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The following Management Discussion and Analysis of the Financial Condition and Results of Operations of Student Transportation of America Ltd., is supplemental to, and should be read in conjunction with, the financial statements and footnotes for the period ended March 31, 2007. These financial statements can be found on SEDAR at www.sedar.com. Student Transportation of America Ltd.’s financial statements are prepared in accordance with accounting principles generally accepted in Canada (“”GAAP””). The information in this Management’s Discussion and Analysis of the Financial Condition and Results of Operations is effective May 10, 2007. Additional information about, and the Annual Information Form filed by, Student Transportation of America Ltd., is available on SEDAR at www.sedar.com.

General

Student Transportation of America Ltd. (“”STA”” or the “”Company””) is a corporation established under the laws of the Province of Ontario. STA was incorporated on September 22, 2004 and, for the period from September 22, 2004 to December 21, 2004, was inactive. STA together with its indirect subsidiary Student Transportation of America ULC (“”STA ULC”” and together with STA, the “”Issuer””), completed an Initial Public Offering (the “”IPS Offering””) on December 21, 2004 through the issuance of 11,604,140 income participating securities (“”IPSs””). Each IPS consisted of one common share of STA and Cdn. $3.847 principal amount of 14% subordinated notes of STA ULC (the “”Subordinated Notes””). Simultaneous to the IPS Offering, STA ULC issued, on a private placement basis, separate 14% subordinated notes (the “”Separate Subordinated Notes”” and together with the Subordinated Notes, the “”Notes””) and the Issuer, through a subsidiary, entered into a bank credit facility with a group of lenders (together with the IPS Offering, the “”IPS Transactions””). On January 7, 2005, the underwriters of the Company’s IPS Offering exercised an overallotment option granted in connection with the IPS Offering. As part of the exercise of the overallotment option, the Issuer completed a subsequent issuance of 1,160,414 IPSs. STA and STA ULC used the net proceeds from the IPO Offering combined with the exercise of the overallotment option to purchase 100% of the Class A common shares and 100% of the preferred shares of Student Transportation of America Holdings, Inc. (“”STA Holdings””), respectively. Certain existing investors in STA Inc. (the “”Existing Investors””) retained 100% of the Class B common shares of STA Holdings (the “”Class B – Series One”” common shares) at the time of the IPS Offering.

On October 25, 2005, the Issuer sold 3,100,000 IPSs pursuant to a bought deal private placement transaction with a syndicate of underwriters (the “”Private Placement””). The net proceeds (after commissions and fees) were used entirely to pay down debt on the credit facility, including the acquisition lines then outstanding and a portion of the term loan under the credit facility. On June 14, 2006, the Issuer sold 4,900,000 IPSs pursuant to a bought deal basis with a syndicate of underwriters (the “”Bought Deal””). The net proceeds (after commissions and fees) were used to pay down existing debt on the acquisition and revolving lines of the credit facility, to fund investment requirements for new bid and contract awards for the 2006-2007 school year and for general corporate purposes. Each IPS unit consisted of one common share of STA and Cdn $3.847 principal amount of 14% Subordinated Notes of STA ULC.

At any time after the 45th day following the date of original issuance or upon the occurrence of a change of control of STA ULC, holders of IPSs may separate their IPSs into the common shares and Subordinated Notes represented thereby through their broker or other financial institution. Similarly, any holder of common shares and Subordinated Notes may recombine the applicable number of common shares and principal amount of Subordinated Notes to form IPSs through their broker or other financial institution, at any time. The IPSs will be automatically separated into the common shares and Subordinated Notes upon the occurrence of any of the following: (i) with respect to any holder of IPSs, acceptance by such holder of STA ULC’s offer to repurchase the Subordinated Notes represented by that holder’s IPSs in connection with a change of control of STA or STA ULC; (ii) exercise by STA ULC of its right to redeem all or a portion of the Subordinated Notes which may be represented by IPSs at the time of such redemption; (iii) the date on which the outstanding principal amount of the Subordinated Notes becomes due and payable, whether at the stated maturity date or upon acceleration thereof; (iv) if The Canadian Depository for Securities Limited is unwilling or unable to continue as securities depository with respect to the IPSs and the Issuer is unable to find a successor depository; or (v) the continuance (without cure) of a payment default on the Subordinated Notes for 90 days.

On October 3, 2006, the common shares and Subordinated Notes represented by the IPSs were listed and posted for trading separately on the Toronto Stock Exchange (“”TSX””) pursuant to TSX approval. The IPSs continue to be listed and posted for trading on the TSX.

The holders of the Class B common shares are entitled to receive dividends, as and when declared by the board of directors of STA Holdings, approximately equivalent to the distributions per IPS received by the holders of IPS’s. The Class B – Series One common shares held by the Existing Investors had the right (the “”Negotiation Right””), exercisable at any time subsequent to the second anniversary of the IPS Offering, to request the Company to enter into good faith negotiations to purchase the Class B – Series One common shares held by the Existing Investors. Subsequent to the second anniversary of the IPS Offering, the dividend on the Class B – Series One common shares held by the Existing Investors would increase by 10% (such enhanced dividend entitlement to the Existing Investors is referred to as the “”Enhanced Dividend””). The terms of the Class B – Series One common shares provided the Company with the right (the “”Redemption Right””) exercisable at any time following the second anniversary of the IPS Offering to purchase for cancellation the outstanding Class B – Series One common shares.
The Company repurchased for cancellation all of the Class B – Series One common shares on December 22, 2006. The repurchase of the Class B – Series One common shares lowers the Company’s cash payment requirements by effectively eliminating the Enhanced Dividend that would have come into effect subsequent to the second anniversary of the IPS Offering. In addition, the repurchase and cancellation of the Class B – Series One common shares represented a reduction in minority interest to the Company. The repurchase of the Class B – Series One shares is deemed to be a step acquisition to the original IPS Offering transaction. The Company paid approximately $8.6 million, based on a negotiation with the Existing Investors for the repurchase of these shares which resulted in a $2.4 million increase to goodwill as at March 31, 2007.

On December 8, 2005, the shareholders of the Company approved the adoption by STA Holdings of the STA Holdings Equity Incentive Plan (“”EIP””). A maximum of 717,747 Class B – Series Two common shares are available for issuance in connection with grants of awards under the EIP. During the 2006 fiscal year, STA Holdings granted 133,549 Class B – Series Two common shares pursuant to the EIP. In connection with these grants of shares under the EIP during the 2006 fiscal year, an aggregate 27,165 shares were withheld at the election of the Participants to satisfy required tax withholdings on these grants. As such, 106,384 shares related to these grants remained outstanding as at June 30, 2006.

On July 12, 2006 and August 24, 2006, STA Holdings granted 151,740 and 138,333, Class B – Series Two common shares, respectively, pursuant to the EIP. The Company recognized $1.9 million in non-cash stock based compensation expense related to these grants during the 2007 fiscal year first quarter ended September 30, 2006. While the August 24, 2006 share grants were in respect of the achievements of management during the 2006 fiscal year, the related compensation expense was recognized in the period in which the shares were granted pursuant to accounting rules. The issuance of Class B – Series Two common shares represented additional minority interest to the Company. In connection with these grants during the third quarter of fiscal year 2007 under the EIP, an aggregate 50,760 shares were withheld at the election of the Participants to satisfy required tax withholdings on these grants. No grants under the EIP were made during the 2007 fiscal year third quarter ended March 31, 2007. As such, and combined with the shares outstanding as at June 30, 2006, 345,697 shares of Class B – Series Two common shares remained outstanding as at March 31, 2007.

On December 14, 2006, the Company entered into a new amended and restated credit agreement and issued new senior secured notes pursuant to a private placement, which rank pari-passu with the new amended and restated credit agreement. On December 22, 2006, the Company repurchased for cancellation all of the Class B – Series One common shares of STA Holdings. Net proceeds from the initial borrowings under the new amended and restated credit agreement and the issuance of the new senior secured notes were used to repay all outstanding amounts under the existing credit agreement (including accrued and unpaid interest) and fund the repurchase of the Class B – Series One common shares of STA Holdings (including accrued and unpaid dividends to the date of repurchase).

On December 15, 2006, the Issuer received approval from the TSX to make a normal course issuer bid in accordance with the requirements of the exchange for a portion of its IPSs as appropriate opportunities arise from time to time. Pursuant to the normal course issuer bid for IPSs, the Company intends to acquire up to 400,000 IPSs in the 12-month period commencing December 15, 2006 and ending on December 15, 2007; provided however, that in no event shall purchases under the IPS bid and the Notes bid (described below) exceed $5.0 million. STA intends to fund the purchase of any IPSs and/or Notes either through borrowings on its new credit facility or out of available cash. Any purchase of IPSs and/or Notes will be made at market prices and the IPSs and/or Notes will be cancelled upon their purchase by the Company. During the period from December 15, 2006 through March 31, 2007, the Company purchased for cancellation 56,000 IPSs out of available cash. Previously, on October 17, 2006, the Issuer received approval from the TSX to make a normal course issuer bid in accordance with the requirements of the exchange for a portion of its Notes as appropriate opportunities arise from time to time in the 12-month period commencing on October 17, 2006 and ending on October 17, 2007. As at March 31, 2007, no separate purchases of the Notes have been made under the normal course issuer bid. Investors may obtain a copy of the notices filed with the TSX, without charge, by contacting investor relations at [email protected].

On March 29, 2007, STA issued 3,010,000 common shares pursuant to a private placement transaction with a syndicate of underwriters (the “”Common Share Private Placement””). The net proceeds (after commissions and fees) were used entirely to pay down debt on the credit facility, including borrowings used to fund the repurchase of the Class B – Series One common shares of STA Holdings (including accrued and unpaid dividends to the date of repurchase) discussed above and outstanding acquisition borrowings. The common shares issued are equivalent to the common shares included as the equity component of the IPS units.

The Company currently holds a 98.6% interest in STA Holdings as at March 31, 2007 through its ownership of the Class A shares of STA Holdings. STA Holdings, through its wholly owned subsidiary, Student Transportation of America, Inc. (“”STA, Inc.””), is the fifth largest provider of school bus transportation services in North America.

Results of Operations (in 000’s of US$, except per share data)

Summary Table of Financial Results

Seasonality

School bus transportation revenue has historically been seasonal, based on the school calendar and holiday schedule. During the summer school break, revenue is derived primarily from summer camps and private charter services. Since schools are not in session, there is no school bus transportation revenue. Thus, the Company incurs operating losses during the first three months of the fiscal year, which encompasses the summer school break. In addition, the Company purchases a majority of its replacement capital expenditures, along with investment capital spending for new bids and contracts awarded for the upcoming school year in the same time period. These purchases have historically been funded by borrowings on the Company’s credit facility.

Growth

The Company closed one acquisition in late September 2005, two acquisitions in early November 2005, one acquisition in the beginning of March 2006 and four acquisitions (two during fiscal 2007) in the period from April 1, 2006 through March 31, 2007, including the acquisition of Positive Connections, Inc. (“”PCI””) in May 2006. In addition, the Company started operations on four new bid / conversion contracts for the 2007 fiscal year, including a five year contract with the Riverside Unified School District in California (“”Riverside””).

The acquisition of PCI added 400 vehicles and established a new platform for operations and growth in the Midwest, adding six locations within the states of Illinois and Minnesota. The PCI purchase and sale agreement included contingent purchase price payment provisions related to (i) two additional revenue contracts that were bid prior to the close of the PCI acquisition and awarded thereafter for services for the school year commencing in September 2006 and (ii) the renewal of a contract existing prior to the close of the PCI acquisition by the former owner for services for the school year commencing in September 2006. This existing contract was not subsequently renewed by the former owner, and thus $4.6 million in initial contingent purchase price has been eliminated and the preliminary amounts recorded to goodwill and accrued liabilities were reversed. During the first few operating months of the current school year for the PCI terminal locations, the Company experienced higher than anticipated driver costs due to driver shortages and the transition to STA operating procedures. These driver wages are now in expected ranges, and the Company does not expect a recurrence of the higher levels during the beginning operating months of future school years.

The Riverside contract was awarded to the Company as a result of a competitive bid process where the school district replaced the incumbent operator. The Riverside contract adds approximately 180 vehicles to the Company’s existing business in California. During the first few operating months of the current school year, the Company experienced higher than anticipated driver shortages and thus incurred local market wage increases. The driver shortages affected all of the private contractors in the area. The Company has been continually recruiting and training potential drivers during this period. While the driver shortage has improved, the Company continues to experience higher than originally anticipated driver wages resulting from the local market wage increase implemented at the beginning of the current school year. Further, the former operator of the Riverside contract leased a facility which was used to park and maintain the buses associated with the Riverside contract. The former operator vacated the facility in June 2006, but continues to be a party to a lease agreement for the facility. The former operator has refused to entertain any sublease offers from the school district for use of this facility. As such, the Company and the school district are still seeking a parking and maintenance facility for the Riverside buses. In the meantime, the Company continues to outsource the maintenance of the Riverside buses resulting in higher than originally anticipated maintenance costs.

The remaining growth contracts resulting from the acquisitions and bid / conversion wins for the school year that commenced in September 2006 (excluding PCI and Riverside) continue to be in line with Company expectations. Despite the higher than expected costs experienced at PCI and Riverside, management believes that both operations will still represent sound operations that will be accretive to the Company on an annualized basis.

Revenue for the first nine months of fiscal year 2007 reflected a $1.1 million reduction from expected amounts due to inclement weather experienced in the Northeast U.S., Midwest U.S. and Ontario and a teachers strike at one of our school district customers during the current period. Approximately $1.0 million of this revenue reduction occurred at locations comprising the base business (excluding contracts resulting from the acquisitions and bid / conversion wins for the school year that commenced in September 2006). Except for the revenue decline resulting from the weather and strike days, the base business also continue to be in line with Company expectations. While the Company has historically recouped a majority of revenue deferrals resulting from weather and strike days, and expects to recoup most of this current revenue decline during the fourth quarter, there is no assurance that we will get all of the revenue deferral back.

The foregoing discussion contains forward-looking statements, which involve risks and uncertainties and should be not be read as guarantees of future performance or results. See “”Forward Looking Statements””.

Managed Fleet Business

The Company’s school transportation services have historically included managed services contracts. These transportation services are structured as management services contracts under which the Company manages the transportation for the school district and the school district continues to own the school bus fleet. Such managed services contracts require lower up front capital investment (as the school district maintains ownership of the fleet) and thus results in lower annual depreciation expense on an ongoing basis. Currently, buses operated under managed services contracts account for approximately 7% of our fleet. During fiscal year 2006, approximately 12% of our fleet was under managed contracts. The reduction in the percentage of our fleet operated under managed contracts resulted from the general growth in our owned fleet business over the current year combined with the non-renewal of two managed services contracts in Texas and our exit from a managed services contract in California where the school district took the transportation services back in-house effective December 31, 2006.

Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006

Revenues: Revenues for the third quarter of fiscal year 2007 were $49.2 million compared to $39.9 million for the third quarter of fiscal year 2006, representing an increase of $9.3 million, or 23.3%. The Company closed one acquisition in the beginning of March 2006 and four acquisitions (two during fiscal 2007) in the period from April 1, 2006 through March 31, 2007, and started operations on four new bid / conversion contracts for the 2007 fiscal year. As such, the prior fiscal year third quarter includes a partial quarter of operations (one month) for the acquisition closed in the beginning of March 2006 and no operations for the four acquisitions that closed in the period from April 1, 2006 through March 31, 2007 and the four bid/conversion contracts won for the 2007 fiscal year. In addition, the Company did not renew four contracts for the 2007 fiscal year, closed the Texas regional office in connection with two of these non-renewals, and exited a managed services contract in California where the school district took the transportation services back-in house effective December 31, 2006.

Revenue for the third quarter of fiscal year 2007 also reflected a $1.1 million reduction from expected amounts due to inclement weather experienced in the Northeast U.S., Midwest U.S. and Ontario and a teachers strike at one of our school district customers during the current quarterly period. While the Company has historically recouped a majority of such revenue deferrals and expects to recoup most of this current revenue decline during the fourth quarter, there is no assurance that we will get all of the revenue deferral back. Revenue for the third quarter of fiscal year 2006 reflected a $0.2 million reduction due to inclement weather experienced in the Northeast U.S. during the prior year quarterly period.

The acquisitions and new bid-in contracts accounted for $11.2 million in new business growth, which was partially offset by a $1.9 million revenue reduction resulting from the five contracts not included in the results for the third quarter of fiscal year 2007. Additionally, the current third quarter includes an incremental $0.9 million revenue reduction over the prior year third quarter due to weather and strike days. The remaining $0.9 million increase in revenues resulted from both contract rate increases and increases in service requirements of existing contracts.

Cost of Operations: Cost of operations for the third quarter of fiscal year 2007 was $34.6 million compared to $27.3 million for the third quarter of fiscal year 2006, an increase of $7.3 million or 26.5%. The acquisitions and new bid/conversion contracts accounted for $8.1 million of the total increase in cost of operations, which was partially offset by $1.3 million reduction resulting from the five contracts not included in the results for the third quarter of fiscal year 2007. The remaining $0.5 million increase in cost of operations, net of new business and contracts not renewed for the fiscal year 2007, resulted primarily from increased fuel expense and operating costs, partially offset by lower fringe benefits. Cost of fuel for the third quarter of fiscal year 2007, net of new business and contracts not renewed for the fiscal year 2007, was $0.4 million higher than the third quarter of fiscal year 2006, and as a percentage of revenue increased to 8.7% for the third quarter of fiscal year 2007 from 7.6% for the third quarter of fiscal year 2006. This increase primarily relates to market prices of fuel. In order to mitigate the impact of fuel price volatility on the Company’s results, the Company entered into a fuel swap transaction in early September 2006 to lock in the then current market price on approximately 35% of its fuel exposure, while approximately 50% to 55% of our contracts continue to have some form of fuel protection against price increase, ranging from reimbursement by the school district to outright purchase of fuel by school districts. While the Company entered into the fuel swap transaction to mitigate the risk of potential increases in market fuel prices, the Company paid approximately $0.4 million to the counterparty under the fuel swap transaction during the third quarter of fiscal year 2007 relating to the recent decline in the market price of fuel. This payment has been reflected as fuel expense for the third quarter of fiscal year 2007. Operating costs, net of new business and contracts not renewed for fiscal 2007, increased $0.3 million due to the operating lease payments made during the third quarter of fiscal year 2007. Fringe benefits, net of new business and contracts not renewed for the fiscal year 2006, decreased $0.2 million, due primarily to lower employee medical insurance and the timing effect of lower workers compensation insurance accruals in the current interim period compared to the prior interim period, and increased as a percentage of revenue to 10.3% for the third quarter of fiscal year 2007 from 11.0% for the third quarter of fiscal year 2006. Salaries and wages, net of new business and contracts not renewed for the fiscal year 2006, were flat to the prior year third quarter and decreased slightly as a percentage of revenue to 39.6% in the third quarter of fiscal year 2007 from 39.8% in the third quarter of fiscal year 2006.

General and Administrative Expense: General and administrative expense for the third quarter of fiscal year 2007 was $4.2 million compared to $3.6 million for the third quarter of fiscal year 2006, an increase of $0.6 million or 18.3%. As a percentage of revenues, total general and administrative expense decreased to 8.5% for the third quarter of fiscal year 2007 from 8.9% for the third quarter of fiscal year 2006. The acquisitions and new bid in contracts accounted for $0.4 million of the total dollar increase in general and administrative expense, which was partially offset by a $0.1 million reduction resulting from the five contracts not included in the results for the third quarter of fiscal year 2007. The remaining $0.3 million increase in general and administrative expense, net of new business and contracts not renewed for the fiscal year 2006, was due primarily to higher salaries and wages and facility costs.

Depreciation Expense: Depreciation expense for the third quarter of fiscal year 2007 was $5.6 million compared to $4.4 million for the third quarter of fiscal year 2006, an increase of $1.2 million, primarily related to the vehicles associated with the acquisitions and new bid/conversion contracts. As a percentage of revenues, depreciation expense increased slightly to 11.3% for the third quarter of fiscal year 2007 from 11.1% for the third quarter of fiscal year 2006.

Amortization Expense: Amortization expense for the third quarter of fiscal year 2007 was $1.7 million compared to $1.6 million for the third quarter of fiscal year 2006, an increase of $0.1 million. As a percentage of revenues, amortization expense declined to 3.4% for the third quarter of fiscal year 2007 from 3.9% for the third quarter of fiscal year 2006.

Income from Operations: Income from operations was $3.2 million for the third quarter of fiscal year 2007 compared to $3.0 million for the third quarter of fiscal year 2006, an increase of $0.2 million resulting from the operating line items discussed above.

Interest Expense: Interest expense for the third quarter of fiscal year 2007 was $3.9 million compared to $3.3 million for the third quarter of fiscal year 2006. The increase in interest expense resulted primarily from an increase of approximately $28.9 million in the average level of outstanding debt, partially offset by a 200 basis point decline in interest rates for the third quarter of fiscal 2007 compared to the third quarter of fiscal 2006.

Unrealized Loss on Derivative Contracts: Unrealized loss on derivative contracts results primarily from the unrealized loss on foreign currency exchange contracts of $61 thousand for the third quarter of fiscal year 2007 and $0.3 million for the third quarter of fiscal year 2006, which reflects the fair value adjustment of the foreign currency exchange contracts entered into as an economic hedge of the US dollar / Canadian dollar currency exposure on the IPS distributions.

Other (Income) Expense, net: Other income for the third quarter of fiscal year 2007 was $0.4 million, primarily related to realized translation gains and gains on asset disposals, partially offset by losses on the close of the Texas regional office.

Loss before Income Taxes and Minority Interest: Loss before income taxes and minority interest was $0.3 million for the third quarter of fiscal year 2007 compared to $0.5 million for the third quarter of fiscal year 2006, a decrease of $0.2 million. This decline resulted primarily from the $0.2 million increase in income from operation discussed above, the $0.2 million decline in unrealized loss on derivative contracts, and $0.4 million increase in other income, partially offset by the $0.6 million increase in interest expense.

Minority Interest: Minority interest for the third quarter of fiscal year 2007 and third quarter of fiscal year 2006 amounted to $34 thousand and $73 thousand, respectively.

Net Loss: Net loss for the third quarter of fiscal year 2007 amounted to $0.2 million, which includes a recovery of income taxes of $0.1 million. Net loss for the third quarter of fiscal year 2006 amounted to $0.4 million, and includes a recovery of income taxes of $0.1 million. Net loss per common share was $0.01 and $0.03 for the third quarter of fiscal year 2007 and the third quarter of fiscal year 2006, respectively.

Nine months Ended March 31, 2007 Compared to Nine months Ended March 31, 2006

Revenues: Revenues for the first nine months of fiscal year 2007 were $122.3 million compared to $95.1 million for the first nine months of fiscal year 2006, representing an increase of $27.2 million, or 28.6%. The Company closed one acquisition in late September 2005, two acquisitions in early November 2005, one acquisition in the beginning of March 2006, and four acquisitions (two during fiscal 2007) in the period from April 1, 2006 through March 31, 2007, and started operations on four new bid / conversion contracts for the 2007 fiscal year. As such, the first nine months of the prior fiscal year includes only a partial period of operations for the September 2005 acquisition, two November 2005 acquisitions and March 2006 acquisition and no operations for the other four acquisitions and four new bid/conversion contracts. In addition, the Company did not renew four contracts for the 2007 fiscal year, closed the Texas regional office in connection with two of these non-renewals, and exited a managed services contract in California where the school district took the transportation services back in house effective December 31, 2006.

Revenue for the first nine months of fiscal year 2007 also reflected a $1.1 million reduction from expected amounts due to inclement weather experienced in the Northeast U.S., Midwest U.S. and Ontario and a teachers strike at one of our school district customers during the current period. While the Company has historically recouped a majority of such revenue deferrals and expects to recoup most of this current revenue decline during the fourth quarter, there is no assurance that we will get all of the revenue deferral back. Revenue for the first nine months of fiscal year 2006 reflected a $0.5 million reduction due to inclement weather experienced in the Northeast U.S. during the prior year period.

These acquisitions and new bid-in contracts accounted for $30.0 million in new business growth, which was partially offset by a $4.7 million revenue reduction resulting from the four contracts not included in the results for the first nine months of fiscal year 2007 and one managed services contract not included in the third quarter of fiscal year 2007. Additionally, the current period includes an incremental $0.6 million revenue reduction over the prior year period due to weather and strike days. The remaining $2.5 million increase in revenues resulted from both contract rate increases and increases in service requirements of existing contracts.

Cost of Operations: Cost of operations for the first nine months of fiscal year 2007 was $90.3 million compared to $68.2 million for the first nine months of fiscal year 2006, an increase of $22.1 million or 32.4%. The acquisitions and new bid/conversion contracts accounted for $22.4 million of the total increase in co