<PAGE>

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                   Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
       For Quarter Ended March 31, 2000     Commission File Number 0-5206
                         --------------                            ------


                        EMONS TRANSPORTATION GROUP, INC.


             (Exact name of registrant as specified in its charter)


        Delaware                                               23-2441662
        -----------------------------------------------------------------
 (State of Incorporation)                  (I.R.S. Employer Identification No.)


   96 South George Street, York, Pennsylvania       17401       717-771-1700
   --------------------------------------------------------------------------
  (Address of principal executive offices)       (Zip Code)    (Telephone No.)


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                          Yes    X            No  ___
                               -----

     Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

                          Yes    X            No  ___
                               -----

     The number of shares of each class of common stock of the registrant issued
and outstanding as of March 31, 2000 is as follows:

               Voting Common Stock                    7,565,324
                                                      ---------

                                       1
<PAGE>



PART I.     FINANCIAL INFORMATION
Item 1.     Financial Statements

              EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                    March 31,               June 30,
                                                                                      2000                    1999
                                                                                   ------------          ------------
                                                                                   (unaudited)
<S>                                                                               <C>                  <C>
ASSETS
        Current Assets:
                Cash and cash equivalents                                          $  1,507,327          $  2,028,278
                Accounts receivable, net                                              3,443,597             2,967,742
                Materials and supplies                                                  355,433               149,815
                Prepaid expenses                                                        427,907               430,743
                Deferred income taxes                                                   812,000               812,000
                                                                                   ------------          ------------
                        Total current assets                                          6,546,264             6,388,578
                                                                                   ------------          ------------

        Property, plant and equipment                                                41,234,787            39,201,960
                Less accumulated depreciation                                       (13,720,830)          (12,364,909)
                                                                                   ------------          ------------
                        Property, plant and equipment, net                           27,513,957            26,837,051
                                                                                   ------------          ------------

        Deferred expenses and other assets                                              209,720               557,235
        Deferred income taxes                                                           383,500             1,243,000
                                                                                   ------------          ------------
TOTAL ASSETS                                                                       $ 34,653,441          $ 35,025,864
                                                                                   ============          ============


LIABILITIES AND STOCKHOLDERS' EQUITY
        Current Liabilities:
                Current portion of long-term debt                                  $    567,752          $    651,460
                Accounts payable                                                      1,436,359             1,089,133
                Accrued payroll and related expenses                                  1,549,982             1,998,594
                Other accrued expenses                                                1,638,796             2,000,715
                                                                                   ------------          ------------
                        Total current liabilities                                     5,192,889             5,739,902

        Long-term debt                                                               13,802,146            14,212,926
        Other liabilities                                                               843,634               824,886
                                                                                   ------------          ------------
                        Total Liabilities                                            19,838,669            20,777,714
                                                                                   ------------          ------------
        Stockholders' Equity:
                Common stock                                                             78,758                78,603
                Additional paid-in capital                                           23,630,689            23,625,471
                Deficit                                                              (8,127,477)           (9,164,191)
                                                                                   ------------          ------------
                                                                                     15,581,970            14,539,883
                Treasury stock, at cost                                                (506,481)                  --
                Comprehensive income                                                     42,322                33,615
                Unearned compensation - restricted stock awards                        (303,039)             (325,348)
                                                                                   ------------          ------------
                        Total Stockholders' Equity                                   14,814,772            14,248,150
                                                                                   ------------          ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                          $34,653,441           $35,025,864
                                                                                   ============          ============

</TABLE>
See accompanying notes to consolidated financial statements.

                                       2
<PAGE>

<TABLE>
<CAPTION>

                                            EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES

                                                   CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                 (unaudited)


                                                            Three Months Ended                        Nine Months Ended
                                                                 March 31,                                March 31,
                                                     ---------------------------------      -------------------------------------
                                                          2000               1999                2000                  1999
                                                     --------------      -------------      ---------------      ----------------
<S>                                               <C>                 <C>                <C>                  <C>
 Operating revenues                                $     6,245,268     $    6,229,741     $     18,821,614     $      16,629,138

 Operating expenses:
   Cost of operations                                    4,628,118          4,341,338           13,039,693            11,313,584
   Selling and administrative                            1,031,776          1,012,145            2,988,643             2,797,010
                                                     --------------      -------------      ---------------      ----------------
       Total operating expenses                          5,659,894          5,353,483           16,028,336            14,110,594
                                                     --------------      -------------      ---------------      ----------------

 Income from operations                                    585,374            876,258            2,793,278             2,518,544

 Other income (expense):
   Interest income                                          23,570             24,234               74,545                69,717
   Interest expense                                       (282,307)          (304,437)            (859,878)             (755,333)
   Other, net                                              (21,467)             6,267               18,769                12,280
                                                     --------------      -------------      ---------------      ----------------
       Total other income (expense)                       (280,204)          (273,936)            (766,564)             (673,336)
                                                     --------------      -------------      ---------------      ----------------

 Income before income taxes                                305,170            602,322            2,026,714             1,845,208

 Provision for income taxes                                228,000            231,000              990,000               752,000
                                                     --------------      -------------      ---------------      ----------------

 Net income                                                 77,170            371,322            1,036,714             1,093,208

 Preferred dividend requirements                                 -             51,994                    -               157,042
                                                     --------------      -------------      ---------------      ----------------

 Income applicable to common shareholders          $        77,170     $      319,328     $      1,036,714     $         936,166
                                                     ==============      =============      ===============      ================

 Weighted average number of common shares (Note 2):
       Basic                                             7,779,193          6,104,155            7,828,688             6,083,485
                                                     ==============      =============      ===============      ================

       Diluted                                           8,038,609          7,813,149            8,086,256             7,841,517
                                                     ==============      =============      ===============      ================

 Earnings per common share (Note 2):
       Basic                                       $          0.01     $         0.05     $           0.13     $            0.15
                                                     ==============      =============      ===============      ================

       Diluted                                     $          0.01     $         0.05     $           0.13     $            0.14
                                                     ==============      =============      ===============      ================

</TABLE>
 See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

               EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)
<TABLE>
<CAPTION>

                                                                      Nine Months Ended
                                                                          March 31,
                                                            --------------------------------------
                                                                  2000                  1999
                                                            ----------------       ---------------
<S>                                                       <C>                    <C>
 Cash flows from operating activities:
      Net income                                          $       1,036,714      $      1,093,208
          Adjustments to reconcile net income to net
            cash provided by operating activities:
               Depreciation                                       1,362,314             1,076,808
               Amortization                                         107,361               120,252
               Loss on sale of assets                                 2,982                     -
               Gain on forgiveness of debt                         (140,485)             (129,754)
               Change in deferred income taxes                      859,500               627,000
               Changes in assets and liabilities:
                    Accounts receivable, materials and
                      supplies and prepaid expenses                (665,176)             (858,055)
                    Accounts payable and accrued expenses          (472,522)            1,259,254
                    Other assets and liabilities, net               310,567               269,293
                                                            ----------------       ---------------
 Net cash provided by operating activities                        2,401,255             3,458,006
                                                            ----------------       ---------------

 Cash flows from investing activities:
      Proceeds from sale of assets                                    6,500                     -
      Additions to property, plant and equipment                 (1,957,183)           (1,916,902)
      Investment in acquired rail properties                              -            (4,818,660)
                                                            ----------------       ---------------
 Net cash used in investing activities                           (1,950,683)           (6,735,562)
                                                            ----------------       ---------------

 Cash flows from financing activities:
      Proceeds from issuance of long-term debt                      120,827             6,302,098
      Borrowings from long-term debt                              1,334,000                     -
      Reduction in long-term debt                                (1,881,291)           (2,708,062)
      Purchase of treasury stock                                   (506,481)                    -
      Debt issuance costs                                                 -              (317,485)
      Preferred stock conversion costs                              (21,486)                    -
                                                            ----------------       ---------------
 Net cash (used in) provided by financing activities               (954,431)            3,276,551
                                                            ----------------       ---------------
 Effect of exchange rate changes on cash                            (17,092)               (2,593)
                                                            ----------------       ---------------

 Net decrease in cash and cash equivalents                         (520,951)               (3,598)

 Cash and cash equivalents at beginning of period                 2,028,278             2,677,004
                                                            ----------------       ---------------

 Cash and cash equivalents at end of period               $       1,507,327      $      2,673,406
                                                            ================       ===============
</TABLE>

 See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    For the Nine Months Ended March 31, 2000
                                   (unaudited)

Note 1.  Quarterly Financial Statements

          The information furnished herein has been prepared in accordance with
generally accepted accounting principles.  In the opinion of the management of
Emons Transportation Group, Inc. (the "Company" or "Emons Transportation
Group"), all adjustments (which include only normal recurring adjustments)
considered necessary to present a fair statement of the results for the periods
covered by this report have been made.  Results for the interim periods are not
necessarily indicative of annual results.

Note 2.  Earnings Per Share

          Basic earnings per common share is computed by dividing income
applicable to common shareholders by the weighted average number of shares of
common stock outstanding during the period.  Diluted earnings per common share
is computed by dividing income applicable to common shareholders by the weighted
average number of common shares and dilutive potential common shares outstanding
during the period.

          At a Special Meeting of the Stockholders of the Company held on June
29, 1999, the shareholders voted to approve the merger of ETG Merger Corporation
into Emons Transportation Group, Inc. (the "Merger"), resulting in the exchange
of each share of the Company's outstanding $0.14 Series A Cumulative Convertible
Preferred Stock into 1.1 shares of the Company's Common Stock.  As a result of
the Merger, the Company converted all 1,485,543 of its outstanding shares of
Convertible Preferred Stock into 1,633,788 shares of Common Stock effective June
29, 1999.

          Earnings per share amounts are computed as follows:
<TABLE>
<CAPTION>

                                                    For the three months ended March 31,
                                  --------------------------------------------------------------------------
                                                2000                                    1999
                                  ----------------------------------     -----------------------------------
                                    Income       Shares       EPS          Income       Shares       EPS
                                    ------       ------       ---          ------       ------       ---
<S>                              <C>          <C>          <C>          <C>           <C>           <C>
Net Income                        $ 77,170                               $ 371,322
   Less:  Preferred dividend
      requirements                       -                                 (51,994)
                                  --------                               ---------

Basic EPS
   Income applicable to
     common shareholders          $ 77,170     7,779,193    $ 0.01       $ 319,328     6,104,155     $ 0.05
                                                              ====                                     ====

Effect of Dilutive Securities
   Stock options and warrants            -       259,416                         -       372,005
   Convertible preferred stock           -             -                    51,994     1,336,989
                                  --------    ----------                 ----------   ----------


Diluted EPS
   Income applicable to common
     shareholders plus assumed
     conversions                  $ 77,170     8,038,609    $ 0.01       $ 371,322    7,813,149     $ 0.05
                                    ======     =========      ====         =======    =========       ====

</TABLE>

                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                         For the nine months ended March 31,
                                        -------------------------------------------------------------------
                                                         2000                               1999
                                        --------------------------------    -------------------------------
                                            Income      Shares     EPS        Income       Shares    EPS
                                          -----------  ---------  ------    -----------   ---------  ------
<S>                                       <C>          <C>        <C>       <C>           <C>        <C>
Net Income                                 $1,036,714                        $1,093,208
   Less:  Preferred dividend
      requirements                                  -                          (157,042)
                                           ----------                        ----------


Basic EPS
   Income applicable to
     common shareholders                   $1,036,714  7,828,688   $0.13     $  936,166   6,083,485   $0.15
                                                                  ======                             ======

Effect of Dilutive Securities
   Stock options and warrants                       -    257,568                      -     411,954
   Convertible preferred stock                      -          -                157,042   1,346,078
                                            ---------  ---------             ----------   ---------

Diluted EPS
   Income applicable to common
     shareholders plus assumed
     conversions                           $1,036,714  8,086,256   $0.13     $1,093,208   7,841,517   $0.14
                                           ==========  =========  ======     ==========   =========  ======
</TABLE>

Note 3.  Comprehensive Income

         Comprehensive income for the three and nine-month periods ended
March 31, 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                     Three months ended          Nine months ended
                                         March 31,                   March 31,
                                 ------------------------------------------------------
<S>                                <C>         <C>           <C>           <C>
                                      2000         1999            2000          1999
                                      ----         ----            ----          ----
Net Income                          $ 77,170    $ 371,322     $ 1,036,714   $ 1,093,208
Other comprehensive
  income, net of tax
    Foreign currency
      translation adjustment          (3,120)      11,992           8,707        10,992
                                      ------      -------       ---------     ---------
Total comprehensive income          $ 74,050    $ 383,314     $ 1,045,421   $ 1,104,200
                                      ======      =======       =========     =========
</TABLE>

Note 4.  Contingencies

     Certain subsidiaries of the Company are currently subject to a number of
claims and legal actions that arise in the ordinary course of business,
including claims under the Federal Employers' Liability Act, a fault-based
system under which injuries to and deaths of railroad employees are settled by
negotiations or litigation based upon comparative negligence.  The Company
believes that it has adequate insurance coverage and has provided adequate
reserves for any liabilities which may result from the ultimate outcome of these
claims, and that such claims will not have a material impact on the Company's
consolidated financial position or results of operations.

     Product Liability Actions
     -------------------------

     Prior to March 1971, under previous management, Emons Industries, Inc.
("Industries") (then known as Amfre-Grant, Inc.) was engaged in the business of
distributing (but not manufacturing) various generic and prescription drugs.
Industries sold and discontinued these business activities in March 1971 and
commenced its railcar leasing and railroad operations in October 1971.  One of
the drugs which had been distributed was diethylstilbestrol ("DES"), which was
taken by women during pregnancy to prevent miscarriage.

                                       6
<PAGE>

     As of March 31, 2000, Industries was one of numerous defendants (including
many of the largest pharmaceutical manufacturers) in 553 lawsuits in which the
plaintiffs allege that DES caused adenosis, infertility, cancer or birth defects
in the offspring or grandchildren of women who ingested DES during pregnancy.
In these actions, liability is premised on the defendant's participation in the
market for DES, and liability is several and limited to the defendant's share of
the market.  Of these lawsuits, 548 were commenced after confirmation by the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") of Industries' Reorganization Plan in December 1986 (the
"Plan"), while the remaining five lawsuits are claims which will be treated
under the Plan.  These actions are currently in various stages of litigation.

     On April 16, 1998, the Bankruptcy Court granted Industries' motion for
summary judgment declaring that the post-confirmation lawsuits represent claims
which should be asserted against Industries' Chapter 11 estate and are not post-
reorganization liabilities.  A formal judgment was entered by the court on May
6, 1998.  In September 1998, one counsel representing multiple DES claimants
appealed the Bankruptcy Court's judgment to the United States District Court.
This appeal remains pending.

     Industries has product liability insurance and defense coverage for nearly
all the claims which fall within the policy period 1948 to 1970 up to varying
limits by individual and in the aggregate for each policy year.  To date,
Industries has exhausted insurance coverage for the 1954 policy year, in which
61 cases remained pending as of March 31, 2000.  Industries, and not its
insurer, will be required to pay the direct legal expenses in connection with
claims in policy years for which coverage has been exhausted.  However, to the
extent that the Bankruptcy Court's judgment referred to above is upheld (with
the result that post-confirmation claims must be asserted against Industries'
Chapter 11 estate) Industries will not be required to pay any amounts for
settlements or judgments on such claims in excess of the amounts already set
aside in escrow under its 1986 Reorganization Plan.  During the period July 1,
1999 to March 31, 2000, 12 new actions were commenced in which Industries was
named as a defendant and 28 lawsuits were settled or dismissed at no liability
to Industries.

     Included in the 553 lawsuits as of March 31, 2000, there were 194 cases
pending in the state court in Ohio.  On June 29, 1998, the Ohio Supreme Court
ruled that Ohio law would not permit DES cases in which the plaintiff could not
identify the manufacturer of DES allegedly ingested by mothers of DES
plaintiffs.  As a result of this ruling, all 194 Ohio DES cases against the
Company were dismissed by the trial and appellate courts with jurisdiction over
them.  The Ohio Supreme Court recently granted plaintiff's application for leave
to appeal these dismissals, and it is believed that the Ohio Supreme Court will
hear this appeal before the end of 2000.

                                       7
<PAGE>

     The following table sets forth the states and courts in which DES cases
were pending, and the number of DES cases pending against the Company in each
jurisdiction as of March 31, 2000:

                                                           Number of
  State                         Court                        Cases
  -----                         -----                        -----


California                 Los Angeles County                    1
                           San Francisco County                  4

New York                   New York County                     342

Ohio                       Cuyahoga County                     114
                           Summit County                        80

Pennsylvania               Philadelphia County                  11

Texas                      Travis County                         1



     These cases seek, as relief, compensation for injuries that plaintiffs
allegedly have sustained as a result of in utero DES exposure and punitive
damages.  The amounts sought are not specified.

     Management intends to vigorously defend all of these actions.  In the event
that the Bankruptcy Court's decision referred to above is reversed by the
appellate court, it is possible that Industries could ultimately have liability
in these actions in excess of its product liability insurance coverage described
above.  However, based upon Industries' experience in prior DES litigation,
including the proceedings before the Bankruptcy Court, and its current knowledge
of pending cases, the Company believes that it is unlikely that Industries'
ultimate liability in the pending cases, if any, in excess of insurance coverage
and existing reserves, will be in an amount sufficient to have a material
adverse effect upon the Company's consolidated financial position or results of
operations.

     Environmental Liability
     -----------------------

     During fiscal 1994, the Company's Maryland and Pennsylvania Railroad
("MPA") (which was merged into York Railway Company on December 1, 1999)
discovered a diesel fuel oil spill at its locomotive maintenance facility in
York, Pennsylvania, resulting from the fueling of its locomotives.  MPA is
currently performing additional testing and is working with the Pennsylvania
Department of Environmental Protection ("PADEP") to investigate and, to the
extent necessary, remediate the contaminated area.  In January 1997, as a result
of these testing activities, MPA discovered free product in some of its
monitoring wells.  The Company estimates that the cost to remediate the free
product could potentially range from $130,000 to $225,000, although the final
costs have not yet been determined.  The Company has provided sufficient
reserves for the anticipated remediation costs.  PADEP could also potentially
require further investigation and, to the extent necessary, remediation of
ground water and/or soils at this facility at some point in the future.
However, the Company cannot determine at this time whether PADEP will require
further investigation and remediation, or what the ultimate costs of addressing
this matter may be or what effect, if any, they could have upon the Company's
consolidated financial position or results of operations.

     Railroad Industry Consolidation
     -------------------------------

     The consolidations involving certain Class I Railroads that routinely
interchange traffic with the Company's railroads have recently been completed.
Consolidated Rail Corporation, which previously interchanged traffic with the
Company's Pennsylvania rail operations, was

                                       8
<PAGE>

divided and acquired by the Norfolk Southern Railroad ("NS") and CSX Corporation
("CSX") effective June 1, 1999.  The Company has experienced a reduction in
business levels as a result of service disruptions caused by CSX's and NS's
implementation of the merger.  The Company cannot currently predict how long
such service disruptions will persist or what the total impact of such service
disruptions may have on its results of operations.  In addition, the Canadian
National Railway Company ("CN"), which interchanges traffic with the Company's
St. Lawrence & Atlantic Railroad (Quebec) ("SLQ"), completed the acquisition of
the Illinois Central Railroad ("IC") on July 1, 1999.  To date, the Company's
operations have not been adversely impacted as a result of CN's acquisition of
IC.

     On December 20, 1999, CN announced its intentions to merge with the
Burlington Northern Santa Fe Corporation ("BNSF"), thereby creating North
America's largest railroad.  The merger is subject to shareholder approval of
both companies and regulatory approval of the Surface Transportation Board
("STB").  The STB held four days of hearings on March 7 to 10, 2000, and
subsequently on March 17, 2000, issued a 15-month moratorium on mergers among
large railroads while the STB develops new rules regarding such mergers.  On
March 29, 2000, BNSF filed a motion with the United States Court of Appeals for
a stay of the 15-month moratorium.  The merger of CN and BNSF would create an
extensive single-line network across Canada and the central and western United
States, and would provide the Company's St. Lawrence & Atlantic Railroad ("SLR")
and SLQ with single-line access to the western United States, including west
coast ports and direct connections to Mexico.  Single-line service is generally
more efficient than service through multiple carriers for two primary reasons.
First, single-line access generally provides for shorter transit times since
railcars do not have to be interchanged with other rail carriers.  Second,
single-line service is generally more cost effective since only one railroad
handles the traffic and receives revenues for providing rail services.

     While the Company does not anticipate any significant long-term negative
impact as a result of these consolidations, and believes that they will create
additional long-term opportunities for its railroad operations, there can be no
assurance that these consolidations will not have an unfavorable impact on the
Company's railroad operations.

Note 5.  New Accounting Pronouncement

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133").  FAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities.  It
requires that companies recognize all derivatives as either assets or
liabilities in the statement of financial position and measure the derivatives
at fair value.  In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" ("FAS 137").  FAS 137 deferred the effective date of FAS 133
one year, to all fiscal quarters of all fiscal years beginning after June 15,
2000.  FAS 133 shall not be applied retroactively to financial statements of
prior periods.  The Company's interest rate hedging transactions constitute cash
flow hedges under FAS 133.  The Company has not yet quantified the impact of and
has not determined the timing of or method of adoption of the provisions of FAS
133.  However, FAS 133 could increase volatility in earnings and/or other
comprehensive income.

Note 6.  Reclassifications

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

                                       9
<PAGE>

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

      This Form 10-Q contains certain "forward-looking" statements regarding
future events and the future performance of Emons Transportation Group, Inc.
that involve risks and uncertainties that could cause actual results to differ
materially.  Those risks and uncertainties include, but are not limited to,
economic conditions, customer demand, service of connecting Class I rail
carriers, increased competition in the relevant market, government regulation,
and other factors described herein and in other filings with the Securities and
Exchange Commission that could cause the Company's results to differ from its
current expectations.

     General

     On November 25, 1998, the Company's newly-created, wholly-owned subsidiary,
St. Lawrence & Atlantic Railroad (Quebec) Inc. ("SLQ"), entered into an Asset
Purchase Agreement to acquire a 94-mile rail line in Quebec, Canada (the
"Sherbrooke Line") from the Canadian National Railway ("CN").  The acquisition
was completed on December 21, 1998.  The Sherbrooke Line connects with CN's
Halifax-to-Montreal main line at Ste. Rosalie, Quebec, and the Company's St.
Lawrence & Atlantic Railroad ("SLR") at the Quebec/Vermont international border.
SLQ commenced operations on December 1, 1998 under an interim operating
arrangement provided for in the Asset Purchase Agreement.  The Company also
acquired 10 locomotives, maintenance of way and other equipment, and materials
and supplies in connection with the acquisition, and subsequently acquired one
and leased two additional locomotives for these operations.

     On June 1, 1999, the Norfolk Southern Railroad ("NS") and CSX Corporation
("CSX") completed the split-up of Consolidated Rail Corporation ("Conrail") and
commenced operations of their respective portions of Conrail.  NS's and CSX's
implementation of the merger has caused congestion, a lack of car supply for
customers and service disruptions, which has resulted in a loss of business to
trucking and alternative routes for all of the Company's rail operations.  While
the Company cannot predict how long such problems will persist or what the total
impact of such problems may have on its results of operations, the Company
believes that, on a long-term basis, the merger will create additional rail
business for its Pennsylvania rail operations as a result of longer Class I
single-line rail service on competitive routes.

      On December 1, 1999, the Company merged the operations of its two railroad
subsidiaries located in the York, Pennsylvania area, the Maryland and
Pennsylvania Railroad Company ("MPA") and Yorkrail, Inc. ("YKR"), into a new
company, York Railway Company ("YRC").  MPA and YKR, which operate in the same
geographic area and actually meet or cross at several locations, were merged in
order to provide better service and more efficiently meet customers' needs.  For
comparability, car count information included in Management's Discussion and
Analysis has been adjusted for all periods prior to the merger to eliminate
bridge moves between MPA and YKR, which were counted as two moves prior to the
merger (once by MPA and once by YKR) and are counted as one move subsequent to
the merger.  Bridge moves represent traffic that is received from one connecting
rail carrier and delivered to another connecting rail carrier, as opposed to
being received from or delivered to a customer located directly on line.

     Liquidity and Capital Resources

      The Company's primary sources of liquidity include its cash and accounts
receivable, which aggregated $4,951,000 and $4,996,000 at March 31, 2000 and
June 30, 1999, respectively, the balance available under the Company's $2
million working capital facility, and the amount prepaid on the $7,775,000
seven-year revolving term loan (the "Revolving Term Loan"), which is available
for future borrowings.  As of March 31, 2000, the Company had no borrowings
under the working capital facility and had approximately $2 million available in
accordance with the facility's eligibility criteria.  As of March 31, 2000, the
Company prepaid $1,166,000 of its Revolving Term

                                       10
<PAGE>

Loan, which is also available for future borrowings.  The Company believes that
it will be able to generate sufficient cash flow from operations to meet its
current and future capital requirements and debt obligations.

      On March 8, 2000, the Company repurchased 310,450 shares of its Common
Stock for $506,000.  On March 20, 2000, the Company's Board of Directors
authorized a stock repurchase program for the Company's Common Stock up to an
aggregate price of $2 million, including the previously acquired and approved
310,450 shares.

     The Company intends to utilize the $2 million working capital facility and
balance available under the Revolving Term Loan to help fund the Company's
internal growth activities, future acquisitions, and the Company's stock
repurchase program.  The Company does not currently have any commitments nor is
the Company involved in substantive negotiations for any acquisitions.

      The Company's cash and cash equivalents decreased $521,000 for the nine
months ended March 31, 2000.  The net decrease includes $2,401,000 of cash
provided by operations, offset by $1,957,000 of capital investments, a $426,000
net reduction in long-term debt, $506,000 utilized for the repurchase of 310,450
shares of the Company's Common Stock, $21,000 of additional costs incurred in
conjunction with the exchange of the Company's Convertible Preferred Stock into
Common Stock which took place in June 1999, and a $17,000 exchange rate impact
relating to SLQ operations.

     The Company generated $2,401,000 of cash from operations for the nine
months ended March 31, 2000, as compared to $3,458,000 for the corresponding
period in the prior year. Excluding changes in assets and liabilities, cash
provided by operations increased $440,000 from $2,788,000 for the nine months
ended March 31, 1999 to $3,228,000 for the nine months ended March 31, 2000, as
a result of improved operating performance in the current year. Cash used by
changes in assets and liabilities aggregated $827,000 for the first nine months
of fiscal 2000, primarily as a result of an increase in accounts receivable in
conjunction with state funded capital projects, and a decrease in accrued
expenses as a result of payments under fiscal 1999 profit sharing and incentive
compensation plans.

      The Company invested $1,957,000 in capital expenditures during the first
nine months of fiscal 2000, including $1,334,000 of investments in railroad
track structures (net of $255,000 of government grants), a $387,000 investment
in the construction of a bulk transload facility for the Company's logistics
operations in York, Pennsylvania (net of $590,000 of grants from the state of
Pennsylvania), and $236,000 of other capital investments.  Approximately
$625,000 of the investment in railroad track structures relates to improvements
to SLQ's track infrastructure, a large portion of which was contemplated in
connection with the acquisition of SLQ.  As of March 31, 2000, the Company had
approximately $500,000 of state government grants, approximately $650,000 of
Quebec government grants, and approximately $100,000 of state government funding
under no interest loan programs available for future track rehabilitation
projects and other track improvement projects.  In addition, the Company was
awarded a $763,000, 50% matching grant from the state of Pennsylvania for the
construction of a bulk transload facility for the Company's logistics operations
in York, Pennsylvania.  The Company commenced construction of this $1.5 million
facility in October 1999, the facility was operational by December 31, 1999, and
the facility was completed in early May 2000.

     In August 1999, the Company received notice from the owner of four of the
lines leased by Penn Eastern Rail Lines ("PRL") of its intention to offer these
lines for sale.  On January 28, 2000, PRL submitted a proposal to exercise its
right of first refusal to purchase two of the four leased lines for an
aggregated consideration of $691,000, and reserved its right to submit a bid for
the purchase of the remaining two leased lines.  The Company does not believe
that the loss of business from the remaining two leased lines would have a
material impact on its results of operations.  The Company has no other material
commitments for capital expenditures.

                                       11
<PAGE>

      The Company's net long-term debt obligations decreased $426,000 during the
nine-month period ended March 31, 2000, including $1,881,000 of required debt
repayments, partially offset by a $1,334,000 draw on the Revolving Term Loan and
$121,000 of borrowings under government no interest loan track rehabilitation
programs.


       Analysis of operations for the three months ended March 31, 2000
               compared to the three months ended March 31, 1999

                             Results of Operations
                             ---------------------

      The Company generated net income of $77,000 for the three-month period
ended March 31, 2000, as compared to net income of $371,000 for the three-month
period ended March 31, 1999.  Income before income taxes decreased $297,000, or
49%, from $602,000 for the quarter ended March 31, 1999, to $305,000 for the
corresponding quarter in the current year.  Operating revenues increased
$16,000, operating expenses increased $307,000, interest and other non-operating
income decreased $28,000, interest expense decreased $22,000, and the provision
for income taxes decreased $3,000 as compared to the prior year quarter.  The
prior year quarter ended March 31, 1999 includes $41,000 of start-up expenses
associated with the acquisition and first four months of operations of SLQ,
which commenced on December 1, 1998.  Excluding these start-up expenses, income
before income taxes decreased $338,000, or 53%.

                                    Revenues
                                    --------

      Operating revenues increased $16,000, or .2%, from $6,229,000 for the
three-month period ended March 31, 1999 to $6,245,000 for the three-month period
ended March 31, 2000.  This increase consists of a $104,000 increase in freight
and haulage revenues (excluding intermodal freight) and a $66,000 increase in
intermodal freight and handling revenues, partially offset by a $13,000 decrease
in logistics revenues and a $141,000 decrease in other operating revenues.

      Freight and haulage revenues (excluding intermodal freight) increased
$104,000, or 2%, primarily as a result of a 2.3% increase in average revenues
per carload.  Total traffic handled decreased slightly from 17,050 carloads for
the quarter ended March 31, 1999 to 17,025 carloads for the quarter ended March
31, 2000.  Traffic for the quarters ended March 31, 2000 and March 31, 1999
includes approximately 5,225 and 5,400 overhead carloads on SLQ, respectively,
delivered to SLR that are counted as revenue carloads for both SLR and SLQ.
Freight and haulage revenues on New England/Quebec operations decreased $34,000
and, excluding overhead carloads between SLR and SLQ, traffic decreased
approximately 150 carloads, while freight and haulage revenues on Pennsylvania
operations increased $138,000 and traffic increased 300 carloads.

      Excluding overhead traffic between SLR and SLQ, the 150 carload decrease
in New England/Quebec traffic is attributable to approximately 550 carloads of
one-time shipments of cement and pipe last year that did not recur this year,
the closing of a paper mill which accounted for 115 carloads in the prior year,
and a decrease of 140 fuel oil carloads for a customer that converted from oil
to natural gas.  The congestion and service disruptions caused by NS's and CSX's
implementation of the Conrail merger adversely affected SLR's overall business
as a result of service and car supply problems.  These decreases were partially
offset by 125 additional overhead grain carloads, 110 additional carloads to an
on-line liquid propane gas distributor, 125 additional SLQ carloads, and a
variety of less significant increases in business.

      Freight and haulage revenues for Pennsylvania rail operations increased
$138,000 and traffic handled increased 300 carloads, despite being adversely
impacted by the congestion and service disruptions caused by NS's and CSX's
implementation of the Conrail merger.  The net increase in freight and haulage
revenues includes approximately 500 additional agricultural

                                       12
<PAGE>

carloads due to local drought conditions last year, a decrease of 200 coal
carloads as a result of timing of shipments, and a variety of other less
significant increases and decreases in business.

      The 2.3% increase in average revenues per carload is attributable to mix
of business and price adjustments.

      Intermodal freight and handling revenues generated by the Company's rail
intermodal terminal in Auburn, Maine increased $66,000, or 32%, from $207,000
for the three months ended March 31, 1999 to $273,000 for the corresponding
period in the current year.  Intermodal volume increased 375 trailers and
containers, or 20%, from 1,925 trailers and containers for the third quarter of
the prior year to 2,300 trailers and containers for the third quarter of the
current year.  In October 1999, the Company's intermodal terminal handled its
first international steamship container, and is cautiously optimistic that this
business will continue to result in an increase in future intermodal volume.
SLR and SLQ, in conjunction with CN, offer the only hi-cube, double stack,
cleared route in northern New England for intermodal trains, and provide the
Company's intermodal terminal with access to five CN served ports including
Vancouver, Montreal, Halifax, New Orleans and Mobile.

      Logistics revenues generated by the Company's operations in York,
Pennsylvania, decreased $13,000, or 11%, from $126,000 for the three months
ended March 31, 1999 to $113,000 for the three months ended March 31, 2000.  The
number of railcars handled decreased 32%, partially offset by a 28.5% increase
in average handling revenues per car as a result of the loss of lower revenue
business.

      Other operating revenues decreased $141,000 from the prior year as a
result of a $90,000 decrease in railcar storage and demurrage revenues, and a
variety of less significant decreases in other operating revenues.

      The $28,000 decrease in interest and other non-operating income from the
prior year is primarily attributable to foreign exchange losses relating to the
Company's Canadian rail operations.

                                    Expenses
                                    --------

      Operating expenses increased $307,000, or 5.7%, from $5,353,000 for the
three-month period ended March 31, 1999 to $5,660,000 for the three-month period
ended March 31, 2000.  The increase consists of $287,000 additional cost of
operations and $20,000 additional selling and administrative expenses.

      Cost of operations increased $287,000, or 6.6%, from $4,341,000 for the
three months ended March 31, 1999 to $4,628,000 for the corresponding three
months in the current year.  Cost of operations for the prior year quarter
includes $27,000 of start-up expenses associated with the acquisition of SLQ.
Excluding these start-up expenses, cost of operations increased $314,000,
including $300,000 additional railroad operating expenses, $5,000 additional
intermodal operating expenses, and $9,000 additional logistics operating
expenses.

      Railroad operating expenses increased $273,000 for the quarter ended March
31, 2000 as compared to the corresponding quarter in the prior year.  Excluding
$27,000 of start-up expenses associated with the acquisition of SLQ, railroad
operating expenses increased $300,000, consisting of a $253,000 increase in New
England/Quebec expenses and a $47,000 increase in expenses for Pennsylvania rail
operations.

      The $253,000 net increase in railroad operating costs for New
England/Quebec, excluding SLQ start-up expenses in the prior year, is
attributable to a number of factors.  First, in September 1999, CN altered its
operating plan for delivery of trains to SLQ, which adversely affected SLR and
SLQ's operations and increased their operating costs.  This problem was
exacerbated over the winter when CN consistently failed to meet its schedule.
The Company is

                                       13
<PAGE>

currently working with CN to develop a solution to this problem. Second,
locomotive maintenance costs and short-term locomotive lease costs increased
approximately $165,000 as a result of continuing efforts to stabilize the fleet
of locomotives acquired in conjunction with the acquisition of SLQ and the
hiring of a chief mechanical officer in July 1999. Finally, locomotive fuel
costs increased $85,000 as a result of the significant increase in fuel prices
over the prior year. These increases in railroad operating costs were partially
offset by an $85,000 decrease in fuel oil transload fees and railcar leasing
costs as a result of the loss of a local fuel oil move, and a $50,000 decrease
in car hire expenses in conjunction with the decrease in related demurrage
revenues.

      The $47,000 net increase in railroad operating costs for Pennsylvania rail
operations includes $45,000 of additional locomotive fuel costs as a result of
the significant increase in fuel prices over the prior year, and additional
costs incurred in conjunction with filling two vacant management/supervisory
positions that were unfilled in the prior year quarter.

      Rail intermodal operating expenses increased $5,000, from $112,000 for the
prior year quarter to $117,000 for the current year quarter, as a result of the
20% increase in the number of trailers and containers handled.

      Logistics operating expenses increased $9,000, from $156,000 for the third
quarter of fiscal 1999 to $165,000 for the third quarter of the current year
consisting of a net increase in a variety of expenses.

      Selling and administrative expenses increased $20,000, or 2%, from
$1,012,000 for the quarter ended March 31, 1999 to $1,032,000 for the quarter
ended March 31, 2000. Excluding $14,000 of start-up expenses associated with the
acquisition of SLQ, selling and administrative expenses for the current year
quarter increased $34,000. This increase includes approximately $90,000 of
additional professional fees incurred in conjunction with the pursuit of
strategic plan initiatives, which did not materialize, and a general increase in
a number of other expense categories including higher salaries and wages as a
result of additional personnel and wage adjustments, and higher employee
benefits as a result of increased health benefit costs. These increases were
partially offset by a reduction in the provision for profit sharing and
incentive compensation plans as a result of the extraordinary improvement in
results of operations in the prior year.

      Interest expense decreased $22,000 for the three months ended March 31,
2000 as compared to the corresponding period in the prior year.  The decrease is
attributable to scheduled repayments of long-term debt, partially offset by an
increase in interest rates on variable rate debt and additional temporary
prepayments of the Revolving Term Loan in the prior year.

      The provision for income taxes decreased $3,000, from $231,000 for the
quarter ended March 31, 1999 to $228,000 for the quarter ended March 31, 2000.
The effective tax rate increased from 38.4% for the prior year quarter to 74.7%
for the current year quarter as a result of the mix between United States
taxable income and foreign taxable losses.  The provision for income taxes for
the third quarters of both fiscal 2000 and fiscal 1999 includes $194,000 and
$201,000, respectively, of deferred federal tax expense relating to the
amortization of deferred tax assets which will not require any tax payments by
the Company currently or in the future.


        Analysis of operations for the nine months ended March 31, 2000
               compared to the nine months ended March 31, 1999

                             Results of Operations
                             ---------------------

      The Company generated net income of $1,037,000 for the nine-month period
ended March 31, 2000, as compared to net income of $1,093,000 for the nine-month
period ended March 31, 1999.  Income before income taxes increased $182,000, or
10%, from $1,845,000 for

                                       14
<PAGE>

the nine months ended March 31, 1999, to $2,027,000 for the corresponding period
in the current year. Operating revenues increased $2,192,000, operating expenses
increased $1,917,000, interest and other non-operating income increased $12,000,
interest expense increased $105,000, and the provision for income taxes
increased $238,000 over the prior year. The prior year nine-month period ended
March 31, 1999 includes $198,000 of start-up expenses associated with the
acquisition and first four months of operations of SLQ, which commenced on
December 1, 1998. Excluding these start-up expenses, income before income taxes
decreased $16,000.

                                    Revenues
                                    --------

  Operating revenues increased $2,192,000, or 13%, from $16,629,000 for the
nine-month period ended March 31, 1999 to $18,821,000 for the nine-month period
ended March 31, 2000.  SLQ generated $3,972,000 of operating revenues in the
first nine months of fiscal 2000 as compared to $1,724,000 for the first four
months of operations in fiscal 1999.  Excluding SLQ, operating revenues
decreased $56,000, consisting of a $335,000 increase in freight and haulage
revenues (excluding intermodal freight), a $52,000 increase in intermodal
freight and handling revenues, and an $18,000 increase in logistics revenues.
These increases were offset by a $461,000 decrease in other operating revenues.

  Freight and haulage revenues (excluding intermodal freight) increased
$1,995,000, or 16%, consisting of a 28% increase in the number of carloads
handled, partially offset by a 10% decrease in average revenues per carload.
Total traffic handled increased approximately 11,000 carloads from 38,900 for
its first nine months of fiscal 1999 to 49,900 for the first nine months of the
current year.  Traffic for the first nine months of fiscal 2000 and 1999
includes approximately 14,700 and 7,050 overhead carloads on SLQ, respectively,
delivered to SLR that are counted as revenue carloads for both SLR and SLQ.
Excluding SLQ, which accounted for $2,936,000 of freight and haulage revenues in
the first nine months of fiscal 2000 as compared to $1,276,000 for its first
four months of operations in the prior year, freight and haulage revenues
increased $335,000, or 3%, while traffic increased approximately 325 carloads,
or 1%.  Freight and haulage revenues on SLR operations in New England decreased
$361,000 and traffic decreased approximately 1,125 carloads, while freight and
haulage revenues on Pennsylvania operations increased $696,000 and traffic
increased 1,450 carloads.

  The 1,125 carload decrease in SLR traffic is attributable to a decrease of
approximately 500 paper-related carloads resulting from a variety of reasons,
including 250 less carloads as a result of the closing of a paper mill and
problems associated with NS's and CSX's implementation of the Conrail merger,
approximately 1,100 carloads of one-time shipments of pipe and cement last year
that did not recur this year, and a decrease of 400 fuel oil carloads for a
customer that converted from oil to natural gas.  The congestion and service
disruptions caused by NS's and CSX's implementation of the Conrail merger
adversely affected SLR's overall business as a result of service and car supply
problems.  These decreases were partially offset by 350 additional salt
carloads, 300 additional carloads to an on-line liquid propane gas distributor,
and a variety of less significant increases in business.

  Freight and haulage revenues for Pennsylvania rail operations increased
$696,000 and traffic handled increased 1,450 carloads, despite being adversely
impacted by the congestion and service disruptions caused by NS's and CSX's
implementation of the Conrail merger.  The increase in freight and haulage
revenues is attributable to 1,525 additional agricultural carloads due to local
drought conditions last year, 200 carloads for new plastics business added in
the prior year, 175 carloads for a new customer, Goodyear Tire & Rubber Company,
which completed construction of an on-line regional distribution center and
commenced operations in June 1999, and other less significant increases in
business.  These increases were offset by a number of decreases primarily
attributable to problems caused by the Conrail merger, including business lost
to truck during the first nine months of the current year.

  The 10% decrease in average revenues per carload is attributable to SLQ, which
has an average freight rate that is lower than the Company's other rail
operations since a large

                                       15
<PAGE>

percentage of SLQ's business is overhead traffic from CN to SLR, and since
pricing for this business reflects the operating synergies between SLR and SLQ.
Excluding SLQ, average revenues per carload increased 1.7% as a result of mix of
business and price adjustments.

  Intermodal freight and handling revenues generated by the Company's rail
intermodal terminal in Auburn, Maine, excluding SLQ, increased $52,000, or 8.5%,
from $612,000 for the nine months ended March 31, 1999 to $664,000 for the first
nine months of the current year.  Intermodal volume also increased 8.5%, or 600
trailers and containers, from 7,100 trailers and containers for the first nine
months of the prior year to 7,700 trailers and containers for the first nine
months of the current year.  Intermodal freight revenues generated by SLQ
aggregated $242,000 for the first nine months of fiscal 2000 as compared to
$57,000 for its first four months of operations in the prior year.  In October
1999, the Company's intermodal terminal handled its first international
steamship container, and is cautiously optimistic that this business will
continue to result in an increase in future intermodal volume.  SLR and SLQ, in
conjunction with CN, offer the only hi-cube, double stack, cleared route in
northern New England for intermodal trains, and provide the Company's intermodal
terminal with access to five CN served ports including Vancouver, Montreal,
Halifax, New Orleans and Mobile.

  Logistics revenues generated by the Company's operations in York,
Pennsylvania, increased $18,000, or 5%, from $362,000 for the nine months ended
March 31, 1999 to $380,000 for the nine months ended March 31, 2000, despite a
14% decrease in the number of railcars handled.  The increase in revenues is
attributable to additional canned goods business, which includes truck brokerage
revenues, partially offset by a greater carload reduction in business from an
agricultural bulk transfer customer at lower average rates per carload.

  Excluding SLQ, other operating revenues decreased $461,000 from the prior
year, primarily as a result of a $281,000 decrease in railcar storage and
demurrage revenues, $108,000 of one-time blocking revenues from CN in the prior
year, and $115,000 of third-party track work revenues in the prior year,
partially offset by less significant increases in other operating revenues.  The
decrease in demurrage revenues is partly attributable to demurrage associated
with a one-time pipe move for a gas line project in New England in the prior
year, and partly to a reduction in business for a printing customer in
Pennsylvania which normally generates substantial demurrage revenues.  SLQ
generated $794,000 of other operating revenues in the current year, including
blocking fees and trackage rights revenues, as compared to $391,000 of other
operating revenues for four months of operations in the prior year.

  The $12,000 increase in interest and other non-operating income from the prior
year is primarily attributable to foreign exchange gains relating to the
Company's Canadian rail operations.

                                    Expenses
                                    --------

  Operating expenses increased $1,917,000, or 13.5%, from $14,111,000 for the
nine-month period ended March 31, 1999 to $16,028,000 for the nine-month period
ended March 31, 2000.  The increase consists of $1,726,000 additional cost of
operations and $191,000 additional selling and administrative expenses.
Excluding SLQ, operating expenses increased $556,000, or 4.3%.  This $556,000
increase includes additional expenses incurred by SLR in conjunction with the
operations of SLQ as a result of the centralization of operations management,
dispatching and locomotive maintenance functions at SLR's facilities in Auburn,
Maine.

  Cost of operations increased $1,726,000, or 15%, from $11,314,000 for the nine
months ended March 31, 1999 to $13,040,000 for the corresponding nine months in
the current year.  Cost of operations for the current year includes $2,371,000
of SLQ operating expenses as compared to $1,069,000 of operating expenses for
four months of operations in the prior year, which includes $153,000 of start-up
expenses associated with the acquisition of SLQ.  Excluding SLQ, cost of
operations increased $424,000, including $379,000 additional railroad operating

                                       16
<PAGE>

expenses and $64,000 additional logistics operating expenses, partially offset
by a $19,000 decrease in intermodal operating expenses.

  Railroad operating expenses increased $1,681,000 for the nine months ended
March 31, 2000 as compared to the corresponding period in the prior year.
Excluding SLQ, railroad operating expenses increased $379,000, consisting of a
$347,000 increase in SLR expenses in New England and a $32,000 increase in
expenses for Pennsylvania rail operations.

  The $347,000 net increase in railroad operating costs for SLR is primarily
attributable to additional expenses incurred by SLR in conjunction with the
operations of SLQ as a result of the centralization of operations management,
dispatching and locomotive maintenance functions at SLR's facilities in Auburn,
Maine.  Locomotive maintenance expenses, which include nine months of SLQ
operations in fiscal 2000 as compared to four months of operations in the prior
year, increased as a result of the addition of a chief mechanical officer and
locomotive maintenance personnel, and over $100,000 additional repair and
maintenance expenses incurred in conjunction with the 13 locomotives acquired or
leased in connection with the acquisition of SLQ.  SLR's agency and dispatching
costs also increased as a result of additional personnel hired to perform these
services on behalf of SLQ.  Locomotive fuel costs increased over $100,000 as a
result of the significant increase in fuel prices over the prior year.  These
increases in SLR's railroad operating costs were partially offset by a $200,000
decrease in fuel oil transload fees and railcar leasing costs as a result of the
loss of a local oil move, a reduction in maintenance of way costs as a result of
track projects performed on behalf of third parties in the prior year for which
SLR received revenues, a reduction of costs to perform one-time blocking
services for CN for the period September through December 1998 for which SLR
received blocking fees, and a reduction in the provision for derailments and
accidents as a result of more favorable experience in the current year as
compared to the prior year.

  The $32,000 net increase in railroad operating costs for Pennsylvania rail
operations includes $80,000 additional locomotive fuel costs as a result of the
significant increase in fuel prices in the current year, $70,000 additional
maintenance of way expense as a result of a reduction in capitalized track work
performed in the current year as compared to the prior year, and additional
costs incurred in conjunction with filling two vacant management/supervisory
positions that were unfilled in the prior year.  These increases were partially
offset by a reduction in car hire expense of approximately $80,000 in
conjunction with a corresponding decrease in demurrage revenues and a decrease
in the provision for derailments and accidents as a result of more favorable
experience in the current year as compared to the prior year.

  Rail intermodal operating expenses decreased $19,000, from $349,000 for the
prior year to $330,000 for the current year, despite an 8.5% increase in the
number of trailers and containers handled.  This difference is primarily
attributable to the favorable settlement in the current year of a previously
accrued loss and damage claim.  Excluding the impact of this settlement,
intermodal operating expenses increased slightly over the prior year.

  Logistics operating expenses increased $64,000, from $458,000 for the first
nine months of fiscal 1999 to $522,000 for the first nine months of the current
year despite a 14% decrease in the number of railcars handled as a result of mix
of business.  The increase is attributable to additional truck brokering
expenses associated with the increase in canned goods business.

     Selling and administrative expenses increased $191,000, or 7%, from
$2,797,000 for the nine months ended March 31, 1999 to $2,988,000 for the nine
months ended March 31, 2000. Excluding SLQ, selling and administrative expenses
increased $132,000, or 5%. Selling and administrative expenses for the current
year include approximately $150,000 of additional professional fees incurred in
conjunction with the pursuit of strategic plan initiatives, which did not
materialize, costs incurred to develop the Company's new web site which was
released in December 1999, and a general increase in a number of other expense
categories including higher salaries and wages as a result of additional
personnel and wage adjustments, and higher employee benefits as a result of
increased health benefit costs. These increases were partially

                                       17
<PAGE>

offset by a reduction in the provision for profit sharing and incentive
compensation plans as a result of the extraordinary improvement in results in
the first nine months of fiscal 1999. SLQ selling and administrative expenses
aggregated $126,000 in the current year, including the addition of a sales
person at the beginning of the year, as compared to $67,000 for the first four
months of operations in the prior year, which includes $44,000 of start-up
expenses associated with the acquisition of SLQ.

  Interest expense increased $105,000 for the nine months ended March 31, 2000
as compared to the corresponding period in the prior year.  The increase is
attributable to additional borrowings incurred to finance the acquisition of SLQ
and an increase in interest rates on variable rate debt, partially offset by
scheduled principal payments.

  The provision for income taxes increased $238,000, from $752,000 for the first
nine months of fiscal 1999 to $990,000 for the first nine months of the current
fiscal year.  The effective tax rate increased from 40.8% for the prior year to
48.8% for the current year as a result of the mix between United States taxable
income and foreign taxable losses.  The provision for income taxes for the first
nine months of both fiscal 2000 and fiscal 1999 includes $840,000 and $643,000,
respectively, of deferred federal tax expense relating to the amortization of
deferred tax assets which will not require any tax payments by the Company
currently or in the future.


Item 3.     Quantitative and Qualitative Disclosure about Market Risk

  None.

                                       18
<PAGE>

PART II.   OTHER INFORMATION


Item 1.     Legal Proceedings

      As previously reported in Item 3 of the Emons Transportation Group, Inc.
Annual Report on Form 10-K for the fiscal year ended June 30, 1999, in which
reference is hereby made, Emons Industries, Inc. is currently a defendant in
approximately 553 product liability actions, and one of the Company's railroads
is in the process of remediating a fuel oil spill at its locomotive maintenance
facility in York, Pennsylvania.

Item 2.     Changes in Securities

      None.

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

      (a) An index to exhibits appears following the signature page to this
          report.

      (b) A report on Form 8-K dated March 21, 2000 was filed by the Company on
          March 23, 2000, reporting that the Company's Board of Directors
          authorized a stock repurchase program for the Company's Common Stock
          up to an aggregate price of $2 million.

                                       19
<PAGE>

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.

                                EMONS TRANSPORTATION GROUP, INC.


Date:   May 12, 2000            By:   /s/ Scott F. Ziegler
        ------------                  --------------------
                                          Scott F. Ziegler
                                          Senior Vice President and
                                          Chief Financial Officer
                                          (signing on behalf of the registrant
                                          as its duly authorized officer and its
                                          principal financial and accounting
                                          officer)

                                       20
<PAGE>

EXHIBITS

  The following exhibits are filed as a part of this report.  For convenience of
reference, exhibits are listed according to numbers assigned in the Exhibit
Table of Item 601 of Regulation S-K under the Securities Exchange Act of 1934.

<TABLE>
<CAPTION>
                                                                                           Page in
Exhibit                                                                                  Sequentially
Number                                Exhibit                                           Numbered Copy
------                                -------                                           -------------
<S>       <C>                                                                           <C>
 3(a)     Certificate of Incorporation for Emons Holdings, Inc. dated December
          19, 1986 (incorporated by reference from Emons Holdings, Inc. Report
          on Form 10-K for the year ended June 30, 1987, Exhibit Number 3 (a))               ---

 3(b)     Certificate of Amendment of Certificate of Incorporation for Emons
          Holdings, Inc. dated September 26, 1989 (incorporated by reference
          from Emons Holdings, Inc. Report on Form 10-Q for the quarter ended                ---
          September 30, 1989, Exhibit Number 3 (b))

 3(c)     Amended and Restated By-Laws for Emons Holdings, Inc. (incorporated by
          reference from Emons Holdings, Inc. Report on Form 10-Q for the
          quarter ended September 30, 1989, Exhibit Number 3 (c))                            ---

 3(d)     Certificate of Amendment of Certificate of Incorporation for Emons
          Holdings, Inc. dated November 18, 1993 (incorporated by reference from
          Emons Transportation Group, Inc. Report on Form 10-Q for the quarter
          ended December 31, 1993, Exhibit Number 3 (d))                                     ---

 3(e)     Certificate of Amendment of Certificate of Incorporation for Emons
          Transportation Group, Inc. dated June 29, 1999 (incorporated by
          reference from Emons Transportation Group, Inc. Report on Form 10-K
          for the year ended June 30, 1999, Exhibit Number 3 (e))                            ---

10(a)     Asset Purchase Agreement dated November 25, 1998 between St. Lawrence
          & Atlantic Railroad (Quebec) Inc. and Canadian National Railway
          Company (incorporated by reference from Emons Transportation Group,
          Inc. Report on Form 8-K dated December 23, 1998, Exhibit Number 10
          (a))                                                                               ---

10(b)     Agreement of Merger dated as of April 25, 1999 between Emons
          Transportation Group, Inc. and NEWCO (incorporated by reference from
          Emons Transportation Group, Inc. Report on Form 10-K for the year
          ended June 30, 1999, Exhibit Number 10 (l))                                        ---

27        Financial Data Schedules                                                           ---
</TABLE>

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