<PAGE>   1

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q

(Mark One)
   [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
            EXCHANGE ACT OF 1934.

            For the quarterly period ended March 31, 2001

                                       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 0-24639

                             RAILWORKS CORPORATION
      (Exact name of registrant as specified in its governing instrument)

                                                                58-2382378
                 Delaware                                      (IRS Employer
          (State of Organization)                           Identification No.)

6225 Smith Avenue, Suite 200, Baltimore, Maryland                 21209
    (Address of principal executive office)                     (Zip Code)

      (Registrant's telephone number, including area code) (410) 580-6000

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 [ ]

15,369,759 shares of Common Stock were outstanding as of May 4, 2001.


<PAGE>   2


                             RailWorks Corporation

                                    CONTENTS

<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                                Page
<S>                                                                           <C>
    Item 1 - Consolidated Financial Statements:
       Consolidated Balance Sheets as of March 31, 2001
          (unaudited) and December 31, 2000                                       3
       Consolidated Statements of Operations for the three months ended
          March 31, 2001 (unaudited)                                              4
       Consolidated Statements of Stockholders' Equity for the three months
          Ended March 31, 2001 (unaudited) and 2000 (unaudited)                   5
       Consolidated Statements of Cash Flows for three months ended
          March 31, 2001 (unaudited) and 2000 (unaudited)                         6
       Notes to Consolidated Financial Statements (unaudited)                  7-16

    Item 2 - Management's Discussion and Analysis of Financial
             Condition and Results of Operations                              16-20

    Item 3 - Quantitative and Qualitative Disclosures About
             Market Risk                                                         23


PART II - OTHER INFORMATION

    Items 1 through 6                                                         23-24
    Signatures                                                                   25


EXHIBIT INDEX                                                                    26
</TABLE>


                                       2
<PAGE>   3


RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(in thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                                                    (Unaudited)
                                                                                      March 31              December 31
                                   ASSETS                                              2001                    2000
                                                                                    -----------             ----------
<S>                                                                                 <C>                     <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                          $   1,052               $   7,138
  Accounts receivable, net of allowance for doubtful accounts of $1,563
     and $1,581                                                                        195,287                 192,840
  Costs and estimated earnings in excess of billings on uncompleted
     contracts                                                                          34,569                  31,638
  Inventories:
       Raw materials                                                                    18,222                  21,207
       Finished goods                                                                   14,585                  10,091
  Deferred tax asset                                                                     5,436                   5,436
  Other current assets                                                                   8,482                  10,336
                                                                                     ---------               ---------
           Total current assets                                                        277,633                 278,686
                                                                                     ---------               ---------

PROPERTY, PLANT AND EQUIPMENT, NET                                                      67,447                  83,075
                                                                                     ---------               ---------
OTHER ASSETS:
    Excess of cost over net assets acquired, net of amortization                       242,063                 242,678
    Loans to officers                                                                    3,583                   3,583
    Other                                                                               12,401                  10,824
                                                                                     ---------               ---------
           Total other assets                                                          258,047                 257,085
                                                                                     ---------               ---------

                         TOTAL                                                       $ 603,127               $ 618,846
                                                                                     =========               =========

                   LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Cash overdraft                                                                     $   9,298               $  16,766
  Current maturities of long-term debt                                                  14,092                  22,733
  Accounts payable and accrued liabilities                                              64,152                  67,160
  Accrued payroll and related withholdings                                               8,539                   5,103
  Accrued interest payable                                                              10,505                   5,940
  Billings in excess of costs and estimated earnings on uncompleted
     contracts                                                                          19,408                  21,680
  Other current liabilities                                                             23,718                  19,324
                                                                                     ---------               ---------
         Total current liabilities                                                     149,712                 158,706
                                                                                     ---------               ---------

LONG-TERM DEBT                                                                         353,120                 358,166
DEFERRED TAX LIABILITY                                                                   3,363                   3,526
EXCESS OF ACQUIRED NET ASSETS OVER COST, NET OF AMORTIZATION                             5,437                   5,475
OTHER LIABILITIES                                                                        7,259                   7,968
                                                                                     ---------               ---------
         Total long-term liabilities                                                   369,179                 375,135
                                                                                     ---------               ---------
              Total liabilities                                                        518,891                 533,841
                                                                                     ---------               ---------

STOCKHOLDERS' EQUITY:
  Series A, convertible preferred stock, $1.00 par value, authorized
    10,000,000 shares, 13,700 shares issued and outstanding                                 14                      14
  Common stock, $0.01 par value, authorized 100,000,000 shares,
    15,369,759 shares issued and outstanding at March 31, 2001 and
    December 31, 2000                                                                      153                     153
  Additional paid-in capital                                                           136,136                 136,136
  Accumulated other comprehensive income                                                  (871)                     50
  Retained deficit                                                                     (51,196)                (51,348)
                                                                                     ---------               ---------
         Total stockholders' equity                                                     84,236                  85,005
                                                                                     ---------               ---------
                         TOTAL                                                       $ 603,127               $ 618,846
                                                                                     =========               =========
</TABLE>

                See Notes to Consolidated Financial Statements.


                                       3
<PAGE>   4


RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(in thousands, except share and per share data) (Unaudited)


<TABLE>
<CAPTION>
                                                                2001                        2000
                                                            ------------                 ------------
<S>                                                         <C>                          <C>
Revenue                                                     $    170,388                 $    125,365
Cost of revenue                                                  140,278                      101,337
                                                            ------------                 ------------

Gross profit                                                      30,110                       24,028
Selling, general and administrative expenses                      18,754                       12,305
Restructuring and other unusual charges                              232                           --
                                                            ------------                 ------------

Operating income                                                  11,124                       11,723
                                                            ------------                 ------------

Other income (expense):
  Interest expense                                               (10,235)                      (7,960)
  Other (expense) income                                            (237)                         464
                                                            ------------                 ------------

     Other expense, net                                          (10,472)                      (7,496)
                                                            ------------                 ------------

Income before income taxes                                           652                        4,227
Provision for income taxes                                           500                        1,902
                                                            ------------                 ------------

Net income                                                  $        152                 $      2,325
                                                            ============                 ============

Basic earnings per share                                    $        .01                 $        .16
                                                            ============                 ============

Diluted earnings per share                                  $        .01                 $        .15
                                                            ============                 ============

Weighted average shares used in computing
   basic earnings per share                                   15,369,759                   14,352,900
                                                            ============                 ============

Weighted average shares used in computing
   diluted earnings per share                                 16,781,976                   15,745,630
                                                            ============                 ============
</TABLE>

                See Notes to Consolidated Financial Statements.


                                       4
<PAGE>   5

RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(in thousands) (Unaudited)


<TABLE>
<CAPTION>
                                                                                              ACCUMULATED
                                                                               ADDITIONAL        OTHER
                                     COMMON STOCK         PREFERRED STOCK       PAID-IN      COMPREHENSIVE  RETAINED  COMPREHENSIVE
                                 SHARES       AMOUNT     SHARES     AMOUNT      CAPITAL          INCOME     DEFICIT       INCOME
                                 ------       ------     ------     ------     ----------    -------------  --------  -------------
<S>                              <C>          <C>        <C>        <C>        <C>           <C>            <C>       <C>

BALANCE, JANUARY 1, 2001         15,370       $153        14        $ 14       $ 136,136         $  50      $(51,348)     $   --

Foreign currency
   translation adjustment            --         --        --          --              --          (921)           --        (921)

Net income                           --         --        --          --              --            --           152         152
                                 ------       ----       --        ----       ---------         -----       --------      ------

BALANCE, MARCH 31, 2001          15,370       $153        14        $ 14       $ 136,136         $(871)     $(51,196)     $ (769)
                                 ======       ====        ==        ====       =========         =====      ========      ======
</TABLE>

                See Notes to Consolidated Financial Statements.


                                       5
<PAGE>   6


RAILWORKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(in thousands) (Unaudited)


<TABLE>
<CAPTION>
                                                                                       2001                     2000
                                                                                     --------                 --------
<S>                                                                                  <C>                      <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                           $    152                 $  2,325
Adjustments to reconcile net income to net cash provided by (used in)
      operating activities:
    Depreciation and amortization                                                       5,244                    4,843
    Bond discount amortization                                                             18                       16
    Gain on sale of equipment                                                            (114)                     (45)
    Loss on sale of subsidiary                                                            612                       --
    Change in operating assets and liabilities:
       Accounts receivable and costs and estimated earnings in excess
        of billings on uncompleted contracts                                           (6,963)                  (2,648)
       Inventory                                                                       (1,509)                    (620)
       Other current assets                                                              (892)                  (1,412)
       Accounts payable and accrued liabilities                                        (1,163)                   1,350
       Accrued payroll and related withholdings                                         4,453                     (582)
       Accrued interest payable                                                         4,565                    4,688
       Billings in excess of costs and estimated earnings on
        uncompleted contracts                                                          (2,272)                  (3,640)
       Other current liabilities                                                        1,440                     (977)
       Other assets                                                                       851                     (182)
       Other liabilities                                                                 (674)                  (7,813)
                                                                                     --------                 --------
                 Net cash provided by (used in) operating activities                    3,748                   (4,697)
                                                                                     --------                 --------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Proceeds from sale of equipment                                                       248                    5,837
    Purchase of equipment and leasehold improvements                                   (3,709)                  (5,446)
    Proceeds from sale of subsidiary                                                    9,140                       --
    Contingent earn-out payments                                                         (545)                 (12,249)
                                                                                     --------                 --------
                 Net cash provided by (used in) investing activities                    5,134                  (11,858)
                                                                                     --------                 --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net change in bank overdraft                                                       (7,403)                      --
    Net activity on revolving line of credit                                            2,571                   25,298
    Debt issuance costs                                                                    --                     (236)
    Payment of loan origination fees                                                      (46)                     (48)
    Proceeds from long-term borrowing                                                     267                    1,034
    Repayment of long-term borrowing                                                   (2,308)                  (6,187)
    Repayment of term loan                                                             (4,722)                      --
    Repayment of seller notes                                                          (2,825)                  (4,845)
                                                                                     --------                 --------
                Net cash (used in) provided by financing activities                   (14,466)                  15,016
                                                                                     --------                 --------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                              (5,584)                  (1,539)
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS                                        (502)                     113
CASH AND CASH EQUIVALENTS, beginning of period                                          7,138                    4,617
                                                                                     --------                 --------

CASH AND CASH EQUIVALENTS, end of period                                             $  1,052                 $  3,191
                                                                                     ========                 ========

SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the period for interest                                         $  4,968                 $  2,985
                                                                                     ========                 ========
    Cash paid during the period for income taxes                                     $    858                 $    447
                                                                                     ========                 ========
</TABLE>

                See Notes to Consolidated Financial Statements.


                                       6
<PAGE>   7


                             RAILWORKS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)


1.       BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included in the accompanying unaudited
consolidated financial statements. Operating results for the three months ended
March 31, 2001 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001.

         Certain prior year amounts have been reclassified to conform to the
current period presentation.

2.       NATURE OF THE BUSINESS

         The Company was formed to become a leading nationwide provider of rail
system services, including construction and rehabilitation, repair and
maintenance, and related products. The Company provides contracting services
and rail related products to a broad range of customers including Class I
railroads, transit authorities and commuter railroads, municipalities,
industrial companies and commercial enterprises. RailWorks operates principally
in the United States and Canada.

         In accordance with Statement of Financial Accounting Standards
("SFAS") No. 131, the Company has three reportable segments: (1) transit
services, (2) rail track services and (3) rail products and services. The
transit services segment provides transit construction and rehabilitation
services, as well as installation of signaling, communications and electrical
systems. The rail track services segment provides design, engineering,
construction, rehabilitation and repair and maintenance of track systems. The
rail products and services segment provides a broad range of rail related
products, including treated wood ties. The Company evaluates performance based
on profit or loss from operations before income taxes, interest income and
expense, and non-recurring gains and losses.

3.       EARNINGS PER SHARE

         In accordance with SFAS No. 128, the Company reports its earnings per
share (EPS) in basic and diluted earnings per share. Basic EPS includes no
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution if certain securities are converted
and also includes certain shares that are contingently issuable. The following
is the computation of earnings per share for the three months ended March 31,
2001 and 2000 (in thousands, except per share data):


<TABLE>
<CAPTION>
                                                       2001                   2000
                                                     -------                -------

<S>                                                  <C>                    <C>
Net income                                           $   152                $ 2,325
                                                     =======                =======

Shares used for determining basic EPS                 15,370                 14,353

Dilutive effect of:
   Stock options                                          42                     23
   Convertible preferred shares                        1,370                  1,370
                                                     -------                -------

Shares used for determining diluted EPS               16,782                 15,746
                                                     =======                =======

Basic EPS                                            $   .01                $   .16
                                                     =======                =======

Diluted EPS                                          $   .01                $   .15
                                                     =======                =======
</TABLE>


                                       7
<PAGE>   8


4.       RESTRUCTURING AND OTHER UNUSUAL CHARGES

         During the year ended December 31, 2000, the Company's management and
Board of Directors conducted and completed a strategic review of RailWorks'
operations. The resulting restructuring plan (the "Plan") involves systems
integration, rationalization of real estate, equipment and inventory and
maximization of human resource productivity around three lines of business. The
Plan resulted in reduction of the Company's headcount, consolidation of certain
facilities and identification of other synergies and cost reduction
opportunities available to the Company.

RESTRUCTURING CHARGES

         Restructuring costs include costs directly related to the Company's
Plan. The Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit" ("EITF 94-3")
provides specific requirements as to the appropriate recognition of costs
associated with employee termination benefits and other exit costs. Employee
termination costs are recognized when benefit arrangements are communicated to
affected employees in sufficient detail to enable the employees to determine
the amount of benefits to be received on termination. Other exit costs that do
not benefit future activities are recognized at the date of commitment to the
Plan. These costs must be either incremental to the Plan or represent amounts
under contractual obligations which existed prior to the commitment date and
have no future economic benefit or result in a penalty to cancel the
obligation. Other costs directly related to the Plan, which are not eligible
for recognition at the commitment date, such as relocation and other
integration costs, are expensed as incurred.

         During the year ended December 31, 2000, the Company recorded
liabilities of approximately $2.2 million related to employee termination
benefits for those employees who had been identified and notified in accordance
with EITF 94-3 and approximately $.7 million for non-cancelable lease costs in
excess of the expected sublet income. The Company may record adjustments to
these liabilities during future periods depending on its ability to sublease
closed offices and upon determination of the final amount of the Company's
severance obligations.

         The following table provides a roll forward of liabilities for
termination benefits and non-cancelable lease costs resulting from the Plan in
accordance with EITF 94-3 (in thousands):


<TABLE>
<CAPTION>
                                        Balance                                                  Balance
                                      December 31,                                              March 31,
       Type of Cost                      2000            Charges            Payments              2001
       ------------                   ------------       -------            --------            ---------

<S>                                   <C>                <C>                <C>                 <C>
Employee termination benefits            $1,534            $  --             $  (228)            $1,306
Facility closing costs                      631               --                 (73)               558
                                         ------            -----             -------             ------

                                         $2,165            $  --             $  (301)            $1,864
                                         ======            =====             =======             ======
</TABLE>


OTHER UNUSUAL CHARGES

         The Plan also resulted in additional integration costs that were
expensed as incurred in accordance with EITF 94-3. During the quarter ended
March 31, 2001, the Company incurred approximately $.2 million in other unusual
charges under the Plan, primarily for outside consulting costs, employee and
office relocation costs and additional costs associated with the amendment of
the Company's credit agreement.

5.       FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
         SUBSIDIARIES

         The Company conducts a significant portion of its business through its
subsidiaries. All of the Company's domestic subsidiaries (the "Subsidiary
Guarantors") have fully and unconditionally guaranteed the Company's 11.5%
Senior Subordinated Notes (the "Notes"). The Company's non-U.S. subsidiaries
(the "Non-Guarantor


                                       8
<PAGE>   9


Subsidiaries") have not guaranteed the Notes. The Notes are effectively
subordinated in right of payment to all indebtedness and other liabilities
(including trade payables) of the Non-Guarantor Subsidiaries.

         Set forth below are condensed consolidating financial statements for
the Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries as of
March 31, 2001 and for the three-month period ended March 31, 2001 and 2000.
The equity method of accounting has been used by the Company to report its
investments in subsidiaries. Separate financial statements for the Subsidiary
Guarantors are not presented based on management's determination that they do
not provide additional information that is material to investors.

                             RAILWORKS CORPORATION
                     CONDENSED CONSOLIDATING BALANCE SHEET
                                 MARCH 31, 2001
                           (In Thousands) (Unaudited)


<TABLE>
<CAPTION>
                                                 RAILWORKS
                                                CORPORATION                        NON-
                                                  (PARENT        GUARANTOR       GUARANTOR
                                                COMPANY ONLY)   SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS        CONSOLIDATED
                                                -------------   ------------    ------------     ------------        ------------
<S>                                            <C>              <C>             <C>              <C>                 <C>
           ASSETS:
CURRENT ASSETS:
    Cash                                          $     64        $    893        $    95          $      --         $  1,052
    Accounts receivable, net                            29         191,751          3,507                 --          195,287
    Costs and estimated earnings in excess
      of billings on uncompleted contracts              --          34,293            276                 --           34,569
    Inventories:
        Raw materials                                   --          13,814          4,408                 --           18,222
        Finished goods                                  --          13,668            917                 --           14,585
    Deferred tax asset                                  --           5,436             --                 --            5,436
    Due from parent company                         30,654          17,947          5,137            (53,738)(a)           --
    Due from affiliates                                 --             187            351               (538)(a)           --
    Other current assets                                53           6,121          2,308                 --            8,482
                                                  --------        --------        -------        -----------         --------
                Total current assets                30,800         284,110         16,999            (54,276)         277,633
                                                  --------        --------        -------        -----------         --------

INVESTMENT IN SUBSIDIARIES                         414,091              --             --           (414,091)(b)           --
                                                  --------        --------        -------        -----------         --------

PROPERTY, PLANT AND
     EQUIPMENT, NET                                  1,318          58,027          8,102                 --           67,447
                                                  --------        --------        -------        -----------         --------

OTHER ASSETS:
     Excess of cost over acquired net
          assets, net of amortization                   --         223,412         18,651                 --          242,063
     Loans to officers                               3,583              --             --                 --            3,583
     Other                                           8,860           3,403            138                 --           12,401
                                                  --------        --------        -------        -----------         --------
                 Total other assets                 12,443         226,815         18,789                 --          258,047
                                                  --------        --------        -------        -----------         --------
                       TOTAL                      $458,652        $568,952        $43,890        $  (468,367)        $603,127
                                                  ========        ========        =======        ===========         ========
</TABLE>

(a)      Elimination of inter-company receivables.
(b)      Elimination of investments in subsidiaries.


                                       9
<PAGE>   10


                             RAILWORKS CORPORATION
                     CONDENSED CONSOLIDATING BALANCE SHEET
                                 MARCH 31, 2001
                           (In Thousands) (Unaudited)


<TABLE>
<CAPTION>
                                                     RAILWORKS
                                                    CORPORATION                        NON-
                                                      (PARENT        GUARANTOR       GUARANTOR
                                                   COMPANY ONLY)   SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS       CONSOLIDATED
                                                   -------------   ------------    ------------     ------------       ------------
<S>                                                <C>             <C>             <C>              <C>                <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
      Cash overdraft                                $     676         $  8,536        $     86         $      --         $   9,298
      Current maturities of long-term debt              3,820            4,593           5,679                --            14,092
      Accounts payable and accrued liabilities          2,216           60,686           1,250                --            64,152
      Accrued payroll and related withholdings             --            8,019             520                --             8,539
      Accrued interest payable                         10,470                1              34                --            10,505
      Billings in excess of costs and estimated
          Earnings on uncompleted contracts                --           19,064             344                --            19,408
      Due to parent company                            23,083           25,479           5,176           (53,738)(a)            --
      Due to affiliates                                    --              351             187              (538)(a)            --
      Other current liabilities                        15,787            7,370             561                --            23,718
                                                    ---------         --------        --------         ---------         ---------
      Total current liabilities                        56,052          134,099          13,837           (54,276)          149,712
                                                    ---------         --------        --------         ---------         ---------

LONG TERM DEBT                                        349,276            3,451             393                --           353,120
DEFERRED TAX LIABILITIES                                   --            3,078             285                --             3,363

EXCESS OF ACQUIRED NET ASSETS OVER
  COST, NET OF AMORTIZATION                                --            5,437              --                --             5,437
OTHER LIABILITIES                                          42            7,217              --                --             7,259
                                                    ---------         --------        --------         ---------         ---------
       Total long-term liabilities                    349,318           19,183             678                --           369,179
                                                    ---------         --------        --------         ---------         ---------

               Total liabilities                      405,370          153,282          14,515           (54,276)          518,891
                                                    ---------         --------        --------         ---------         ---------

STOCKHOLDERS' EQUITY:
       Series A, convertible preferred stock               14               --              --                --                14
       Common stock                                       123            3,429             378            (3,777)(b)           153
       Additional paid-in capital                     136,136          299,705          25,990          (325,695)(b)       136,136
       Inter-company funding                               --           51,545             (80)          (51,465)(b)            --
       Accumulated other comprehensive income              --               --            (871)               --              (871)
       Retained earnings (deficit)                    (82,991)          60,991           3,958           (33,154)(b)       (51,196)
                                                    ---------         --------        --------         ---------         ---------
               Total stockholders' equity              53,282          415,670          29,375          (414,091)           84,236
                                                    ---------         --------        --------         ---------         ---------

                          TOTAL                     $ 458,652         $568,952        $ 43,890         $(468,367)        $ 603,127
                                                    =========         ========        ========         =========         =========
</TABLE>

(a)      Elimination of inter-company payables.
(b)      Elimination of investments in subsidiaries.


                                      10
<PAGE>   11


                             RAILWORKS CORPORATION
                CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                   FOR THE THREE MONTHS ENDED MARCH 31, 2001
                           (In Thousands) (Unaudited)


<TABLE>
<CAPTION>
                                               RAILWORKS
                                              CORPORATION                         NON-
                                              (PARENT CO.      GUARANTOR        GUARANTOR
                                                 ONLY)        SUBSIDIARIES     SUBSIDIARIES     ELIMINATIONS       CONSOLIDATED
                                              -----------     ------------     ------------     ------------       ------------
<S>                                           <C>             <C>              <C>              <C>                <C>
Revenue                                        $    --         $ 164,940         $ 6,177         $  (729)(a)        $ 170,388
Cost of revenue                                     --           135,973           5,034            (729)(a)          140,278
                                               -------         ---------         -------         -------            ---------

Gross profit                                        --            28,967           1,143              --               30,110
Selling, general and administrative
 expenses                                        2,645            14,729           1,380              --               18,754
Restructuring and other unusual charges            232                --              --              --                  232
                                               -------         ---------         -------         -------            ---------

Operating income                                (2,877)           14,238            (237)             --               11,124

Equity in earnings of subsidiaries               7,335                --              --          (7,335)(b)               --
Interest expense                                (9,842)             (254)           (139)             --              (10,235)
Other (expense) income                            (620)              293              90              --                 (237)
                                               -------         ---------         -------         -------            ---------

Income (loss) before income taxes               (6,004)           14,277            (286)         (7,335)                 652
Provision (benefit) for income taxes                --               587             (87)             --                  500
                                               -------         ---------         -------         -------            ---------

Net income (loss)                              $(6,004)        $  13,690         $  (199)        $(7,335)           $     152
                                               =======         =========         =======         =======            =========
</TABLE>

(a)      Elimination of inter-company revenue.
(b)      Elimination of equity in earnings of subsidiaries.


                                      11
<PAGE>   12


                             RAILWORKS CORPORATION
                CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                   FOR THE THREE MONTHS ENDED MARCH 31, 2001
                           (In Thousands) (Unaudited)


<TABLE>
<CAPTION>
                                                      RAILWORKS
                                                     CORPORATION                      NON-
                                                     (PARENT CO.     GUARANTOR     GUARANTOR
                                                        ONLY)      SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS       CONSOLIDATED
                                                     -----------   ------------   ------------   ------------       ------------
<S>                                                  <C>           <C>             <C>           <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                             $(6,004)      $ 13,690       $  (199)      $ (7,335)(a)       $    152
Adjustments to reconcile net income to net cash
    (used in) provided by operating activities:
 Depreciation and amortization                             335          4,308           601             --              5,244
 Bond discount amortization                                 18             --            --             --                 18
 Equity in earnings of subsidiaries                     (7,335)            --            --          7,335 (a)             --
 Gain on sale of equipment                                  --            (55)          (59)            --               (114)
 Loss on sale of subsidiary                                612             --            --             --                612
 Changes in operating assets and liabilities:
  Accounts receivable and costs and estimated
   earnings in excess of billings on uncompleted
   contracts                                               (29)        (9,172)        2,238             --             (6,963)
  Inventory                                                 --         (1,682)          173             --             (1,509)
  Other current assets                                     116         (1,039)           31             --               (892)
  Accounts payable and accrued liabilities                 109           (653)         (619)            --             (1,163)
  Accrued payroll and related withholdings                  --          4,369            84             --              4,453
  Accrued interest payable                               4,530              1            34             --              4,565
  Billings in excess of costs and estimated
    earnings on uncompleted contracts                       --         (2,312)           40             --             (2,272)
  Other current liabilities                              1,077            506          (143)            --              1,440
  Other assets                                             148            691            12             --                851
  Other liabilities                                        (26)          (549)          (99)            --               (674)
  Due (to)/from affiliates                                  --           (685)          685             --                 --
  Due (to)/from parent company                             734            463        (1,197)            --                 --
                                                       -------       --------       -------       --------           --------
    Net cash (used in) provided by operating
     Activities                                         (5,715)         7,881         1,582             --              3,748
                                                       -------       --------       -------       --------           --------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Proceeds from sale of equipment                            --            133           115             --                248
 Purchase of equipment and leasehold improvements         (100)        (3,220)         (389)            --             (3,709)
 Proceeds from sale of subsidiary                        9,402           (262)           --             --              9,140
 Contingent earn-out payments                             (545)            --            --             --               (545)
                                                       -------       --------       -------       --------           --------
    Net cash provided by (used in)
     investing activities                                8,757         (3,349)         (274)            --              5,134
                                                       -------       --------       -------       --------           --------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Net change in bank overdraft                             (488)        (7,001)           86             --             (7,403)
 Net activity on revolving line of credit                3,571             --        (1,000)            --              2,571
 Payment of loan origination fees                          (46)            --            --             --                (46)
 Proceeds from long-term borrowing                          --            221            46             --                267
 Repayment of long-term borrowing                           --         (2,268)          (40)            --             (2,308)
 Repayment of term loan                                 (4,722)            --            --             --             (4,722)
 Repayment of seller notes                              (2,825)            --            --             --             (2,825)
                                                       -------       --------       -------       --------           --------
    Net cash used in Financing activities               (4,510)        (9,048)         (908)            --            (14,466)
                                                       -------       --------       -------       --------           --------

NET (DECREASE) INCREASE IN CASH                         (1,468)        (4,516)          400             --             (5,584)
EXCHANGE RATE EFFECT ON CASH                                --            (11)         (491)            --               (502)
CASH AND CASH EQUIVALENTS, BEGINNING
   OF PERIOD                                             1,532          5,420           186             --              7,138
                                                       -------       --------       -------       --------           --------

CASH AND CASH EQUIVALENTS, END OF PERIOD               $    64       $    893       $    95       $     --            $ 1,052
                                                       =======       ========       =======       ========            =======
</TABLE>

(a)      Elimination of equity in earnings of subsidiaries.


                                      12
<PAGE>   13


                             RAILWORKS CORPORATION
                CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                   FOR THE THREE MONTHS ENDED MARCH 31, 2000
                           (In Thousands) (Unaudited)


<TABLE>
<CAPTION>
                                            RAILWORKS
                                           CORPORATION                         NON-
                                           (PARENT CO.      GUARANTOR       GUARANTOR
                                              ONLY)        SUBSIDIARIES    SUBSIDIARIES      ELIMINATIONS       CONSOLIDATED
                                           -----------     ------------    ------------      ------------       ------------
<S>                                        <C>             <C>             <C>               <C>                <C>
Revenue                                      $    --         $ 126,188         $ 4,474         $(5,297)(a)        $ 125,365
Cost of revenue                                   --           103,142           3,492          (5,297)(a)          101,337
                                             -------         ---------         -------         -------            ---------

Gross profit                                      --            23,046             982              --               24,028
Selling, general and administrative
 expenses                                        844             7,790             743              --                9,377
Depreciation and amortization expense             23             2,665             240              --                2,928
                                             -------         ---------         -------         -------            ---------

Operating (loss) income                         (867)           12,591              (1)             --               11,723

Equity in earnings of subsidiaries             8,434                --              --          (8,434)(b)               --
Interest expense                              (7,301)             (605)            (54)             --               (7,960)
Interest and other income                          2               399              63              --                  464
                                             -------         ---------         -------         -------            ---------

Income before income taxes                       268            12,385               8          (8,434)               4,227
Provision for income taxes                        --             1,792             110              --                1,902
                                             -------         ---------         -------         -------            ---------

Net income (loss)                            $   268         $  10,593         $  (102)        $(8,434)           $   2,325
                                             =======         =========         =======         =======            =========
</TABLE>

(a)      Elimination of inter-company revenue.
(b)      Elimination of equity in earnings in subsidiaries.


                                      13
<PAGE>   14
                              RAILWORKS CORPORATION
                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                    FOR THE THREE MONTHS ENDED MARCH 31, 2000
                           (In Thousands) (Unaudited)

<TABLE>
<CAPTION>
                                                         RAILWORKS
                                                        CORPORATION                      NON-
                                                        (PARENT CO.    GUARANTOR      GUARANTOR
                                                           ONLY)      SUBSIDIARIES   SUBSIDIARIES  ELIMINATIONS     CONSOLIDATED
                                                        -----------   ------------   ------------  ------------     ------------
<S>                                                     <C>           <C>            <C>           <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                               $    268       $ 10,593       $  (102)      $(8,434)(a)      $  2,325
Adjustments to reconcile net income to net cash
  (used in) provided by operating activities:
  Depreciation and amortization                                23          4,376           444            --             4,843
  Bond discount amortization                                   16             --            --            --                16
  Equity in earnings of subsidiaries                       (8,434)            --            --         8,434(a)             --
  (Gain) loss on sale of equipment                             --            (77)           32            --               (45)
  Changes in operating assets and liabilities:
  Accounts receivable and costs and
    estimated earnings in excess of billings
    on uncompleted contracts                                  205         (4,934)        2,081            --            (2,648)
  Inventory                                                    --         (1,051)          431            --              (620)
  Other current assets                                     (1,262)          (250)          100            --            (1,412)
  Accounts payable and accrued liabilities                    421          2,773        (1,844)           --             1,350
  Accrued interest payable                                  4,709            (21)           --            --             4,688
  Accrued payroll and related withholdings                   (118)          (628)          164            --              (582)
  Billings in excess of costs and estimated
    earnings on uncompleted contracts                          --         (3,357)         (283)           --            (3,640)
  Other current liabilities                                   (54)          (881)          (42)           --              (977)
  Other assets                                                 18           (119)          (81)           --              (182)
  Other liabilities                                          (630)        (7,297)          114            --            (7,813)
  Due (to)/from parent company                             (1,452)         5,439        (3,987)           --                --
                                                         --------       --------       -------       -------          --------
    Net cash (used in) provided by operating
      Activities                                           (6,290)         4,566        (2,973)           --            (4,697)
                                                         --------       --------       -------       -------          --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment                                --          5,748            89            --             5,837
Purchase of equipment and leasehold improvements             (215)        (4,597)         (634)           --            (5,446)
Additional purchase consideration and contingent
  earn-out payments                                       (12,249)            --            --            --           (12,249)
                                                         --------       --------       -------       -------          --------
    Net cash (used in) provided by investing
      activities                                          (12,464)         1,151          (545)           --           (11,858)
                                                         --------       --------       -------       -------          --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net activity on revolving line of credit                   25,298             --            --            --            25,298
Proceeds from long-term borrowing                              --             --         1,034            --             1,034
Direct financing costs paid                                  (236)            --            --            --              (236)
Payment of loan origination fees                              (48)            --            --            --               (48)
Repayment of seller notes                                  (4,845)            --            --            --            (4,845)
Repayment of long-term borrowing                              (75)        (6,112)           --            --            (6,187)
                                                         --------       --------       -------       -------          --------
  Net cash provided by (used in)
    Financing activities                                   20,094         (6,112)        1,034            --            15,016
                                                         --------       --------       -------       -------          --------

NET (DECREASE) INCREASE IN CASH                             1,340           (395)       (2,484)           --            (1,539)
EXCHANGE RATE EFFECT ON CASH                                   --             --           113            --               113
CASH AND CASH EQUIVALENTS, BEGINNING
    OF PERIOD                                                 (13)         1,283         3,347            --             4,617
                                                         --------       --------       -------       -------          --------

CASH AND CASH EQUIVALENTS, END OF
  PERIOD                                                 $  1,327       $    888       $   976       $    --          $  3,191
                                                         ========       ========       =======       =======          ========
</TABLE>

(a)      Elimination of equity in earnings of subsidiaries.


                                       14

<PAGE>   15

6. CAPITAL STOCK AND STOCK INCENTIVE PLAN

         The Stock Incentive Plan reserves for issuance of 2,000,000 shares of
common stock of the Company. In general, the terms of the option awards
(including vesting schedules) will be established by the Compensation Committee
of the Company's board of directors.

         During the first quarter of 2001 options covering an aggregate of
740,943 shares of common stock were issued under the Plan. Various key
management employees were issued options on shares of common stock with an
exercise price equal to the price of the common stock on the dates of each of
the respective grants. In all cases, the options expire ten years after the date
of grant.

7. SEGMENT REPORTING

         The following table presents certain financial data as of and for the
three months ended March 31, 2001 by reportable segment (in thousands):

<TABLE>
<CAPTION>
                                                             TRANSIT      RAIL PRODUCTS      RAIL          OTHER/
                                                             SERVICES     AND SERVICES       TRACK        CORPORATE          TOTAL
                                                             --------     -------------     -------       ---------         --------
<S>                                                          <C>          <C>               <C>           <C>               <C>
            Total revenues for reportable segments           $101,224        $27,752        $43,981       $      --         $172,957
            Inter-segmental revenue                                --          1,529          1,040              --            2,569
            Depreciation/amortization                             271          1,212          2,051           1,710            5,244
            Segment operating profit (loss)                    11,799          1,980          1,614          (4,269)          11,124
            Costs and estimated earnings in excess of
              billings on uncompleted contracts                28,168             --          6,401              --           34,569
            Segment assets                                    184,711         77,502         99,647         488,748          850,608
</TABLE>

         The Company's reconciliation of segment totals to enterprise values is
as follows (in thousands):

<TABLE>
                    REVENUES:
                    <S>                                                      <C>
                      Total revenues for reportable segments                 $ 172,957
                      Elimination of inter-segment revenues                     (2,569)
                                                                             ---------
                      Consolidated revenues                                  $ 170,388
                                                                             =========

                    ASSETS:
                      Total assets for reportable segments                   $ 850,608
                      Elimination of inter-segment receivables                 (33,436)
                      Elimination of investments in subsidiaries              (214,045)
                                                                             ---------
                      Consolidated assets                                    $ 603,127
                                                                             =========
</TABLE>

         The Company's Canadian operations produced revenues for the three month
period ended March 31, 2001 of approximately $6,177,000. The net book value of
long-lived assets relating to the Canadian operations amounted to approximately
$26,753,000 as of March 31, 2001.

         The following table presents certain financial data as of and for the
three months ended March 31, 2000 by reportable segment (in thousands):

<TABLE>
<CAPTION>
                                                            TRANSIT      RAIL PRODUCTS      RAIL            OTHER/
                                                            SERVICES     AND SERVICES       TRACK         CORPORATE         TOTAL
                                                            --------     -------------     -------        ---------       --------
<S>                                                         <C>          <C>               <C>            <C>             <C>
            Total revenues for reportable segments          $ 63,773        $28,040        $38,849        $      --       $130,662
            Inter-segmental revenue                            3,432          1,037            828               --          5,297
            Depreciation/amortization                            182          1,493          1,764            1,404          4,843
            Segment operating profit (loss)                    5,119          4,080          3,391             (867)        11,723
            Costs and estimated earnings in excess of
              billings on uncompleted contracts               59,839          4,598          7,436               --         71,873
            Segment assets                                   134,960         68,288         71,759          452,082        727,089
</TABLE>

         The segment data presented above as of and for the three months ended
March 31, 2000 has been restated to reflect changes in the organization of the
Company's segment structure.


                                       15

<PAGE>   16

         The Company's reconciliation of segment totals to enterprise values is
as follows (in thousands):

<TABLE>
                 <S>                                                             <C>
                 REVENUES:
                   Total revenues for reportable segments                        $ 130,662
                   Elimination of inter-segment revenues                            (5,297)
                                                                                 ---------
                   Consolidated revenues                                         $ 125,365
                                                                                 =========

                 ASSETS:
                   Total assets for reportable segments                          $ 727,089
                   Elimination of inter-company receivables/payables                (6,671)
                   Elimination of investments in subsidiaries                     (143,154)
                                                                                 ---------
                   Consolidated assets                                           $ 577,264
                                                                                 =========
</TABLE>

         The Company's Canadian operations produced revenues for the three month
period ended March 31, 2000 of $5,270,175. The net book value of long-lived
assets relating to the Canadian operations amounted to $5,092,149 as of March
31, 2000.

Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

We were formed in March 1998 to become a leading nationwide provider of rail
system services, including construction and rehabilitation, repair and
maintenance, and related products. We primarily perform services pursuant to
contracts for the completion of specific projects, some of which take up to five
years to complete. On most projects, we contract directly with rail system
operators, while on other projects we act as a subcontractor.

In August 1998, we acquired, in separate concurrent transactions, fourteen
companies (the "Founding Companies") engaged principally in the rail system
services and products business and we consummated our initial public offering
("IPO") of Common Stock. In November 1998, we acquired two companies (the "1998
Acquired Companies"); in 1999, we acquired fourteen companies or groups of
companies (the "1999 Acquired Companies"); and in 2000, we acquired five
companies or groups of companies (the "2000 Acquired Companies"). Except for the
acquisition of Comstock Holdings, Inc. ("Comstock"), a Founding Company, all of
our acquisitions have been accounted for as purchases in accordance with APB No.
16. Comstock has been identified as the accounting acquirer for accounting and
financial statement purposes consistent with Staff Accounting Bulletin No. 97 of
the SEC because its owners received the largest portion, 34.6% of the shares of
Common Stock issued to the owners of the Founding Companies at the time of their
acquisition.

Our consolidated balance sheet as of March 31, 2001 includes all companies that
were acquired as of March 31, 2001. Our statement of operations and statement of
cash flows for the three months ended March 31, 2001 includes the results of
operations and cash flows of all companies acquired as of December 31, 2000.
There were no acquisitions during the three months ended March 31, 2001. Our
consolidated balance sheet as of December 31, 2000 includes all companies that
were acquired as of December 31, 2000. Our statement of operations and statement
of cash flows for the three months ended March 31, 2000 include the results of
operations and cash flows of all companies acquired as of December 31, 1999.
There were no acquisitions during the three months ended March 31, 2000.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2001 Compared to the Three Months Ended March 31,
2000.

Revenue. Revenue increased $45.0 million, or 35.9%, from $125.4 million for the
three months ended March 31, 2000 to $170.4 million for the three months ended
March 31, 2001. The increase in revenue for the three months ended March 31,
2001 was due primarily to increased revenue in the transit services segment and
the southwest division of the track services segment as well as the addition of
revenue from the 2000 Acquired Companies. These increases were offset by
decreased revenue from several of our subsidiaries in the rail products and
services segment.


                                       16

<PAGE>   17

         Transit services revenue increased $40.9 million, or 67.8%, from $60.3
million for the three months ended March 31, 2000 to $101.2 million for the
three months ended March 31, 2001. Approximately $10.5 million of the increase
in revenue for the three months ended March 31, 2001 was due to the addition of
revenue from the acquisition of HSQ Technology Corporation and Breaking
Technologies, Inc. In addition, approximately $8.7 million of the increase
arises from three commercial contracts; $14.2 million arises from five power and
industrial contracts; and $6.9 million arises from seven national transit
contracts. The remaining increase is a result of an overall increase in revenue
across the entire transit segment.

         Rail products and services revenue decreased $0.8 million, or 3.0%,
from $27.0 million for the three months ended March 31, 2000 to $26.2 million
for the three months ended March 31, 2001. This decrease in revenue for the
three months ended March 31, 2001 was the result of a decrease in revenue
related to three of our rail products and services subsidiaries and the sale of
FCM Rail, Ltd. during February 2001. These decreases were partially offset by
the addition of approximately $3.2 million of revenue from the acquisition of
The Western Tar Products Corporation and Hovey Industries, Ltd.

         Rail track services revenue increased $4.9 million, or 12.9%, from
$38.1 million for the three months ended March 31, 2000 to $43.0 million for the
three months ended March 31, 2001. This increase is a result of an increase in
revenue in our southwest division.

Gross Profit. Gross profit increased $6.1 million, or 25.4%, from $24.0 million
for the three months ended March 31, 2000 to $30.1 million for the three months
ended March 31, 2001. Approximately $3.2 million of the increase in gross profit
for the three months ended March 31, 2001 was due to additional gross profit
from the 2000 Acquired Companies. The remaining increase is the result of
additional gross profit realized on additional revenues in the transit segment
offset by decreases in gross profit in the rail products and services segment
and the rail track services segment. The gross profit percentage decreased from
19.2% for the three months ended March 31, 2000 to 17.7% for the three months
ended March 31, 2001. This decrease was due primarily to the effects of adverse
weather conditions, the general slowing of the Class I Railroad market and
overall competitive pressures upon the rail products and services segment and
the rail track services segment.

         Transit services gross profit increased $8.5 million or 89.5% from $9.5
million for the three months ended March 31, 2000 to $18.0 million for the three
months ended March 31, 2001. Approximately $3.2 million of the increase in gross
profit for the three months ended March 31, 2001 was due to the addition of
gross profit from the two transit services companies acquired during 2000 and
$1.5 million of the increase is a result of increased margins on a single
project. The remaining increase is a result of the increased revenue in the
commercial, power and industrial and national transit lines of business
discussed above. The gross profit percentage increased from 15.8% for the three
months ended March 31, 2000 to 17.8% for the three months ended March 31, 2001.
This percentage increase was due primarily to the higher gross margin
percentages of the two transit services companies acquired during 2000 as well
as the increased gross profit related to the referenced project.

         Rail products and services gross profit decreased $.6 million, or 9.4%,
from $6.4 million for the three months ended March 31, 2000 to $5.8 million for
the three months ended March 31, 2001. The decrease in gross profit for the
three months ended March 31, 2001 was due to an overall decrease in gross profit
in the entire rail products and services segment offset by the addition of
approximately $.3 million of gross profit from the two rail products and
services companies acquired during 2000. The gross profit percentage decreased
from 23.7% for the three months ended March 31, 2000 to 22.1% for the three
months ended March 31, 2001. The decrease in gross profit and gross profit
percentage for the rail products and services segment was the result of the
general slowing of the Class I Railroad market and the overall increase in
competitive pressures that such a slowdown creates.

         Rail track services gross profit decreased $1.8 million, or 22.2%, from
$8.1 million for the three months ended March 31, 2000 to $6.3 million for the
three months ended March 31, 2001. The gross profit percentage decreased from
21.3% for the three months ended March 31, 2000 to 14.7% for the three months
ended March 31, 2001. The decrease in gross profit and gross profit percentage
for the rail track services segment was due to an overall increase in
competitive pressures resulting from a general slowing of the Class I Railroad
market, as well as adverse weather conditions during the first quarter of 2001.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $6.7 million or 54.5%, from $12.3 million for
the three months


                                       17

<PAGE>   18

ended March 31, 2000 to $19.0 million for the three months ended March 31, 2001.
The increase in selling, general and administrative expenses for the three
months ended March 31, 2001 was due primarily to the addition of selling,
general and administrative expense of the 2000 Acquired Companies as well as
additional costs incurred in developing a centralized hub in the rail products
and services and rail track services segments, increased selling, general and
administrative expenses associated with the growth of the transit segment and
$0.2 million of restructuring and other unusual charges related to the Company's
Plan. As a percentage of revenue, selling, general and administrative expenses
increased from 9.8% for the three months ended March 31, 2000 to 11.2% for the
three months ended March 31, 2001. This percentage increase was due primarily to
the addition of the higher selling, general and administrative cost structures
of the 2000 Acquired Companies.

         Transit services selling, general and administrative expenses increased
$2.2 million or 55.0%, from $4.0 million for the three months ended March 31,
2000 to $6.2 million for the three months ended March 31, 2001. The increase in
selling, general and administrative expenses for the three months ended March
31, 2001 was due primarily to the addition of approximately $1.5 million of
selling, general and administrative expenses from the two transit services
companies acquired during 2000. The remaining increase is a result of the
overall growth of the segment. As a percentage of segment revenue, selling,
general and administrative expenses decreased from 6.6% for the three months
ended March 31, 2000 to 6.1% for the three months ended March 31, 2001. This
percentage decrease was primarily the result of leveraging our relatively fixed
overhead over a larger revenue base.

         Rail products and services selling, general and administrative expenses
increased $1.9 million, or 95.0%, from $2.0 million for the three months ended
March 31, 2000 to $3.9 million for the three months ended March 31, 2001. The
increase in selling, general and administrative expenses for the three months
ended March 31, 2001 was due primarily to the addition of selling, general and
administrative expenses from the two rail products and services companies
acquired during 2000. As a percentage of segment revenue, selling, general and
administrative expenses increased from 7.4% for the three months ended March 31,
2000 to 14.9% for the three months ended March 31, 2001. This percentage
increase was the result of additional costs incurred to establish a centralized
hub for the rail products and services segment as well as the addition of the
higher selling, general and administrative cost structures of the 2000 Acquired
Companies.

         Rail track services selling, general and administrative expenses
increased $.9 million, or 23.7%, from $3.8 million for the three months ended
March 31, 2000 to $4.7 million for the three months ended March 31, 2001. The
increase in selling, general and administrative expenses for the three months
ended March 31, 2001 was due primarily to the development of a centralized hub
for the rail track services segment and additional costs incurred to integrate
the operations of the segment. As a percentage of segment revenue, selling,
general and administrative expenses increased from 10.0% for the three months
ended March 31, 2000 to 10.9% for the three months ended March 31, 2001. This
percentage increase was primarily the result of additional costs incurred to
establish a centralized hub for the rail track services segment.

Corporate selling, general and administrative expenses increased $1.7 million,
or 68.0%, from $2.5 million for the three months ended March 31, 2000 to $4.2
million for the three months ended March 31, 2001. The increase in selling,
general and administrative expenses for the three months ended March 31, 2001
was due primarily to the increased level of overhead to administer the larger
operations in 2001. As a percentage of total revenue, selling, general and
administrative expenses increased from 2.0% for the three months ended March 31,
2000 to 2.5% for the three months ended March 31, 2001. The increase in
percentage results from the development of a larger overhead structure compared
to the prior year in order to manage the increased size and complexity of the
Company's operations.

Interest Expense. Interest expense increased $2.2 million, or 27.5%, from $8.0
million for the three months ended March 31, 2000 to $10.2 million for the three
months ended March 31, 2001. The increase in interest expense for the three
months ended March 31, 2001 was due primarily to the increase in average total
debt outstanding of $303.0 million for the three months ended March 31, 2000 at
an effective interest rate of 10.6% to $374.0 million for the three months ended
March 31, 2001 at an effective interest rate of 10.9%. General interest rates
have risen during this period, which adversely affects our variable rate debt.

Taxes. The Company's effective income tax rate increased to 76.7% for the three
months ended March 31, 2001 from 45.0% for the three months ended March 31,
2000. This increase is primarily attributable to the Company's decreased level
of earnings in the current year relative to the amount of non-deductible
goodwill amortization expense associated with certain acquisitions.


                                       18

<PAGE>   19

Net Income. Net income decreased $2.1 million, from $2.3 million for the three
months ended March 31, 2000 to $.2 million for the three months ended March 31,
2001, as a result of the items mentioned above.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

         We experience quarterly variations in revenue, operating income
(including operating losses), net income (including net losses) and cash flows
(including operating cash flow deficits) as a result of various factors,
including seasonality, projects commenced and completed during a quarter, the
number of business days in a quarter and the size and scope of projects. A
variation in the number of projects, progress on projects or the timing of the
initiation or completion of projects can cause periods in which certain
operating resources are not generating revenue and can cause significant
variations in operating results between reporting periods. Negative fluctuations
have been and may be particularly pronounced, and net losses have been and may
be incurred, in the first and fourth calendar quarters, generally due to adverse
weather conditions. We expect to continue to experience such quarterly
fluctuations in operating results, including possible net losses.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital. At March 31, 2001, we had working capital of approximately
$127.9 million. Net cash provided by operating activities for the three months
ended March 31, 2001 was approximately $3.7 million. Net cash provided by
investing activities for the three months ended March 31, 2001 was approximately
$5.1 million, which consisted primarily of cash proceeds from the sale of a
subsidiary offset by cash payments for capital expenditures. Net cash used in
financing activities for the three months ended March 31, 2001 was approximately
$14.5 million, which included borrowings of approximately $2.8 offset by debt
repayments and reduction of cash overdraft of approximately $17.3 million.

         Capital expenditures were $3.7 million and $5.4 million for the three
months ended March 31, 2001 and 2000, respectively. Historically, capital
expenditures have been, and future expenditures are anticipated to be, primarily
to support expansion of our operations, including our management information
systems. Our capital expenditures over the next several years, as a percentage
of revenues, are expected to decrease compared to those of the past two fiscal
years.

         We anticipate total capital expenditures of approximately $15 million
for equipment and leasehold improvements in 2001. This investment, which we
expect to finance primarily with working capital and vendor financing, relates
to the anticipated facility consolidations of the operating companies, the
continued installation and expansion of a comprehensive financial reporting
computer system and the purchase or lease of supplemental machinery and
equipment needed to meet operational demands.

         In connection with certain acquisitions, we have agreed to pay
additional consideration based on operating results of the acquired entity. The
payment of any such contingent consideration could result in an increase in the
purchase prices of such acquisitions and, as a result, additional goodwill.
Additional consideration recorded as goodwill as of March 31, 2001 relating to
2000 operating performance amounted to approximately $13.6 million as adjusted
based on finalized earn-out calculations. Such amounts are to be paid throughout
2001.

         Working capital is financed with funds from operations together with
borrowings under our Amended and Restated Credit Agreement, dated April 28,
2000, as amended December 13, 2000 and February 13, 2001, (the "Credit
Agreement"). At January 1, 2001, we had a $100 million amortizing term loan that
matures on September 30, 2006 and a $125 million revolving credit facility that
matures on November 5, 2004, consisting of an "Aggregate Revolving Committed
Amount" of $125 million and an "Available Revolving Committed Amount" of $100
million. The credit facilities are secured by a first lien on all of the capital
stock of our subsidiaries and certain assets of our domestic subsidiaries. The
credit facilities contain a negative pledge on all of our domestic subsidiaries'
assets as well as other usual and customary covenants and events of default for
transactions of the type contemplated by the credit facilities. Borrowings under
the credit facilities bear interest, at our option, at an interest rate equal to
(1) LIBOR plus the applicable margin for LIBOR loans, which ranges from 125
basis points to 400 basis points based on the ratio of Funded Debt to EBITDA (as
such terms are defined in the credit facility) or (2) the Alternate Base Rate
(defined as the higher of (a) the Bank of America prime rate and (b) the Federal
Funds rate plus 50 basis points) plus up to 250 basis points based on the ratio
of Funded Debt to EBITDA. Borrowings under the term loan are, at our option, at
an interest rate based on (1) LIBOR plus the applicable spread or (2) the
Alternative Base Rate (ABR) plus the applicable spread.


                                       19

<PAGE>   20

Credit Agreement. At March 31, 2001, we had an aggregate of $175.3 million of
borrowings outstanding under the Credit Agreement, which bore interest at a
weighted average rate of 9.09% per annum at such date, and had aggregate
borrowing availability under the Credit Agreement of $15.3 million (see
Amendment below). Due to the limited remaining availability under the line of
credit, the Company is considering requesting an increase to the maximum
availability under the line in order to fund working capital and contingent
purchase price requirements.

         On February 13, 2001 the Company entered into a second amendment to the
Credit Agreement pursuant to which the Company was granted approval to execute
the sale for cash of the capital stock of its wholly owned subsidiary, FCM Rail,
Ltd. As a result of this sale the revolving credit facility was reduced by $4.9
million and the Aggregate Revolving Committed Amount and the Available Revolving
Committed Amount under the revolving credit facility were reduced by $3.9
million each to $121.1 million and $96.1 million, respectively, by the portion
of the sale proceeds applicable to the Revolving Credit. Similarly, the term
loan facility was reduced by prepayments totaling $4.5 million, which were
applied in inverse order of maturities to the final scheduled principal
repayment of the term loan. The Amendment also revised two leverage ratios and
established a new Minimum Net Worth covenant in order to accommodate the impact
on certain financial covenants of the disposition of FCM Rail, Ltd. There was no
interest pricing increase nor were any fees payable in connection with obtaining
the Amendment. As of March 31, 2001, we were in full compliance with the terms
of the Credit Agreement and we expect to remain in compliance for the
foreseeable future.

Cash Management. Our recently implemented improved cash management system has
improved the ability of management to supervise cash collections and
disbursements. Under the new system, excess funds are applied against
outstanding revolving credit balances. Cash overdrafts represent checks
outstanding under the program as of March 31, 2001.

         We believe that funds generated from operations, together with existing
cash and borrowings under our revolving credit facility, will be sufficient to
finance our current operations, planned capital expenditures and internal
growth. However, as discussed above, an increase to the revolving credit
facility may need to be provided to finance the Company's working capital needs
and other requirements.

INFLATION

         We do not believe that inflation has had a material effect on our
results of operations in recent years. However, there can be no assurance that
our business will not be affected by inflation in the future.

CAUTIONARY STATEMENTS

         This quarterly report may contain forward-looking statements within the
meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934.
You can find discussions containing forward-looking statements in the section of
this report entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as in other sections. We use the
words "believes," "anticipates," "expects", "estimates," "plans," "intends" and
similar expressions so as to identify forward-looking statements. All
forward-looking statements involve substantial risks and uncertainties. There
may be events in the future that we are not accurately able to predict, or over
which we have no control.

         Forward-looking statements include, without limitation, our
expectations and estimates as to development of our services and products and
expansion of our customer base, future financial performance, including growth
in revenues and earnings and the effect on new acquisitions on our financial
position and results of operations, cash flows from operations, acquisitions,
capital expenditures, the availability of funds from credit facilities and the
sale of securities. Consequently, you should regard forward-looking statements
only as our current plans, estimates and beliefs. We do not promise to notify
you if we learn that our assumptions or projections are wrong for any reason.
Additional information concerning the risk and uncertainties listed above, and
other factors that you may wish to consider, are contained in our filings with
the Securities and Exchange Commission. Copies of these filings are available
from us free of charge.

         Some factors that may cause actual results to differ from projected
results are:

Substantial Leverage. We have a substantial amount of debt outstanding, which
could adversely affect our financial health. Our substantial amount of debt
could have important consequences for you. For example, it could:


                                       20

<PAGE>   21

         -        limit our ability to obtain additional financing, if we need
                  it, for working capital, capital expenditures, acquisitions,
                  debt service requirements or other purposes;
         -        increase our vulnerability to adverse economic and industry
                  conditions;
         -        require us to dedicate a substantial portion of our cash flow
                  from operations to payments on our debt, thereby reducing
                  funds available for operations, future business opportunities
                  or other purposes;
         -        limit our flexibility in planning for, or reacting to, changes
                  in our business and the industry in which we compete; and
         -        place us at a competitive disadvantage compared to our
                  competitors that have less debt.

Lack of Combined Operating History. Our company was founded in March 1998 but
conducted no operations and generated no revenue until we completed the initial
public offering, or IPO, of our common stock in August 1998. We acquired 14
groups of companies concurrently with the completion of our IPO and have
acquired an additional 21 operating companies, or groups of companies, since the
IPO through March 31, 2001. The integration of our operating companies, while
allowing them to retain decentralized operations and management, is important to
our operating and growth strategies and the achievement of efficiencies in our
combined operations. We may not be able to integrate the operations or the
necessary systems and procedures, including accounting and financial reporting
systems and project management systems, to manage effectively the combined
enterprise. Certain members of our management group have only recently joined
our company and there can be no assurance that the management group will be able
to implement our operating strategies. We cannot assure you that we will be able
to establish, maintain or increase the profitability of the operating companies.
Our financial statements include results of operations for certain operating
companies when they were not under common control or management. As a result,
our financial statements may not be indicative of our future results of
operations. Any failure by our management group to implement our strategies,
integrate the operating companies without substantial costs, delays or other
operational or financial difficulties, dispose of non-strategic subsidiaries or
effectively oversee the combined entity could have a material adverse effect on
our business, financial condition and results of operations.

Internal Growth. Our ability to grow will be affected by various factors,
including demand for rail system services and products, our success in bidding
on new projects, the success of our cross-selling efforts and our ability to
develop a national accounts program. Our growth may also depend on increased
outsourcing by rail system operators. Many of these factors are beyond our
control. Our strategies may not be successful or we may be unable to generate
cash flow adequate for combined operations and to support internal growth. The
senior managers of the operating companies retain responsibility for day-to-day
operations. If proper business controls are not implemented and maintained, this
decentralized operating strategy could result in inconsistent operating and
financial practices of the operating companies, which could have a material
adverse effect on our business, financial condition and results of operations.

Dependence on Certain Customers. We derived approximately 37.4% of our revenue
for the year ended December 31, 2000 from our top ten customers. Approximately
17.1% of our 2000 revenue was derived from projects undertaken for the New York
City Transit Authority, which we refer to as NYCTA. These projects were
undertaken under a number of separate contracts. If the NYCTA were to
significantly reduce the amount of business that it does with us or determine
not to do business with us in the future, it would have a material adverse
effect on our business, financial condition and results of operations.

Competition. The rail system services and products industry is highly
competitive. Numerous companies provide services to transit authorities,
construct and repair rail systems or sell related products or services, and some
of these companies operate in more than one of these lines of business. Some of
our competitors have greater resources than we have, may also provide a broad
range of services and products, and may have sufficient bonding capacity and
other resources to undertake large projects. Any inability to compete
successfully against our existing and future competitors would have a material
adverse effect on our business, financial condition and results of operations.
Certain of our operating companies also provide electrical contracting services
to non-rail industrial and commercial customers. While we believe that we
currently compete effectively in the non-rail electrical contracting business,
this industry is highly competitive and is served by small, owner-operated
private companies, public companies and several large regional companies.
Additionally, we could face competition in the future from other competitors
entering our markets.

Public Sector Contracts and Funding. The rail system services and products
business involves contracts that are supported by funding from federal, state
and local governmental agencies, as well as contracts with such agencies, which
we refer to as public sector contracts. Public sector contracts are subject to
detailed regulatory requirements


                                       21

<PAGE>   22

and public policies, as well as funding priorities. These contracts may be
conditioned upon the continuing availability of public funds; the availability
of public funds depends upon lengthy and complex budgetary procedures. These
contracts may also be subject to significant pricing constraints. Moreover,
public sector contracts may generally be terminated for reasons beyond the
control of the contractor, including when such termination is in the best
interests of the governmental agency. We cannot assure you that these factors or
others unique to public sector contracts will not have a material adverse effect
on our business, financial condition and results of operations.

Fixed Price Contracts. Fixed price contracts are typically awarded in the rail
system services industry pursuant to a competitive bidding process. In compiling
our bid on a particular project, we must estimate the time it will take to
complete the project, along with the project's labor and supply costs. These
costs may be affected by a variety of factors, some of which may be beyond our
control. If we cannot accurately predict the costs of fixed price contracts,
certain projects could have lower margins than anticipated or we could suffer
losses on the projects. From time to time we may incur unanticipated additional
contract costs for which we seek recovery from customers. Recovery of such
amounts involve various uncertainties and may require extended periods of
negotiation, litigation or other costs. As a result of these uncertainties,
amounts ultimately realized from these contracts may not be known for a
significant period following completion of a contract, and lower contract
margins or losses may result. Lower margins and losses could have a material
adverse effect on our business, financial condition and results of operations.

Reliance on Subcontractors and Suppliers. When we perform a contract for transit
signaling and communication systems, it may be as a subcontractor to the company
that designs the systems and manufactures or purchase the necessary equipment.
In other instances, we act as the prime contractor and subcontract the design of
the signal or communication system and necessary equipment. When we are a prime
contractor for such projects, we generally require subcontractors to post
performance bonds. We may not require a subcontractor to post a performance bond
in situations where (1) the subcontractor has strong experience with a specific
type of project and demonstrates financial stability and (2) the customer does
not require bonds from us as prime contractor. We sometimes depend upon the
subcontractor to perform design and other services and provide equipment. For
certain projects only a limited number of companies can perform the subcontract
if the initial subcontractor defaults. As a result, we depend upon our
subcontractors to perform under the subcontracts. Further, the major components
of signaling and communication systems for transit authorities are manufactured
to specifications and require long lead times for production. If a subcontractor
or supplier defaults, or if a supplier refuses or cannot do business with us, it
could have a material adverse effect on our business, financial condition and
results of operations.

Unionized Workforce. Approximately 50% of our employees are covered under
collective bargaining agreements. We cannot assure you that future work
stoppages will not affect us. In addition, labor agreements are generally
negotiated on an industry-wide basis and the terms and conditions of future
labor agreements could be beyond our control. We may be subject to terms and
conditions in future labor agreements that could have a material adverse effect
on our business, financial condition and results of operations.

Environmental and Other Government Regulation. Our operations are subject to
extensive federal, state and local regulation under environmental laws and
regulations. Among other things, these laws and regulations cover emissions to
the air, discharges to waters and the generation, handling, storage,
transportation, treatment and disposal of waste, underground and aboveground
storage tanks and remediation of soil and groundwater contamination.
Environmental liability can extend to previously owned or operated properties,
leased properties and properties owned by third parties, as well as to
properties currently owned and used by us. Environmental liabilities may also
arise from claims asserted by adjacent landowners or other third parties in
toxic tort litigation. We could incur significant ongoing costs associated with
environmental regulatory compliance. Further, we sometimes use hazardous
materials in connection with our operations. Although we believe that we
materially comply with all of the various environmental regulations applicable
to our business, we cannot assure you that requirements will not change in the
future or that we will not incur significant costs to comply with such
requirements.

         In addition to safety, health and other regulations of general
applicability, our operations may be significantly affected by regulations of
the Surface Transportation Board, the Federal Railroad Administration, the
Occupational Safety and Health Administration, state departments of
transportation and other state and local regulatory agencies. Changes in
regulation of the rail and transit industries through legislative,
administrative, judicial or other action could have a material adverse effect on
our business, financial condition and results of operations.


                                       22

<PAGE>   23

Dependence on Key Personnel. Our success depends to a significant extent upon
the efforts and abilities of certain key senior managers at Company headquarters
and at various of the Company's operations. While we have entered into
employment agreements with certain of these senior managers, we cannot be sure
that such individuals will remain with us throughout the terms of their
agreements, or thereafter. The loss of the services of one or more of these key
employees before we are able to attract and retain qualified replacement
personnel could have a material adverse effect on our business, financial
condition and results of operation.


Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to market risk associated principally with changes in interest
rates. As of March 31, 2001, interest rate exposure has been principally limited
to the $180.9 million of long-term debt outstanding at March 31, 2001 under our
credit facilities. All of that debt bears interest at rates that float with the
market. A 50 basis point movement in the interest rate on our floating rate debt
would have resulted in an approximately $905,000 annualized increase or decrease
in interest expense and cash flows. We will from time to time enter into
interest rate swaps on our debt, when we believe there is a clear financial
advantage for doing so. We do not use derivative financial or commodity
instruments for trading purposes and the use of such instruments is subject to
strict approval levels by senior officers. Typically, the use of such derivative
instruments is limited to interest rate swaps on our outstanding long-term debt.
Our exposure related to such derivative instruments is, in the aggregate, not
material to our financial position, results of operations and cash flows. There
were no swap agreements in effect as of March 31, 2001.

PART II: OTHER INFORMATION

Item 1.  Legal Proceedings

         None.

Item 2.  Changes in Securities and Use of Proceeds

         (i)      Changes in Securities

                  None.

         (ii)     Use of Proceeds

                  None.

         (iii)    Recent Sales of Unregistered Securities

                  During the three months ended March 31, 2001, we issued to 81
                  employees of RailWorks options to purchase a combined total of
                  740,943 shares of the Company's common stock. The exercise
                  price of the options was the market price of the stock on the
                  date of grant. The options expire ten years after the date of
                  grant.

Item 3.  Default Upon Senior Securities

                  None.

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

                  None.

Item 5.  Other Information

                  None.

Item 6.  Exhibits and Reports on Form 8-K


                                       23

<PAGE>   24

         a)       Exhibit List:

<TABLE>
                         <S>      <C>    <C>
                         10.49    --     Amended and Restated Employment Agreement, dated
                                         March 1, 2001 between RailWorks Corporation and
                                         Michael R. Azarela.
                         10.50    --     Amended and restated Employment Agreement, dated
                                         March 1, 2001 between RailWorks Corporation and
                                         John Larkin.
                         10.51    --     Amendment No. 2, dated February 22, 2001, to the
                                         Amended and Restated Credit Agreement dated
                                         April 28, 2000 among RailWorks Corporation, as
                                         Borrower, Certain Subsidiaries, as Guarantors, the Lenders
                                         named therein, First Union National Bank, as Documentation
                                         Agent, and Bank of America, N.A., as Administrative Agent.

</TABLE>

                  b)       Reports on Form 8-K:

                           A current report on Form 8-K, which included and
                           reported "Other events" under item 5, was filed on
                           March 27, 2001.


                                       24

<PAGE>   25

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



                                       RailWorks Corporation


                                       /s/ Edward M. Cumberledge
                                       -----------------------------------------
                                       By: Edward M. Cumberledge
                                       Vice President and
                                       Chief Financial Officer


Date: May 4, 2001


                                       25

<PAGE>   26

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                         Page
                                                                                         -----
              <S>      <C>    <C>                                                        <C>
              10.49    --     Amended and Restated Employment Agreement, dated           27-40
                              March 1, 2001 between RailWorks Corporation and
                              Michael R. Azarela.
              10.50    --     Amended and restated Employment Agreement, dated           41-54
                              March 1, 2001 between RailWorks Corporation and
                              John Larkin.
              10.51    --     Amendment No. 2, dated February 22, 2001, to the           55-63
                              Amended and Restated Credit Agreement dated April
                              28, 2000 among RailWorks Corporation, as Borrower,
                              Certain Subsidiaries, as Guarantors, the Lenders
                              named therein, First Union National Bank, as
                              Documentation Agent, and Bank of America, N. A., as
                              Administrative Agent.
</TABLE>


                                       26