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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, 2000 or

                                       OR

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

         For the transition period from ______________ to ______________

                         Commission File Number: 0-24247

                      ATLANTIC EXPRESS TRANSPORTATION CORP.
             (Exact name of registrant as specified in its charter)

                New York                                         13-392-3467
     (State or Other Jurisdiction of                          (I.R.S. Employer
     Incorporation or organization)                          Identification No.)

 7 North Street, Staten Island, New York                         10302-1205
(Address of principal executive offices)                         (Zip Code)

                                 (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

         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  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant'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's
classes of common stock, as of the latest practicable date.

         As of October 13, 2000, 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,  a wholly  owned  subsidiary  of AETG,  is one of the largest
providers of school bus  transportation  in the United  States.  The Company has
contracts  with  74  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 4,800 vehicles operating from 32 facilities and provides bus sales
from four facilities.

         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  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.

         Acquisition  of AETG. On October 27, 1998, the holders of a majority in
principal  amount of the  Company's  10 3/4% Senior  Secured Notes due 2004 (the
"Notes") consented to an amendment to the Indenture (the "Consent")  relating to
the  Notes  which in  substance  exempted  the  transactions  contemplated  by a
Recapitalization and Stock Purchase Agreement (the  "Recapitalization") from the
definition of "Change of Control" under the  Indenture.  On November 4, 1998 the
Recapitalization  was  consummated.  As a result,  GSCP II Holdings  (AE),  LLC,
("Buyer") an affiliate of Greenwich  Street  Capital  Partners,  Inc. a New York
based private equity fund,  acquired an  approximately  88% equity interest in a
recapitalized  Atlantic Express  Transportation  Group, Inc. ("AETG") which owns
all of the issued and outstanding shares of capital stock of the Company.

         Recent Transactions

         Certain of the Recent Transactions  discussed below occurred after June
30, 2000,  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.

         New School Bus Contracts. In September 2000, the New York City Board of
Education (the "Board")  extended all of the Company's  contracts with the Board
for an additional five years ending June 30, 2005.  These contracts  represented
approximately  39.4% of the  Transportation  Operations  revenues for the fiscal
year ended June 30, 2000.  In April 2000,  the Company was awarded an additional
two-year  contract for 45 buses by the School District of  Philadelphia  and was
awarded  a  five-year  contract  for up to 10 buses by the Los  Angeles  Unified
School District.  These contracts require capital  expenditures of approximately
$3.1 million.

         Paratransit  Contracts.  In  February  2000,  the Company was awarded a
two-year  contract (with three one-year renewal options) to provide  Paratransit
services by New Jersey Transit ("NJT").  Pursuant to


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the contract,  NJT provided the Company with all of the required vehicles and as
a result, the Company was not required to make significant capital expenditures.
Effective  April 30,  2000,  the Company and the  Regional  Transit  District of
Denver  (Colorado) (the "RTD") agreed to the early  termination of the Company's
Paratransit contract.  This occurred primarily because of inaccurate information
received  by the  Company  from the RTD, in its  original  Request for  Proposal
("RFP"),  in connection with the expected number of trips to be performed during
the life of the  contract.  RTD  reimbursed  the  Company  the value of  capital
expenditures  incurred and assumed all leases in  connection  with the Company's
facilities.  Additionally,  on May 16, 2000, the Company was awarded  damages in
the amount of $1.5 million by an  arbitrator on its claim against RTD for losses
incurred  in  performing   the  contract.   Revenues  from  this  contract  were
approximately $6.2 million for the year ended June 30, 2000.

         Accounts Purchase and Sale Agreement.  In July 1999 the Company entered
into  an  agreement  (the  "Receivable   Agreement")  with  Congress   Financial
Corporation ("Congress"), its revolving credit lender, to sell Congress, without
recourse,  up to $15.0 million of accounts receivable of the Company.  Under the
Receivable Agreement, Congress purchases receivables at the gross amount of such
accounts  (less  three  and  one-quarter   percent   purchase   commission)  and
immediately credits 85% of this amount to the Company,  with the balance paid to
the Company upon Congress  receiving  cumulative  collections on all receivables
purchased in excess of the purchase price previously credited. In November 1999,
Congress renewed the Receivable Agreement along with the Company's $30.0 million
revolving   credit  facility  (the  "Facility")  for  an  additional  two  years
commencing February 4, 2000.

         Litigation  Settlement.  In April 2000,  AETG and the  Company  settled
their litigation with National Express Group, PLC. In connection therewith,  the
Company  has  recorded a credit of $4.8  million to general  and  administrative
expenses for the year ended June 30, 2000.

Transportation Operations

School Bus Division.  The School Bus Division is the Company's largest division.
The Company has  contracts  to provide  school bus  transportation  in 74 school
districts in New York, Missouri, California,  Pennsylvania,  Connecticut and New
Jersey.  The Company's  revenues from school bus operations  have increased at a
compound  annual  growth  rate of 15.6%,  from $96.2  million in fiscal  1995 to
$199.0 million in fiscal 2000.

         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.  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  of 85% of the daily  rate in the event of
school  cancellations  of any scheduled  school day.  Daily vehicle rates earned
under  contract  renewals  are  generally   increased  from  previous  rates  by
application  of the Consumer  Price Index  ("CPI").  The  Company's  costs could
outpace such revenue increases. 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.

         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  contracts  with the Board  through the use


                                       2
<PAGE>

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.

         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 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 New York Board of Education accounted for 39.4%, 39.5% and 42.9% of
the Company's revenues from  Transportation  Operations in fiscal 2000, 1999 and
1998,  respectively.  The  Company's  17  contracts  with the New York  Board of
Education  have  been  extended   through  June  30,  2005.  No  other  customer
contributed  greater  than 10% of the  Company's  revenues  from  Transportation
Operations 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 $6.0 million in fiscal 1995 to $55.0  million in
fiscal  2000.  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 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.

         Better known national  paratransit  providers  include Laidlaw Transit,
Inc., First Transit, a division of First Group America, 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 detailed information about the
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


                                       3
<PAGE>

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, 2000,  the Company had
approximately 700 vehicles  consisting of full-size  four-door sedan automobiles
and  lift-equipped  vans to service its paratransit  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.

         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
service;  (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,  Kentucky,  New Jersey,  and
Pennsylvania.  Management  believes  that  its New York  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
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 are  determined
pursuant to public  bidding.  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 and receives compensation based upon a daily rate per
person  transported,  which rates of compensation vary based upon ambulatory and
non-ambulatory  passengers. At June 30, 2000, the Company utilizes approximately
97 vehicles in the performance of these contracts.

         The  Company  generated   approximately   2.3%  of  its  Transportation
Operations revenues in fiscal 2000 from its Pre-K/Medicaid Division.

Coach Division.  The Company  provides  express  commuter,  charter and tour bus
transportation  services  with a fleet of 39 luxury  motor  coaches  and 10 mini
coaches.

         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 2.5%
of the Company's Transportation Operations revenues in fiscal 2000.

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  driver's
performances 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


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<PAGE>

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, 2000, the Company had a fleet of
4,795 vehicles and the average age of the Company's fleet, exclusive of vehicles
provided  by various  transportation  authorities,  was 6.8 years (7.4 years for
school buses, which account for 64.2% of the Company's fleet). School buses have
an average useful life of approximately 16 years.

         At June 30, 2000,  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 owned  vehicles
at June 30, 2000 by age:

<TABLE>
<CAPTION>
                                                                   Lift/                       Service
                                                 Minivans          Ramp                          and
                                    School         And           Equipped                      Support
                                    Buses          Cars          Vehicles        Coaches       Vehicles      Total
                                  ---------    -----------     ------------    ----------    ----------     -------
<S>                                  <C>              <C>           <C>              <C>         <C>          <C>
Less than 2 yrs. old ...........       381             55             74              1              2          513
2-5 yrs. old ...................       843            391            176              7             17        1,434
5-10 yrs old ...................       551            272            119             30             23          995
10-15 yrs. old .................       906            116             83                            15        1,120
Greater than 15 years ..........        37              3                             7                          47
                                     -----          -----          -----          -----          -----        -----
Total ..........................     2,718            837            452             38             64        4,109
                                     =====          =====          =====          =====          =====        =====
</TABLE>


         The following is a breakdown of the Company's  fleet of leased vehicles
at June 30, 2000 by age:

<TABLE>
<CAPTION>
                                                                   Lift/                       Service
                                                 Minivans          Ramp                          and
                                    School         And           Equipped                      Support
                                    Buses          Cars          Vehicles        Coaches       Vehicles      Total
                                  ---------    -----------     ------------    ----------    ----------     -------
<S>                                    <C>             <C>            <C>             <C>           <C>         <C>
Less than 2 yrs. old............                        1                             2                           3
2-5 yrs. old....................       103             51             97              5             21          277
5-10 yrs old....................                                       4              1                           5
10-15 yrs. old..................                                                                                  0
Greater than 15 years...........                                                                                  0
                                     -----          -----          -----          -----          -----        -----
Total                                  103             52            101              8             21          285
                                     =====          =====          =====          =====          =====        =====
</TABLE>

         In addition to the vehicles in the tables  above,  at June 30, 2000 the
Company  operated 401 vehicles  provided by various  transportation  authorities
pursuant to their respective contracts.

Employees.  At June 30,  2000,  the Company had over 7,200  employees to provide
transportation  services,  consisting  of  approximately  5,200  drivers,  1,200
escorts,  450  mechanics  and  50  other  employees.  In  addition,  there  were
approximately  400  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


                                       5
<PAGE>

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, 2000,  approximately  73% of the  Company's  Transportation
Operation  employees  were members of various labor unions and the Company was a
party  to 23  collective  bargaining  agreements,  two  of  which  covering  162
employees expire within less than two years; two of which covering 147 employees
have expired and one collective  bargaining  agreement covering 170 employees is
subject  to a wage  renegotiation  in October  2000.  The  Company is  currently
negotiating to renew the two agreements which have expired.  Management does not
believe that the results of the current  negotiations  will result in a material
increase  in its  labor  costs,  although  no  assurance  can be given as to the
outcome of these  negotiations.  Management believes that its relations with its
employees are satisfactory.  The Company has had no strikes or work stoppages in
the past 11 years.

         At June 30,  2000,  approximately  37% 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 22  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  Guaranty
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.

Competition.  The school bus transportation  industry and paratransit operations
are 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 and  paratransit  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,  First Transit and First  Student,
divisions of First Group America, Inc., the second largest company, and National
Express Corporation, in addition to other regional and local companies.

Bus Sales Operations

         The  Company  entered  the  bus  sales  business  in 1997  through  the
acquisition of Central. Central, which has non-exclusive distribution contracts,
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.  While there are various other distributors of buses in Central's
distribution  area,  the Company  believes  that  Central has a greater than 45%
market share for sales of school buses in its distribution territory.

         The Company's Bus Sales  Operations  sells school buses and  commercial
vehicles  within New Jersey and various  counties in New York.  The  majority of
buses  purchased  by the  Company  are  for  pre-existing  orders.  The  Company
generated  approximately  24.1%, 25.4% and 22.5% of its total revenues from this
operation in fiscal 2000, 1999 and 1998, respectively.

         The Bus Sales Operations are seasonal in nature.  Approximately 45% and
42% of the annual sales of Bus Sales  Operations  occurred in the quarters ended
September  30, 1999 and 1998,  respectively.  In addition,  the working  capital
needs of the operation  have tended to increase  during this quarter in response
to the higher  seasonal  sales  volume and because  inventory  is at its highest
during July and August prior to seasonal school bus deliveries.

         At June 30, 2000, the Company employed  approximately 200 people in its
Bus Sales  Operations,  none of which  were  members  of  collective  bargaining
groups.


                                       6
<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 and liability  insurance of
$100 million per occurrence with no deductible against claims arising from other
(e.g.,  non-automobile)  liability exposure; (ii) automobile liability insurance
of up to $100  million  per  occurrence,  subject to a $250,000  deductible  per
occurrence  and an aggregate  deductible  of $4.6 million;  and (iii)  statutory
worker's   compensation  and  employers  liability  insurance,   subject  to  no
deductible.  Beyond the  occurrence  limits  mentioned  herein,  the  automobile
liability coverage provides indemnity for an unlimited number of occurrences and
general  liability   coverage  provides  $100  million  aggregate  coverage  per
location.  The Company's insurance policies generally provide coverage for a one
year term (14 months in the case of the Company's current automobile policy) and
therefore, are generally subject to annual renewal.

         The Company self-insures its current automobile  insurance  deductibles
through  Atlantic  North  Casualty  Company  ("Atlantic  North") a wholly  owned
captive insurance  company chartered in Vermont.  The Company believes it's able
to 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  ($4.6  million) is fully  funded by
premiums charged to operating companies.

         Prior to January 1, 1999,  the  Company  also  self-insured  its annual
workers' compensation insurance deductibles.  Atlantic North's total claims were
partially  funded by premiums  charged to operating  companies,  which, in turn,
were  limited  to  the  amount  of the  combined  deductibles  on the  Company's
automobile  and workers'  compensation  insurance  policies ($7.5 million in the
fiscal year ended June 30, 1998).

         In addition, the Company maintains catastrophic coverage of $25 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.

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 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. As with most transportation companies,
the Company could incur significant costs related to environmental compliance or
remediation; these costs however, 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  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  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.


                                       7
<PAGE>

         Certain federal, state and local laws, regulation 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 inquires, 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.  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 (i) vehicle  standards and equipment
maintenance;  (ii) qualification,  training and testing of employees;  and (iii)
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 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-handed  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
Transportation  Operations  and Bus Sales  Operations  are also  required  to be
maintained in accordance  with  regulations  promulgated by various  federal and
state  agencies  including   departments  including  departments  of  education,
departments of motor vehicles, and state departments of transportation.


                                       8
<PAGE>

Item 2. PROPERTIES

         Subsidiaries of the Company provide  transportation  operation services
from 32  facilities  (of which five are  owned,  25 are 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 Company  believes  that its  facilities  are adequate to service its present
business and the currently anticipated expansion of existing operations.

         Bus Sales  Operations  are provided from four  facilities (of which two
are owned and two are leased) in two states.

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.  In the action
the Company claimed that the New York Board of Education (i) improperly  changed
the comparison years pursuant to which  contractors  established their increased
costs for purposes of qualifying for annual rate increases; and (ii) incorrectly
calculated costs associated with  transportation  contracts which resulted in an
erroneous determination of applicable daily rates of compensation.  The first of
the two  claims  has been  dismissed.  The  second  claim is still  pending.  In
September 2000, the Company entered into a letter agreement with the Board which
provided that (a) upon final resolution of the Company's outstanding claims, the
Company would pay any amount determined to be due the Board over a term of seven
years,  and (b) the  Company  would  receive  credit  against up to 100% of such
amount, equal to the amount paid by the Company for the purchase of school buses
in the period of July 2000  through  July 2003 as long as such school buses were
utilized to perform the Company's contracts with the Board. The Company believes
that its purchase of qualifying  buses within the above  prescribed  period will
eliminate any liability that the Company may have to the Board.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.


                                       9
<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 made  distributions  to AETG of $115,763,  $229,049 and
$557,955 in fiscal 2000, 1999 and 1998, respectively.

Item 6. SELECTED FINANCIAL DATA

         The  selected  financial  data for each of the  years in the  four-year
period ended June 30, 2000 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,
                                                                           ($ in millions)
                                                    1996          1997           1998          1999            2000
                                                 ----------    ----------      ---------     ----------     ----------
<S>                                               <C>           <C>            <C>            <C>            <C>
Operating Data:
Revenues .....................................    $142.6        $166.1         $261.9         $321.5         $353.5
Income from operations .......................       7.3           7.4           11.8           17.7           18.2
Income (loss) before extraordinary items
     and cumulative effect of a change in
     accounting principle ....................       1.4          (0.6)          (7.1)          (2.3)          (3.5)
Net income (loss) ............................       1.4          (1.7)          (7.1)          (2.3)          (3.8)
Balance Sheet Data:
Total assets .................................     104.4         154.4          206.5          231.5          233.8
Long-term debt ...............................      59.7         110.5          157.9          181.3          180.2
Total shareholder's equity ...................      29.5          27.6           20.2           20.9           23.1
</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 74 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
"Transportation Operations") and sells school buses and commercial vehicles (the
"Bus Sales Operations"). At June 30, 2000, Atlantic had a fleet of approximately
4,800  vehicles  operating  from 32  facilities  and  provided  bus sales from 4
facilities.


                                       10
<PAGE>

         For each of the years in the three year period ended June 30, 2000, the
percentage of revenues from the Company's business segments were as follows:

                                             2000         1999         1998
                                            ------       -------      ------

      Transportation Operations .........    75.9%        74.6%        77.5%
      Bus Sales Operations ..............    24.1%        25.4%        22.5%

         The School Bus  Division  accounted  for 74.1%,  79.3% and 79.1% of the
Company's  Transportation  Operation  revenues for each of fiscal 2000, 1999 and
1998,  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
substantial  contract  renewal,  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 the Company'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 Paratransit Division, which accounted for 20.5%, 15.3% and 14.9% of
the Company's  Transportation  Operation revenues in fiscal 2000, 1999 and 1998,
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 contacts 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 3% of the
Company's  Transportation  Operation  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 2.5%,  2.4 % and 2.6% of the
Company's  Transportation  Operation  revenues  in fiscal  2000,  1999 and 1998,
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 24.1%, 25.4% and 22.5% of
the Company's total revenues in fiscal 2000, 1999 and 1998, respectively,  sells
school buses and commercial vehicles primarily


                                       11
<PAGE>

in New Jersey and various  counties in New York. The Bus Sales  Operations  were
acquired effective July 1, 1997.

         The principal elements of the Company's Transportation  Operations cost
of sales are labor, fuel, parts, vehicle insurance,  equipment lease expense and
rent.  Historically,  cost of  sales  have  varied  directly  in  proportion  to
revenues, and approximately 93% of fiscal 2000 cost of sales were variable costs
consisting  of direct  labor  (primarily  driver  wages and  related  employment
expenses), fuel costs and maintenance costs. At June 30, 2000, approximately 73%
of the Company's  employees were members of various labor unions and the Company
was party to 23  collective  bargaining  agreements,  two of which  covering 162
employees expire within less than two years; two of which covering 147 employees
have expired and one collective bargaining agreement, covering 170 employees, is
subject  to a wage  renegotiation  in October  2000.  The  Company is  currently
negotiating  to renew the two expired  agreements.  Management  does not believe
that the current  negotiations  will result in 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,  New York 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.  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.

Results of Operations

<TABLE>
<CAPTION>
                                                                                Year Ended June 30,
                                                       -------------------------------------------------------------------
                                                                                  ($ in millions)
                                                       -------------------------------------------------------------------
                                                               1998                    1999                    2000
                                                       -------------------     -------------------     -------------------
<S>                                                    <C>           <C>       <C>           <C>       <C>           <C>
Revenues ...........................................   $261.9        100.0%    $321.5        100.0%    $353.5        100.0%
Gross profit .......................................     44.5         17.0       51.9         16.1       52.5         14.9
General and administrative expenses ................     21.3          8.1       21.9          6.8       20.3          5.8
Depreciation and amortization ......................     11.4          4.3       12.4          3.8       13.9          3.9
Income from operations .............................     11.8          4.5       17.7          5.5       18.2          5.2
Net interest expense ...............................     17.8          6.8       20.3          6.3       22.3          6.3
Non-recurring item .................................      4.6          1.8        1.2          0.4         --           --
Loss  before cumulative  effect  of  a change
     In accounting principle .......................     (7.1)        (2.7)      (2.3)        (0.7)      (3.5)        (1.0)
Net loss ...........................................     (7.1)        (2.7)      (2.3)        (0.7)      (3.8)        (1.1)
</TABLE>


                                       12
<PAGE>

         Twelve  Months Ended June 30, 2000 Compared to Twelve Months Ended June
         30, 1999

         Revenues.  Revenues from Transportation  Operations were $268.4 million
for the twelve  months  ended June 30, 2000  compared to $239.8  million for the
twelve months ended June 30, 1999,  an increase of $28.6 million or 11.9%.  This
increase  was due  primarily  to (i) $9.7  million as a result of new  contracts
awarded;  and (ii) $24.6 million due to contract rate increases and increases in
service  requirements  of existing  contracts  partially  offset by $5.7 million
decrease due to sale of  subsidiaries  to an affiliate  effective April 1, 1999.
Revenues  from Bus Sales  Operations  were $85.1  million for the twelve  months
ended June 30, 2000  compared to $81.7  million for the twelve months ended June
30, 1999,  an increase of $3.3 million or 4.1%.  This increase was primarily due
to $4.0  million  increase  in new bus sales  partially  offset by $0.7  million
decrease in parts and other sales.

         Gross profit.  Gross profit from  Transportation  Operations  was $44.8
million for the twelve  months ended June 30, 2000 compared to $44.0 million for
the twelve months ended June 30, 1999, an increase of $0.8 million or 1.9%. This
increase was due  primarily to the increase in revenues  described  above.  As a
percentage  of revenues,  gross profit  decreased to 16.7% for the twelve months
ended June 30, 2000 from 18.4% for the twelve  months ended June 30, 1999.  This
decrease  was  primarily  due to increases in fuel costs (0.7%) and labor (0.9%)
due to the tight labor market.  Gross profit from the Bus Sales  Operations  was
$7.6 million for the twelve  months ended June 30, 2000 compared to $7.9 million
for the twelve  months  ended June 30, 1999, a decrease of $0.3 million or 3.4%.
As a  percentage  of  revenues,  gross  profit  decreased to 9.0% for the twelve
months ended June 30, 2000 from 9.7% for the twelve  months ended June 30, 1999.
This  decrease  was due  primarily  to an increase  in the  current  year of the
proportion  of sales in the New Jersey market which has had  historically  lower
gross margins than the New York market and lower  margins  generated by the sale
of commercial vehicles.

         General  and  administrative   expenses.   General  and  administrative
expenses for the  Transportation  Operations  were $16.4  million for the twelve
months ended June 30, 2000 compared to $18.2 million for the twelve months ended
June 30,  1999,  a decrease  of $1.8  million  or 9.7%.  This  decrease  was due
primarily to $4.8 in settlement fees in connection with the National  litigation
settlement (see Note 13 to Consolidated  Financial  Statements) and $0.4 million
in management fees,  partially  offset by increases in (i) professional  fees of
$0.4 million and (ii)  advertising  and  promotion  expenses of $1.1 million and
(iii) $1.2 million in  administrative  payroll and benefits due primarily to new
business. As a percentage of revenues,  general and administrative  expenses for
the Transportation Operations decreased to 6.0% for the twelve months ended June
30,  2000 from 7.6% for the twelve  months  ended  June 30,  1999.  General  and
administrative  expenses for the Bus Sales  Operations were $3.9 million for the
twelve months ended June 30, 2000 compared to $3.7 million for the twelve months
ended June 30, 1999 an increase of $0.2 million or 5.3%.  This  increase was due
primarily to $0.1 million increases in  administrative  payroll and benefits and
$0.1 million increases in telephone expenses due to expansion of business.  As a
percentage  of revenues,  general and  administrative  expenses of the Bus Sales
Operations was 4.6% for the twelve months ended June 30, 2000 and June 30, 1999.

         Depreciation and amortization. Depreciation and amortization expense of
Transportation  Operations  was $ 13.1 million for the twelve  months ended June
30, 2000 compared to $11.5 million for the twelve months ended June 30, 1999, an
increase of $1.5 million or 13.4%.  This increase was primarily due to increases
in depreciation  in connection  with the purchase of new vehicles.  Depreciation
and  amortization  expense of the Bus Sales  Operations was $0.9 million for the
twelve months ended June 30, 2000 compared to $0.8 million for the twelve months
ended June 30, 1999.

         Income  from   operations.   Transportation   Operations   income  from
operations  was $15.4 million in fiscal 2000 compared to $14.3 million in fiscal
1999,  an increase of $1.0  million or 7.0%.  This  increase  was due to the net
effect of the items discussed above. Bus Sales Operations income from operations
was $2.8  million in fiscal 2000  compared  to $3.3  million in fiscal  1999,  a
decrease of $0.5  million or 15.2%.  This  decrease was due to the net effect of
the items discussed above.

         Net interest  expense.  Net interest  expense was $22.3 million for the
year ended June 30, 2000  compared to $20.3  million for the year ended June 30,
1999, an increase of $2.0 million or 9.7%. This


                                       13
<PAGE>

increase was due primarily to an increase in the average amount of borrowings in
connection with the Company's revolving line of credit.

         Non-recurring item.  Non-recurring item was $1.2 million in fiscal 1999
which  represented fees and expenses (other than bondholder  consent fees), paid
by the  shareholders  of AETG for the  benefit  of the  Company.  There  were no
non-recurring items for the year ended June 30, 2000.

         Net income (loss). The Company generated a net loss of $3.8 million for
the fiscal year ended June 30, 2000  compared to a net loss of $2.3  million for
the fiscal year ended June 30, 1999, an increase of $1.5 million.

         Twelve  Months Ended June 30, 1999 Compared to Twelve Months Ended June
         30, 1998

         Revenues.  Revenues from Transportation  Operations were $239.8 million
for the twelve  months  ended June 30, 1999  compared to $203.1  million for the
twelve months ended June 30, 1998,  an increase of $36.7 million or 18.1%.  This
increase  was due  primarily to (i) $18.4  million as a result of new  contracts
awarded;  (ii) $12.6  million due to contract  rate  increases  and increases in
service  requirements  of  existing  contracts;  and  (iii)  $5.7  million  from
operations of five newly acquired subsidiaries.  These subsidiaries were sold to
an  affiliate  effective  April 1, 1999 (see Note 16 to  Consolidated  Financial
Statements).  Revenues  from Bus Sales  Operations  were $81.7  million  for the
twelve  months  ended June 30,  1999  compared  to $58.8  million for the twelve
months ended June 30, 1998, an increase of $22.9 million or 38.9%. This increase
was primarily due to (i) $15.2  million  increase in sales of school buses;  and
(ii) $7.7 million increase in sales of commercial vehicles.

         Gross profit.  Gross profit from  Transportation  Operations  was $44.0
million for the twelve  months ended June 30, 1999 compared to $37.0 million for
the twelve  months  ended June 30,  1998,  an increase of $7.1 million or 19.1%.
This increase was due primarily to the increase in revenues  described above. As
a percentage of revenues,  gross profit increased to 18.4% for the twelve months
ended June 30, 1999 from 18.2% for the twelve  months ended June 30, 1998.  This
increase was primarily due to the acquired  subsidiaries  which had gross profit
margins  higher than the Company's.  Gross profit from the Bus Sales  Operations
was $7.9  million for the twelve  months  ended June 30,  1999  compared to $7.6
million for the twelve  months ended June 30, 1998,  an increase of $0.3 million
or 4.2%.  As a percentage  of revenues,  gross profit  decreased to 9.7% for the
twelve  months  ended June 30, 1999 from 12.9% for the twelve  months ended June
30, 1998.  This decrease was due primarily to an increase in the current year of
the  proportion  of sales in the New Jersey  market  which has had  historically
lower gross margins than the New York market and lower margins  generated by the
sale of commercial vehicles.

         General  and  administrative   expenses.   General  and  administrative
expenses for the  Transportation  Operations  were $18.2  million for the twelve
months ended June 30, 1999 compared to $18.0 million for the twelve months ended
June 30,  1998,  an  increase of $0.1  million or 0.8%.  This  increase  was due
primarily to increases in professional  fees of $1.6 million and advertising and
promotion  expenses of $0.5  million  partially  offset by a  reduction  of $2.1
million  provision for doubtful  accounts ($2.2 million provision in fiscal 1998
compared to $0.1 million in fiscal 1999).  As a percentage of revenues,  general
and administrative expenses for the Transportation  Operations decreased to 7.6%
for the twelve  months ended June 30, 1999 from 8.9% for the twelve months ended
June 30, 1998. General and administrative  expenses for the Bus Sales Operations
were $3.7  million for the twelve  months  ended June 30, 1999  compared to $3.3
million for the twelve months ended June 30, 1998 an increase of $0.4 million or
12.7%.   This  increase  was  due   primarily  to  $0.2  million   increases  in
administrative  payroll and benefits and $0.2 million increases in promotion and
telephone  expenses due to expansion of business.  As a percentage  of revenues,
general and  administrative  expenses of the Bus Sales  Operations  decreased to
4.6% for the twelve  months ended June 30, 1999 from 5.6% for the twelve  months
ended June 30, 1998.

         Depreciation and amortization. Depreciation and amortization expense of
Transportation Operations was $11.5 million for the twelve months ended June 30,
1999  compared to $10.4  million for the twelve  months ended June 30, 1998,  an
increase of $1.1 million or 10.9%.  This increase was primarily due to increases
in depreciation in connection with the purchase of new vehicles partially offset
due to the Company  reassessing  (on January 1, 1998) and  extending  the useful
life of certain fixed assets which


                                       14
<PAGE>

reduced  depreciation by approximately  $1.8 million for the year ended June 30,
1999. Depreciation and amortization expense of the Bus Sales Operations was $0.8
million for the twelve  months ended June 30, 1999  compared to $1.0 million for
the twelve months ended June 30, 1998, a decrease of $0.2 million.

         Income  from   operations.   Transportation   Operations   income  from
operations  was $14.3  million in fiscal 1999 compared to $8.5 million in fiscal
1998,  an increase of $5.8  million or 67.8%.  This  increase was due to the net
effect of the items discussed above. Bus Sales Operations income from operations
was $3.3 million in fiscal 1999 and 1998.

         Net interest  expense.  Net interest  expense was $20.3 million for the
year ended June 30, 1999  compared to $17.8  million for the year ended June 30,
1998,  an increase of $2.6 million or 14.5%.  This increase was due primarily to
an  increase  in the  amount of  borrowings  in  connection  with the  Company's
revolving line of credit.

         Non-recurring item.  Non-recurring item was $1.2 million in fiscal 1999
which  represented fees and expenses (other than bondholder  consent fees), paid
by the shareholders of AETG for the benefit of the Company.  Non-recurring  item
was $4.6 million in fiscal 1998 due to the write down of a note  receivable from
affiliates.

         Net income (loss). The Company generated a net loss of $2.3 million for
the fiscal year ended June 30, 1999  compared to a net loss of $7.1  million for
the fiscal year ended June 30, 1998, a decrease of $4.9 million.

Liquidity and Capital Resources

         In December 1999 AETG contributed an additional equity  contribution of
$6.2 million to AETC.

         In  November  1999,   Congress  renewed  the  Company's  $30.0  million
revolving  credit facility (the  "Facility")  and the Receivable  Agreement (see
Item 1 - Recent  Transactions  - Accounts  Purchase and Sale  Agreement)  for an
additional  two  years  commencing   February  4,  2000  at  interest  rates  of
one-quarter percent less than under the previous agreements.

         Capital  expenditures for the fiscal years ended June 30, 2000 and June
30, 1999  totaled  $20.1  million and $29.9  million,  respectively.  Management
anticipates total demographic growth, and capital  expenditures of approximately
$22.0  million  in  fiscal  2001  in  connection  with  new  contracts,   normal
replacement of vehicles and maintenance capital expenditures.

         The  majority  of these  capital  expenditures  will be incurred in the
Company's first quarter which is its seasonal low period.  The Company  believes
that the Receivable  Agreement,  along with its $30.0 million Facility (of which
$11.3  million was  undrawn at June 30,  2000) will  provide it with  sufficient
liquidity to conduct its operations for the coming fiscal year.

         The  Company  intends  to  seek  to  continue  to  acquire   additional
businesses  and  contracts  to the extent that it is able to finance  these from
operating cash flows and/or additional equity contributions from AETG.

         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 was $13.3 million for fiscal 2000 primarily due to $5.0
million of funds  provided  by working  capital,  plus  non-cash  items of $15.5
million of depreciation and amortization  partially offset by a $3.8 million net
loss,  $1.3 million  increase in deferred tax assets,  $1.2 million  decrease in
other long-term liabilities,  and $0.9 million other net uses of funds. Net cash
used in operating  activities was $7.8 million for fiscal 1999, primarily due to
a $2.3 million net loss, $12.5 million of funds used for working  capital,  $2.6
million


                                       15
<PAGE>

decrease in other long-term liabilities, a $1.8 million increase in deferred tax
assets,  $1.9 million increase in deposits and other non-current assets and $1.0
million  other net uses of funds  partially  offset by  non-cash  items of $14.3
million  ($13.1  million   depreciation   and   amortization  and  $1.2  million
non-recurring charge).

         Net Cash  Provided by (Used in)  Investing  Activities.  For the fiscal
year ended June 30, 2000, the Company made $20.1 million of capital expenditures
to  acquire  additional  vehicles,  property  and  equipment.  Of these  capital
expenditures  $1.2 million were directly  financed and the balance were financed
from  operating  cash flows.  In  addition  the  Company  made $2.7  million net
dispositions of marketable  securities,  which  securities were held by Atlantic
North. For the fiscal year ended June 30, 1999 the Company made $29.9 million of
capital expenditures to acquire additional vehicles,  property and equipment. Of
these capital  expenditures  $6.1 million were directly financed and the balance
were financed from operating cash flows.

         In September  2000,  the New York City Board of Education (the "Board")
extended all of the Company's  contracts  with the Board for an additional  five
years ending June 30, 2005. These contracts  represented  approximately 39.4% of
the Transportation  Operations revenues for the fiscal year ended June 30, 2000.
In April 2000,  the Company was awarded an additional  two-year  contract for 45
buses by the  School  District  of  Philadelphia  and was  awarded  a  five-year
contract  for up to 10 buses by the Los  Angeles  Unified  School  District.  In
February 2000, the Company was awarded a two-year (with three one-year  options)
contract to provide Paratransit services by New Jersey Transit ("NJT"). Pursuant
to the contract,  NJT provided the Company with all of the required vehicles and
as  a  result,  the  Company  was  not  required  to  make  significant  capital
expenditures.

         Net Cash Provided by (Used in) Financing Activities.  Net cash provided
by financing  activities  totaled $3.2 million for the year ended June 30, 2000,
due primarily to a $6.2 million capital  contribution from AETG partially offset
by $1.5 million debt  amortization  requirements  and $1.3 million  reduction in
borrowings  under the  Company's  revolving  line of credit.  In  addition,  the
Company  incurred  $1.2  million of  indebtedness  to directly  finance  capital
expenditures  for the year ended June 30, 2000. In fiscal 1999 net cash provided
by financing  activities  totaled $17.1 million due primarily from $18.6 million
increase  in net  borrowings  under  the  Company's  revolving  line of  credit,
partially offset by $1.2 million principal and debt  amortization  requirements.
In  addition,  the Company  incurred  $6.1 million of  indebtedness  to directly
finance capital expenditures for the year ended June 30, 1999.

         At June 30, 2000,  the Company's  total debt and  stockholder's  equity
were $180.2 million and $23.1 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


                                       16
<PAGE>

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.

         The Bus Sales Operations are also seasonal in nature. Approximately 45%
and 42% of the annual  sales of Bus Sales  Operations  occurred in the  quarters
ended  September  30,  1999 and 1998,  respectively.  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 because  inventory is at its
highest during July and August prior to heavy seasonal school bus deliveries.

<TABLE>
<CAPTION>
                                                                           ($ in millions)
                        ----------------------------------------------------------------------------------------------------------
                                    Fiscal 1998                          Fiscal 1999                        Fiscal 2000
                        ----------------------------------  ----------------------------------  ----------------------------------
                          Sept.   Dec.      Mar.     June     Sept.    Dec.     Mar.     June     Sept.    Dec.     Mar.     June
                           30,     31,       31,      30,      30,      31,      31,      30,      30,      31,      31,      30,
                          1997    1997      1998     1998     1998     1998     1999     1999     1999     1999     2000     2000
                        -------  -------  -------  -------  -------  -------  -------  -------  -------  -------  -------  -------
<S>                      <C>     <C>       <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Revenue............      $59.2   $68.1     $67.5    $67.1    $71.0    $85.0    $77.3    $88.2    $82.4    $90.7    $89.4    $91.0
Income (loss) from
  operations.......        0.8    (0.2)      5.1      6.1     (1.1)     7.8      5.7      5.3     (2.1)     6.5      8.3      5.5

Net income (loss)
  before extra-
  ordinary item
  and cumulative
  effect of a
  change in
  accounting
  principle.......        (1.9)   (2.6)      0.6     (3.2)    (3.2)     0.6      0.3      0.0     (4.7)     0.3      1.4     (0.5)

EBITDA (1).........        4.1     3.2       7.4      8.5      1.8     11.0      8.8      8.4      1.4      9.9     11.8      9.0

Cash flows from:
  Operating
  activities.......       (2.9)    8.7       4.2      6.6    (10.3)     9.5      5.2    (12.2)     0.4     11.3     (5.5)     7.1

Investing
  activities.......      (34.6)   (5.6)     (2.1)    (2.3)   (16.2)    (8.3)    (1.3)     3.6     (7.2)    (1.3)    (4.3)    (2.0)

Financing
  activities.......       26.9     1.6      (3.6)     0.1     18.5     (4.4)    (2.0)     5.0      6.3     (2.8)     4.2     (4.5)
</TABLE>

----------
         (1) EBITDA represents  income from operations  before  depreciation and
         amortization.  EBITDA is used in  certain  financial  covenants  in the
         indenture  relating to the 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.

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.


                                       17
<PAGE>

Item  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

         On  June  14,  1999,  the  Company  dismissed  its  former  independent
accountants BDO Seidman LLP ("BDO") and engaged Arthur Andersen LLP to audit the
Company's  consolidated  financial  statements.   The  decision  to  change  the
independent  accountants  was recommended and approved by the Company's board of
directors.

         BDO served as the  Company's  independent  public  accountants  for the
years  ended  June  30,  1998  and  1997.  The  report  of BDO on the  Company's
consolidated  financial  statements for those years contained no adverse opinion
or disclaimer  of opinion and were not qualified or modified as to  uncertainty,
audit scope or accounting  principle.  In connection with its audit for the year
ended June 30,  1998 and during the fiscal  year 1999 prior to BDO's  dismissal,
the Company had no disagreements with BDO on matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements  if not resolved to the satisfaction of BDO would have caused them
to  make  reference  thereto  in  their  report  on the  consolidated  financial
statements for such years.


                                       18
<PAGE>

                                    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  ,  2000.  Directors  serve  for a term  of one  year or  until  their
successors are elected and qualified.

Name                     Age                         Position
----                     ---                         --------

Domenic Gatto..........  51   Director, President and Chief Executive Officer
Nathan Schlenker.......  62   Chief Financial Officer, Executive Vice President,
                              Secretary and Treasurer

Jerome Dente...........  54   Chief Operating Officer
Noel Cabrera...........  40   Executive Vice President
David Kessler..........  60   Vice President and Director of the Paratransit
                              Division

Douglas Danforth.......  78   Director
Sanjay Patel...........  39   Chairman of the Board
Thomas Inglesby........  43   Director

         Domenic Gatto,  Director,  President and Chief Executive  Officer.  Mr.
Gatto has been President,  Chief Executive Officer and a Director 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.

         Nathan Schlenker,  Chief Financial  Officer,  Executive Vice President,
Secretary and Treasurer.  Mr. Schlenker has been Chief Financial  Officer of the
Company since its  formation,  and has held such position at AETG since 1991. In
November  1998,  Mr.  Schlenker  was  elected  to  serve  as an  Executive  Vice
President,  Secretary and  Treasurer of the Company and AETG.  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 Director of New York School Bus
Operations  for the Company  from 1994  through  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.

         Douglas  Danforth,  Director.  Mr.  Danforth has been a Director of the
Company and AETG since  November  1998.  He was  Chairman of the Board and Chief
Executive Officer of Westinghouse  Electric Corporation from December 1983 until
December  1987.  From  January  1988 to May 1998 he served as


                                       19
<PAGE>

Chairman and Chief Executive Officer of the Pittsburgh Pirates Baseball Club. He
is a Director of Sola  International,  Inc.  Dal-Tile  Corporation and Greenwich
Street Capital Partners.

         Sanjay Patel, Chairman of the Board. Mr. Patel has been Chairman of the
Board since November 1998. He has been Senior Managing Director of GSCP, Inc., a
merchant  banking  firm,  since  April  1998.  Prior  thereto  he was a Managing
Director of Goldman,  Sachs & Co. from  November  1996 to January  1998. He is a
Director of Recovery Engineering, Inc.

         Thomas Inglesby, Director. Mr. Inglesby has been a Director of AETG and
the Company since November 1998. Since 1997, Mr. Inglesby has been a Director of
GSPC,  Inc. He is Chairman of the Board of Teknekron  Infoswitch  Corporation as
well as Check  Printers,  Inc.  From  1994-1997,  Mr.  Inglesby  was a  Managing
Director  with  Harbour  Group  in  St.  Louis,  Missouri,  an  investment  firm
specializing  in  the  acquisition  of  manufacturing  companies  in  fragmented
industries.  Prior  thereto he was an officer  with The South  Street  Funds for
three years.

         There are no family  relationships  between  any of the  aforementioned
persons.

Item 11. EXECUTIVE COMPENSATION

         Directors who are  employees of the Company or one of its  subsidiaries
or  employees  of the  majority  stockholder  or its  affiliates  do not receive
additional  compensation  for  serving  as  directors.  For  his  services  as a
Director,  Mr. Danforth  receives  attendance fees (which shall not be less than
$10,000 in the  aggregate  for any given fiscal year) of $2,500 for each meeting
of the Board of Directors he attends in person or for telephone  meetings of the
Board of  Directors  for which  substantial  time is required  and $500 for each
other telephone meeting of the Board of Directors.

         The Company and AETG have entered  into an  employment  agreement  with
Domenic Gatto which  provides for his continued  employment  with the Company as
President and Chief  Executive  Officer and to serve upon the Board of Directors
of the Company until  November 3, 2002,  unless earlier  terminated,  subject to
extension by the Board of Directors for up to three years.  The employment  term
may be terminated  with or without cause.  The agreement  provides for an annual
base salary of $350,000  commencing  November 4, 1998 ("Effective Date") subject
to annual  increases by a  percentage  equal to the  percentage  increase in the
Regional CPI,  provided that such increase  shall in no event be more than 5% or
less than 3% of the base salary. In addition the agreement  provided for bonuses
of  $260,000  each on the six month and 12 month  anniversary  of the  Effective
Date.  Upon  the  sale  of  66% of the  stock  of  AETG  owned  by the  majority
shareholder, an initial public offering of AETG or a merger, recapitalization or
other similar event.  Mr. Gatto is entitled to a bonus of up to $1,500,000.  The
agreement  also contains  covenants for  non-competition,  non-solicitation  and
confidentiality upon the termination of the employment.

         The Company and AETG entered into an employment  agreement  with Nathan
Schlenker  ("Schlenker")  which provides for his continued  employment  with the
Company  as  Chief  Financial  Officer,  commencing  on the  Effective  Date and
expiring on November 3, 2000,  (as  extended).  On July 19, 2000 the Company and
AETG entered into a new employment agreement with Schlenker expiring on November
3, 2001, unless earlier  terminated,  subject to extension by Board of Directors
for one year.  This  agreement  provides  for an annual base salary of $240,000,
subject to the same  annual  increases  as Domenic  Gatto.  The  agreement  also
contains covenants for  non-competition,  non-solicitation  and  confidentiality
upon the termination of the employment.


                                       20
<PAGE>

                           Summary Compensation Table
                             Annual Compensation (1)

<TABLE>
<CAPTION>
                                                        Fiscal                                      Other Annual        All Other
Name and Principal Position                              Year        Salary          Bonus          Compensation      Compensation
---------------------------                             ------      --------       --------         ------------      ------------
<S>                                                      <C>        <C>            <C>               <C>               <C>
Domenic Gatto ......................................     1998       $519,884       $  7,500          $105,774(2)       $     --
President and Chief Executive Officer                    1999       $433,122       $     --          $106,353(2)       $260,000(3)
                                                         2000       $374,588       $ 55,000          $ 68,116(2)       $260,000(3)

Nathan Schlenker ...................................     1998       $205,393       $ 16,000          $     --          $     --
Chief Financial Officer, Executive                       1999       $208,487       $  3,500          $     --          $     --
Vice President, Secretary and Treasurer                  2000       $231,275       $ 49,000          $     --          $     --

Jerry Dente(4) .....................................     1999       $116,154       $  8,000          $     --          $     --
Chief Operating Officer                                  2000       $134,529       $ 18,500          $     --          $     --

Noel Cabrera(4) ....................................     1999       $103,731       $  3,000          $     --          $     --
Executive Vice President                                 2000       $111,257       $ 18,500
</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  under  which  benefits  are
            determined other than 401(k) and deferred compensation contributions
            made.

      (2)   Includes (i) $25,800 for automobile allowance; (ii) $35,000 for life
            insurance allowance;  (iii) $7,316, $7,095 and $6,516 for disability
            insurance allowance in 2000, 1999 and 1998,  respectively;  and (iv)
            $38,458 for vacation time not taken in 1998 and 1999, respectively.

      (3)   Bonus in relation to change of control  (see Note 3 to  Consolidated
            Financial Statements).

      (4)   For  1998,  this  executive's   compensation  has  been  omitted  in
            accordance with Securities and Exchange Commission rules.


                                       21
<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 of AETG as of September 28, 2000 by (i)
each person who is known by the Company to beneficially  own more than 5% of the
outstanding  shares of Common 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.

                                                                 Percentage of
                                                 Number         all Outstanding
Name(1)                                         of Shares       Shares Owned(10)
-------                                         ---------       ---------------

Domenic Gatto ........................        67,030.97(5)            6.05%
Nathan Schlenker .....................          1509.95(6)            0.14%
Jerry Dente ..........................               --                 --
Noel Cabrera .........................          1009.95(7)            0.09%
Douglas Danforth(2) ..................          1250.00(8)            0.11%
Sanjay Patel(3) ......................               --                 --
Thomas Inglesby(3) ...................               --                 --
GSCP II Holdings (AE), LLC(4) ........     1,002,673.60(9)           91.15%
All directors and executive
  officers of AETG as a group
  (8 persons) ........................        70,800.87               6.37%
                                            (5)(6)(7)(8)

(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)      The business address of Mr. Danforth is c/o Executive  Associates,  One
         PPG Place, Suite 2210, Pittsburgh, Pennsylvania 15222.

(3)      The business  address of Messrs.  Patel and  Inglesby is c/o  Greenwich
         Street  Capital  Partners,  Inc. 500 Campus Drive,  Suite 220,  Florham
         Park, New Jersey 07932.

(4)      The  business  address of GSCP II  Holdings  (AE),  LLC is 12 East 49th
         Street, Suite 3200, New York, New York 10017.

(5)      Includes  (i)  8079.6  shares of  Common  Stock of AETG  issuable  upon
         exercise  of  options  at a price of  $100.00  per share and (ii) 1,500
         shares of Series A Convertible Preferred Stock of AETG convertible into
         1,500 shares of Common Stock of AETG.

(6)      Includes  (i)  1009.95  shares of Common  Stock of AETG  issuable  upon
         exercise of options at a price of $100.00 per share and (ii) 500 shares
         of Series A Convertible  Preferred Stock of AETG  convertible  into 500
         shares of Common Stock of AETG.

(7)      Shares of Common Stock of AETG  issuable  upon exercise of options at a
         price of $100.00 per share.

(8)      Shares of Common Stock of AETG  issuable upon exercise of warrants at a
         price of $100.00 per share.

(9)      Includes (i) 70,000 shares of Series A Convertible  Preferred  Stock of
         AETG  convertible  into 70,000  shares of Common Stock of AETG and (ii)
         62,000  shares  of  Series  B  Convertible   Preferred  Stock  of  AETG
         convertible into 62,000 shares of Common Stock of AETG.


                                       22
<PAGE>

(10)     Each beneficial owner's percentage  ownership is determined by assuming
         that convertible securities, options and warrants that are held by such
         person  (but  not  those  held  by any  other  person)  and  which  are
         exercisable within 60 days of the date hereof have been exercised.

         Acquisition  of AETG. On October 27, 1998, the holders of a majority in
principal  amount  of the  Company's  Notes  consented  to an  amendment  to the
Indenture  relating to the Notes which in substance  exempted  the  transactions
contemplated   by  a   Recapitalization   and  Stock  Purchase   Agreement  (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.   On  November  4,  1998  the
Recapitalization  was consummated.  As a result, Buyer acquired an approximately
88% equity interest in a recaptalized AETG.

         The  Recapitalization,  including  the  related  transaction  costs and
expenses,  incurred  by the  Buyer,  Wafra  Acquisition  Fund 4, LP.  ("Wafra"),
Domenic, Michael and Patrick Gatto (the "Gatto's") (except for costs relating to
the Consent) were funded by equity capital provided to AETG by the Buyer. 50% of
the costs  associated with the Consent were funded by equity capital provided to
AETG by the Buyer and the  balance of such costs were  funded by equity  capital
provided to AETG by Domenic Gatto and Wafra.

         In connection with the  Recapitalization,  AETG's  authorized stock was
amended to  consist  of a single  class of common  stock.  Previously,  AETG was
authorized  to issue 228  shares of Common  Stock  with no par value of which 88
shares with no par value were issued and  outstanding and 72 shares of Preferred
Stock  with a per  share  $.01 par  value of which 72  shares  were  issued  and
outstanding.  On November 4, 1998, AETG amended its Certificate of Incorporation
to authorize  the issuance of 1,650,000  shares of Common Stock with a per share
$.001 par value and to eliminate all authorized  Preferred Shares. Each share of
Common Stock and Preferred  Stock were  exchanged for 7954.545  shares of Common
Stock. Buyer acquired approximately 88% of the Common Stock of the recapitalized
AETG, and AETG repurchased all of the shares of AETG held by Michael and Patrick
Gatto and a portion of shares held by Domenic  Gatto and Wafra,  which left them
approximately 8% and 4% of the Common Stock, respectively.

         At the closing of the  Recapitalization  Agreement,  Domenic Gatto, the
founder, a Director,  President and Chief Executive Officer of the Company,  and
Nathan Schlenker, Chief Financial Officer,  Executive Vice President,  Secretary
and Treasurer of the Company,  entered into new employment  agreements  with the
Company  and AETG and option  agreements  with AETG.  Domenic  Gatto's  brother,
Michael Gatto resigned as a Director,  Executive Vice President and Secretary of
the Company, and his brother,  Patrick Gatto, resigned as a Director,  Executive
Vice President and Treasurer of the Company.

         As part of the Recapitalization,  the Stockholders'  Agreement dated as
of February 28, 1994 among AETG, the Gatto's and Wafra was terminated. The Buyer
and the other stockholders of AETG,  including Domenic Gatto and Wafra,  entered
into a new Stockholders' Agreement (the New Stockholders Agreement") dated as of
November 4, 1998.

         The  Stockholders  Agreement  provides  for,  among  other  things  (i)
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) removal of any director,  with or without cause,  upon  notification by the
Buyer of its desire for such  removal;  and (iii)  replacement  of any  director
designated  by the Buyer who  ceases  to serve on the  board of  directors  with
another designee of the Buyer.

         The Stockholders  Agreement also contains  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  Stockholders  Agreement)  is no longer  employed by the Company;
(ii)  provide  for put  rights  for  Wafra  upon the  sixth  anniversary  of the
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 Stockholders  Agreement);  (iv) restrict the ability of Wafra
and a certain other stockholder to transfer their respective ownership


                                       23
<PAGE>

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 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.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Prior to and in  contemplation of the  Recapitalization,  AETG sold its
wholly  owned  subsidiary  G.  Entertainment,  Inc.  along with its wholly owned
subsidiaries   (collectively   "G.   Entertainment"),   which   made  up  AETG's
entertainment  business, to the Gatto's.  Three subsidiaries of G. Entertainment
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 fiscal 1998,  two of
these  subsidiaries  suffered a precipitous  decline and the Company took a $4.6
million  non-recurring charge and wrote the Entertainment Note down to $510,000.
On November 4, 1998,  after receiving a fairness opinion issued by an investment
bank of  national  standing,  the  Company  sold the  Entertainment  Note to the
Gatto's.  The sale price was  $510,000  (the book  value of the  note),  plus an
amount equal to one-half of the net proceeds received from any sale of assets of
two of these  subsidiaries  within a 12 month  period  from the date of closing.
There was no sale of assets within the prescribed period.

         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 G. Entertainment. 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
(increased  to $200,520  effective May 1, 2000).  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 G.
Entertainment.  The lease, which is for a term of five years, with two 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.

         GSCP,  Inc.  ("GSCP"),  an  affiliate  of Buyer,  AETG and the  Company
entered into a Financial  Services Agreement (the "FSA") dated as of November 4,
1998. Under the FSA, AETG and the Company engaged 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
expires in 2008,  subject to early  termination  by GSCP upon 15 days  notice to
AETG and the Company or termination upon certain events after which the Buyer no
longer retains voting control of AETG and the Company.  AETG and the Company pay
GSCP an annual advisory fee of $500,000 throughout the term of the FSA.

         On February  23,  1999,  the Company  entered  into an  agreement  with
Atlantic Transit,  Corp. ("ATC"), a wholly owned subsidiary of AETG, whereby the
Company  agreed to provide  general  administrative  services  such as  payroll,
accounts payable,  bookkeeping and accounting services in exchange for a monthly
fee equal to the product of $30.00  times the total  number of revenue  vehicles
maintained by ATC and its wholly owned subsidiaries. In fiscal 2000, the Company
generated approximately $500,000 in fees for these services.

         On March 1, 1999 the Company entered into a tax sharing  agreement with
ATC and AETG whereby each of the parties agreed to file consolidated tax returns
and  contribute  their portion of income tax liability  based upon each of their
respective taxable income.


                                       24
<PAGE>

         At June 30, 2000,  the Company had a  non-interest  bearing  receivable
from AETG of $816,117. Such amount arose as a result of advances to AETG.

         Commencing August 1999, after receiving a fairness opinion issued by an
investment  bank of national  standing,  Central  entered into an agreement with
Atlantic Bus Distributors,  Inc. ("ABD"),  a wholly owned subsidiary of AETG, to
order certain buses through ABD.  Central is required to deposit from fifteen to
thirty percent of the cost of these vehicles  simultaneously  with ABD's receipt
of  these  vehicles  from  the  manufacturers  and pay the  balance  to ABD upon
Central's  delivery of these vehicles to its customers or within one hundred and
twenty days,  whichever  comes first.  The purchase price of each bus equals the
price at which ABD purchased such bus together with any costs incurred by ABD in
connection  with the purchases of any such vehicles.  During the year ended June
30, 2000,  total payments made by Central were $29.3  million.  The amount to be
paid in fiscal 2001 will depend upon the number of buses that Central  purchases
under this arrangement.

         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.


                                       25
<PAGE>

                                    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.

         (b) Reports on Form 8-K

         (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.


                                       26
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
and  Exchange  Act of 1934,  the  Registrant  has duly  caused this report to be
signed on behalf by the undersigned, thereunto duly authorized.

                                    ATLANTIC EXPRESS TRANSPORTATION CORP.

                                    By: /s/ DOMENIC GATTO
                                        ---------------------------------------
                                        Domenic Gatto
                                        Director, President and Chief Executive
                                        Officer
                                        Date: October 13, 2000

         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
----                           -----                            ----

/s/ DOMENIC GATTO              Director, President and          October 13, 2000
-----------------------        Chief Executive Officer
    Domenic Gatto

/s/ NATHAN SCHLENKER           Chief Financial Officer,         October 13, 2000
-----------------------        Executive Vice President,
    Nathan Schlenker           Secretary and Treasurer

/s/ DOUGLAS DANFORTH           Director                         October 13, 2000
-----------------------
    Douglas Danforth

/s/ SANJAY PATEL               Chairman of the Board            October 13, 2000
-----------------------
    Sanjay Patel

/s/ THOMAS INGLESBY            Director                         October 13, 2000
-----------------------
    Thomas Inglesby


                                       27
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                   Index to Consolidated Financial Statements

                                                                          PAGE
                                                                          ----

Report of Independent Public Accountants ............................        F-2

Report of Independent Certified Public Accountants ..................        F-3

Consolidated Balance Sheets as of June 30, 1999 and 2000 ............        F-4

Consolidated Statements of Operations for the Years Ended
  June 30, 1998, 1999 and ...........................................        F-5

Consolidated Statements of Stockholder's Equity for the Years Ended
  June 30, 1998, 1999 and 2000 ......................................        F-6

Consolidated Statements of Cash Flows for the Years Ended
  June 30, 1998, 1999 and 2000 ......................................    F-7-F-8

Notes to Consolidated Financial Statements ..........................   F-9-F-22

Schedule II - Valuation and Qualifying Accounts for the Years Ended
  June 30, 1998, 1999 and 2000 ......................................       F-23


                                      F-1
<PAGE>

                    Report of Independent 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, 1999 and
2000,  and the related  consolidated  statements  of  operations,  stockholder's
equity, and cash flows for the years then ended. These 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 auditing standards generally
accepted in the United States.  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 also 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, 1999 and 2000, and
the consolidated  results of their operations and their cash flows for the years
then ended in conformity with accounting  principles  generally  accepted in the
United States.

         Our audit was made for the  purpose  of forming an opinion on the basic
financial  statements  taken as a whole.  The  schedule  listed  in the Index to
Consolidated Financial Statements for the year ended June 30, 2000, is presented
for purposes of complying with the Securities  and Exchange  Commission's  rules
and is not  part of the  basic  financial  statements.  The  schedule  has  been
subjected to the auditing procedures applied in the audit of the basic financial
statements  and, in our  opinion,  fairly  states in all  material  respects the
financial  data  required  to be set  forth  therein  in  relation  to the basic
financial statements taken as a whole.

                                              Arthur Andersen LLP

New York, New York
September 29, 2000


                                      F-2
<PAGE>

               Report of Independent Certified Public Accountants

To the Board of Directors and Stockholder of
     Atlantic Express Transportation Corp.

         We have audited the accompanying  statements of operations,  changes in
stockholder's  equity, and cash flows of Atlantic Express  Transportation  Corp.
for the year ended June 30, 1998. We have also audited the  financial  statement
schedule  listed in the  accompanying  index for the year ended  June 30,  1998.
These financial  statements and schedule are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

         We conducted our audit 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  and schedule are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial  statements and
schedule.  An audit also includes  assessing the accounting  principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
presentation of the financial statements and schedule. We believe that our audit
provides a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all material  respects,  the results of operations and cash flows of
Atlantic  Express  Transportation  Corp.  for the year  ended  June 30,  1998 in
conformity with generally accepted accounting principles.

         Also, in our opinion,  the schedule  presents  fairly,  in all material
respects, the information set forth therein.


BDO Seidman, LLP


New York, New York
September 18, 1998


                                      F-3
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                                                June 30,
                                                                                                    -------------------------------
                                                                                                         1999             2000
                                                                                                    -------------    --------------

                                     Assets
<S>                                                                                                 <C>               <C>
Current:
     Cash and cash equivalents ................................................................     $     855,983     $   2,502,575
     Current portion of marketable securities .................................................         3,842,000         1,461,000
     Accounts receivable, net of allowance for doubtful accounts of $1,640,000 and
       $1,709,000 in 1999 and 2000, respectively ..............................................        48,468,255        50,962,057
     Inventories ..............................................................................        15,215,018        10,279,483
     Notes receivable .........................................................................            31,964            15,901
     Prepaid expenses and other current assets ................................................         6,190,766         6,165,109
                                                                                                    -------------     -------------
               Total current assets ...........................................................        74,603,986        71,386,125
                                                                                                    -------------     -------------
Property, plant and equipment, at cost, less accumulated depreciation .........................       119,138,827       124,934,071
                                                                                                    -------------     -------------

Other assets:
     Goodwill, net ............................................................................        12,143,514        11,817,606
     Investments ..............................................................................            35,000            35,000
     Marketable securities ....................................................................         5,869,380         6,691,661
     Deferred lease expense ...................................................................           148,155              --
     Transportation contract rights, net ......................................................         3,408,096         3,329,311
     Deferred financing and organization costs, net ...........................................         8,018,053         6,248,073
     Due from parent company ..................................................................           831,117           816,117
     Notes receivable .........................................................................            11,494              --
     Deposits and other noncurrent assets .....................................................         3,248,336         3,205,594
     Deferred tax assets ......................................................................         3,935,981         5,268,606
     Covenant not to compete, net .............................................................           120,000            80,000
                                                                                                    -------------     -------------
               Total other assets .............................................................        37,769,126        37,491,968
                                                                                                    =============     =============
                                                                                                    $ 231,511,939     $ 233,812,164
                                                                                                    =============     =============
                      Liabilities and Stockholder's Equity

Current:
     Current portion of long-term debt ........................................................     $  21,411,180     $   1,907,563
     Accounts payable .........................................................................         2,453,411         1,952,700
     Accrued compensation .....................................................................         7,392,071         6,516,830
     Current portion of insurance reserve .....................................................         4,500,000         3,200,000
     Accrued interest .........................................................................         6,890,810         7,017,741
     Other accrued expenses and current liabilities ...........................................         3,992,443         9,254,623
                                                                                                    -------------     -------------
               Total current liabilities ......................................................        46,639,915        29,849,457
                                                                                                    -------------     -------------

Long-term debt, net of current portion ........................................................       159,921,440       178,270,878
                                                                                                    -------------     -------------
Premium on bond issuance ......................................................................           987,150           771,750
                                                                                                    -------------     -------------
Other long-term liabilities ...................................................................         3,023,529         1,802,517
                                                                                                    -------------     -------------
Commitments and contingencies
Stockholder's equity:
     Common stock, no par value, authorized shares 200; issued and
       outstanding 100 ........................................................................           250,000           250,000
     Additional paid-in capital ...............................................................        15,898,517        22,048,517
     Retained earnings (accumulated deficit) ..................................................         3,865,438           (29,254)
     Accumulated other comprehensive income ...................................................           925,950           848,299
                                                                                                    -------------     -------------
               Total stockholder's equity .....................................................        20,939,905        23,117,562
                                                                                                    -------------     -------------
                                                                                                    $ 231,511,939     $ 233,812,164
                                                                                                    =============     =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                                                Years Ended June 30,
                                                                                ----------------------------------------------------
                                                                                     1998              1999                2000
                                                                                -------------      -------------      -------------
<S>                                                                             <C>                <C>                <C>
Revenues:

 Transportation Operations ................................................     $ 203,073,256      $ 239,784,127      $ 268,402,709

 Bus Sales Operations .....................................................        58,844,938         81,739,086         85,078,295
                                                                                -------------      -------------      -------------
Total revenues ............................................................       261,918,194        321,523,213        353,481,004
                                                                                -------------      -------------      -------------
Costs and expenses:

 Cost of Operations- Transportation Operations ............................       166,120,186        195,760,472        223,558,726

 Cost of Operations- Bus Sales Operations .................................        51,268,341         73,845,585         77,454,772

 General and administrative ...............................................        21,337,867         21,901,559         20,339,351

 Depreciation and amortization ............................................        11,378,390         12,354,728         13,915,400
                                                                                -------------      -------------      -------------
Total operating costs and expenses ........................................       250,104,784        303,862,344        335,268,249
                                                                                -------------      -------------      -------------
 Income from operations ...................................................        11,813,410         17,660,869         18,212,755

Interest expense, net .....................................................       (17,751,883)       (20,322,279)       (22,290,373)

Other income (expense) ....................................................           207,686           (224,276)          (487,552)
                                                                                -------------      -------------      -------------
 Loss before other nonrecurring, benefit from
  income taxes and cumulative effect of a change
  in accounting principle .................................................        (5,730,787)        (2,885,686)        (4,565,170)

Nonrecurring items:

 Write-down of note receivable from affiliates ............................         4,614,597                 --                 --
 Recapitalization expense .................................................                --          1,223,161                 --
                                                                                -------------      -------------      -------------
 Loss before benefit from income taxes and
  cumulative effect of a change in accounting
  principle ...............................................................       (10,345,384)        (4,108,847)        (4,565,170)

Benefit from income taxes .................................................         3,224,453          1,848,981          1,086,752
                                                                                -------------      -------------      -------------

 Loss before cumulative effect of a change in accounting principle ........        (7,120,931)        (2,259,866)        (3,478,418)

Cumulative effect of a change in accounting principle,
  net of benefit from income taxes of $245,875 ............................                --                 --           (300,511)
                                                                                -------------      -------------      -------------

 Net loss .................................................................     $  (7,120,931)     $  (2,259,866)     $  (3,778,929)
                                                                                =============      =============      =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                 Consolidated Statements of Stockholder's Equity

                    Years ended June 30, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                                                           Retained      Accumulated
                                                            Additional     earnings         other      Comprehensive
                                            Common stock     paid-in     (accumulated   comprehensive      income
                                            No par value     capital       deficit)        income          (loss)          Total
                                            ------------  ------------   ------------    ------------  --------------   ------------

<S>                                          <C>          <C>            <C>             <C>             <C>            <C>
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)   (7,120,931)

Distributions to parent company ..........          --              --       (557,955)          --                 --      (557,955)

Unrealized gain on marketable securities .          --              --             --      234,261            234,261       234,261
                                                                                                         ------------

Comprehensive loss .......................          --              --             --           --       $ (6,886,670)           --
                                             ---------    ------------   ------------    ---------       ============   -----------

Balance, June 30, 1998 ...................     250,000      13,188,926      6,354,353      376,293                       20,169,572

Contribution for recapitalization expense           --       2,709,591             --           --       $         --     2,709,591

Net loss .................................          --              --     (2,259,866)          --         (2,259,866)   (2,259,866)

Distributions to parent company ..........          --              --       (229,049)          --                 --      (229,049)

Unrealized gain on marketable securities .          --              --             --      549,657            549,657       549,657
                                                                                                         ------------

Comprehensive loss .......................          --              --             --           --       $ (1,710,209)           --
                                             ---------    ------------   ------------    ---------       ============   -----------

Balance, June 30, 1999 ...................     250,000      15,898,517      3,865,438      925,950                       20,939,905

Contribution from parent company .........          --       6,150,000             --           --       $         --     6,150,000

Net loss .................................          --              --     (3,778,929)          --         (3,778,929)   (3,778,929)

Distributions to parent company ..........          --              --       (115,763)          --                 --      (115,763)

Unrealized loss on  marketable securities           --              --             --      (77,651)           (77,651)      (77,651)
                                                                                                         ------------

Comprehensive loss .......................          --              --             --           --       $ (3,856,580)           --
                                             ---------    ------------   ------------    ---------       ============   -----------

Balance, June 30, 2000 ...................   $ 250,000    $ 22,048,517   $    (29,254)   $ 848,299                      $23,117,562
                                             =========    ============   ============    =========                      ===========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                Years Ended June 30,
                                                                                 --------------------------------------------------
                                                                                     1998               1999               2000
                                                                                 ------------       ------------       ------------
<S>                                                                              <C>                <C>                <C>
Cash flows from operating activities:
          Net loss ........................................................      $ (7,120,931)      $ (2,259,866)      $ (3,778,929)

Adjustments  to reconcile  net loss to net cash  provided by
  (used in) operating activities:
          Gain on sale of marketable securities and
            investments ...................................................          (675,398)        (1,274,138)        (1,220,620)
          Deferred income taxes ...........................................        (2,487,000)        (1,848,981)        (1,332,625)
          Depreciation ....................................................        10,040,403         10,611,931         12,959,447
          Amortization ....................................................         2,808,394          2,431,548          2,539,608
          Write-off of doubtful accounts receivable .......................           973,810                 --             51,000
          Reserve for doubtful accounts receivable ........................         1,270,000            120,000            120,000
          Interest accrued on note receivable .............................          (326,287)                --                 --
          Write down of note receivable from affiliates ...................         4,614,597                 --                 --
          Recapitalization expense ........................................                --          1,223,161                 --
          Transfer from restricted cash ...................................          2,314,408                --                 --
          Decrease (increase) in:
               Accounts receivable ........................................        (3,572,192)       (11,278,249)        (2,664,802)
               Inventories ................................................          (132,564)        (4,452,179)         4,935,535
               Prepaid expenses and other current assets ..................          (339,873)          (498,156)            25,657
               Deferred lease expense                                                 154,097            185,960            148,155
               Deposits and other noncurrent assets .......................            (5,882)        (1,854,035)            42,742
          Increase (decrease) in:
               Accounts payable ...........................................          (237,588)           202,796           (500,711)
               Accrued expenses and other current liabilities .............         6,635,557          3,479,585          3,213,870
               Other long-term liabilities ................................         2,644,117         (2,617,606)        (1,221,012)
                                                                                 ------------       ------------       ------------
               Net cash provided by (used in) operating activities ........        16,557,668         (7,828,229)        13,317,315
                                                                                 ------------       ------------       ------------
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-7
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                Year Ended June 30,
                                                                                   -------------------------------------------------
                                                                                        1998             1999              2000
                                                                                   ------------     -------------      -------------
<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                --         1,366,466
          Additions to property, plant and equipment .........................      (21,318,994)      (23,808,346)      (18,896,005)
          Purchase of transportation contract rights .........................           (1,660)          (80,532)          (49,667)
          Due from affiliates ................................................         (697,925)         (158,528)           15,000
          Notes receivable ...................................................         (314,515)        1,673,967            27,557
          Marketable securities and investments ..............................       (1,789,879)          184,352         2,701,688
                                                                                   ------------      ------------      ------------
               Net cash used in investing activities .........................      (44,558,556)      (22,189,087)      (14,834,961)
                                                                                   ------------      ------------      ------------

Cash flows from financing activities:
          Capital contributed from parent company ............................               --                --         6,150,000
          Proceeds of additional borrowings ..................................       42,864,754        18,564,608                --

          Principal payments on borrowings ...................................      (13,532,291)       (1,213,037)       (2,794,651)
          Deferred financing and organization costs ..........................       (3,819,973)          (21,760)          (75,348)
          Other ..............................................................         (557,954)         (229,049)         (115,763)
                                                                                   ------------      ------------      ------------
               Net cash provided by financing activities .....................       24,954,536        17,100,762         3,164,238
                                                                                   ------------      ------------      ------------
Net increase (decrease) in cash and cash equivalents .........................       (3,046,352)      (12,916,554)        1,646,592
Cash and cash equivalents, beginning of year .................................       16,818,889        13,772,537           855,983
                                                                                   ============      ============      ============
Cash and cash equivalents, end of year .......................................     $ 13,772,537      $    855,983      $  2,502,575
                                                                                   ============      ============      ============

Supplemental  disclosures  of cash flow  information:
          Cash paid during the year for:
               Interest ......................................................     $ 15,485,695      $ 18,936,487      $ 20,182,403
               Income taxes ..................................................          408,542           187,292           153,434
                                                                                   ============      ============      ============
Supplemental schedule of noncash investing and
          financing activities:
          Loans incurred for purchase of property, plant and equipment .......     $  6,368,900      $  6,055,359      $  1,225,152
          Liability incurred for contract rights .............................               --                --           415,320
          Transfer of bus from inventory to fixed assets .....................           47,558                --                --
          Additional paid-in capital contributed for
            bondholder consent fees and expenses .............................               --         2,709,591                --
                                                                                   ============      ============      ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-8
<PAGE>

             Atlantic Express Transportation Corp. and Subsidiaries

                   Notes to Consolidated Financial Statements

1. Business

         Atlantic  Express  Transportation  Corp.  ("AETC" or the "Company"),  a
wholly owned subsidiary of Atlantic Express Transportation Group, Inc. ("AETG"),
is one of the  largest  providers  of school  bus  transportation  in the United
States,  providing  services to various  municipalities in New York City, Nassau
County, Suffolk County, Westchester County, Connecticut, Pennsylvania, Missouri,
California  and  New  Jersey.  In  addition  to its  school  bus  transportation
operations, 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 sales of school  buses and  commercial  vehicles  in New Jersey and  various
counties in New York.

2. 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.

         Revenue Recognition

         Transportation  Operations-  Revenues are recognized  when services are
performed.

         Bus  Sales  Operations-  Revenues  are  recognized  when  vehicles  are
delivered to customers.

         Property, Plant and Equipment

         Property,  plant  and  equipment  are  stated  at cost and  depreciated
utilizing 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:

                                                                  Years
                                                                  -----
         Building and improvements......................         15-31.5
         Transportation equipment.......................          5-15
         Other..........................................           3-7

         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 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.


                                      F-9
<PAGE>

         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

         Transportation  contract  rights  primarily  represent  the  value  the
Company  assigns to the excess of cost of investments in school bus companies in
excess of the book value of these  companies.  In addition,  AETC has  purchased
from unrelated third parties certain transportation contract rights with respect
to revenue  contracts  and travel  routes.  These costs are  amortized  over the
lesser of the expected  life of the contracts or 12 years.  The Company  reviews
the value assigned to  transportation  contract  rights annually to determine if
they have been impaired in value.  The amount of any impairment would be charged
against  income.  Accumulated  amortization  at  June  30,  1999  and  2000  was
$2,589,848 and $3,111,186, respectively.

         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.  The Company reviews the value assigned to
the above  mentioned  assets annually to determine if they have been impaired in
value. The amount of any impairment would be charged against income. Accumulated
amortization   at  June  30,  1999  and  2000  was  $4,703,403  and  $6,791,040,
respectively.

         Insurance Reserves

         Insurance reserves of $7,523,529 and $5,001,336 as of June 30, 1999 and
2000,  respectively,  represents  claim reserves  liabilities  for the Company's
self-insurance  programs.  Until  December  31,  1998,  the  Company  maintained
self-insurance  programs for auto liability and workers  compensation claims for
the first $250,000 of any one  occurrence.  In addition,  the Company  purchased
aggregate and specific stop loss  insurance.  On December 29, 1999,  the Company
re-instated its  self-insurance  program for auto liability claims for the first
$250,000  of  any  one  occurrence   through  Atlantic  North  Casualty  Company
("Atlantic  North") its wholly  owned  captive  insurance  subsidiary.  For this
policy,  Atlantic North's total maximum claims liability ($4.6 million) is fully
funded by premiums  charged to operating  subsidiaries.  The current  portion of
these  liabilities  represents the payments  expected to be made during the next
fiscal year.

         Income Taxes

         AETC  follows  the  liability   method  under  Statement  of  Financial
Accounting  Standards  ("SFAS")  No. 109,  "Accounting  for Income  Taxes".  The
primary  objectives  of  accounting  for  taxes  under  SFAS No.  109 are to (a)
recognize  the amount of tax payable for the current year and (b)  recognize 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,  affiliates 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.

         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  of  assets  and  liabilities,
disclosures  of contingent  assets and  liabilities at the date of the financial
statements


                                      F-10
<PAGE>

and the reported  amount of revenues and expenses  during the reporting  period.
Actual results could differ from those estimates.

         Fair Value of Financial Instruments

         The carrying  value of financial  instruments  including  cash and cash
equivalents,  accounts receivable  including  retainage,  notes receivable,  and
accounts  payable  approximated  fair value as of June 30,  1999 and 2000 due to
either  their 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.  The fair value of the
Company's 10 3/4% Senior Secured Notes is approximately $133 million as compared
to the book carrying value of $150 million.  The fair value is calculated  using
the  quoted  market  price on June 30,  2000.  Although  fair value is less than
carrying value, settlement at the fair value may not be possible.

         Long-Lived Assets

         Long-lived  assets,  such as intangible assets and property,  plant 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. No write-downs have been necessary through June 30, 2000.

         New Accounting Pronouncement

         In April 1998,  the  Accounting  Standards  Executive  Committee of the
American  Institute of Certified Public Accountants issued Statement of Position
98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up Activities".  SOP 98-5 is
effective for fiscal years  beginning  after December 15, 1998. On July 1, 1999,
the Company  adopted SOP 98-5  "Reporting on the Costs of Start-Up  Activities",
and  recorded a $0.3  million  charge the for  cumulative  effect of a change in
accounting principle, net of, benefit from income taxes, for the year ended June
30, 2000.

3. Acquisition of AETG

         On October 27, 1998,  the holders of a majority in principal  amount of
the Company's 10 3/4% Senior  Secured Notes due 2004 (the "Notes")  consented to
an amendment to the  Indenture  (the  "Consent")  relating to the Notes which in
substance exempted the transactions contemplated by a Recapitalization and Stock
Purchase  Agreement (the  "Recapitalization")  from the definition of "Change of
Control"  under the  Indenture.  On  November 4, 1998 the  Recapitalization  was
consummated.  As a result, GSCP II Holdings (AE), LLC, ("Buyer") an affiliate of
Greenwich Street Capital  Partners,  Inc., a New York based private equity fund,
acquired  an  approximately  88% equity  interest  in a  recapitalized  Atlantic
Express  Transportation  Group,  Inc.  ("AETG") which owns all of the issued and
outstanding shares of capital stock of the Company

4. Retainage

         Pursuant to certain  municipal  school bus  contracts  and  paratransit
contracts, certain contractual amounts (retainage) are withheld from billings as
a guarantee  of  performance  by AETC.  At June 30, 1999 and 2000  retainage  of
$3,906,908  and  $4,774,817,  respectively,  is  classified  as  current  and is
included in accounts receivable in the accompanying consolidated balance sheets.
In addition, $1,058,559 of retainage is classified as non-current for the fiscal
years ended June 30, 1999 and 2000.


                                      F-11
<PAGE>

5. Inventories

         Inventories are comprised of the following:

                                                      June 30,
                                             -------------------------
                                                1999          2000
                                             -----------   -----------

    Parts and fuel......................     $ 3,919,018   $ 5,339,198
    Buses held for sale ................      11,296,000     4,940,285
                                             -----------   -----------
                                             $15,215,018   $10,279,483
                                             ===========   ===========

         On August 11, 1999,  after  receiving a fairness  opinion  issued by an
investment bank of national standing,  Central New York Coach Sales and Service,
Inc. and Jersey Bus Sales,  Inc., both wholly owned  subsidiaries of the Company
(collectively   "Central")   entered  into  an  agreement   with   Atlantic  Bus
Distributors,  Inc. ("ABD"), a wholly owned subsidiary of AETG, to order certain
buses through ABD. Central is required to deposit from fifteen to thirty percent
of the  cost of  these  vehicles  simultaneously  with  ABD's  receipt  of these
vehicles  from the  manufacturers  and pay the  balance  to ABD  upon  Central's
delivery  of these  vehicles to its  customers  or within one hundred and twenty
days,  whichever comes first. The purchase price of each bus equals the price at
which  ABD  purchased  such bus  together  with  any  costs  incurred  by ABD in
connection  with the purchase of any such  vehicles.  During the year ended June
30, 2000, total payments made by Central were  $29,281,254.  In addition,  as of
June 30, 2000,  Central was obligated to purchase  $11,189,109  of vehicles from
ABD.

         As of June 30,  2000,  $866,916 of deposits  is  classified  as prepaid
expenses.

6. Cash and Cash Equivalents

         Included in cash and cash  equivalents  is $658,001 and  $1,739,235  at
June 30, 1999 and 2000,  respectively,  which  represents cash  equivalents of a
captive  insurance  company  subsidiary which are only available for use by that
subsidiary.

7. Property, Plant and Equipment

         Property, plant and equipment consists of the following:

                                                             June 30,
                                                   ----------------------------
                                                       1999            2000
                                                   ------------    ------------
       Land ................................       $  9,824,758    $  9,824,758
       Building and improvements ...........         23,332,818      24,026,731
       Transportation equipment ............        162,802,019     174,995,208
       Machinery and equipment .............         17,711,814      22,019,888
       Furniture and fixtures ..............          3,468,240       3,774,107
                                                   ------------    ------------
                                                    217,139,649     234,640,692
       Less: Accumulated depreciation ......         98,000,822     109,706,621
                                                   ------------    ------------
                                                   $119,138,827    $124,934,071
                                                   ============    ============


                                      F-12
<PAGE>

8. Marketable Securities

         The  amortized   cost  and  estimated  fair  value  of  the  marketable
securities are as follows:

                                                      June 30, 2000
                                           -------------------------------------
                                                          Gross
                                                        Unrealized
                                              Cost      gain (loss)   Fair value
                                           -----------  ----------    ----------

Available-for-sale:
  Equity securities ....................   $4,657,718   $  936,390    $5,594,108
  U.S. Treasury and other
          government debt
          securities ...................    2,646,644      (88,091)    2,558,553
                                           ----------   ----------    ----------
          Total marketable securities ..   $7,304,362   $  848,299    $8,152,661
                                           ==========   ==========    ==========

                                                      June 30, 2000
                                           -------------------------------------
                                                          Gross
                                                        Unrealized
                                              Cost      gain (loss)   Fair value
                                           -----------  ----------    ----------

Available-for-sale:
  Equity securities ....................   $5,711,536   $  974,597    $6,686,133
  U.S. Treasury and other
          government debt
          securities ...................    3,073,894      (48,647)    3,025,247
                                           ----------   ----------    ----------
          Total marketable securities ..   $8,785,430   $  925,950    $9,711,380
                                           ==========   ==========    ==========

         The  above  marketable  securities  are  held  by a  captive  insurance
subsidiary  and are  available  for use only by that  company.  At June 30, 2000
marketable  securities of  approximately  $6.0 million are pledged as collateral
for $3.4 million of letters of credit issued by the captive insurance company.

         While all of the  marketable  securities  are  available for use in the
ordinary  course  of  business  of the  captive  insurance  company  subsidiary,
$1,461,000 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:

                                                             Cost     Fair Value
                                                         ----------   ----------

        2001 .....................................       $  150,877   $  149,695
        2002 .....................................          387,421      381,394
        2004-2008 ................................          685,839      653,284
        2013-2029 ................................        1,422,507    1,374,180
        No maturity date (equity securities) .....        4,657,718    5,594,108
                                                         ----------   ----------
                                                         $7,304,362   $8,152,661
                                                         ==========   ==========

         Net realized  gains on marketable  securities  for the years ended June
30,  1998,  1999  and 2000  amounted  to  $675,000,  $1,213,000  and  $1,221,000
respectively, and are included in revenues of the captive insurance company.


                                      F-13
<PAGE>

9. Debt

         The  following  represents  the debt  outstanding  at June 30, 1999 and
2000.

<TABLE>
<CAPTION>
                                                                                             June 30,
                                                                                ----------------------------------
                                                                                     1999                 2000
                                                                                --------------      --------------
<S>                                                                             <C>                 <C>
        10 3/4%   Senior Secured Notes, due February 2004, with
                  interest payable on February 1 and August 1
                  annually (a)..............................................    $  150,000,000      $  150,000,000
        8% mortgage on real estate located in Chittenango, New
                  York, due July 1, 2002 (b)................................           681,463             650,694
        8% mortgage on real estate located in Bordentown, New
                  Jersey, due July 1, 2002 (b)..............................         1,376,853           1,314,686
        Revolving line of credit (c)........................................        20,029,362          18,744,362
        Various notes payable primarily secured by
                  transportation equipment, with interest rates
                  ranging from 8%-9.3%......................................         9,244,942           9,468,699
                                                                                --------------      --------------
                                                                                   181,332,620         180,178,441
        Less: Current portion...............................................        21,411,180           1,907,563
                                                                                --------------      --------------
                                                                                $  159,921,440      $  178,270,878
                                                                                --------------      --------------
</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.

         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 in the year ended June 30, 1998.

(b)      In connection  with the acquisition of Central New York Coach Sales and
         Services,  Inc. and Jersey Bus Sales,  Inc.  and related real  property
         (collectively  "Central"),  AETC purchased  from Mr.  Denney,  a former
         shareholder of Central,  the real properties of Central which served as
         their  primary  operating  facilities  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.

         In November 1999, the revolving  credit  facility,  scheduled to expire
         February  3, 2000,  was  extended  for an  additional  two years  until
         February  3,  2002.  The  interest  rate per  annum  applicable  to the
         revolving  credit  facility is either the prime rate,  as  announced by
         CoreStates


                                      F-14
<PAGE>

         Bank N.A., (8.0% and 9.5% at June 30, 1999 and 2000, respectively) plus
         0.75% and  0.50% as of June 30,  1999 and  2000,  respectively,  or, at
         AETC's option, the adjusted  Eurodollar rate (as defined) plus 2.7% and
         2.5% as of June 30,  1999 and 2000,  respectively.  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, 2000, are
as follows:

                                                           Total
                                                        ------------

         2001 ..................................        $  1,907,563
         2002 ..................................          21,342,920
         2003 ..................................           3,067,526
         2004 ..................................         151,786,245
         2005 ..................................           1,191,773
         Thereafter ............................             882,414
                                                        ------------
                 Total .........................        $180,178,441
                                                        ============

10. Income Taxes

         The provisions (benefits) for income taxes consist of the following:

                                              Years ended June 30,
                                  -----------------------------------------
                                      1998           1999          2000
                                  -----------    -----------    -----------
         Current:
                Federal .......   $  (900,000)   $        --    $        --
                State and local       163,000             --             --
                                  -----------    -----------    -----------
                                     (737,000)            --             --
           Deferred taxes .....    (2,487,000)    (1,848,981)    (1,332,625)
                                  -----------    -----------    -----------
                                  $(3,224,000)   $(1,848,981)   $(1,625,625)
                                  ===========    ===========    ===========

         Deferred tax assets/(liabilities) are comprised of the following:

                                                       June 30,
                                           ----------------------------
                                                1999             2000
                                           ------------    ------------
Deferred tax assets:
     Allowance for doubtful  receivables   $    737,939    $    769,050
     Loss and tax credit carryforwards .     21,256,033      30,976,365
     Contract rights and other .........        770,754       1,019,555
                                           ------------    ------------
                                             22,764,726      32,764,970
                                           ------------    ------------

Deferred tax liabilities:
     Depreciation ......................    (18,351,223)    (26,750,255)
     Goodwill amortization .............       (477,522)       (746,109)
                                           ------------    ------------
                                            (18,828,745)    (27,496,364)
                                           ------------    ------------
Deferred tax assets (net) ..............   $  3,935,981    $  5,268,606
                                           ============    ============

         The actual tax expense  (benefit) differs from the tax expense computed
by applying the U.S. corporate rate of 34% as follows:


                                      F-15
<PAGE>

<TABLE>
<CAPTION>
                                                                        Years ended June 30,
                                                             -----------------------------------------
                                                                1998            1999           2000
                                                             -----------    -----------    -----------
     <S>                                                          <C>            <C>            <C>
     Tax benefit at statutory rate .......................   $(3,517,000)   $(1,397,008)   $(1,737,929)

     Write-down of note receivable from Affiliate ........     1,569,000             --             --

     State and local tax benefit .........................    (1,293,000)      (451,973)      (562,271)
     Valuation reserve for tax credit carryforward Amounts            --             --
                                                                                               967,575
     Other ...............................................        17,000             --             --
                                                             -----------    -----------    -----------
     Actual tax benefit ..................................   $(3,224,000)   $(1,848,981)   $(1,332,625)
                                                             ===========    ===========    ===========
</TABLE>

         For tax  purposes,  the Company had  available,  at June 30, 2000,  net
operating loss ("NOL")  carryforwards  for regular  federal and state income tax
purposes  of  approximately  $66  million,  which  expire  during the years 2011
through 2020. In conjunction  with the Alternate  Minimum Tax ("AMT") rules, the
Company had available AMT credit carryforwards for tax purposes of approximately
$1.3 million,  which may be used  indefinitely  to reduce regular federal income
taxes.

         At  June  30,  1999  and  2000,  net  future  tax  deductions  and  NOL
carryforwards  comprised  the  federal  and state net  deferred  tax asset.  The
Company  believes  that  it is  more  likely  than  not  that  all  of  the  NOL
carryforwards  will be utilized prior to their expiration.  This belief is based
upon  the  Company's  estimate  of  future  earnings,  the  inclusion  with  the
consolidated  return  of  its  parent  and  the  expected  timing  of  temporary
difference reversal.

11. Nonrecurring Charges

         In November  1998, the  stockholders  of AETG paid $2.7 million of fees
and expenses in connection  with the Amendment to the Indenture  (see Note 3) of
which  approximately  $1.5 million of bondholder consent fees have been recorded
as deferred  financing expenses and approximately $1.2 million has been recorded
as a  non-recurring  charge with a  corresponding  $2.7 million  contribution to
additional paid-in capital.

         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 made to the various subsidiaries of AETG prior to the formation of AETC as
a separate entity. During the last quarter of fiscal 1998, certain affiliates of
AETG engaged in the entertainment  business  suffered a precipitous  decline and
AETC  recorded a $4.6  million  non-recurring  charge and wrote the note down to
$510,000 (which balance was collected in full in November 1998).

12. Related Party Transactions

         AETC had  amounts due from AETG of  $831,117  and  $816,117 at June 30,
1999 and 2000, respectively. During the years ended June 30, 1999 and 2000, AETC
received  management  fee  income  from  affiliated  companies  of  $44,010  and
$459,900,  respectively,  and paid  advisory  fees to an  affiliate of the major
stockholder  of $328,333  and  $458,000,  respectively.  No  management  fees or
advisory fees were charged or received  from related  parties for the year ended
June 30,  1998.  AETC  incurred  rent  expense of $228,000 for each of the years
ended June 30,  1998 and 1999 and  $232,200  for the year ended June 30, 2000 in
connection with leases of real property from affiliate companies.

13. Commitments and Contingencies

         Leases

         Minimum  rental  commitments  as of June 30,  2000  for  noncancellable
equipment and real property operating leases are as follows:


                                      F-16
<PAGE>

                                            Year ended June 30, 1999
                                  ---------------------------------------------
                                                  Transportation
                                                     and other
                                  Real property      equipment         Total
                                  -------------   --------------    -----------
        2001 ..................    $ 2,606,672      $ 1,886,376    $ 4,493,048
        2002 ..................      1,811,614        1,684,228      3,495,842
        2003 ..................      1,468,228        1,148,105      2,616,333
        2004 ..................      1,203,281          441,024      1,644,305
        2005 ..................        916,619          353,199      1,269,818
        Thereafter ............      3,430,443          134,380      3,564,823
                                   -----------      -----------    -----------
                                   $11,436,857      $ 5,647,312    $17,084,169
                                   ===========      ===========    ===========


         During the year ended June 30,  2000,  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 of operations  were  $4,932,881,
$5,034,230  and  $4,913,801  for the years ended June 30,  1998,  1999 and 2000,
respectively.

         Litigation

         In April  2000,  AETG and the Company  settled  their  litigation  with
National Express Group, PLC. In connection therewith, the Company has recorded a
credit of $4.8 million to general and  administrative  expenses  during the year
ended June 30, 2000.

         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 position or results of operations of AETC.

         Outstanding Letters of Credit

         Letters of credit  totaling  approximately  $3,690,000  and  $3,620,000
(including  $3.4 million issued by the captive  insurance  company) (see Note 8)
were  outstanding  as of June 30,  1999 and 2000,  respectively.  The letters of
credit serve primarily as security in connection with financial obligations.

         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, 2000, AETC has provided performance bonds
aggregating approximately $60 million.

14. 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  $96,000,  $164,000  and $282,000 for the years
ended June 30, 1998, 1999 and 2000, 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


                                      F-17
<PAGE>

approximately $150,000,  $108,000 and $95,000 for the years ended June 30, 1998,
1999 and 2000, 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 the Deferred  Compensation  Plan.  AETC's
contribution was approximately $100,000 for the years ended June 30, 1998, 1999,
respectively and $130,000 for the year ended June 30, 2000.

15. Major Customer and Concentration of Credit Risk

         For the years ended June 30, 1998, 1999 and 2000 revenues  derived from
the New York Board of Education  were  approximately  42.9%,  39.5% and 39.4% of
total Transportation Operations revenues,  respectively. As of June 30, 1999 and
2000,  AETC had accounts  receivable  including  retainage from this customer of
$12,173,087and $13,893,354, respectively.

         At June 30, 1999 and 2000,  substantially all cash and cash equivalents
were on deposit with one major financial institution.

16. Sale of Subsidiaries

         Effective April 1, 1999, the Company sold five  subsidiaries,  acquired
during the second  quarter of fiscal 1999,  to an affiliate for a price equal to
its original  investment in these subsidiaries plus their net earnings since the
dates of  acquisition.  In  addition  to the sales  price of $7.5  million,  the
Company  was  repaid  $2.8  million  of  inter-company  advances  made to  these
subsidiaries. The gross proceeds ($10.3 million) were received on April 28, 1999
and used to reduce borrowings under the Company's Revolving Line of Credit.

17. Subsequent Event

         In September  2000,  the New York City Board of Education (the "Board")
extended all of the Company's  contracts  with the Board for an additional  five
years ending June 30, 2005. These contracts  represented  approximately 39.4% of
the Transportation Operations revenues for the fiscal year ended June 30, 2000.


                                      F-18
<PAGE>

18. Segment Information

         AETC's business is comprised of Transportation Operations and Bus Sales
Operations  conducted  in various  states  throughout  the U.S.  The  summarized
segment information,  as of and for the years ended June 30, 2000, 1999 and 1998
are as follows:

<TABLE>
<CAPTION>
                                                                               Year ended June 30, 2000
                                                                 -----------------------------------------------
                                                                 Transportation     Bus Sales
                                                                   Operations       Operations         Total
                                                                 --------------    ------------    -------------
<S>                                                              <C>               <C>             <C>
     Revenues.................................................   $ 268,402,709     $ 85,078,295    $ 353,481,004
     Cost of operations ......................................     223,558,726       77,454,772      301,013,498
     Income from operations ..................................      15,380,385        2,832,370       18,212,755
     Loss before non-recurring items,
             benefit from income taxes and cumulative
             effect of a change in accounting
             principle .......................................      (4,367,179)        (197,991)      (4,565,170)
     Total assets ............................................     199,372,247       34,439,917      233,812,164
     Capital Expenditures ....................................      19,774,321          346,836       20,121,157
     Depreciation and amortization ...........................      13,060,602          854,798       13,915,400
</TABLE>

<TABLE>
<CAPTION>
                                                                               Year ended June 30, 1999
                                                                 -----------------------------------------------
                                                                 Transportation     Bus Sales
                                                                   Operations       Operations         Total
                                                                 --------------    ------------    -------------
<S>                                                              <C>               <C>             <C>
     Revenues.................................................   $ 239,784,127     $ 81,739,086    $ 321,523,213
     Cost of operations.......................................     195,760,472       73,845,585      269,606,057
     Income from operations...................................      14,344,445        3,316,424       17,660,869
     Income (loss) before non-recurring
             items, benefit from income taxes
             and cumulative effect of a change in
             accounting principle.............................      (3,779,985)         894,299       (2,885,686)
     Total assets.............................................     191,119,124       40,392,815      231,511,939
     Capital Expenditures.....................................      29,248,258          615,447       29,863,705
     Depreciation and amortization............................      11,517,323          837,405       12,354,728
</TABLE>

<TABLE>
<CAPTION>
                                                                               Year ended June 30, 1998
                                                                 -----------------------------------------------
                                                                 Transportation     Bus Sales
                                                                   Operations       Operations         Total
                                                                 --------------    ------------    -------------
<S>                                                              <C>               <C>             <C>
     Revenues ................................................    $ 203,073,256    $  58,844,938    261,918,194
     Cost of operations ......................................      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>


                                      F-19
<PAGE>

19. Supplemental Financial Information

         The following are condensed  consolidating  financial  statements as of
June 30, 2000,  1999 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 9(a)).

                      Condensed Consolidating Balance Sheet

                                  June 30, 2000

<TABLE>
<CAPTION>
                                          Atlantic
                                           Express                              Non-
                                        Transportation       Guarantor        Guarantor           Elimination
                                            Corp.          Subsidiaries      Subsidiaries           Entries           Consolidated
                                       ---------------    -------------      -------------       -------------       --------------
<S>                                    <C>                <C>                  <C>               <C>                 <C>
Current assets ....................    $   5,460,699      $  62,668,334        $ 3,257,092       $          --       $  71,386,125
Investment in affiliates ..........       55,601,639                 --                 --         (55,601,639)                 --
Total assets ......................      216,113,405        206,708,073         10,209,264        (199,218,578)        233,812,164
Current liabilities ...............        6,949,572         19,691,884          3,208,001                  --          29,849,457
Total liabilities .................      182,396,073        168,566,252          5,819,797        (146,087,520)        210,694,602
Stockholder's equity ..............       33,717,332         38,141,821          4,389,467         (53,131,058)         23,117,562
</TABLE>

                 Condensed Consolidating Statement of Operations

                            Year ended June 30, 2000

<TABLE>
<CAPTION>
                                                    Atlantic
                                                     Express                            Non-
                                                 Transportation      Guarantor        Guarantor    Elimination
                                                      Corp.        Subsidiaries      Subsidiaries     Entries        Consolidated
                                                 --------------    -------------    -------------  ------------     -------------

<S>                                              <C>               <C>              <C>            <C>              <C>
Net revenues ..............................      $        --       $ 352,028,432    $ 3,452,288    $ (1,999,716)    $ 353,481,004
Income from operations ....................        3,345,000          14,066,602        801,153              --        18,212,755
Income (loss) before nonrecurring
     items, benefit from income
     taxes and cumulative effect of
     a change in accounting
     principle ............................        3,345,000          (8,711,323)       801,153              --        (4,565,170)
Cumulative effect of a change in
     accounting principle, net of
     benefit from income taxes ............               --            (300,511)            --              --          (300,511)
Net income (loss) of subsidiaries .........        4,651,104                  --             --      (4,651,104)               --
Net income (loss) .........................       (3,778,929)         (5,091,738)       440,634       4,651,104        (3,778,929)
</TABLE>

                 Condensed Consolidating Statement of Cash Flows

                            Year ended June 30, 2000

<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 ..................    $ (3,422,794)    $ 18,360,797   $ (1,620,688)     $    --    $ 13,317,315
Net cash provided by (used in)
     investing activities ..................        (852,309)     (16,684,340)     2,701,688           --     (14,834,961)
Net cash provided by (used in)
     financing activities ..................       4,749,237       (1,584,999)            --           --       3,164,238
Increase in cash and cash
     equivalents ...........................         474,134           91,458      1,081,000           --       1,646,592
Cash and cash equivalents,
     beginning of period ...................        (324,134)         522,117        658,000           --         855,983
                                                ------------     ------------   ------------      -------    ------------
Cash and cash equivalents,
     end of period .........................         150,000          613,575      1,739,000           --    $  2,502,575
</TABLE>


                                      F-20
<PAGE>

                      Condensed Consolidating Balance Sheet

                                  June 30, 1999

<TABLE>
<CAPTION>
                                             Atlantic
                                              Express                       Non-
                                          Transportation    Guarantor     Guarantor      Elimination
                                               Corp.       Subsidiaries  Subsidiaries      Entries      Consolidated
                                          --------------  -------------  ------------   -------------   -------------
<S>                                       <C>             <C>            <C>            <C>             <C>
Current assets .....................      $   1,220,437   $  68,829,160  $  4,554,389   $          --   $  74,603,986
Investment in affiliates ...........         60,330,394              --            --     (60,330,394)             --
Total assets .......................        208,820,247     204,637,409    12,596,989    (194,542,706)    231,511,939
Current liabilities ................         22,655,804      18,583,172     5,400,939              --      46,639,915
Total liabilities ..................        171,016,512     161,403,850     8,570,505    (130,418,833)    210,572,034
Stockholder's equity ...............         37,803,735      43,233,559     4,026,484     (64,123,873)     20,939,905
</TABLE>

                 Condensed Consolidating Statement of Operations

                            Year ended June 30, 1999

<TABLE>
<CAPTION>
                                                  Atlantic
                                                   Express                         Non-
                                               Transportation   Guarantor        Guarantor      Elimination
                                                    Corp.       Subsidiaries    Subsidiaries      Entries       Consolidated
                                               --------------  -------------   -------------   -------------    -------------

<S>                                            <C>             <C>             <C>             <C>              <C>
Net revenues ..............................    $         --    $ 319,991,879   $ 4,616,870     $  (3,085,536)   $ 321,523,213
Income (loss) from operations .............      (1,010,769)      17,726,397       945,241                --       17,660,869
Income (loss) before nonrecurring
     items, benefit from income
     taxes and cumulative effect of
     a change in accounting
     principle ............................      (1,367,762)      (2,425,273)      937,349                --       (2,885,686)
Recapitalization expense ..................      (1,223,161)              --            --                --       (1,223,161)
Net loss of subsidiaries ..................      (1,000,374)              --            --         1,000,374               --
Net income (loss) .........................      (2,259,866)      (1,515,916)      515,542         1,000,374       (2,259,866)

</TABLE>

                 Condensed Consolidating Statement of Cash Flows

                            Year ended June 30, 1999
<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 ................     $(25,481,355)     $ 19,749,641      $ (2,096,515)     $       --          (7,828,229)
Net cash provided by (used in)
     investing activities ................          (89,488)      (22,029,071)          (70,528)             --         (22,189,087)
Net cash provided by (used in)
     financing activities ................       18,313,799        (1,213,037)               --              --          17,100,762
Decrease in cash and cash
     equivalents .........................       (7,257,044)       (3,492,467)       (2,167,043)             --         (12,916,554)
Cash and cash equivalents,
     beginning of period .................        6,932,910         4,014,584         2,825,043              --          13,772,537
                                               ------------      ------------      ------------      ----------          ----------
Cash and cash equivalents,
     end of period .......................         (324,134)          522,117           658,000              --             855,983

</TABLE>

                                      F-21
<PAGE>

                 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, benefit
     from income taxes and
     cumulative effect of a
     change in accounting principle..               --        (5,606,359)       (124,428)              --         (5,730,787)
Write down of note 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 (decrease) 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-22
<PAGE>

                      Atlantic Express Transportation Corp.
                Schedule II - - Valuation and Qualifying Accounts
                For the Years ended June 30, 1998, 1999 and 2000
<TABLE>
<CAPTION>
                                                                                          Net
                                                     Balance at                       Write-offs      Balance at
                                                      Beginning         Charges       Charged to        End of
                                                      of Period        to Income       Allowance        Period
                                                     ----------       ----------      ----------      ----------
<S>                                                   <C>              <C>             <C>             <C>
Year ended June 30, 1998:
     allowance for doubtful accounts ...........      $  250,000       $2,244,000      $974,000        $1,520,000
Year ended June 30, 1999:
     allowance for doubtful accounts ...........       1,520,000          120,000            --         1,640,000
Year ended June 30, 2000:
     allowance for doubtful accounts ...........       1,640,000          120,000        51,000         1,709,000
</TABLE>

                                      F-23
<PAGE>

                                  EXHIBIT INDEX

    Exhibit
    Number                       Description                                Page
    ------                       -----------                                ----

    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  (filed  as  exhibit  10.2.1 to the
            Company's  Annual  Report on Form 10-K for the year  ended
            June 30, 1998 and incorporated herein by reference).......

    10.2.2  Second  Amendment  dated  as of May 28,  1999 to Loan  and
            Security   Agreement  by  and  among  Congress   Financial
            Corporation,   certain  subsidiaries  of  the  Company  as
            borrowers  and the Company as guarantor  (filed as exhibit
            10.2.2 to the Company's Annual Report on Form 10-K for the
            year  ended  June 30,  1999  and  incorporated  herein  by
            reference)................................................

    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 then  ended  June 30,  1997 and  incorporated
            herein by reference)......................................

    10.4    Collateral  Assignment of Trademarks  (Security Agreement)
            dated as of  February  7, 1997  between  the  Company  and
            Congress Financial (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    Amended  and  Restated  Employment  Agreement  dated as of
            November 4, 1998 among the Company, AETG and Domenic Gatto
            (filed as exhibit 10.5 to the  Company's  Annual Report on
            Form  10-K  for  the  year   ended   June  30,   1999  and
            incorporated herein by reference).........................

    10.8    Amended  and  Restated  Employment  Agreement  dated as of
            November  4,  1998  among  the  Company,  AETG and  Nathan
            Schlenker  (filed as exhibit 10.8 to the Company's  Annual
            Report on Form 10-K for the year ended  June 30,  1999 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)................................................

    10.11   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.................
<PAGE>

    Exhibit
    Number                       Description                                Page
    ------                       -----------                                ----

    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  (filed as
            exhibit 10.21 to the Company's  Annual Report on Form 10-K
            for the year ended June 30, 1998 and  incorporated  herein
            by reference).............................................

    10.22   Second  Amendment to the Security  Agreement,  dated as of
            December 12, 1997 among the Company,  the  Guarantors  (as
            defined  therein)  and  in  favor  of  Congress  Financial
            Corporation  (filed  as  exhibit  10.22  to the  Company's
            Annual  Report  on Form 10-K for the year  ended  June 30,
            1999 and incorporated herein by reference)................

    10.23   Third  Supplemental  Indenture,  dated as of  October  28,
            1998,  among  the  Company,  the  Guarantors  (as  defined
            therein)  and The Bank of New York,  as trustee  (filed as
            exhibit 1.1 to the  Company's  Current  Report on Form 8-K
            filed  November  10,  1998  and  incorporated   herein  by
            reference)................................................
<PAGE>

    Exhibit
    Number                       Description                                Page
    ------                       -----------                                ----
    10.24   Fourth Supplemental Indenture, dated as of April 28, 1999,
            among the Company, the Guarantors (as defined therein) and
            The Bank of New York,  as trustee  (filed as exhibit 10.24
            to the  Company's  Annual Report on Form 10-K for the year
            ended   June  30,   1999  and   incorporated   herein   by
            reference)................................................

    10.25   Third  Amendment  to the Security  Agreement,  dated as of
            April 28,  1999  among the  Company,  the  Guarantors  (as
            defined  therein)  and  in  favor  of  Congress  Financial
            Corporation  (filed  as  exhibit  10.25  to the  Company's
            Annual  Report  on Form 10-K for the year  ended  June 30,
            1999 and incorporated herein by reference)...............

    10.26   Note  Purchase  Agreement  dated October 2, 1998 among the
            Company,  Domenic  Gatto,  Michael Gatto and Patrick Gatto
            (filed as exhibit 10.26 to the Company's  Annual Report on
            Form  10-K  for  the  year   ended   June  30,   1999  and
            incorporated herein by reference).........................

    10.27   Accounts  Purchase and Sale  Agreement  dated June 8, 1999
            among the  Company,  the Sellers (as defined  therein) and
            Congress Financial  Corporation (filed as Exhibit 10.27 to
            the  Company's  Annual  Report  on Form  10-K for the year
            ended   June  30,   1999  and   incorporated   herein   by
            reference)................................................

    10.28   Third  Amendment  dated  January  25,  2000  to  Loan  and
            Security   Agreement  by  and  among  Congress   Financial
            Corporation,   certain  subsidiaries  of  the  Company  as
            borrowers  and the Company as Guarantor  (filed as exhibit
            10.1 to the  Company's  Quarterly  Report on Form 10-Q for
            the period ended December 31, 1999 and incorporated herein
            by reference).............................................

    10.29   First  Amendment  dated as of January 25, 2000 to Accounts
            Purchase  and Sales  Agreement  among  Congress  Financial
            Corporation,  the Company and certain  subsidiaries of the
            Company as sellers (filed as exhibit 10.2 to the Company's
            Quarterly  Report  on  Form  10-Q  for  the  period  ended
            December   31,   1999   and    incorporated    herein   by
            reference)................................................

    10.30*  Extension  and Ninth  Amendment  of  Contract  of  General
            Education  Pupils,  dated September 7, 2000 by and between
            The Board of  Education  of the City of New York and Amboy
            Bus Co., Inc..............................................

    10.31*  Extension  and  Eleventh  Amendment of Contract of Special
            Education  Pupil  Transportation  Services,  dated  as  of
            September 7, 2000 by and between The Board of Education of
            the City of New York, Amboy Bus Co., Inc and Staten Island
            Bus Co., Inc..............................................

    10.32*  Employment  Agreement  dated as of July 19, 2000 among the
            Company, AETG and Nathan Schlenker........................

    16      Letter  from  BDO  Seidman  LLP,  the   Company's   former
            independent accountants,  dated as of June 17, 1999 (filed
            as exhibit 16 to the Company's  Current Report of Form 8-K
            filed  June  28,   1999,   and   incorporated   herein  by
            reference)................................................

    21      Subsidiaries  of the  Company  (filed as exhibit 21 to the
            Company's  Annual  Report on Form 10-K for the year  ended
            June 30, 1999 and incorporated herein by reference).......

    27*     Financial Data Schedule...................................

*Filed with this Form 10K