company in new
equipment and who may experience difficulty obtaining suitable parking and
maintenance facilities in Atlantic's primary markets, especially in the New York
greater metropolitan area.
 
    The daily price charged per vehicle varies, depending upon a wide range of
factors including (i) vehicle type (standard school buses, minivans, or vehicles
with wheelchair lifts); (ii) the nature of service to be provided
(transportation of regular enrollment students or transportation of physically
or mentally challenged students); (iii) special requirements of a particular
school district concerning age of vehicles and/or upgrades on equipment; and
(iv) the cost of labor. Salaries and related labor costs are the most
significant factors in the Company's cost structure. In urban areas,
particularly those with a strong union presence, the cost of providing school
bus transportation is substantially greater than in suburban and rural areas,
where unions are generally less prevalent and salaries are lower. As a result,
prices paid by school districts vary accordingly. School Bus Division revenues
have historically been seasonal, based on the school year and holiday schedules.
During the months of September through June, the Company's fleet of school buses
has been generally fully utilized. Historically, during the summer months, only
a portion of the Company's school buses have been required to fulfill the
Company's summer contracts for school and camp activities and special trips. The
Company conducts periodic maintenance and overhauls its school vehicles during
the summer months, which increases costs during a period of lower revenues.
 
    The Paratransit Division, which accounted for 11.5%, 11.4% and 8.3% of the
Company's revenues in fiscal 1998, 1997 and 1996, respectively, is the second
largest and fastest growing division of the Transportation Operations. The terms
of the Company's paratransit contracts range from one to five years. The
contracts are awarded by public transit systems through a public bidding or RFP
process. The Company is generally entitled to a specified charge per hour of
vehicle service together with other fixed charges. The method of contract
compensation also varies. See Item 1, "Business--Paratransit Division-
Contracts."
 
    The Company's Pre-K/Medicaid Division accounted for less than 6% of the
Company's revenues in each of the last three fiscal years. Pre-K contracts are
generally awarded to the lowest responsible bidder in a public bidding process.
Medicaid contracts are generally awarded through negotiations with private
agencies. The Company generally services specific Pre-K bus routes during the
months of September through June, and services Medicaid routes throughout the
year. Pre-K and Medicaid contracts are generally paid based on number of
passengers per trip.
 
    The Coach Division, which accounted for 2.0%, 3.4% and 3.9% of the Company's
revenues in fiscal 1998, 1997 and 1996, respectively, operates luxury coaches
for express commuter services and charter and tour contracts for individual
special events. The Company's contracts for coach services vary based on term
and length of the trip. Coach Division charter and tour revenues are generally a
function of the size and number of coaches utilized rather than the number of
passengers carried.
 
    The Bus Sales Operations, which accounted for 22.5% of the Company's 1998
revenues, sells school buses and commercial vehicles primarily in New Jersey and
various counties in New York. The Bus Sales Operations were acquired effective
July 1, 1997.
 
                                       14
<PAGE>
    The principal elements of the Company's Transportation Operations costs of
sales are labor, fuel, parts, vehicle insurance, equipment lease expense and
rent. Historically, costs of sales have varied directly in proportion to
revenues, and approximately 88% of fiscal 1998 costs of sales were variable
costs consisting of direct labor (primarily driver wages and related employment
expenses), fuel costs and maintenance costs. At June 30, 1998, approximately 79%
of the Company's employees were members of various labor unions and the Company
was party to 17 collective bargaining agreements, seven of which, covering
approximately 1,500 employees, expire over the next three years, and one of
which, covering 310 employees of the Paratransit Division, has already expired.
In addition, the Company is currently negotiating three additional collective
bargaining agreements covering approximately 300 newly unionized employees of
the School Bus Division. Management does not believe that the results of the
current negotiations will have a material increase in its labor costs, although
no assurance can be given as to the outcome of negotiations. Although the
Company believes that historically it has had satisfactory labor relations with
its employees and their unions, the Company's inability to negotiate acceptable
union contracts in the future or a deterioration of labor relations could result
in strikes or work stoppages and increased operating costs as a result of higher
wages or benefits paid to union members, which would have a material adverse
effect on the Company.
 
    General and administrative expenses include costs associated with the
Company's headquarters in Staten Island and terminal office and managerial
salaries. In fiscal 1998, the Company increased the size of its staff in its
corporate headquarters to accommodate the Company's growth. Management believes
that it currently has sufficient staff to support anticipated revenues levels.
The above cost increases are anticipated to be offset somewhat as the Company's
business grows and the Company realizes economies of scale by (i) spreading the
cost of the administrative staff and facilities over a larger revenue base; and
(ii) capturing savings in expenses such as vehicle insurance and vehicle parts
and purchases.
 
    Commencing June 1995, the Company received five-year extensions on all 17 of
its New York Board of Education school bus transportation contracts. To receive
these extensions, the Company agreed to a reduction in its rates in fiscal 1996
and to a ceiling on rate increases in fiscal 1997 and 1998 not to exceed the
applicable CPI. Thereafter, the contracts provide that the Company will receive
increases based solely upon the applicable CPI increase.
 
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                        YEAR ENDED JUNE 30,
                                                                  ----------------------------------------------------------------
<S>                                                               <C>        <C>        <C>        <C>        <C>        <C>
                                                                          1996                  1997                  1998
                                                                  --------------------  --------------------  --------------------
 
<CAPTION>
                                                                                           ($IN MILLIONS)
<S>                                                               <C>        <C>        <C>        <C>        <C>        <C>
Revenues........................................................  $   142.6      100.0% $   166.1      100.0% $   261.9  $   100.0%
Gross profit....................................................       27.4       19.3       30.0       18.1       44.5       17.0
General and administrative expenses.............................       10.4        7.3       12.2        7.3       21.3        8.1
Depreciation and amortization...................................        9.7        6.8       10.4        6.3       11.4        4.3
Income from operations..........................................        7.3        5.1        7.4        4.5       11.8        4.5
Net interest expense............................................        5.1        3.6        8.7        5.3       17.8        6.8
Non-recurring item..............................................         --         --         --         --        4.6        1.8
Income (loss) before extraordinary items........................        1.4        1.0       (0.6)      (0.4)      (7.1)      (2.7)
Net income (loss)...............................................        1.4        1.0       (1.7)      (1.0)      (7.1)      (2.7)
</TABLE>
 
    TWELVE MONTHS ENDED JUNE 30, 1998 COMPARED TO TWELVE MONTHS ENDED JUNE 30,
     1997
 
    REVENUES.  Revenues from Transportation Operations were $203.1 million for
twelve months ended June 30, 1998 compared to $166.1 million for twelve months
ended June 30, 1997, an increase of $37.0 million or 22.3%. This increase was
due primarily to (i) $5.1 million in additional Transportation revenues as a
result of the Central acquisition; (ii) new contracts awarded to and increases
in service requirements of existing contracts in the Paratransit Division of
$11.6 million; (iii) the award of the Los Angeles
 
                                       15
<PAGE>
contracts which added $7.6 million of revenues; (iv) $1.5 million of additional
summer contract revenues; (v) the acquisition of school bus routes in the State
of New York in May 1997 which added $5.9 million of revenues; (vi) the
acquisition of a Pre-K/Medicaid business in the State of New York which added
$1.5 million of revenues; (vii) $3.8 million in contract rate increases and
other revenues. Revenues from the Bus Sales Operations were $58.8 million for
the twelve months ended June 30, 1998. These operations were included in the
Company's results of operations effective July 1, 1997.
 
    GROSS PROFIT.  Gross profit from Transportation Operations was $37.0 million
for the twelve months ended June 30, 1998 compared to $30.0 million for the
twelve months ended June 30, 1997, an increase of $6.9 million or 23.1%. This
increase was due primarily to the increase in revenues described above. As a
percentage of revenues, gross profit increased to 18.2% for the twelve months
ended June 30, 1998 from 18.1% for the twelve months ended June 30, 1997. This
increase was primarily due to a decrease in fuel and lease costs offset by a one
time $1.7 million bonus and an adjustment to insurance reserves (see Notes 11
and 13 of Notes to Consolidated Financial Statements). Gross profit from the Bus
Sales Operations was $7.6 million for the twelve months ended June 30, 1998.
 
    GENERAL AND ADMINISTRATIVE EXPENSE.  General and administrative expenses for
the Transportation Operations were $18.0 million for the twelve months ended
June 30, 1998 compared to $12.2 million for the twelve months ended June 30,
1997, an increase of $5.8 million or 47.7%. This increase was principally
related to (i) $1.9 million in administrative payroll and benefits due to
expansion to new areas; (ii) $0.9 million in administrative payroll and benefits
due to increased billings on existing contracts and Corporate infrastructure
growth; (iii) $1.1 million in other general and administrative expense due to
expansion to new areas and increased billings on existing contracts; and (iv) an
increase in the provision for doubtful accounts of $1.5 million. General and
administrative expenses for the Bus Sales Operations were $3.3 million for the
twelve months ended June 30, 1998.
 
    DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense of
Transportation Operations was $10.4 million in fiscal 1998 and 1997.
Depreciation increases due to the acquisition of Central's school transportation
operations and increases in connection with the purchase of new vehicles were 
offset by a reduction of $1.8 million in depreciation due to the Company 
reassessing and extending the useful life of certain fixed assets (see Note 7 
of Notes to Consolidated Financial Statements). Depreciation and amortization 
expense of the Bus Sales Operations was $1.0 million for the fiscal year ended 
June 30, 1998 (including $0.3 million amortization of Goodwill).
 
    INCOME FROM OPERATIONS.  Transportation Operations income from operations
was $8.5 million in fiscal 1998 compared to $7.4 million in fiscal 1997, an
increase of $1.2 million or 15.6%. This is increase was due primarily to
increased revenues offset by increases in general and administrative expenses.
Bus Sales Operations income from operations was $3.3 million.
 
    NET INTEREST EXPENSE.  Net interest expense was $17.8 million for the year
ended June 30, 1998 compared to $8.7 million for the year ended June 30, 1997,
an increase of $9.0 million or 103.1%. This increase was due primarily to
interest in connection with the $150 million aggregate principal amount of the
Company's 103/4% Senior Secured Notes due 2004 (including an increase of $1.0
million of amortization of deferred finance expenses in connection thereto).
 
    NON-RECURRING ITEM.  Non-recurring item was $4.6 million in fiscal year 1998
due to the write-down of a note receivable from affiliates. This indebtedness
resulted from numerous intercompany loans to the various entertainment
subsidiaries of AETG prior to the formation of the Company as a separate entity
(see Note 12 of Notes to Consolidated Financial Statements). There were no
non-recurring items in the fiscal year ended June 30, 1997.
 
    INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS.  The Company generated a loss
before extraordinary items of $7.1 million in fiscal 1998 compared to a loss of
$0.6 million in fiscal 1997, an increase of $6.5 million. This
 
                                       16
<PAGE>
increase was due to the following factors: non-recurring item, increases in
interest expense, general and administrative expenses, depreciation and
amortization, offset by an increase in benefit from income taxes.
 
    NET INCOME (LOSS).  The Company generated a net loss of $7.1 million for the
fiscal year ended June 30, 1998 compared to a net loss of $1.7 million
(including extraordinary items consisting of loss on early extinguishment of
debt and write-off of unamortized deferred financing charges of $0.5 million
each) (net of $0.4 million each of taxes) for the fiscal year ended June 30,
1997, an increase of $5.5 million.
 
    FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
 
    REVENUES.  Revenues were $166.1 million in fiscal 1997 compared to $142.6
million in fiscal 1996, an increase of $23.5 million or 16.5%. This increase was
due primarily to (i) new contracts awarded to the Paratransit Division, which
added $8.0 million of revenues; (ii) $2.1 million in contract rate increase and
other billings; (iii) the acquisition of school bus routes in the State of New
York in October 1995 and May 1997, which added $2.4 million of revenues; (iv)
the award of a new contract in St. Louis, which was initiated in September 1996
and added $8.3 million; (v) $0.7 million of additional summer contracts; (vi)
$1.3 million of additional Pre-K/Medicaid billings; and (vii) additional runs
awarded in Philadelphia, which added $0.7 million in revenue.
 
    GROSS PROFIT.  Gross profit was $30.0 million in fiscal 1997 compared to
$27.4 million in fiscal 1996, an increase of $2.6 million or 9.5%. This increase
was due primarily to the increase in revenues described above. As a percentage
of revenues, gross profit decreased to 18.1% in fiscal 1997 from 19.3% in fiscal
1996. This decrease was primarily due to increases in fuel expenses of 0.7% and
in payroll and benefits expenses of 0.6%.
 
    GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
were $12.2 million in fiscal 1997 compared to $10.4 million in fiscal 1996, an
increase of $1.8 million or 17.3%. This increase was principally related to
additional administrative payroll costs of $0.6 million related to
infrastructure growth and an $0.8 million increase in the bad debt reserve.
However, general and administrative expenses as a percentage of revenues
remained constant at 7.3%.
 
    DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense was
$10.4 million in fiscal 1997 compared to $9.7 million in fiscal 1996, an
increase of $0.7 million or 7.0%. This increase was due to a net increase in
depreciation in connection with the purchase of new vehicles.
 
    INCOME (LOSS) FROM OPERATIONS.  Income from operations was $7.4 million in
fiscal 1997 or 4.5% of revenues and $7.3 million in fiscal 1996 or 5.1% of
revenues.
 
    NET INTEREST EXPENSE.  Net interest expense was $8.7 million for the year
ended June 30, 1997 compared to $5.1 million for the year ended June 30, 1996,
an increase of $3.6 million or 71.4%. This increase was primarily due to $4.9
million of interest in connection with the Original Notes issued in the recent
financing activity.
 
    INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS.  The Company generated a loss
before extraordinary items of $0.6 million in fiscal 1997 compared to income of
$1.4 million in fiscal 1996, a decrease of $2.0 million. This decrease was due
to the following factors: increases in interest expense, depreciation and
amortization, and general and administrative expenses, partially offset by an 
increase in gross profit and an increase in benefit from income taxes.
 
    NET INCOME (LOSS).  The Company generated a net loss of $1.7 million
(including extraordinary items, consisting of loss on early extinguishment of
debt and write-off of unamortized deferred financing charges of $0.5 million
each (net of $0.4 million each of taxes) for the fiscal year ended June 30, 1997
compared to $1.4 million net income (with no extraordinary items) for the fiscal
year ended June 30, 1996, a decrease of $3.1 million.
 
                                       17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
 
    In February 1997, the Company issued $110.0 million aggregate principal
amount of its 10 3/4% Senior Secured Notes due 2004 (the "Original Notes") in a
private placement. The sale of the Original Notes was part of a refinancing plan
designed to extend the maturity of the Company's indebtedness, provide the
Company with additional financing and operating flexibility and enhance the
Company's financial liquidity. In August 1997, the Company issued an additional
$40.0 million aggregate principal amount of its 10 3/4% Secured Notes due 2004
(the "Additional Notes") in a private placement. The Company applied the net
proceeds from the sale of the Additional Notes to acquire Central and to fund
the Company's entrance to the Los Angeles market.
 
    Capital expenditures for the fiscal year ended June 30, 1998 totaled $27.7
million including $14.3 million for the purchase of buses and a facility in
connection with Los Angeles contracts and $13.4 million capital expenditures for
additional vehicles, property and equipment. Management anticipates total
capital expenditures of approximately $22.0 million in fiscal 1999 consisting of
$14.4 million in connection with new contracts and increases in service
requirements of existing contracts and $3.8 million for replacement of vehicles,
and $2.9 million for maintenance capital expenditures and $0.6 million for
underground storage tank compliance.
 
    The majority of these capital expenditures will be incurred in the Company's
first quarter which is its seasonal low period. The Company has negotiated an
agreement with Congress Financial Corporation ("Congress"), its revolving credit
lender, to sell Congress excess eligible receivables of up to $15.0 million
through November 30, 1998. The Company believes that this agreement, along with
its Revolving Credit Facility of $30.0 million (of which $28.5 million was
undrawn at June 30, 1998) will provide it with sufficient liquidity to conduct
its operations.
 
    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.
 
    NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.  Net cash provided by
operating activities of $16.6 million for fiscal 1998 resulted primarily from an
increase in source of funds for working capital of $2.4 million, plus non-cash
items of $19.7 million ($12.8 million of depreciation and amortization, $4.6
million write-down of note receivable from affiliates and $2.2 million provision
for and write-off of doubtful accounts receivable), a $1.8 million increase in
other sources of funds and $2.3 million transferred from restricted cash offset
by a net loss of $7.1 million and $2.5 million increase in deferred income
taxes. Net cash provided by operating activities was $4.9 million for fiscal
1997, primarily due to $10.9 million of depreciation and amortization and a $1.1
million increase in other sources of funds. This source of funds was offset in
part by a $1.6 million net loss and a $5.5 million use of funds for working
capital.
 
    NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.  In July 1997, the
Company acquired Central for $21.3 million (net of $0.2 million cash acquired)
which was funded from the proceeds of the Additional Notes and issued $2.2
million in mortgage notes relating to certain real property. For the fiscal year
ended June 30, 1998 the Company made $27.7 million of capital expenditures to
acquire additional vehicles, property and equipment and to purchase assets
previously leased. Of these capital expenditures $6.4 million were directly
financed and $9.3 million were financed from the proceeds of the Additional
Notes. In addition, the Company made a net investment of $1.8 million in
marketable securities, which securities are held by Atlantic North. In fiscal
1997, the Company made $26.3 million of capital expenditures to acquire
additional vehicles and equipment, purchase certain assets previously leased,
and for expansion of the Company's corporate headquarters. Of these capital
expenditures, $11.9 million were directly financed. In addition, the Company
purchased $5.0 million of marketable securities, which securities are held by
Atlantic North.
 
                                       18
<PAGE>
    In March 1998, the Company was awarded additional contracts in Los Angeles
for up to 78 buses. In May 1998, Longwood Central School District in New York
awarded the Company a contract for 166 school buses and the City of Philadelphia
awarded the Company a contract for 32 school buses. These contracts will require
capital expenditures of approximately $12.7 million including $0.9 million for
purchase of real property, $11.6 million for purchase of vehicles and $0.2
million for real property improvements. In September 1998, the Company was
awarded a five-year contract to provide paratransit services in Denver, Colorado
by the RTD. Pursuant to the contract, RTD will provide the Company with all of
the required vehicles and as a result, the Company will not be required to make
significant capital expenditures.
 
    NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.  Net cash provided by
financing activities totaled $25.0 million for the year ended June 30, 1998 due
primarily to the net proceeds of the offering of the Additional Notes and $1.5
million increase in the borrowings under the Company's revolving line of credit,
offset by $13.5 million principal and debt amortization requirements primarily
in connection with the acquisition of Central and $3.8 million in deferred
financing costs. In addition, the Company incurred $6.4 million of indebtedness
to directly finance capital expenditures for the year ended June 30, 1998. In
fiscal 1997, net cash provided by financing activities totaled $31.2 million,
due primarily to the net proceeds from the offering of the Original Notes plus
$8.5 million of additional borrowing (including an increase of $2.9 million in
the Company's revolving line of credit), offset by $79.5 million of principal
and debt amortization requirement and $7.0 million in deferred financing and
organization costs. In addition, the Company incurred $11.9 million of
indebtedness to directly finance capital expenditures for the year ended June
30, 1997.
 
    At June 30, 1998, the Company's total debt and stockholder's equity were
$157.9 million and $20.2 million, respectively. The Company's ability to meet
its debt service obligations and to reduce its total indebtedness will depend
upon its future performance, which will be subject to general economic
conditions, its ability to achieve cost savings and other financial, business
and other factors affecting the operations of the Company, many of which are
beyond its control. If the Company cannot generate sufficient cash flow from
operations in the future to service its debt, it may be required to refinance
all or a portion of such debt (including the Notes), sell assets or obtain
additional financing. There can be no assurance that any such refinancing or
asset sales would be possible or that any additional financing could be
obtained.
 
QUARTERLY FINANCIAL INFORMATION; SEASONALITY
 
    The table below sets forth unaudited summary financial information for the
Company for the last 12 quarters. This information has been prepared by the
Company on a basis consistent with its audited Consolidated Financial Statements
and includes all adjustments that management considers necessary for a fair
presentation of the results for such quarters.
 
    The Company's operations are seasonal in nature. Historically, the first
quarter of the Company's fiscal year has generated operating losses due to
significantly reduced revenues of the Transportation Operations (primarily the
School Bus Division) during the summer months. The Company's school bus
contracts generally resume in late August and early September. The Company's
quarterly operating results also fluctuate due to a variety of factors,
including variation in the number of school days in each quarter (which is
affected by the timing of the first and last days of the school year, holidays,
the month in which spring break occurs and adverse weather conditions, which can
close schools) and the profitability of the Company's other divisions.
Consequently, interim results are not necessarily indicative of the full year
and quarterly results may vary substantially, both within a fiscal year and
between comparable fiscal years.
 
                                       19
<PAGE>
<TABLE>
<CAPTION>
                                                                               ($ IN MILLIONS)
                                               -------------------------------------------------------------------------------
                                                               FISCAL 1996                              FISCAL 1997
                                               --------------------------------------------  ---------------------------------
                                                 SEPT.      DEC.        MARCH       JUNE       SEPT.      DEC.        MAR.
                                                  30,        31,         31,         30,        30,        31,         31,
                                                 1995       1995        1996        1996       1996       1996        1997
                                               ---------  ---------  -----------  ---------  ---------  ---------  -----------
<S>                                            <C>        <C>        <C>          <C>        <C>        <C>        <C>
Revenue......................................  $    18.9  $    40.7   $    41.6   $    41.4  $    25.2  $    45.0   $    45.5
Income (loss) from operations................       (2.8)       3.8         2.6         3.7       (2.8)       2.4         2.0
Net income (loss) before extraordinary
  item.......................................       (2.5)       1.6         0.8         1.5       (2.5)       0.5        (0.5)
EBITDA(1)....................................       (0.5)       6.4         5.2         5.9       (0.2)       5.2         4.7
EBITDA as adjusted (2).......................       (0.5)       6.4         5.2         5.9       (0.2)       5.2         4.7
 
<CAPTION>
 
                                                                          FISCAL 1998
                                                          --------------------------------------------
                                                 JUNE       SEPT.      DEC.        MAR.        JUNE
                                                  30,        30,        31,         31,         30,
                                                 1997       1997       1997        1998        1998
                                               ---------  ---------  ---------  -----------  ---------
<S>                                            <C>        <C>        <C>        <C>          <C>
Revenue......................................  $    50.4  $    59.2  $    68.1   $    67.5   $    67.1
Income (loss) from operations................        5.8        0.8       (0.2)        5.1         6.1
Net income (loss) before extraordinary
  item.......................................        1.9       (1.9)      (2.6)        0.6        (3.2)
EBITDA(1)....................................        8.1        4.1        3.2         7.4         8.5
EBITDA as adjusted (2).......................        8.1        4.1        6.7         7.4         9.0
</TABLE>
 
------------------------
 
(1) EBITDA represents income from operations before depreciation and
    amortization. EBITDA is used in certain financial covenants in the indenture
    relating to the Original Notes and the Additional Notes and is frequently
    used by securities analysts and is presented here to provide additional
    information about the Company's operations. EBITDA is not a measurement
    presented in accordance with generally accepted accounting principles.
    EBITDA should not be considered in isolation; as a substitute for net
    income, cash flow provided by operating activities or other income or cash
    flow data prepared in accordance with generally accepted accounting
    principles; or as a measure of the Company's profitability or liquidity.
    EBITDA as used in this Form 10-K may not be comparable to "EBITDA" as
    reported by other companies.
 
(2) EBITDA as adjusted is defined as EBITDA plus $4.0 million of one-time
    charges, including a $1.7 million bonus and a $2.0 million write-off of
    doubtful accounts (See Notes 4 and 11 of Notes to Consolidated Financial
    Statements).
 
    The Bus Sales Operations are also seasonal in nature. Approximately 47% of
the annual sales of Bus Sales Operations occurred in the quarter ended September
30, 1998, which is typical for the school bus sales industry. In addition, the
working capital needs of the operation have tended to increase during that
quarter in response to the higher seasonal sales volume and inventory is at its
highest during July and August prior to heavy seasonal school bus deliveries.
 
IMPACT OF YEAR 2000 ON THE COMPANY'S SYSTEMS
 
    The Company has completed an assessment of all of its software systems and
has determined what changes, if any, need to be made so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The total cost of these changes is not expected to be material and
will be expensed as incurred.
 
    Management is in the process of assessing the potential impact of any Year
2000 non-compliant systems of its vendors or customers, but does not expect its
operations to be materially impacted by any potential systems problems incurred
by such vendors or customers.
 
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
 
    In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
 
    Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS" No. 130), which establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
 
    Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which supersedes SFAS No.
14, "Financial Reporting for Segments of a Business Enterprise," establishes
standards for the way that public enterprises report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of any enterprise about which separate financial
information is
 
                                       20
<PAGE>
available that is evaluated regularly by Management in deciding how to allocate
resources and in assessing performance.
 
    Both SFAS Nos. 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Management does not expect implementation of
these two standards will have a material impact on its financial statement
disclosure.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
    Not Applicable.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    See Index to Consolidated Financial Statements, which appears on Page F-1
hereof.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
    None.
 
                                   PART III.
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    The following table sets forth certain information concerning the members of
the Board of Directors and executive officers of the Company as of September 30,
1998. Directors serve for a term of one year or until their successors are
elected and qualified.
 
<TABLE>
<CAPTION>
NAME                                                       AGE                            POSITION
-----------------------------------------------------      ---      -----------------------------------------------------
<S>                                                    <C>          <C>
Domenic Gatto                                                  49   Chairman of the Board, President and Chief Executive
                                                                    Officer
Michael Gatto                                                  42   Executive Vice President, Secretary, Treasurer and
                                                                    Director
Patrick Gatto                                                  37   Executive Vice President and Director
Nathan Schlenker                                               60   Chief Financial Officer
Jerome Dente                                                   52   Chief Operating Officer
Noel Cabrera                                                   38   Executive Vice President
David Kessler                                                  58   Vice President and Director of the Paratransit
                                                                    Division
John Shea                                                      48   Director
Peter Petrillo                                                 38   Director
</TABLE>
 
    The Company has expanded its Board of Directors to seven seats consisting of
two directors designated by Wafra Investment Advisory Group, Inc. (the minority
stockholder of AETG) (the "Preferred Stockholder"), three directors designated
by the majority stockholders of AETG (Domenic Gatto, Michael Gatto and Patrick
Gatto) (the "Majority Stockholders"), one director to be designated by the
Majority Stockholders and one director to be designated by Jefferies & Company,
Inc. ("Jefferies"). Neither the Majority Stockholders or Jefferies has yet
designated a director to fill its respective vacancy on the Board of Directors.
 
    DOMENIC GATTO, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER.  Mr. Gatto has been President, Chief Executive Officer and Chairman of
the Board of the Company and AETG since their formations. Mr. Gatto, a Vietnam
veteran, began his career in the school bus business as a bus driver and has
been responsible for the development of all facets of the business of the
Company and AETG.
 
                                       21


<PAGE>
    MICHAEL GATTO, EXECUTIVE VICE PRESIDENT, SECRETARY, TREASURER AND
DIRECTOR.  Mr. Gatto has been Executive Vice President, Secretary, Treasurer and
a Director of the Company since its formation and has held the positions of Vice
President, Secretary, Treasurer and Director of AETG since 1982. He has been
employed in various capacities by AETG since 1979. Mr. Gatto oversees the
overall day to day operations of the Company's school bus transportation
terminals in the New York greater metropolitan area.
 
    PATRICK GATTO, EXECUTIVE VICE PRESIDENT AND DIRECTOR.  Mr. Gatto has been
Executive Vice President and a Director of the Company since its formation and
has held the positions of Vice President and Director of AETG since 1990 and has
been employed by AETG since 1982 in various capacities. Mr. Gatto oversees the
paratransit and maintenance operations of the Company and coordinates certain
facets of the Company's school bus operations in the New York greater
metropolitan area.
 
    NATHAN SCHLENKER, CHIEF FINANCIAL OFFICER.  Mr. Schlenker has been Chief
Financial Officer of the Company since its formation, and has held such position
at AETG since 1991. Prior to 1991 Mr. Schlenker was the Vice President of
Finance of Feuer Leather Corporation, an international leather manufacturer and
marketing firm. From 1973 until 1985, Mr. Schlenker was a partner of Ekstein,
Ekstein & Schlenker, a firm of certified public accountants.
 
    JEROME DENTE, CHIEF OPERATING OFFICER.  Mr. Dente has been Chief Operating
Officer since December 1997 and was the Director of New York School Bus
Operations for the Company from 1994 through November 1997. Prior to 1994 Mr.
Dente served 28 years as a Transportation Officer in the United States Army,
achieving the rank of Colonel. Mr. Dente received a Master of Science in
Transportation Management from Florida Institute of Technology, a Master of Arts
in Strategic Studies from the U.S. Naval War College and a Bachelors of Science
from Widener University.
 
    NOEL CABRERA, EXECUTIVE VICE PRESIDENT.  Mr. Cabrera has been Executive Vice
President of the Company since its formation, a Vice President of AETG since
1994 and Executive Vice President of AETG since July 1996. Mr. Cabrera joined
AETG in 1990 as a management analyst. He was previously employed as a consultant
for Manasia Enterprises, a New York based consulting firm, and as a project
manager for the Office of the President of the Republic of the Philippines with
respect to financing of industrial projects.
 
    DAVID KESSLER, VICE PRESIDENT AND DIRECTOR OF THE PARATRANSIT DIVISION.  Mr.
Kessler has been Vice President and Director of the Paratransit Division since
1994. He has been employed by AETG since 1989. Mr. Kessler received a Master of
Public Affairs/Master of Science in Engineering from Princeton University and a
Bachelors of Science in Engineering from Cornell University.
 
    JOHN SHEA, DIRECTOR.  Mr. Shea has been a director of AETG since February
1994. Since 1991 he has been responsible for merchant banking and direct equity
investments at Wafra. From 1984 to 1991, Mr. Shea was responsible for direct
equity investments at Lambert Brussels Capital Corporation. He is a director of
CAPMAC Holdings Inc. and Capital Markets Assurance Corporation.
 
    PETER PETRILLO, DIRECTOR.  Mr. Petrillo has been a director of AETG and the
Company since January 1997. Since January 1995, he has been a Vice President in
the merchant banking and direct equity investments group at Wafra. From January
1991 to December 1994, Mr. Petrillo was a partner at Claymore Partners Ltd., a
strategic and turnaround consulting firm.
 
    All of the members of the Board of Directors and executive officers, other
than Messrs. Dente, Shea and Petrillo, were executive officers of the Company's
predecessors in March 1992, when certain subsidiaries of the Company filed a
voluntary petition requesting relief from creditors under chapter 11 of the
Bankruptcy Code. There are no family relationships between any of the
aforementioned persons, except that Messrs. Domenic Gatto, Michael Gatto and
Patrick Gatto are brothers.
 
                                       22
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
 
    Directors who are employees of the Company or one of its subsidiaries or
affiliates of the Preferred Stockholder do not receive additional compensation
for serving as directors. It is currently contemplated that only one director of
the Company (the independent director of the Company to be designated by
Jefferies) will receive $25,000 annually as compensation for services as a
director.
 
                           SUMMARY COMPENSATION TABLE
                             ANNUAL COMPENSATION(1)
 
<TABLE>
<CAPTION>
                                                          FISCAL                            OTHER ANNUAL    ALL OTHER
NAME AND PRINCIPAL POSITION                               YEAR(2)      SALARY      BONUS    COMPENSATION    INCOME(5)
------------------------------------------------------  -----------  ----------  ---------  -------------  -----------
<S>                                                     <C>          <C>         <C>        <C>            <C>
Domenic Gatto.........................................        1998   $  518,009  $   7,500   $ 105,774(3)   $   1,875
President and Chief Executive Officer                         1997   $  486,755     --       $  94,292(3)   $   3,193
 
Michael Gatto.........................................        1998   $  344,963  $   7,500   $  42,224(4)   $   1,250
Executive Vice President, Secretary and Treasurer             1997   $  324,150     --       $  42,224(4)   $   3,050
 
Patrick Gatto.........................................        1998   $  344,963  $   7,500   $  42,224(4)   $   1,250
Executive Vice President                                      1997   $  324,150     --       $  42,224(4)   $   2,850
 
Nathan Schlenker......................................        1998   $  204,143  $  16,000       --         $   1,250
Chief Financial Officer                                       1997   $  197,725  $  17,000       --         $   2,678
</TABLE>
 
------------------------
 
(1) There is no non-cash compensation in lieu of salary or bonus or other
    long-term compensation awards or payouts or any other compensation payable
    to the individuals named in the table. There is no applicable defined
    benefit plan or actuarial plan under which benefits are determined other
    than 401(k) and deferred compensation contributions made. See Note (5).
 
(2) In accordance with Item 402(b) of Regulation S-K, information is presented
    only for the Company's last two completed fiscal years.
 
(3) Includes (i) $25,800 for automobile allowance; (ii) $35,000 for life
    insurance allowance; (iii) $6,516 for disability insurance; and (iv) $26,976
    and $38,458 for vacation time not taken in 1997 and 1998, respectively.
 
(4) Includes (i) $19,224 for automobile allowance; and (ii) $23,000 for life
    insurance allowance.
 
(5) Representing contributions under Section 401(k) of the Internal Revenue Code
    for fiscal 1997 and contributions to the Atlantic Express Deferred
    Compensation Plan for fiscal 1998.
 
                                       23


<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    AETG owns all of the Company's issued and outstanding capital stock. The
following table sets forth certain information with respect to the beneficial
ownership of the Common Stock and Series A Preferred Stock of AETG as of
September 30, 1998 by (i) each person who is known by the Company to
beneficially own more than 5% of the outstanding shares of Common Stock and
Series A Preferred Stock; (ii) each director of AETG; (iii) AETG's Chief
Executive Officer and the other executive officers listed in the Summary
Compensation Table above; and (iv) all current directors and executive officers
of AETG as a group.
 
<TABLE>
<CAPTION>
                                                                                                        PERCENTAGE OF
                                                                           NUMBER      PERCENTAGE      ALL OUTSTANDING
NAME(1)                                          TITLE OF CLASS           OF SHARES     OF CLASS    VOTING SECURITIES(2)
----------------------------------------  ----------------------------  -------------  -----------  ---------------------
<S>                                       <C>                           <C>            <C>          <C>
Domenic Gatto(3)........................  Common Stock                           88         100.0%             55.0%
Michael Gatto(4)........................  Common Stock                           25          28.4              15.6%
Patrick Gatto(5)........................  Common Stock                           25          28.4              15.6%
Nathan Schlenker........................
Noel Cabrera............................
John Shea(6)............................
Peter Petrillo(6).......................
Wafra Acquisition Fund 4, L.P.(7).......  Series A Preferred Stock               72         100.0%             45.0%
All directors and executive officers of   Common Stock
  AETG as a group (9 persons)...........                                         88         100.0%             55.0%
</TABLE>
 
------------------------
 
(1) Unless otherwise indicated, the business address of each beneficial owner is
    c/o Atlantic Express Transportation Group Inc., 7 North Street, Staten
    Island, New York 10302-1205 and each beneficial owner has sole voting power
    and investment power (or shares such power with his spouse) with respect to
    all shares of capital stock listed as owned by such beneficial owner.
 
(2) Under certain circumstances Busco Capital Inc. is entitled to vote on
    stockholder issues as though it had four times the vote it would otherwise
    have.
 
(3) Includes 25 shares of Common Stock beneficially owned by Michael Gatto and
    25 shares of Common Stock beneficially owned by Patrick Gatto, as to which
    Domenic Gatto has sole voting power over the shares pursuant to irrevocable
    proxies. See notes (4) and (5).
 
(4) Michael Gatto shares beneficial ownership of all of the shares shown as
    being beneficially owned by him pursuant to an irrevocable proxy under which
    Domenic Gatto has sole voting power as to such shares. See note (3).
 
(5) Patrick Gatto shares beneficial ownership of all of the shares shown as
    being beneficially owned by him pursuant to an irrevocable proxy under which
    Domenic Gatto has sole voting power as to such shares. See Note (3).
 
(6) The business address of Messrs. Shea and Petrillo is c/o Wafra Investment
    Advisory Group, Inc., 345 Park Avenue, New York, New York 10154.
 
(7) The shares of Series A Preferred Stock held by Wafra represent, upon full 
    conversion, 45% of the Common Stock. Wafra's business address is 345 Park 
    Avenue, New York, New York 10154. Holders of Series A Preferred Stock are
    entitled to one vote per share subject to greater voting rights under
    certain conditions pursuant to which the holders of Series A Preferred 
    Stock may select a majority of the Board of Directors.
 
                                       24
<PAGE>
    ACQUISITION OF AETG.  On September 29, 1998, GSCP II Holdings (AE), LLC
("Buyer"), an affiliate of Greenwich Street Capital Partners, Inc., a New York
based private equity fund, signed a Recapitalization and Stock Purchase
Agreement (the "Recapitalization Agreement") with AETG, which owns all of the
issued and outstanding shares of capital stock of the Company, and the
shareholders of AETG pursuant to which Buyer is to acquire an approximately 88%
equity interest in a recapitalized AETG (the "Recapitalization"). The
Recapitalization Agreement is subject to a variety of conditions, including
obtaining the consent of the holders of a majority of the Company's 10 3/4%
Senior Secured Notes due 2004 (the "Notes") to an amendment to the Indenture
relating to the Notes (the "Consent Solicitation"). Such amendment would in 
substance exempt the Recapitalization from the definition of "Change of 
Control" under the Indenture so that the Company would not be required as a 
result of the Recapitalization to offer to purchase all of the Notes then 
outstanding at a purchase price equal to 101% of the aggregate principal 
amount thereof plus accrued interest to the date of repurchase.

    The Recapitalization, including the related transaction costs and 
expenses, incurred by the Buyer, Wafra and Domenic, Michael and Patrick Gatto 
(except for costs of the Consent Solicitation) will be funded by equity 
capital provided to AETG by the Buyer. 50% of the costs of the Consent 
Solicitation will be funded by equity capital provided to AETG by the Buyer 
and the balance of such costs will be funded by equity capital provided to 
AETG by Domenic Gatto and Wafra.

    No assurance can be given that the Recapitalization will be completed. If
the Recapitalization takes effect as currently contemplated, AETG's authorized
capital stock will be amended to consist of a single class of common stock,
Buyer will acquire approximately 88% of the common stock of the recapitalized
AETG, and AETG will repurchase all of the shares of AETG held by Michael and
Patrick Gatto and a portion of shares held by Domenic Gatto and Wafra, which 
would leave them with approximately 8% and 4% of the common stock, respectively.
 
    At the closing of the Recapitalization Agreement, Domenic Gatto, the
founder, Chairman of the Board, President and Chief Executive Officer of the
Company, and Nathan Schlenker, Chief Financial Officer of the Company, would
enter into new employment agreements and option agreements with AETG. Domenic
Gatto's brothers, Michael Gatto, currently a Director and Executive Vice
President, Secretary and Treasurer of the Company, and Patrick Gatto, currently
a Director and Executive Vice President of the Company, would not continue with
the Company.
 
    As part of the Recapitalization, the Stockholders' Agreement dated as of
February 28, 1994 among AETG, the Gatto Shareholders and Wafra would be
terminated. The Buyer and the other stockholders of AETG, including Domenic 
Gatto and Wafra, would enter into a new Stockholders' Agreement (the "New 
Stockholders Agreement") to be dated as of the closing of the Recapitalization
Agreement.
 
    As currently proposed, the New Stockholders Agreement would contain
governance provisions that, among other things, (i) provide for election of five
directors, a majority of whom would be designated by the Buyer and which would
include Domenic Gatto for so long as he is employed by AETG, (ii) provide for
removal of any director, with or without cause, upon notification by the Buyer 
of its desire for such removal and (iii) provide for replacement of any director
designated by the Buyer who ceases to serve on the board of directors with 
another designee of the Buyer.
 
    The New Stockholders Agreement would also contain provisions that, among 
other things and subject to certain exceptions, including any restrictions 
imposed by applicable law or by AETG's or the Company's debt agreements, (i) 
provide for put and call rights in the event Domenic Gatto or a Management 
Stockholder (as defined in the New Stockholders Agreement) is no longer 
employed by the Company, (ii) provide for put rights for Wafra upon the sixth 
anniversary of the New Stockholders Agreement or upon the sale by Domenic 
Gatto of all his shares of common stock of AETG, (iii) restrict the ability 
of Domenic Gatto and the Management Stockholders to transfer their respective 
ownership interests, other than in certain limited circumstances or by 
transfers to Permitted Transferees (as defined in the New Stockholders 
Agreement), (iv) restrict the ability of Wafra and a certain other 
stockholder to transfer their respective ownership interests other than in 
certain limited circumstances, (v) provide in certain circumstances for 
demand and piggyback registration rights for the Buyer and its affiliates that 
own common stock of AETG and for demand registration rights for Wafra, the 
costs of such registrations to be borne by AETG, (vi) provide tag-along 
rights to the remaining stockholders to participate in certain sales by the 
Buyer of common stock of

                                       25
<PAGE>
AETG and (vii) provide drag along rights pursuant to which the stockholders
would agree to sell their shares of common stock to an independent third party
if the Buyer approves such a sale.
 
    In addition, GSCP, Inc. ("GSCP"), an affiliate of Buyer, AETG and the
Company would enter into a Financial Services Agreement (the "FSA") to be dated
as of the closing of the Recapitalization Agreement. Under the FSA, AETG and the
Company would engage GSCP as financial advisor to, among other things, provide
assistance to each of AETG and the Company in connection with its financial and
business affairs, its banking and other business relationships, and the
operating and expansion of its business. The FSA would expire in 2008, subject
to early termination by GSCP upon 15 days' notice to AETG and the Company or
termination immediately upon certain events after which the Buyer no longer
retains voting control of the Company. AETG and the Company would pay GSCP an
annual advisory fee of $500,000 throughout the term of the FSA.
 
AETG PURCHASE AGREEMENT
 
    The AETG Certificate of Incorporation provides that AETG may issue 228
shares of Common Stock and 72 shares of Series A Preferred Stock. The holders of
the outstanding shares of Common Stock and Series A Preferred Stock vote
together, without regard to class, with each holder of outstanding shares of
Common Stock and Series A Preferred Stock being entitled to one vote for each
share of Common Stock or Series A Preferred Stock. The Series A Preferred Stock
may be converted into Common Stock at an initial conversion price of one share
of the Series A Preferred Stock for each share of Common Stock (subject to
adjustment in accordance with certain anti- dilution provisions). The Series A
Preferred Stock participates PRO RATA (as if converted to Common Stock) with the
Common Stock with respect to any cash dividends or distributions paid in shares
of, or options, warrants or rights to subscribe for or purchase shares of Common
Stock. So long as the Series A Preferred Stock shall remain outstanding, neither
Common Stock nor any other stock ranking junior to the Series A Preferred Stock
shall be redeemed, purchased or otherwise acquired for any consideration. In the
event of any liquidation, dissolution or winding up of AETG, before any payment
or distribution of its assets shall be made or set apart for the holders of
Common Stock or any other series or classes of stock ranking junior to the
Series A Preferred Stock, the holders of the Series A Preferred Stock shall be
entitled to receive $218,055.56 per share. AETG may require conversion of the
Series A Preferred Stock upon a public offering providing for at least $20
million in net proceeds to AETG provided the per share issue price in such
offering shall be equal to or greater than the conversion price of the Series A
Preferred Stock at the time of the offering compounded at 30% annually from the
date of purchase of such stock and provided further that the holders of the
Series A Preferred Stock have the opportunity to sell 75% of their securities at
such price.
 
    Under the Stockholders' Agreement, if Domenic Gatto's employment agreement
is not renewed or if Domenic Gatto's employment is terminated by the Company
without cause (as defined), Domenic Gatto has the right, subject to certain
exceptions, to resell his shares of Common Stock to AETG for a purchase price
equal to the greatest of (i) $1.5 million; (ii) if such shares are not then
publicly traded, the fair market value of the shares as determined by an
appraiser; or (iii) if such shares are then publicly traded, the market value of
such shares. Such employment agreement includes certain non-competition and non-
solicitation covenants, which are effective during the term of Domenic Gatto's
employment and for 24 months after his termination. The employment agreements
for Michael Gatto and Patrick Gatto include terms similar to the employment
agreement of Domenic Gatto except that the minimum purchase price of the shares
of Common Stock subject to the put right is $1.0 million.
 
STOCKHOLDERS' AGREEMENT
 
    Pursuant to the Stockholders' Agreement, the Board of Directors of AETG
consists of five directors, three of whom have been designated by the Majority
Stockholders and two of whom have been designated by the Preferred Stockholder.
Prior to a Default (as defined in the Stockholders' Agreement), the Majority
Stockholders have the power to direct the affairs of the Company and to
determine the outcome of all
 
                                       26
<PAGE>
matters required to be submitted to stockholders for approval; provided, that
the approval of a super majority of the directors of each of AETG and the
Company is required before the Company or any of its subsidiaries may take any
action with respect to any Significant Transaction. Following any such Default,
the Preferred Stockholder is entitled to vote on stockholder issues as though it
had four times the vote it would have on conversion, and the Board of Directors
of each of AETG and the Company will be increased to a number so that the ratio
of the directors designated by the Preferred Stockholder is maintained at a
level of four to three.
 
    "Significant Transactions" include, among other things, (i) the creation of
any additional classes of common stock or certain other securities; (ii) certain
transactions (including acquisitions outside of the ordinary course of business)
with a value of $3.5 million or more (except that, under certain circumstances,
such threshold may be lower); (iii) any amendment or modification of any
provision of AETG's or the Company's certificate of incorporation or by-laws;
(iv) certain extensions and any amendments or modifications of any employment
agreements between AETG or the Company and Domenic Gatto, Patrick Gatto, Michael
Gatto or Nathan Schlenker; and (v) any consolidation or merger of AETG or its
affiliates with any other entity in which AETG or its affiliates will not be the
controlling or surviving corporation, or the sale of all or substantially all of
the assets of AETG or its affiliates. In addition, the approval of all of the
directors appointed by the Majority Stockholders and the Preferred Stockholder
is required to amend AETG's certificate of incorporation or its by-laws. The
approval of a majority of disinterested directors is required under the
Stockholders' Agreement to approve any transaction between AETG and the Majority
Stockholders, the Preferred Stockholder, or an affiliate of either, except in
the case of the renewal of any employment agreements between AETG and Domenic
Gatto, Patrick Gatto and Michael Gatto, which may be approved by a majority of
directors present at a meeting of the Board of Directors.
 
    The Preferred Stockholder also has the right, subject to certain exceptions,
to require AETG to purchase 100% of its shares of Series A Preferred Stock
commencing February 28, 1999 (subject to six months prior written notice) at a
price based upon the higher of (i) their proportionate share of the fair market
value of AETG appraised as a public company; (ii) if then publicly traded, the
valuation of AETG at market price; or (iii) the liquidation preference value of
such Series A Preferred Stock ($15.7 million). AETG at its option can pay the
price for the preferred stock in three annual installments, subject to a premium
for payments not made within a period of one year. In the event AETG is legally
precluded from redeeming the preferred stock as the result of insufficient
surplus, it is required to redeem such shares at the rate of 60% of its cash
flow. It is unlikely AETG will have sufficient cash to make such redemption. The
ability of the Company to pay a dividend to AETG is restricted by the Indenture
relating to the Company's 10 3/4% Senior Secured Notes, due 2004. In addition to
any other rights the Preferred Stockholder may have if AETG fails to make such
redemption, the Preferred Stockholder will obtain the right to control certain
matters relating to the capitalization of AETG and its subsidiaries (including
the Company and its subsidiaries), which right includes matters relating to
repayments of the Notes.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    The Company's Coach Division is operated through its wholly owned
subsidiary, Atlantic Express Coachways, Inc. ("Coachways"), which leases "Park &
Ride" and administrative facilities from Showplace Bowling Center, Inc.
("Showplace"), a wholly owned subsidiary of AETG which is engaged in the
entertainment business. The administrative facilities consist of an office and
ticket sales facilities. The lease also provides for use of parking facilities
for commuters who purchase express tickets on Coachways' express bus service
between Staten Island and Manhattan in New York City. The lease, which is for a
term of 10 years, with two five year renewal options, commenced July 1, 1995 for
an annual base rental of $180,000. The Company believes that the rental reflects
the reasonable market value for the lease.
 
    Staten Island Bus, Inc., a wholly owned subsidiary of the Company, leases a
facility from Dom-Rich Associates, Inc., a wholly owned subsidiary of AETG. The
lease, which is for a term of five years, with two
 
                                       27
<PAGE>
five-year renewal options, commenced January 1, 1997 for an annual base rental
of $48,000. The Company believes that the rental reflects the reasonable market
value for the lease.
 
    Certain of the subsidiaries of AETG, which make up its entertainment
business, were collectively indebted to the Company in the amount of $4.8
million as of June 30, 1997 pursuant to the Entertainment Note. Such 
indebtedness resulted from numerous intercompany loans among the various 
subsidiaries of AETG prior to the formation of the Company. During the last 
quarter of the Company's fiscal year, certain affiliates of AETG engaged in the 
entertainment business suffered significant declines in financial condition and
the Company took a $4.6 million non-recurring charge and wrote the Entertainment
Note down to $510,000. (See Item 1--Business--Recent Transactions--Sale of 
Entertainment Note.)
 
    Pursuant to the Stockholders' Agreement, Wafra is entitled to receive an
annual management fee from AETG equal to (i) $229,503, subject to the same
percentage adjustment, on an annual basis, as the average of the two highest
salaries paid by the Company to its employees (other than Domenic Gatto); plus
(ii) $120,000. The current management fee is payable in equal monthly
installments of $29,700. Wafra is under common control with the Preferred
Stockholder.
 
    In fiscal 1996, the Company received management fees of $255,000 from
affiliated companies. Such fees represented the affiliated companies'
proportionate share of managerial accounting and legal expenses financed by the
Company. The Company received no such management fees in fiscal 1997 or 1998.
 
    At June 30, 1998, the Company had a non-interest bearing receivable from
AETG of $672,589. Such amount arose as a result of advances to AETG.
 
    In August 1997, in connection with the acquisition of Central, the Company
purchased the real property, which serves as the primary operating facilities of
Central, from Mr. Denney, a former shareholder of Central for a purchase price
of $2.2 million and issued mortgage notes. The notes are being amortized over
fifteen years with a five year balloon payment. Mr. Denney continues to be
employed by the Company as President of Central.
 
                                    PART IV.
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
    (a)  FINANCIAL STATEMENTS
 
    See Index to Consolidated Financial Statements, which appears on page F-1
hereof. No Schedules are provided as the Schedules are either not applicable, or
the information has been otherwise provided in the Consolidated Financial
Statements.
 
    (b)  REPORTS ON FORM 8-K
 
    NONE.
 
    (c)  EXHIBITS
 
    The exhibits listed on the Exhibit Index following the signature page hereof
are filed herewith (or incorporated by reference) in response to this Item.
 
                                       28
<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                                           PAGE
                                                                                                        ----------
<S>                                                                                                     <C>
 
Report of Independent Certified Public Accountants....................................................  F-2
 
Consolidated Balance Sheets as of June 30, 1997 and 1998..............................................  F-3
 
Consolidated Statements of Operations for the Years Ended June 30, 1996, 1997
  and 1998............................................................................................  F-4
 
Consolidated Statements of Stockholder's Equity for the Years Ended June 30, 1996, 1997 and 1998......  F-5
 
Consolidated Statements of Cash Flows for the Years Ended June 30, 1996, 1997
  and 1998............................................................................................  F-6-F-7
 
Notes to Consolidated Financial Statements............................................................  F-8-F-21
</TABLE>
 
                                      F-1
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
    To the Board of Directors and Stockholder of
 
    Atlantic Express Transportation Corp.
 
    We have audited the accompanying consolidated balance sheets of Atlantic
Express Transportation Corp. and subsidiaries as of June 30, 1997 and 1998, and
the related consolidated statements of operations, stockholder's equity, and
cash flows for each of the three years in the period ended June 30, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
 
    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Atlantic
Express Transportation Corp. and subsidiaries as of June 30, 1997 and 1998, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended June 30, 1998 in conformity with generally
accepted accounting principles.
 
                                          BDO SEIDMAN, LLP
 
New York, New York
 
September 18, 1998, except for Note 19
 
which is as of September 29, 1998
 
                                      F-2
<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                                JUNE 30,
                                                                                        ------------------------
                                                                                           1997         1998
                                                                                        -----------  -----------
<S>                                                                                     <C>          <C>
                                        ASSETS
Current:
  Cash and cash equivalents...........................................................  $16,818,889  $13,772,537
  Current portion of marketable securities............................................    1,030,000      850,000
  Accounts receivable, net of allowance for doubtful accounts of $250,000 and
    $1,520,000 respectively...........................................................   31,237,975   37,310,006
  Inventories.........................................................................    1,969,228   10,762,839
  Notes receivable....................................................................      191,600    1,182,425
  Prepaid expenses and other current assets...........................................    4,986,656    5,692,610
                                                                                        -----------  -----------
    Total current assets..............................................................   56,234,348   69,570,417
                                                                                        -----------  -----------
Property, plant and equipment, less accumulated depreciation..........................   74,967,594   99,887,054
                                                                                        -----------  -----------
 
Other Assets:
  Goodwill, net.......................................................................      --        12,469,422
  Restricted cash and cash equivalents................................................    2,314,408      --
  Note receivable from affiliates.....................................................    4,772,974      510,000
  Investments.........................................................................      229,000      229,000
  Marketable securities...............................................................    4,139,697    7,027,937
  Deferred lease expense..............................................................      488,212      334,115
  Transportation contract rights, net.................................................    3,444,772    3,807,743
  Deferred financing and organization costs, net......................................    6,295,318    8,310,723
  Due from affiliates.................................................................      --           672,589
  Notes receivable....................................................................      120,992       25,000
  Deposit and other noncurrent assets.................................................    1,343,661    1,394,301
  Deferred tax assets.................................................................      --         2,087,000
  Covenant not to compete, net........................................................      --           160,000
                                                                                        -----------  -----------
    Total other assets................................................................   23,149,034   37,027,830
                                                                                        -----------  -----------
                                                                                        $154,350,976 $206,485,301
                                                                                        -----------  -----------
                                                                                        -----------  -----------
 
                         LIABILITIES AND STOCKHOLDER'S EQUITY
Current:
  Current portion of long-term debt...................................................  $   140,008  $   641,574
  Accounts payable....................................................................      764,293    2,250,615
  Accrued compensation................................................................    4,053,567    4,703,334
  Current portion of insurance reserve................................................    2,336,738    3,657,442
  Accrued interest....................................................................    4,927,085    6,776,630
  Other accrued expenses and current liabilities......................................      629,855    4,158,333
                                                                                        -----------  -----------
    Total current liabilities.........................................................   12,851,546   22,187,928
                                                                                        -----------  -----------
Long-term debt, net of current portion................................................  110,488,215  157,284,116
                                                                                        -----------  -----------
Premium on bond issuance..............................................................      --         1,202,550
                                                                                        -----------  -----------
Other long-term liabilities...........................................................    2,997,018    5,641,135
                                                                                        -----------  -----------
Deferred income taxes.................................................................      400,000      --
                                                                                        -----------  -----------
Stockholder's equity:
  Common stock, authorized 200 shares, no par value, issued and outstanding 100
    shares............................................................................      250,000      250,000
  Additional paid-in capital..........................................................   13,188,926   13,188,926
Unrealized gain on marketable securities..............................................      142,032      376,293
Retained earnings.....................................................................   14,033,239    6,354,353
                                                                                        -----------  -----------
    Total stockholder's equity........................................................   27,614,197   20,169,572
                                                                                        -----------  -----------
                                                                                        $154,350,976 $206,485,301
                                                                                        -----------  -----------
                                                                                        -----------  -----------
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                      F-3

<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                               YEAR ENDED JUNE 30,
                                                                  ----------------------------------------------
<S>                                                               <C>             <C>             <C>
                                                                       1996            1997            1998
                                                                  --------------  --------------  --------------
Revenues........................................................  $  142,551,559  $  166,078,034  $  261,918,194
Costs and expenses:
  Cost of operations............................................     115,108,380     136,068,428     217,388,527
  General and administrative....................................      10,448,420      12,199,150      21,337,867
  Depreciation and amortization.................................       9,735,982      10,417,187      11,378,390
                                                                  --------------  --------------  --------------
                                                                     135,292,782     158,684,765     250,104,784
                                                                  --------------  --------------  --------------
    Income from operations......................................       7,258,777       7,393,269      11,813,410
Interest........................................................      (5,098,443)     (8,739,065)    (17,751,883)
Other income....................................................        --               133,977         207,686
                                                                  --------------  --------------  --------------
  Income (loss) before nonrecurring item, (provision for)
    benefit from income taxes and extraordinary items...........       2,160,334      (1,211,819)     (5,730,787)
Nonrecurring item:
  Write-down of note receivable from affiliates.................        --              --             4,614,597
                                                                  --------------  --------------  --------------
  Income (loss) before (provision for) benefit from income taxes
    and extraordinary items.....................................       2,160,334      (1,211,819)    (10,345,384)
(Provision for) benefit from income taxes.......................        (758,897)        600,936       3,224,453
                                                                  --------------  --------------  --------------
  Income (loss) before extraordinary items......................       1,401,437        (610,883)     (7,120,931)
Extraordinary items:
  Loss on early extinguishment of debt, net of tax benefit of
    $390,000....................................................        --              (526,974)       --
  Write-off of unamortized deferred finance charges, net of tax
    benefit of $368,000 as a result of refinancing..............        --              (525,943)       --
                                                                  --------------  --------------  --------------
Net income (loss)...............................................  $    1,401,437  $   (1,663,800) $   (7,120,931)
                                                                  --------------  --------------  --------------
                                                                  --------------  --------------  --------------
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                      F-4
<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
 
                    YEARS ENDED JUNE 30, 1996, 1997 AND 1998
 
<TABLE>
<CAPTION>
                                                                                      UNREALIZED
                                                        ADDITIONAL                      GAIN ON
                                        COMMON STOCK      PAID-IN        RETAINED     MARKETABLE
                                        NO PAR VALUE      CAPITAL        EARNINGS     SECURITIES       TOTAL
                                       --------------  -------------  --------------  -----------  --------------
<S>                                    <C>             <C>            <C>             <C>          <C>
BALANCE, JULY 1, 1995................   $    250,000    $13,188,926   $   14,645,114      --       $   28,084,040
  Net income.........................        --             --             1,401,437      --            1,401,437
                                       --------------  -------------  --------------  -----------  --------------
BALANCE, JUNE 30, 1996...............   $    250,000    $13,188,926   $   16,046,551      --       $   29,485,477
  Net loss...........................        --             --            (1,663,800)     --           (1,663,800)
  Dividends..........................        --             --              (349,512)     --             (349,512)
  Unrealized gain on marketable
    securities.......................        --             --              --           142,032          142,032
                                       --------------  -------------  --------------  -----------  --------------
BALANCE, JUNE 30, 1997...............   $    250,000    $13,188,926   $   14,033,239   $ 142,032   $   27,614,197
  Net loss...........................        --             --            (7,120,931)     --           (7,120,931)
  Dividends..........................        --             --              (557,955)     --             (557,955)
  Unrealized gain on marketable
    securities.......................        --             --              --           234,261          234,261
                                       --------------  -------------  --------------  -----------  --------------
BALANCE, JUNE 30, 1998...............   $    250,000    $13,188,926   $    6,354,353   $ 376,293   $   20,169,572
                                       --------------  -------------  --------------  -----------  --------------
                                       --------------  -------------  --------------  -----------  --------------
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                      F-5
<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                   YEAR ENDED JUNE 30,
                                                                       -------------------------------------------
                                                                           1996           1997           1998
                                                                       -------------  -------------  -------------
<S>                                                                    <C>            <C>            <C>
Cash flows from operating activities:
  Net income (loss)..................................................  $   1,401,437  $  (1,663,800) $  (7,120,931)
Adjustments to reconcile net income (loss) to net cash provided by
  operating activities:
  Gain on sale of marketable securities..............................       --             --             (675,398)
  Deferred income taxes..............................................       (104,000)    (1,490,000)    (2,487,000)
  Depreciation.......................................................      8,876,163      9,555,463     10,040,403
  Amortization.......................................................        859,819      1,311,212      2,808,394
  Write-off of doubtful accounts receivable..........................        569,000        500,000        973,810
  Reserve for doubtful accounts receivable...........................       --              250,000      1,270,000
  Interest accrued on note receivable................................       --             --             (326,287)
  Write down of note receivable from affiliates......................       --             --            4,614,597
  Transfer from (to) restricted cash.................................     (1,120,000)    (1,194,408)     2,314,408
  Extraordinary items................................................       --            1,836,312       --
  Other..............................................................       (236,012)      --             --
  Decrease (increase) in:
    Accounts receivable and retainage................................     (5,639,761)    (5,786,498)    (3,572,192)
    Inventories......................................................       (309,169)      (974,816)      (132,564)
    Prepaid expenses and other current assets........................     (1,669,625)       133,708       (339,873)
    Deferred lease expense...........................................       (515,176)       166,796        154,097
    Deposits and other noncurrent assets.............................        (43,640)      (485,179)        (5,882)
Increase (decrease) in:
  Accounts payable...................................................       (357,467)      (996,133)      (237,588)
  Accrued expenses and other current liabilities.....................      3,256,025      2,092,428      6,635,557
  Other long-term liabilities........................................        735,619      1,601,137      2,644,117
                                                                       -------------  -------------  -------------
  Net cash provided by operating activities..........................  $   5,703,213  $   4,856,222  $  16,557,668
                                                                       -------------  -------------  -------------
                                                                       -------------  -------------  -------------
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                      F-6
<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
 
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                                YEAR ENDED JUNE 30,
                                                                   ----------------------------------------------
                                                                        1996            1997            1998
                                                                   --------------  --------------  --------------
<S>                                                                <C>             <C>             <C>
Cash flows from investing activities:
  Acquisition of subsidiaries(net of cash acquired of
    $207,441)....................................................  $     --        $     --        $  (21,278,334)
  Proceeds from sale of fixed assets.............................        --              --               842,751
  Additions to property, plant and equipment.....................      (3,195,750)    (14,441,800)    (21,318,994)
  Purchase of transportation contract rights.....................        (688,833)       (873,192)         (1,660)
  Due from affiliates............................................        (100,596)       (303,999)       (697,925)
  Notes receivable...............................................         808,983         161,832        (314,515)
  Marketable securities..........................................        --            (5,027,665)     (1,789,879)
                                                                   --------------  --------------  --------------
    Net cash used in investing activities........................      (3,176,196)    (20,484,824)    (44,558,556)
                                                                   --------------  --------------  --------------
Cash flows from financing activities:
  Proceeds of additional borrowings..............................       8,143,521     118,473,894      42,864,754
  Principal payments on borrowings...............................     (10,919,409)    (79,580,780)    (13,532,291)
  Deferred financing and organization costs......................        (328,384)     (6,975,554)     (3,819,973)
  Transfer to restricted cash....................................        (750,000)       --              --
  Other..........................................................      (1,161,615)       (681,327)       (557,954)
                                                                   --------------  --------------  --------------
    Net cash provided by (used in) financing activities..........      (5,015,887)     31,236,233      24,954,536
                                                                   --------------  --------------  --------------
Net increase (decrease) in cash and cash equivalents.............      (2,488,870)     15,607,631      (3,046,352)
Cash and cash equivalents, beginning of year.....................       3,700,128       1,211,258      16,818,889
                                                                   --------------  --------------  --------------
Cash and cash equivalents, end of year...........................  $    1,211,258  $   16,818,889  $   13,772,537
                                                                   --------------  --------------  --------------
                                                                   --------------  --------------  --------------
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
    Interest.....................................................  $    5,436,240  $    3,181,000  $   15,485,695
    Income taxes.................................................         305,000         222,000         408,542
Supplemental schedule of noncash investing and financing
activities:
  Loans incurred for purchase of property, plant and equipment...  $   17,416,258  $   11,887,542  $    6,368,900
  Use of restricted cash to pay down debt........................        --               750,000        --
  Transfer of bus from inventory to fixed assets.................        --              --                47,558
  Loans incurred for purchase of contract rights.................       2,670,000        --              --
  Deferral of payment for contract rights........................         250,000        --              --
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                      F-7
<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. COMPANY STRUCTURE
 
    Prior to January 30, 1997, Atlantic Express Transportation Group Inc.
("AETG") (the parent company) operated in two industries, transportation and
entertainment. On January 30, 1997, AETG transferred all operating assets and
liabilities pertaining to the transportation operations to a newly formed
company called Atlantic Express Transportation Corp. ("AETC"), which became the
new parent company of the companies operating in the transportation industry.
The accompanying consolidated financial statements give effect to the January
30,1997 restructuring as if it had occurred prior to July 1, 1995 and therefore,
present the financial position and results of operations of the transportation
companies for all periods presented.
 
2. BUSINESS
 
    AETC is primarily engaged in providing school bus transportation services
for various municipalities in New York City, Nassau County, Suffolk County,
Westchester County, Connecticut, Pennsylvania, Missouri, California and New
Jersey. AETC also provides services to public transit systems for physically or
mentally challenged passengers, express commuter line and charter and tour
services, transportation for pre-kindergarten children and Medicaid recipients
and, effective July 1, 1997, sales of school buses and commercial vehicles in
New Jersey and various counties in New York (see Note 18).
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    PRINCIPLES OF CONSOLIDATION
 
    The consolidated financial statements include the accounts of AETC and its
subsidiaries. All material intercompany transactions and balances have been
eliminated.
 
    REVENUES
 
    Revenues are recognized when services are performed and when vehicles are
delivered to customers.
 
    PROPERTY, PLANT AND EQUIPMENT
 
    Property, plant and equipment is stated at cost and depreciated utilizing
primarily the straight-line method over the lives of the related assets. The
useful lives of property, plant and equipment for purposes of computing
depreciation are as follows:
 
<TABLE>
<CAPTION>
                                                                                        YEARS
                                                                                      ---------
<S>                                                                                   <C>
Building and improvements...........................................................    15-31.5
Transportation equipment............................................................    5-15
Furniture and fixtures..............................................................     5-7
Machinery and equipment.............................................................      5
</TABLE>
 
    MARKETABLE SECURITIES
 
    In accordance with Financial Accounting Standards Board Statement No. 115,
AETC determines the classification of securities as held-to-maturity or
available-for-sale at the time of purchase, and reevaluates such designation as
of each balance sheet date. Securities are classified as held-to-maturity when
AETC has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated
 
                                      F-8
<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
at cost, adjusted for amortization of premiums and discounts to maturity.
Marketable securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with unrealized gains and losses, reported as a separate component of
stockholder's equity. The cost of securities sold is based on the specific
identification method.
 
    CASH EQUIVALENTS
 
    Cash equivalents consist of short-term, highly liquid investments which are
readily convertible into cash.
 
    INVENTORIES
 
    Inventories primarily consist of new and used buses held for resale, fuel,
parts and supplies which are valued at the lower of cost or market value. Cost
is determined by specific identification for new and used buses and on a
first-in, first-out ("FIFO") basis on the balance.
 
    TRANSPORTATION CONTRACT RIGHTS
 
    AETC has acquired certain transportation contract rights with respect to
revenue contracts and travel routes. Such costs are amortized over the lesser of
the expected life of the contracts or 12 years. Accumulated amortization at June
30, 1997 and 1998 was $1,301,917 and $1,957,836.
 
    DEFERRED FINANCING, GOODWILL AND OTHER COSTS
 
    Deferred financing costs are amortized over the life of the related debt.
Goodwill is amortized over 40 years and all other costs are amortized on a
straight-line basis over five years. Accumulated amortization at June 30, 1997
and 1998 was $560,040 and $2,173,254, respectively.
 
    INCOME TAXES
 
    AETC follows the liability method under Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." The primary
objectives of accounting for taxes under SFAS 109 are to (a) recognized the
amount of tax payable for the current year and (b) recognized the amount of
deferred tax liability or asset for the future tax consequences of events that
have been reflected in AETC's financial statements or tax returns.
 
    AETC files consolidated federal and state income tax returns with its parent
and fellow subsidiaries. The income tax charge or benefits allocated to AETC is
based upon the proportion of AETC's income or loss to that of the consolidated
group, which approximates the charge or benefit which would be incurred by AETC
on a stand-alone basis.
 
    USE OF ESTIMATES
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures of certain assets
and liabilities. Actual results could differ from those estimates.
 
                                      F-9
<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    FAIR VALUE OF FINANCIAL INSTRUMENTS
 
    The carrying value of financial instruments including cash and cash
equivalents, restricted cash, accounts receivable including retainage, notes
receivable, accounts payable, and long-term debt approximated fair value as of
June 30, 1997 and 1998 due to either short maturity or terms similar to those
available to similar companies in the open market. Marketable securities,
classified as available-for-sale, are valued at quoted market value.
 
    LONG-LIVED ASSETS
 
    Long-lived assets, such as intangible assets and property and equipment, are
evaluated for impairment when events or changes in circumstances indicate that
the carrying amounts of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When any such
impairment exists, the related assets will be written down to their fair value.
This policy is in accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of,"
which became effective for fiscal 1997. No write-downs have been necessary
through June 30, 1998.
 
    EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
 
    In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
 
    Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"), which establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
 
    Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131") which
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of any enterprise about which
separate financial information is available that is evaluated regularly by
Management in deciding how to allocate resources and in assessing performance.
 
    Both SFAS Nos. 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Management does not expect implementation of
these two standards will have a material impact on its financial statement
disclosure.
 
    RECLASSIFICATIONS
 
    Certain amounts in the 1997 financial statements have been reclassified to
conform with 1998 presentation.
 
                                      F-10
<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
4. ACCOUNTS RECEIVABLE AND RETAINAGE
 
    In the quarter ended December 31, 1997 AETC recorded a $1.8 million
provision for doubtful accounts in relation to a portion of its accounts
receivable. The majority of the accounts subject to the provision arose between
August 1993 and August 1996 from non-routine services furnished to certain
municipal customers. Following the conclusion of discussions with the relevant
customers during the quarter ended December 31, 1997, management determined that
the provision for doubtful accounts should be recorded. An additional $0.5
million was provided in the quarter ended June 30, 1998 (See Note 13). At July
1, 1997, the balance of the allowance for Doubtful Accounts was $0.2 million,
and $1.0 million was written off as Bad Debts during the year, resulting in a
remaining allowance for Doubtful Accounts of $1.5 million at June 30, 1998.
Amounts relating to prior periods were immaterial.
 
    Pursuant to certain municipal school bus contracts, certain contractual
amounts (retainage) are withheld from billings as a guarantee of performance by
AETC. At June 30, 1997 and 1998 retainage of $4,458,436 and $5,311,258,
respectively, is classified as current and is included in accounts receivable in
the accompanying consolidated balance sheets.
 
5. INVENTORIES
 
    Inventories are comprised of the following:
 
<TABLE>
<CAPTION>
                                                                            JUNE 30,
                                                                   ---------------------------
<S>                                                                <C>           <C>
                                                                       1997          1998
                                                                   ------------  -------------
Parts and fuel...................................................  $  1,969,228  $   3,921,237
Buses held for sale..............................................       --           6,841,602
                                                                   ------------  -------------
                                                                   $  1,969,228  $  10,762,839
                                                                   ------------  -------------
                                                                   ------------  -------------
</TABLE>
 
6. RESTRICTED CASH AND CASH EQUIVALENTS
 
    At June 30, 1997, restricted cash and cash equivalents consisted of a
$1,120,000 U.S. Treasury Note and $1,200,000 of commercial paper used as
collateral for letters of credit issued in connection with AETC's workers'
compensation and vehicle insurance deductible reimbursement plans, respectively.
 
    Included in cash and cash equivalents is $1,307,842 and $2,825,043 at June
30, 1997 and 1998 respectively, which represents cash equivalents of a captive
insurance company subsidiary which are only available for use by that
subsidiary.
 
                                      F-11
<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
7. PROPERTY, PLANT AND EQUIPMENT
 
    Property, plant and equipment consists of the following:
 
<TABLE>
<CAPTION>
                                                                          JUNE 30,
                                                               ------------------------------
<S>                                                            <C>             <C>
                                                                    1997            1998
                                                               --------------  --------------
Land.........................................................  $    8,484,373  $    9,379,373
Building and improvements....................................      15,516,059      21,121,690
Construction-in-progress.....................................        --             1,179,969
Transportation equipment.....................................     112,863,875     140,009,989
Machinery and equipment......................................       9,138,859      12,907,155
Furniture and fixtures.......................................       1,801,002       2,780,433
                                                               --------------  --------------
                                                                  147,804,168     187,378,609
Less: Accumulated depreciation...............................      72,836,574      87,491,555
                                                               --------------  --------------
                                                               $   74,967,594  $   99,887,054
                                                               --------------  --------------
                                                               --------------  --------------
</TABLE>
 
    Effective January 1, 1998, AETC reassessed the useful lives of certain fixed
assets (primarily vehicles) and as a result adjusted the remaining lives of
these assets and the corresponding depreciation charges. This resulted in a
decrease of $1.8 million in depreciation expense for the year ended June 30,
1998.
 
8. MARKETABLE SECURITIES
 
    The amortized cost and estimated fair value of the marketable securities are
as follows:
 
<TABLE>
<CAPTION>
                                                                    JUNE 30, 1998
                                                        --------------------------------------
                                                                        GROSS
                                                                      UNREALIZED
                                                            COST         GAIN      FAIR VALUE
                                                        ------------  ----------  ------------
<S>                                                     <C>           <C>         <C>
Available-for-sale: Equity securities.................  $  4,895,268  $  291,991  $  5,187,259
  U.S. Treasury and other U.S.
    government debt securities........................     2,606,376      84,302     2,690,678
                                                        ------------  ----------  ------------
    Total marketable securities.......................  $  7,501,644  $  376,293  $  7,877,937
                                                        ------------  ----------  ------------
                                                        ------------  ----------  ------------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                    JUNE 30, 1997
                                                        --------------------------------------
                                                                        GROSS
                                                                      UNREALIZED
                                                            COST         GAIN      FAIR VALUE
                                                        ------------  ----------  ------------
<S>                                                     <C>           <C>         <C>
Available-for-sale:
  Equity securities...................................  $  2,467,651  $  136,918  $  2,604,569
  U.S. Treasury and other U.S. government debt
    securities........................................     4,054,254       3,722     4,057,976
  Corporate debt securities...........................     1,218,456       1,392     1,219,848
                                                        ------------  ----------  ------------
    Total available-for-sale..........................     7,740,361     142,032     7,882,393
  Less: Cash equivalents..............................     2,712,696      --         2,712,696
                                                        ------------  ----------  ------------
    Total marketable securities.......................  $  5,027,665  $  142,032  $  5,169,697
                                                        ------------  ----------  ------------
                                                        ------------  ----------  ------------
</TABLE>
 
                                      F-12
<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
8. MARKETABLE SECURITIES (CONTINUED)
 
    The above marketable securities are held by a captive insurance subsidiary
and are available for use only by that company. At June 30, 1998 marketable
securities of approximately $4.5 million are pledged as collateral for $3.4
million of letters of credit issued by the captive insurance company.
 
    Of the marketable securities, while all are available for use in the
ordinary course of business of the captive insurance company subsidiary,
$850,000 has been classified as current in accordance with that subsidiary's
cash on hand and expected payments of claims in the next fiscal year.
 
    Contractual maturity dates of the above securities are as follows:
 
<TABLE>
<CAPTION>
                                                                        COST       FAIR VALUE
                                                                    ------------  ------------
<S>                                                                 <C>           <C>
January 1998......................................................  $    247,070  $    249,334
August 2005.......................................................        29,906        31,659
2013-2027.........................................................     2,329,400     2,409,685
No maturity date (equity securities)..............................     4,895,268     5,187,259
                                                                    ------------  ------------
                                                                    $  7,501,644  $  7,877,937
                                                                    ------------  ------------
                                                                    ------------  ------------
</TABLE>
 
    Net realized gains on marketable securities for the year ended June 30, 1998
amounted to $675,000 and are included in revenues of the captive insurance
company.
 
9. DEBT
 
    The following represents the debt outstanding at June 30, 1997 and 1998.
 
<TABLE>
<CAPTION>
                                                                          JUNE 30,
                                                               ------------------------------
<S>                                                            <C>             <C>
                                                                    1997            1998
                                                               --------------  --------------
10 3/4% Senior Secured Notes, due February 2004, with
  interest payable on February 1 and August 1 annually (A)...  $  110,000,000  $  150,000,000
8% mortgage on real estate located in Chittenango, New York,
  due July 1, 2002 (B).......................................        --               709,874
8% mortgage on real estate located in Bordentown, New Jersey,
  due July 1, 2002 (B).......................................        --             1,434,255
Revolving line of credit (C).................................        --             1,464,754
Various notes payable secured by transportation equipment,
  with interest from 8%-9.1%.................................         628,223       4,316,807
                                                               --------------  --------------
                                                                  110,628,223     157,925,690
Less: Current portion........................................         140,008         641,574
                                                               --------------  --------------
                                                               $  110,488,215  $  157,284,116
                                                               --------------  --------------
                                                               --------------  --------------
</TABLE>
 
------------------------
 
(A) On February 4, 1997, AETC issued $110,000,000 of 10 3/4% Senior Secured
    Notes due 2004 (the "Original Notes"). The net proceeds from the sale of the
    Original Notes were used to repay its existing indebtedness, buy-out certain
    leases and for certain other corporate purposes. Such notes contain various
    covenants, including limitations on payments of dividends.
 
                                      F-13
<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
9. DEBT (CONTINUED)
   In August 1997, AETC issued $40,000,000 aggregate principal amount of 10 3/4%
    Senior Secured Notes due 2004 (the "Additional Notes"). The Additional Notes
    were issued at a premium of $1.4 million, which is being amortized over the
    term of the Additional Notes. The Original Notes were required to be
    registered with the Securities and Exchange Commission by July 3, 1997. Such
    registration along with the registration of the Additional Notes did not
    occur until January 21, 1998 and AETC was required to pay $308,572 of
    liquidated damages, which was charged to interest expense.
 
(B) In connection with the acquisition of Central (see Note 18), AETC purchased
    from Mr. Denney, a former shareholder of Central, the real property of
    Central which serves as the primary operating facilities of Central in New
    York and New Jersey. The mortgage notes are amortized over 15 years with a
    five-year balloon payment due July 2002. Mr. Denney remains employed as
    President of Central.
 
(C) On February 4, 1997, concurrent with the refinancing referred to in (a) AETC
    entered into a $30 million revolving credit facility with Congress Financial
    Corporation. Borrowings under the revolving credit facility are available
    for working capital and general corporate purposes, including letters of
    credit, subject to the borrowing conditions contained therein.
 
    The revolving credit facility is secured by first priority liens on the
cash, accounts receivable, inventory, general intangibles and documents and
instruments related thereto of AETC and all of its subsidiaries with the
exception of the captive insurance subsidiary.
 
    The revolving credit facility expires on February 4, 2000, unless extended.
The interest rate per annum applicable to the revolving credit facility will be
the prime rate, as announced by CoreStates Bank N.A., plus 0.75% or, at AETC's
option, the adjusted Eurodollar rate (as defined) plus 2.75%, and provides for a
one-time 0.25% reduction in rates upon AETC reaching certain profitability
levels. AETC is required to pay certain fees in connection with the revolving
credit facility including but not limited to an unused line fee of 0.375% on the
undrawn portion of the first $22 million of the revolving credit commitment.
 
    The revolving credit facility contains negative covenants similar to those
contained in the senior notes referred to in (a) and customary events of
default.
 
    Aggregate yearly maturities of long-term debt as of June 30, 1998, are as
follows:
 
<TABLE>
<CAPTION>
                                                                                    TOTAL
                                                                                --------------
<S>                                                                             <C>
1999..........................................................................  $      641,574
2000..........................................................................       2,165,931
2001..........................................................................         744,159
2002..........................................................................         632,104
2003..........................................................................         689,307
Thereafter....................................................................     153,052,615
                                                                                --------------
  Total.......................................................................  $  157,925,690
                                                                                --------------
                                                                                --------------
</TABLE>
 
                                      F-14
<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
10. INCOME TAXES
 
    The provisions (benefits) for income taxes consist of the following:
 
<TABLE>
<CAPTION>
                                                                                    YEAR ENDED JUNE 30,
                                                                          ----------------------------------------
<S>                                                                       <C>         <C>            <C>
                                                                             1996         1997           1998
                                                                          ----------  -------------  -------------
Current:
  Federal...............................................................  $  687,000  $    --        $    (900,000)
  State and local.......................................................     176,000        131,000        163,000
                                                                          ----------  -------------  -------------
                                                                             863,000        131,000       (737,000)
Deferred taxes..........................................................    (104,000)    (1,490,000)    (2,487,000)
                                                                          ----------  -------------  -------------
                                                                          $  759,000  $  (1,359,000) $  (3,224,000)
                                                                          ----------  -------------  -------------
                                                                          ----------  -------------  -------------
</TABLE>
 
    Deferred tax liabilities (assets) are comprised of the following:
 
<TABLE>
<CAPTION>
                                                                           JUNE 30,
                                                                 -----------------------------
<S>                                                              <C>            <C>
                                                                     1997            1998
                                                                 -------------  --------------
Deferred tax liabilities:
  Depreciation.................................................  $   9,808,000  $   12,795,000
  Goodwill amortization........................................       --               238,000
                                                                 -------------  --------------
                                                                 $   9,808,000  $   13,033,000
                                                                 -------------  --------------
Deferred tax assets:
  Allowance for doubtful receivables...........................       (105,000)       (678,000)
  Loss and tax credit carryforwards............................     (9,303,000)    (13,724,000)
  Contract rights and other....................................       --              (718,000)
                                                                 -------------  --------------
                                                                    (9,408,000)    (15,120,000)
                                                                 -------------  --------------
Deferred tax (asset)/liabilities (net).........................  $     400,000  $   (2,087,000)
                                                                 -------------  --------------
                                                                 -------------  --------------
</TABLE>
 
    The actual tax expense (benefit) differs from the tax expense computed by
applying the U.S. corporate rate of 34% as follows:
 
<TABLE>
<CAPTION>
                                                                                    YEAR ENDED JUNE 30,
                                                                          ----------------------------------------
<S>                                                                       <C>         <C>            <C>
                                                                             1996         1997           1998
                                                                          ----------  -------------  -------------
Tax expense (benefit) at statutory rate.................................  $  734,000  $  (1,028,000) $  (3,517,000)
Adjustments to tax contingency reserve related to bankruptcy issues.....    (136,000)      --             --
Write-down of notes receivable from affiliate...........................      --           --            1,569,000
State and local tax expense (benefit)...................................     176,000       (331,000)    (1,293,000)
Other...................................................................     (15,000)      --               17,000
                                                                          ----------  -------------  -------------
Actual tax expense (benefit)............................................  $  759,000  $  (1,359,000) $  (3,224,000)
                                                                          ----------  -------------  -------------
                                                                          ----------  -------------  -------------
</TABLE>
 
                                      F-15
<PAGE>
             ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
10. INCOME TAXES (CONTINUED)
    At June 30, 1998, AETC had the following carryforwards available.
 
<TABLE>
<CAPTION>
                                                                TAX REPORTING  EXPIRATION DATE
                                                                  PURPOSES         THROUGH
                                                                -------------  ---------------
<S>                                                             <C>            <C>
Investment tax credits available to offset certain future
  taxes.......................................................  $     967,000          2001
Net operating loss carryforwards..............................     25,309,000          2018
Alternative minimum tax credits available to offset certain
  future taxes................................................      1,367,000          None
                                                                -------------         -----
                                                                -------------         -----
</TABLE>
 
11. COST OF SALES
 
    In December 1997, in connection with a five-year extension of its labor
agreement with the Amalgamated Transit Union (which represents approximately
1,500 drivers, escorts and mechanics rendering services on behalf of the New
York City Board of Education), AETC negotiated and paid a $1.7 million
non-recurring lump sum bonus to all employees continuously and actively employed
from December 1, 1996 to December 1, 1997. The agreement also provided that
there would be no further pay increases until November 1, 1998.
 
12. NON-RECURRING CHARGE
 
    Certain of the subsidiaries of AETG which comprise its entertainment
business were collectively indebted to AETC in the amount of $4,772,974 at June
30, 1997. Such indebtedness, which was evidenced by a note accruing interest,
payable at maturity (July 1, 2004) at 6.8%, resulted from numerous intercompany
loans among the various subsidiaries of AETG prior to the formation of AETC as a
separate entity. During the last quarter of AETC's fiscal year, certain
affiliates of AETC engaged in the entertainment business suffered significant
declines in financial condition and AETC recorded a $4.6 million non-recurring
charge and wrote the note down to $510,000.
 
13. FOURTH QUARTER ADJUSTMENTS
 
    In the fourth quarter of the fiscal year, AETC recorded the following
significant adjustments:
 
        1.  Increase in allowance for doubtful accounts of $0.5 million.
 
        2.  Increase in self-insurance reserves of $1.2 million.
 
        3.  Write-down of note receivables from affiliate of $4.6 million (see
    Note 12).
 
                                      F-16

<PAGE>
14. RELATED PARTY TRANSACTIONS
 
    AETC had amounts due from or (due to) the parent company of $(17,405) and
$672,589 at June 30, 1997 and 1998, respectively. AETC had a note receivable
from affiliated companies of $4,790,379 and $510,000 (see Note 12) at June 30,
1997 and 1998, respectively. During the year ended June 30, 1996 AETC received
management fee income from affiliated companies of $255,000. No management fees
were charged or received from related parties during the other periods
presented. AETC incurred rent expense of $224,550 and $228,000 for the years
ended in June 1997 and 1998 in connection with leases of real property from
affiliate companies.
 
15. COMMITMENTS AND CONTINGENCIES
 
    LEASES
 
    Minimum rental commitments as of June 30, 1998 for noncancellable equipment
and real property operating leases are as follows:
 
<TABLE>
<CAPTION>
                                                                               YEAR ENDED JUNE 30, 1998
                                                                     --------------------------------------------
<S>                                                                  <C>            <C>             <C>
                                                                                    TRANSPORTATION
                                                                                      AND OTHER
                                                                     REAL PROPERTY    EQUIPMENT         TOTAL
                                                                     -------------  --------------  -------------
1999...............................................................  $   2,069,080   $  3,260,840   $   5,329,920
2000...............................................................      1,816,285      2,731,350       4,547,635
2001...............................................................      1,654,577      1,809,886       3,464,463
2002...............................................................      1,129,690      1,335,059       2,464,749
2003 and thereafter................................................      5,449,557      2,421,070       7,870,627
                                                                     -------------  --------------  -------------
                                                                     $  12,119,189   $ 11,558,205   $  23,677,394
</TABLE>
 
    During the year ended June 30, 1998, as part of its normal course of
business, AETC entered into various rental and purchase agreements for
replacement vehicles and additional vehicles to satisfy new transportation
contracts.
 
    Total rental charges included in cost operations were $4,539,202, $5,301,131
and $4,932,881 for the years ended June 30, 1996, 1997 and 1998, respectively.
 
    LITIGATION
 
    AETC is a defendant with respect to various claims involving accidents and
other issues arising in the normal conduct of its business. Management and
counsel believe the ultimate resolution of these claims will not have a material
impact on the financial statements of AETC.
 
    EMPLOYMENT AND CONSULTING AGREEMENTS
 
    AETC is obligated under various employment and consulting agreements with
certain officers which provide for base annual compensation aggregating
$1,227,181 subject to increase by a percentage equal to the percentage increase
in the Regional Consumer Price Index with a maximum of 5% of base salary. The
agreements extend through January 15, 2002, subject to an extension by the Board
of Directors for up to three more years. Six months of severance pay is payable
in the event of nonrenewal of the agreements.
 
    OUTSTANDING LETTERS OF CREDIT
 
    Letters of credit totaling approximately $2,591,000 and $3,890,000
(including $3.4 million issued by the captive insurance company (see note 8)
were outstanding as of June 30, 1997 and 1998, respectively. The letters of
credit serve primarily as security in connection with financial obligations.
 
                                      F-17
<PAGE>
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
    PERFORMANCE SECURITY
 
    AETC's transportation contracts generally provide for performance security
in one or more of the following forms: performance bonds, letters of credit and
cash retainages. Under current arrangements, AETC secures the performance of its
New York Board of Education contracts through the use of performance bonds plus
cash retainages of 5% of amounts due to AETC. In most instances, AETC has opted
to satisfy its security performance requirements by posting performance bonds.
At June 30, 1998, AETC has provided performance bonds aggregating approximately
$42.0 million.
 
    UNION CONTRACTS.
 
    At June 30, 1998 approximately 79% of AETC's employees were members of
various labor unions and AETC was party to 17 collective bargaining agreements,
seven of which covering 1,500 employees expire over the next three years, and
one of which covering 310 employees has already expired. In addition, AETC is
currently negotiating three additional collective bargaining agreements covering
approximately 300 newly unionized employees.
 
16. RETIREMENT PLANS
 
    AETC sponsors a tax qualified 401(k) plan whereby eligible employees can
invest up to 15% of base earnings subject to a specified maximum among several
investment alternatives. An employer matching contribution up to a maximum of
2.5% of the employee's compensation is also invested. AETC's contribution was
approximately $69,000, $64,000 and $96,000 for the years ended June 30, 1996,
1997 and 1998 respectively.
 
    AETC has a qualified Profit Sharing Plan for eligible employees (primarily
drivers, mechanics and escorts not covered by union deferred compensation
plans). AETC's contributions are based upon hours worked. Participants are not
allowed to make deferred contributions. AETC's contribution was approximately
$88,000 and $150,000 for the years ended June 30, 1997 and 1998 respectively.
 
    In fiscal 1998, AETC instituted a Deferred Compensation Plan providing
deferred compensation to its highly compensated employees. AETC contributes 5%
of the participant's compensation to a maximum of $7,500 during a plan year.
Participants are not allowed to make deferred contributions. AETC's contribution
was approximately $14,000 for the year ended June 30, 1998.
 
17. MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK
 
    For the years ended June 30, 1996, 1997 and 1998 revenues derived from the
Board of Education of the City of New York were approximately 50%, 47% and 33%,
respectively. As of June 30, 1997 and 1998, AETC had accounts receivable
including retainage from this customer of $11,057,558 and $13,072,141,
respectively. Fiscal 1997 revenues and accounts receivable include $750,000
relative to this customer in connection with lost revenues due to delayed school
openings in September 1993. During fiscal 1995, contracts with this customer
were extended through the year 2000.
 
    At June 30, 1997 and 1998, substantially all cash and cash equivalents were
on deposit with one major financial institution.
 
18. ACQUISITIONS
 
    During the year ended June 30, 1997, AETC acquired the operations of several
companies. Such investments included the purchase of contract rights and
vehicles. The acquisitions were not material to the consolidated financial
statements.
 
                                      F-18
<PAGE>
18. ACQUISITIONS (CONTINUED)
    Effective July 1, 1997, AETC acquired 100% of the common stock of Central
New York Coach Sales and Services Inc. and Jersey Bus Sales, Inc. and related
real property (collectively "Central"). These companies are engaged in the sale
and service of buses as well as school bus contract operations. Total
consideration consisted of $26.5 million cash less Central's long-term
indebtedness as of July 1, 1997, which was $4.8 million, and AETC's agreement to
issue $2.2 million in mortgage notes relating to certain real property. In
connection with the acquisition, Central's net assets were recorded at fair
value, and the following intangible assets were recorded:
 
<TABLE>
<S>                                                              <C>
Covenant not to compete........................................  $  200,000
Transportation contract rights.................................   1,200,000
Goodwill.......................................................  12,795,320
</TABLE>
 
    The Consolidated Statement of Operations for the year ended June 30, 1998
includes the results of operations of Central from July 1, 1997 through June 30,
1998. Had the acquisition of Central occurred on July 1, 1996, the pro forma
consolidated results of operations of AETC for the year ended June 30, 1997
after elimination of intercompany transactions and after giving pro forma effect
to employment agreements, interest and taxes at 45% would be as follows:
 
<TABLE>
<S>                                                             <C>
Sales.........................................................  $222,451,018
Net loss......................................................      333,570
</TABLE>
 
    In connection with the above acquisitions AETC issued the Additional Notes
(see Note 9).
 
19. SUBSEQUENT EVENTS
 
    On September 29, 1998, GSCP II Holdings (AE), LLC ("Buyer"), an affiliate of
Greenwich Street Capital Partners, Inc., a New York based private equity fund,
signed a Recapitalization and Stock Purchase Agreement (the "Recapitalization
Agreement") with AETG, which owns all of the issued and outstanding shares of
capital stock of the Company, and the shareholders of AETG pursuant to which
Buyer is to acquire an approximately 88% equity interest in a recapitalized AETG
(the "Recapitalization"). The Recapitalization Agreement is subject to a variety
of conditions, including obtaining the consent of the holders of a majority of
the Company's 10 3/4% Senior Secured Notes due 2004 (the "Notes") to an
amendment to the Indenture relating to the Notes. Such amendment would in
substance exempt the Recapitalization from the definition of "Change of Control"
under the Indenture so that the Company would not be required as a result of the
Recapitalization to offer to purchase all of the Notes then outstanding at a
purchase price equal to 101% of the aggregate principal amount thereof plus
accrued interest to the date of repurchase.
 
    No assurance can be given that the Recapitalization will be completed. If
the Recapitalization takes effect as currently contemplated, AETG's authorized
capital stock will be amended to consist of a single class of common stock,
Buyer will acquire approximately 88% of the common stock of the recapitalized
AETG, and AETG will repurchase all of the shares of AETG held by Michael and
Patrick Gatto and a portion of shares held by Domenic Gatto and Wafra
Acquisition Fund 4, L.P. ("Wafra"), which would leave them with approximately 8%
and 4% of the common stock, respectively.
 
                                      F-19
<PAGE>
20. SEGMENT INFORMATION
 
    AETC's business is comprised of Transportation Operations and, effective
July 1, 1997, Bus Sales Operations conducted in various states throughout the
U.S.. The summarized segment information, as of and for the year ended June 30,
1998 is as follows:
 
<TABLE>
<CAPTION>
                                                                             YEAR ENDED JUNE 30, 1998
                                                                   ---------------------------------------------
<S>                                                                <C>             <C>            <C>
                                                                   TRANSPORTATION    BUS SALES
                                                                     OPERATIONS     OPERATIONS        TOTAL
                                                                   --------------  -------------  --------------
Revenues.........................................................  $  203,073,256  $  58,844,938  $  261,918,194
Cost of operations/sales.........................................     166,120,186     51,268,341     217,388,527
Income from operations...........................................       8,546,455      3,266,955      11,813,410
Income (loss) before non-recurring items and (provision for)
  benefit from income taxes......................................      (5,685,211)       (45,576)     (5,730,787)
Total Assets as at June 30, 1998.................................     174,223,642     32,261,659     206,485,301
Capital Expenditures.............................................      25,081,536      2,606,358      27,687,894
Depreciation and amortization....................................      10,387,066        991,324      11,378,390
</TABLE>
 
21. SUPPLEMENTAL FINANCIAL INFORMATION
 
    The following are condensed consolidating financial statements as of and for
the years ended June 30, 1997 and 1998 regarding AETC (on a stand-alone basis
and on a consolidated basis) and Guarantors and Non-Guarantors of the Senior
Secured Notes. (See Note 9a).
 
                     CONDENSED CONSOLIDATING BALANCE SHEET
                                 JUNE 30, 1998
 
<TABLE>
<CAPTION>
                                    ATLANTIC
                                    EXPRESS                           NON
                                 TRANSPORTATION    GUARANTOR       GUARANTOR      ELIMINATION
                                     CORP.        SUBSIDIARIES   SUBSIDIARIES       ENTRIES       CONSOLIDATED
                                 --------------  --------------  -------------  ---------------  --------------
<S>                              <C>             <C>             <C>            <C>              <C>
Current assets.................  $   13,459,022  $   47,736,795  $   8,374,600  $     --         $   69,570,417
Investment in affiliates.......      60,404,818        --             --            (60,404,818)       --
Total assets...................     193,219,371     165,426,379     15,993,943     (168,154,392)    206,485,301
Current liabilities............       7,688,435       6,743,371      7,756,122        --             22,187,928
Total liabilities..............     160,355,739     120,676,905     13,032,657     (107,749,572)    186,315,729
Stockholder's equity...........      32,863,632      44,749,474      2,961,286      (60,404,820)     20,169,572
</TABLE>
 
                                      F-20
<PAGE>
21. SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
                CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                            YEAR ENDED JUNE 30, 1998
 
<TABLE>
<CAPTION>
                                         ATLANTIC
                                         EXPRESS                          NON
                                      TRANSPORTATION    GUARANTOR      GUARANTOR     ELIMINATION
                                          CORP.        SUBSIDIARIES   SUBSIDIARIES     ENTRIES      CONSOLIDATED
                                      --------------  --------------  ------------  -------------  --------------
<S>                                   <C>             <C>             <C>           <C>            <C>
Net revenues........................   $    --        $  261,060,717  $  6,865,533  $  (6,008,056) $  261,918,194
Income (loss)
  from operations...................        --            11,937,838      (124,428)      --            11,813,410
Income (loss) before non-recurring
  items, (provision for) benefit
  from income taxes.................        --            (5,606,359)     (124,428)      --            (5,730,787)
Write down of notes receivable from
  affiliates........................     (4,614,597)        --             --            --            (4,614,597)
Net loss of subsidiaries............     (3,786,052)        --             --           3,786,052        --
Net income (loss)...................     (7,120,931)      (3,700,197)      (85,855)     3,786,052      (7,120,931)
</TABLE>
 
                CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                            YEAR ENDED JUNE 30, 1998
 
<TABLE>
<CAPTION>
                                          ATLANTIC
                                          EXPRESS                           NON
                                       TRANSPORTATION    GUARANTOR       GUARANTOR    ELIMINATION
                                           CORP.        SUBSIDIARIES   SUBSIDIARIES     ENTRIES     CONSOLIDATED
                                       --------------  --------------  -------------  -----------  --------------
<S>                                    <C>             <C>             <C>            <C>          <C>
Net cash provided by (used in)
  operating activities...............  $  (24,725,157) $   37,752,699  $   3,530,126   $  --       $   16,557,668
Net cash used in investing
  activities.........................     (21,857,874)    (20,685,757)    (2,014,925)     --          (44,558,556)
Net cash provided by (used in)
  financing activities...............      38,486,827     (13,532,291)      --            --           24,954,536
Increase (decease) in cash and cash
  equivalents........................      (8,096,204)      3,534,651      1,515,201      --           (3,046,352)
Cash and cash equivalents,
  beginning of period................      15,029,114         479,933      1,309,842      --           16,818,889
Cash and cash equivalents,
  end of period......................  $    6,932,910  $    4,014,584  $   2,825,043   $  --       $   13,772,537
</TABLE>
 
                                      F-21
<PAGE>
21. SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
                     CONDENSED CONSOLIDATING BALANCE SHEET
                                 JUNE 30, 1997
 
<TABLE>
<CAPTION>
                                    ATLANTIC
                                    EXPRESS                           NON
                                 TRANSPORTATION    GUARANTOR       GUARANTOR      ELIMINATION
                                     CORP.        SUBSIDIARIES   SUBSIDIARIES       ENTRIES       CONSOLIDATED
                                 --------------  --------------  -------------  ---------------  --------------
<S>                              <C>             <C>             <C>            <C>              <C>
Current assets.................  $   15,201,813  $   36,683,710  $   6,897,269  $    (2,548,444) $   56,234,348
Investment in affiliates.......      41,425,377        --             --            (41,425,377)       --
Total assets...................     125,185,876     157,487,252     11,536,966     (139,859,118)    154,350,976
Current liabilities............       3,645,196       5,674,175      6,203,093       (2,670,918)     12,851,546
Total liabilities..............      85,201,313     116,328,026      8,724,086      (83,516,646)    126,736,779
Stockholder's equity...........      39,984,563      41,159,226      2,812,880      (56,342,472)     27,614,197
</TABLE>
 
                CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                            YEAR ENDED JUNE 30, 1997
 
<TABLE>
<CAPTION>
                                         ATLANTIC
                                         EXPRESS                          NON
                                      TRANSPORTATION    GUARANTOR      GUARANTOR     ELIMINATION
                                          CORP.        SUBSIDIARIES   SUBSIDIARIES     ENTRIES      CONSOLIDATED
                                      --------------  --------------  ------------  -------------  --------------
<S>                                   <C>             <C>             <C>           <C>            <C>
Net revenues........................   $    --        $  166,078,034  $  3,779,932  $  (3,779,932) $  166,078,034
Income (loss) from operations.......        --             6,950,410       442,859       --             7,393,269
Income (loss) before income taxes...        --            (1,654,678)      442,859       --            (1,211,819)
Net loss of subsidiaries............     (1,663,800)        --             --           1,663,800        --
Net income (loss)...................     (1,663,800)      (1,969,373)      305,573      1,663,800      (1,663,800)
</TABLE>
 
                CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                            YEAR ENDED JUNE 30, 1997
 
<TABLE>
<CAPTION>
                                          ATLANTIC
                                          EXPRESS                           NON
                                       TRANSPORTATION    GUARANTOR       GUARANTOR    ELIMINATION
                                           CORP.        SUBSIDIARIES   SUBSIDIARIES     ENTRIES     CONSOLIDATED
                                       --------------  --------------  -------------  -----------  --------------
<S>                                    <C>             <C>             <C>            <C>          <C>
Net cash provided by (used in)
  operating activities...............  $  (79,122,235) $   78,455,161  $   5,523,296      --       $    4,856,222
Net cash used in investing
  activities.........................        (411,968)    (15,045,191)    (5,027,665)     --          (20,484,824)
Net cash provided by (used in)
  financing activities...............      94,189,879     (62,953,646)      --            --           31,236,233
Increase (decease) in cash and cash
  equivalents........................      14,655,676         456,324        495,631      --           15,607,631
Cash and cash equivalents,
  beginning of period................         373,438          23,609        814,211      --            1,211,258
Cash and cash equivalents,
  end of period......................  $   15,029,114  $      479,933  $   1,309,842      --       $   16,818,889
</TABLE>
 
    Condensed information for 1996 is not provided as Non-Guarantor financial
information is not material.
 
                                      F-22
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
<TABLE>
<S>                             <C>  <C>
                                ATLANTIC EXPRESS TRANSPORTATION CORP.
 
                                By:              /s/ DOMENIC GATTO
                                     -----------------------------------------
                                                   Domenic Gatto
                                               CHAIRMAN OF THE BOARD,
                                       PRESIDENT AND CHIEF EXECUTIVE OFFICER
 
Date: October 19, 1998
</TABLE>
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
             NAME                          TITLE                    DATE
------------------------------  ---------------------------  -------------------
 
                                Chairman of the Board,         October 19, 1998
      /s/ DOMENIC GATTO         President and Chief
------------------------------  Executive Officer
        Domenic Gatto           (Principal Executive
                                Officer)
 
                                Chief Financial Officer        October 19, 1998
     /s/ NATHAN SCHLENKER       (Principal Financial
------------------------------  Officer and Principal
       Nathan Schlenker         Accounting Officer)
 
      /s/ MICHAEL GATTO         Executive Vice President,      October 19, 1998
------------------------------  Secretary, Treasurer and
        Michael Gatto           Director
 
      /s/ PATRICK GATTO         Executive Vice President       October 19, 1998
------------------------------  and Director
        Patrick Gatto
 
        /s/ JOHN SHEA           Director                       October 19, 1998
------------------------------
          John Shea
 
      /s/ PETER PETRILLO        Director                       October 19, 1998
------------------------------
        Peter Petrillo


<PAGE>
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                                DESCRIPTION                                                PAGE
---------  -------------------------------------------------------------------------------------------------     -----
<S>        <C>                                                                                                <C>
3.1        Restated Certificate of Incorporation of the Company (filed as exhibit 3.1 to the Company's
           Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by reference)
3.2        By-laws of the Company (filed as exhibit 3.2 to the Company's Annual Report on Form 10-K for the
           year ended June 30, 1997 and incorporated herein by reference)
10.1       Registration Rights Agreement dated February 4, 1997 between the Company, the Guarantors (as
           defined therein) and the Initial Purchaser (as defined therein) (filed as exhibit 10.1 to the
           Company's Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by
           reference)
10.2       Loan and Security Agreement dated February 4, 1997 by and between Congress Financial Corporation,
           certain subsidiaries of the Company as borrowers and the Company as guarantor (filed as exhibit
           10.2 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and
           incorporated herein by reference)
10.2.1     Amendment dated as of May 18, 1998 to Loan and Security Agreement by and among Congress Financial
           Corporation, certain subsidiaries of the Company as borrowers and the Company as guarantor
10.3       General Security Agreement dated February 4, 1997 by and among the Company and the Guarantors (as
           defined therein) in favor of Congress Financial Corporation (filed as exhibit 10.3 to the
           Company's Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by
           reference)
10.4       Collateral Assignment of Trademarks (Security Agreement) dated as of February 4, 1997 between the
           Company and Congress Financial Corporation (filed as exhibit 10.4 to the Company's Annual Report
           on Form 10-K for the year ended June 30, 1997 and incorporated herein by reference)
10.5       Employment Agreement dated as of January 21, 1997 between the Company and Domenic Gatto (filed as
           exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and
           incorporated herein by reference)
10.6       Employment Agreement dated as of January 21, 1997 between the Company and Michael Gatto (filed as
           exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and
           incorporated herein by reference)
10.7       Employment Agreement dated as of January 21, 1997 between the Company and Patrick Gatto (filed as
           exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and
           incorporated herein by reference)
10.8       Employment Agreement dated as of January 21, 1997 between the Company and Nathan Schlenker (filed
           as exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and
           incorporated herein by reference)
10.9       Lease dated August 5, 1986 between Bonnie Heights Realty Corp. and Amboy Bus Co., Inc. and
           Notices of Opinion to Renew dated December 26, 1989 and May 10, 1996 respectively, by Amboy Bus
           Co., Inc. for the facility at 1752 Shore Parkway, Brooklyn, New York (filed as exhibit 10.9 to
           the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein
           by reference)
10.10      Lease dated June 30, 1993 by and between Rockhill Limited Partnership and Mayflower Contract
           Services, Inc. and Atlantic Express of Missouri Inc. for the facility at 6810 Prescott Street,
           St. Louis, Missouri (filed as exhibit 10.10 to the Company's Annual Report on Form 10-K for the
           year ended June 30, 1997 and incorporated herein by reference)
10.11      Lease dated August 1, 1995 between Stamar Realty Corp. and 180 Jamaica Corp. for the facility at
           107-10 180th Street, Jamaica, New York (filed as exhibit 10.11 to the Company's Annual Report on
           Form 10-K for the year ended June 30, 1997 and incorporated herein by reference)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                                DESCRIPTION                                                PAGE
---------  -------------------------------------------------------------------------------------------------     -----
<S>        <C>                                                                                                <C>
10.12      The Board of Education of the City of New York, serial no. 0070, dated July 19, 1978 (filed as
           exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and
           incorporated herein by reference)
10.13      The Board of Education of the City of New York, serial no. 8108 (filed as exhibit 10.13 to the
           Company's Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by
           reference)
10.14      Extension and Eighth Amendment of Contract for Special Education Pupil Transportation Services,
           dated June 19, 1996 by and between The Board of Education of the City of New York, Amboy Bus Co.,
           Inc. and Staten Island Bus Co. (filed as exhibit 10.14 to the Company's Annual Report on Form
           10-K for the year ended June 30, 1997 and incorporated herein by reference)
10.15      The Board of Education of the city of New York, serial no. 9888 (filed as exhibit 10.15 to the
           Company's Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by
           reference)
10.16      Extension and Sixth Amendment of the Contract for Regular Education Pupil Transportation
           Services, dated January 2, 1996 by and between The Board of Education of the City of New York and
           Amboy Bus Co., Inc. (filed as exhibit 10.16 to the Company's Annual Report on Form 10-K for the
           year ended June 30, 1997 and incorporated herein by reference)
10.17      New York City Transit Authority Contract #94E5461B, Five Borough Paratransit Carrier Service:
           Part I Contract Terms and Conditions and Attachment I: Price Schedule (filed as exhibit 10.17 to
           the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein
           by reference)
10.18      Indenture dated as of February 4, 1997, including Note, between the Company, the Guarantors (as
           defined therein) and The Bank of New York, as trustee (filed as exhibit 10.18 to the Company's
           Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by reference)
10.19      First Amendment to the Security Agreement, dated as of August 14, 1997 among the Company, the
           Guarantors (as defined therein) and in favor of Congress Financial Corporation (filed as exhibit
           10.19 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and
           incorporated herein by reference)
10.20      First Supplemental Indenture, dated as of August 14, 1997, between the Company, the Guarantors
           (as defined therein) and The Bank of New York, as trustee) (filed as exhibit 10.20 to the
           Company's Annual Report on Form 10-K for the year ended June 30, 1997 and incorporated herein by
           reference)
10.21      Second Supplemental Indenture, dated as of December 12, 1997, among the Company, the Guarantors
           (as defined therein) and The Bank of New York, as trustee
21         Subsidiaries of the Company
27         Financial Data Schedule
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