SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

              Annual Report Pursuant to Section 13 or 15 (d) of the
                        Securities Exchange Act of 1934

                   For the fiscal year ended December 31, 2003

                        Commission File Number 33-6658-C

                                Pioneer Railcorp
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

  Iowa                                                           37-1191206
--------------------------------------------------------------------------------
(State or other jurisdiction of                              (IRS Employer ID #)
 incorporation or organization)

        1318 S. Johanson Rd.
             Peoria, IL                                             61607
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(Address of principal executive offices)                          (Zip code)

Registrant's telephone number:     309-697-1400

Securities registered pursuant to Section 12(g) of the Act:


Title of each Class                 Name of each exchange on which registered
--------------------------------------------------------------------------------
Common Stock, Class A            Nasdaq SmallCap Market , Chicago Stock Exchange

Securities registered pursuant to 12(g) of the Act:

                    Common stock, Class A ($.001 par value)
                      Common Stock, Class B (no par value)
                    ---------------------------------------
                                (Title of Class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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.

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of the  registrant's  knowledge,  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. X

Issuer's revenues for the fiscal year ended December 31, 2003 were $15,994,621

The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
Registrant on March 15, 2004 was $4,862,255

                                    4,485,302
             -------------------------------------------------------
             (Shares of Common Stock outstanding on March 15 , 2004)


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<PAGE>

This Form 10-KSB contains certain  "forward-looking"  statements as such term is
defined in The Private Securities  Litigation Reform Act of 1995 and information
relating to the Company  and its  subsidiaries  that are based on the beliefs of
the  Company's  management.  When used in this report,  the words  "anticipate,"
"believe,"  "estimate,"  "expect,"  and "intend" and words or phrases of similar
import, as they relate to the Company or its subsidiaries or Company management,
are intended to identify forward-looking statements. Such statements reflect the
current  risks,   uncertainties  and  assumptions  related  to  certain  factors
including, without limitation, competitive factors, general economic conditions,
customer relations,  relationships with vendors,  the interest rate environment,
governmental  regulation and supervision,  seasonality,  distribution  networks,
product introductions and acceptance,  technological change, changes in industry
practices,  one-time  events  and other  factors  described  herein and in other
filings made by the Company with the Securities and Exchange  Commission.  Based
upon changing conditions, should any one or more of these risks or uncertainties
materialize,  or should  any  underlying  assumptions  prove  incorrect,  actual
results  may  vary  materially  from  those  described  herein  as  anticipated,
believed,  estimated,  expected,  or  intended.  The Company  does not intend to
update these forward-looking statements.

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PART I

Item 1.  Business

General

Pioneer Railcorp, an Iowa corporation, is a railroad holding company. As used in
this Form 10-KSB,  unless the context requires otherwise,  the term "Company" or
"PRC" refers to the parent, Pioneer Railcorp and its subsidiaries: West Michigan
Railroad  Co.  (WMI),  Michigan  Southern  Railroad  Company  (MSO),  Fort Smith
Railroad Co. (FSR),  Alabama Railroad Co. (ALAB),  Mississippi  Central Railroad
Co. (MSCI),  Alabama & Florida Railway Co., Inc. (AF),  Decatur Junction Railway
Co. (DT), Vandalia Railroad Company (VRRC),  Keokuk Junction Railway Co. (KJRY),
Shawnee Terminal Railway Company (STR),  Pioneer  Industrial  Railway Co. (PRY),
The Garden City Western Railway,  Inc. (GCW),  Indiana  Southwestern Railway Co.
(ISW),  Kendallville  Terminal Railway Co. (KTR), Elkhart & Western Railroad Co.
(EWR), Gettysburg & Northern Railroad Co. (GET), Pioneer Resources,  Inc. (PRI),
Pioneer  Railroad  Equipment  Co., Ltd.  (PREL),  Pioneer Air, Inc.  (PAR),  and
Pioneer Railroad Services, Inc. (PRS).

The Company operates in two business segments,  railroad operations and railroad
equipment   leasing.   Railroad   operations   are  provided  by  the  Company's
wholly-owned  short  line  railroad  subsidiaries  whose  rail  system  provides
shipping links for customers along its routes and  interchanges  with five major
railroads,  Burlington  Northern Santa Fe Railroad  (BNSF),  CSX  Transportation
(CSX), Canadian National Railway Company (CN), Norfolk Southern Railway (NS) and
Union Pacific Railroad (UP).  Additionally,  the Company's railroad subsidiaries
have interchanges with two smaller  railroads,  the Kansas City Southern Railway
(KCS) and the Arkansas & Missouri  Railroad (AM). PRC's rail system is primarily
devoted to carrying freight. The Company also seeks to encourage  development on
or near,  and  utilization  of, the real  estate  right of way of its  operating
railroads  by  potential  shippers  as a source of  additional  revenue and also
generates revenue by granting to various entities,  such as utilities,  pipeline
and communications companies and non-industrial tenants, the right to occupy its
railroad  right of way and other real estate  property.  The Company's  railroad
equipment leasing operation  provides  locomotives,  railcars and other railroad
related vehicles and equipment to the Company's operating railroad subsidiaries.
In addition,  the Company's railroad equipment leasing operation leases railcars
and locomotives to unaffiliated third parties.

Railroad Operations

Fort Smith  Railroad Co. - On July 7, 1991, the Fort Smith Railroad Co. (FSR), a
wholly-owned  subsidiary of Pioneer  Railcorp,  entered into a twenty-year lease
(with three  twenty-year  renewals) with the Missouri  Pacific  Railroad Company
(now Union  Pacific  Railroad) and operates 18 miles of track from Fort Smith to
Barling,  Arkansas.  The FSR's  primary  interchange  is with the Union  Pacific
Railroad  Company  (UP).  FSR also  interchanges  with the  Arkansas  & Missouri
Railroad Co. (AM) and the Kansas City Southern  Railway (KCS).  The traffic base
on the FSR is very  diversified  with both inbound and outbound  shipments.  The
principal  commodities are iron/steel,  scrap, baby food,  fiberglass,  particle
board, charcoal,  grains, frozen poultry, meal, chemicals,  alcoholic beverages,
industrial sand, lumber, paper, pulpboard,  fiberboard,  peanuts, fertilizer and
military movements.

Alabama  Railroad  Co. - On  October  25,  1991,  the  Alabama  Railroad  Co., a
wholly-owned  subsidiary  of Pioneer  Railcorp,  purchased  60 miles of railroad
facilities  and  real  estate  from  CSX  Transportation   (CSX)  and  commenced
operations soon  thereafter.  The line runs from Flomaton to Corduroy,  Alabama,
and interchanges with CSX in Flomaton.  The railroad's principal commodities are
outbound  lumber  products,  primarily  pulpwood,  particleboard,  and  finished
lumber.

Mississippi  Central Railroad Co. - On April 1, 1992, Pioneer Railcorp purchased
the common stock of the Natchez  Trace  Railroad  from Kyle  Railways,  Inc. The
railroad runs from Oxford, Mississippi to Grand Junction,  Tennessee, a total of
51 miles,  45.5 of which are located in Mississippi.  The railroad  interchanges
with  the NS at  Grand  Junction,  Tennessee  and  the  BNSF at  Holly  Springs,
Mississippi.  The Company  changed the name of this wholly owned  subsidiary  to
Mississippi Central Railroad Co. (MSCI) in January 1993. The traffic base on the
MSCI is primarily outbound finished wood products and inbound products,  such as
resins,  chemicals and pulpwood,  for the  production of finished wood products.
Other products shipped on the MSCI include scrap steel, cottonseed,  fertilizer,
and plastics.

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<PAGE>

Alabama & Florida Railway Co. Inc. - On November 23, 1992, the Alabama & Florida
Railway Co. (AF), a wholly-owned  subsidiary of Pioneer Railcorp,  purchased the
tangible assets of the A&F Inc., d/b/a the Alabama & Florida  Railroad  Company.
The line ran from  Georgiana  to Geneva,  Alabama,  a  distance  of 76 miles and
interchanged  with CSX at Georgiana.  On June 11, 2001, the Company's  Alabama &
Florida  Railway Co. (AF)  subsidiary  sold a 33 mile  segment of its track from
Georgiana, AL to Andalusia,  AL, to the Three Notch Railroad Co. (TNR), a wholly
owned subsidiary of Gulf & Ohio Railways. The AF operates the remaining 43 miles
of trackage. The AF's principal commodities are fertilizer and railcar storage.

Decatur  Junction  Railway Co. - On  September  23, 1993,  the Decatur  Junction
Railway Co. (DT), a wholly-owned subsidiary of Pioneer Railcorp,  signed a lease
agreement with Cisco Co-op Grain Company  (Cisco) and on September 24, 1993 with
Central Illinois Shippers, Incorporated (CISI), for the lease of two segments of
track in east central  Illinois.  The Cisco  segment  runs from  Green's  Switch
(Decatur)  to Cisco,  Illinois,  approximately  thirteen  (13)  miles.  The CISI
segment runs from Elwin to  Assumption,  Illinois,  a distance of  approximately
seventeen (17) miles.  The two lines connect via trackage rights on the Canadian
National  Railway  Company  (CN)  through  Decatur,   Illinois,  a  distance  of
approximately  eight (8) miles.  Railroad  operations began on the Cisco segment
December  3, 1993,  and began on the CISI  segment  December  7, 1993.  The DT's
primary commodities are grain, fertilizer and plastics.

Vandalia  Railroad Company - On October 7, 1994,  Pioneer Railcorp  acquired all
the outstanding common stock of the Vandalia Railroad Company.  The line located
in Vandalia,  Illinois,  interchanges  with CSX and is  approximately  3.5 miles
long. The railroad's  principal  commodities  are steel pipe and plastic pellets
and fertilizer.

West  Michigan  Railroad  Co. - On July 11,  1995,  Pioneer  Railcorp  signed an
agreement with the Trustee of the Southwestern Michigan Railroad Company,  Inc.,
d/b/a Kalamazoo,  Lakeshore & Chicago  Railroad  (KLSC),  to purchase all of the
tangible assets of KLSC.  Those assets include  approximately  15 miles of track
and right of way,  extending  from  Hartford  to Paw Paw,  in Van Buren  County,
Michigan.  The line  interchanges  with CSX.  Pioneer Railcorp then assigned its
right to purchase to the West Jersey Railroad Co., a wholly owned  subsidiary of
Pioneer,  which had been  operating  the former KLSC tracks under an  Interstate
Commerce  Commission  Directed  Service  Order since June 24, 1995.  West Jersey
Railroad Co. amended its articles of  incorporation  to change its name to "West
Michigan  Railroad Co.," effective October 2, 1995. The sale was approved by the
Interstate  Commerce  Commission by order served  October 18, 1995, and the West
Michigan  Railroad  Co.  took title to the  property on October  24,  1995.  The
railroad's principal commodities are frozen foods and canned goods.

Keokuk Junction Railway Co. - On March 12, 1996,  Pioneer Railcorp purchased 93%
of the common stock of KNRECO,  Inc., an Iowa corporation  d/b/a Keokuk Junction
Railway  (hereinafter  "KJRY") from the  shareholders,  and purchased all of the
remaining common shares of KJRY in April of 1996. KJRY operates a common carrier
railroad line within the City of Keokuk, Iowa, from Keokuk to LaHarpe, Illinois,
and a branch line from Hamilton to Warsaw, Illinois, a total of approximately 38
miles.  In  addition,  KJRY owns all of the common  stock of Keokuk  Union Depot
Company,  an Iowa  corporation that owns the former Keokuk Union Depot building,
along with surrounding track and real estate. KNRECO, Inc. changed its corporate
name to Keokuk  Junction  Railway Co.  effective April 10, 1996. On December 19,
2001, the KJRY purchased 12.1 miles of track from LaHarpe to Lomax, Illinois and
was  assigned  trackage  rights from Lomax,  Illinois  to Ft  Madison,  Iowa,  a
distance  of  approximately  15.5  miles  over the  BNSF,  allowing  the KJRY to
interchange  traffic  with the UP. The KJRY also  interchanges  with the BNSF at
Keokuk,  Iowa and is in the process of trying to reestablish an interchange with
the Toledo,  Peoria & Western  Railway Company (TPW) at LaHarpe,  Illinois.  The
railroad's  principal  commodities are corn, corn germ, corn syrup, meal, gluten
feed, and railroad wheels.

Shawnee  Terminal  Railway  Company - On November  13,  1996,  Pioneer  Railcorp
purchased 100% of the common stock of the Shawnee Terminal Railway Company.  The
line located in Cairo, Illinois, interchanges with the Canadian National Railway
Company  (CN) and is  approximately  2.5 miles long.  The  railroad's  principal
commodities are railroad freight cars for cleaning.

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<PAGE>

Michigan  Southern  Railroad  Company - On December 19, 1996,  Pioneer  Railcorp
through its wholly-owned  subsidiary Michigan Southern Railroad Company signed a
two year lease with the Michigan  Southern  Railroad Co. Inc.,  Morris  Leasing,
Inc., and Gordon D. Morris to operate certain railroad related assets. The lease
called for a fixed monthly payment for the equipment assets leased and a per car
charge for railroad usage.  The lease contained an exclusive  option to purchase
the stock of the  Michigan  Southern  Railroad  Company,  Inc.  and the railroad
assets of Morris  Leasing,  Inc.,  and this option was  exercised  on January 6,
1999, when the Company's  wholly-owned  subsidiary  Michigan  Southern  Railroad
Company (MSO) purchased all of the stock of the Michigan  Southern Railroad Co.,
Inc. (MSRR) from Gordon D. Morris.  The railroad is comprised of three separate,
non-contiguous  lines.  The  Michigan  Southern  Railroad  Company line (MSO) is
located in  southern  Michigan  and  currently  operates  15 miles of track.  On
February  1,  2001,  the  Company  separated  1.1  miles  of  track  located  in
Kendallville, Indiana from its Michigan Southern Railroad Company subsidiary and
operates this trackage as a wholly owned  subsidiary of Pioneer  Railcorp  under
the name  Kendallville  Terminal  Railway Co. (KTR). On May 1, 2001, the Company
separated 10 miles of track  located in the Indiana  counties of Elkhart and St.
Joseph,  Indiana from its Michigan  Southern  Railroad  Company  subsidiary  and
operates as a wholly-owned subsidiary of Pioneer Railcorp under the name Elkhart
& Western Railroad Co. (EWR).  These actions were taken to simplify  interchange
with the  Norfolk  Southern,  the  connecting  carrier to all  lines.  The MSO's
principal  commodities are, scrap,  scrap paper,  pulpboard,  lumber and soybean
oils.

Pioneer  Industrial Railway Co. - On February 18, 1998, Pioneer Railcorp through
its  wholly-owned  subsidiary  Pioneer  Industrial  Railway Co., began operating
approximately 8.5 miles of railroad in Peoria County, Illinois when the Peoria &
Pekin Union  Railway Co. (PPU)  assigned  its lease with the owner,  the Peoria,
Peoria Heights & Western Railroad (PPHW) to Pioneer Railcorp.  The lease expires
in July 2004.  PPHW is owned by the City of Peoria,  Illinois and the village of
Peoria Heights,  Illinois. The railroad's principal commodities are steel, salt,
lumber and plastic pellets.

The Garden City Western Railway, Inc. - On April 29, 1999, the Company purchased
100% of the stock of The Garden City Western Railway, Inc. (GCW) from the Garden
City  Coop,  Inc.  and  immediately  began  operations.  The GCW is  located  in
southwest Kansas and totals 40 miles of operating railroad and interchanges with
the BNSF. The primary commodities include grain, frozen beef,  fertilizer,  farm
implements, feed products and utility poles.

Indiana  Southwestern  Railway Co. - On April 1, 2000,  the Company  through its
wholly-owned  subsidiary Indiana Southwestern  Railway Co. (ISW) acquired,  in a
transaction  accounted for by the purchase method of accounting,  certain assets
including all of the rail facilities owned or leased by the Evansville  Terminal
Railway  Company (EVT).  The line is in  Evansville,  Indiana and is 23 miles in
length. The primary commodities are grain, plastics and rail equipment.

Kendallville  Terminal Railway Co. - On February 1, 2001, the Company  separated
1.1 miles of track located in Kendallville,  Indiana from its Michigan  Southern
Railroad  Company  (MSO)  subsidiary  and  began  operating  as a  wholly  owned
subsidiary of Pioneer Railcorp under the name Kendallville  Terminal Railway Co.
(KTR). This action was taken to simplify  interchange with the Norfolk Southern,
the  connecting  carrier  to the  KTR,  MSO and  EWR.  The  railroads  principal
commodities are sugar and syrup.

Gettysburg & Northern  Railroad Co. - On February 20, 2001, the Company  through
its wholly-owned  subsidiary  Gettysburg & Northern Railroad Co. (GET), acquired
in a  transaction  accounted  for by the  purchase  method  of  accounting,  the
railroad assets of the former Gettysburg Railway, Inc. (GBRY) and the Gettysburg
Scenic Railway (GSRX),  from various corporate  entities owned by John H. Marino
of Manassas,  Virginia.  The line is 25 miles in length running from Gettysburg,
PA to Mount  Holly  Springs,  PA. The  primary  commodities  are  canned  goods,
pulpboard,  soda ash, grain,  and scrap paper. In addition,  the GET generates a
portion of its revenues from a scenic passenger operation.

Elkhart & Western Railroad Co. - On May 1, 2001, the Company  separated 10 miles
of track located in the Indiana counties of Elkhart and St. Joseph, Indiana from
its Michigan Southern Railroad Company (MSO) subsidiary and began operating as a
wholly-owned  subsidiary  of Pioneer  Railcorp  under the name Elkhart & Western
Railroad  Co.  (EWR).  This  action was taken to simplify  interchange  with the
Norfolk  Southern,  the  connecting  carrier to EWR, MSO and KTR. The  railroads
principal commodities are auto frames, cement and lumber.

                                       5
<PAGE>

Railroad Equipment Leasing

Pioneer  Railroad  Equipment Co., Ltd. (PREL),  formed on April 1, 1990,  leases
equipment to the Company's  subsidiary  railroads  and also leases  railcars and
locomotives  to  unaffiliated  third  parties.   PREL  also  earns  income  from
non-company  railroads  on its  fleet of  approximately  1,350  railcars  (as of
December 31, 2003) when they carry freight on non-company railroads.

Corporate Support Operations

Pioneer Railroad Services, Inc.(PRS), Pioneer Resources,  Inc.(PRI), and Pioneer
Air,  Inc.  (PAR),  which are wholly  owned  subsidiaries  of Pioneer  Railcorp,
provide  corporate  support  operations  which are  engaged  in by the  Company.
Pioneer Railroad Services, Inc. (PRS) which began operations on October 1, 1993,
provides accounting,  management,  marketing, operational and agency services to
the Company's subsidiary railroads.  Pioneer Resources, Inc. (PRI) was formed on
December  30,  1993 to manage real estate and  auxiliary  resources  for Company
subsidiaries. Pioneer Air, Inc. (PAR) was formed on August 5, 1994 and currently
owns a Cessna 421B  aircraft,  which is, used by Pioneer  Railcorp  subsidiaries
exclusively for Company business travel.

Marketing

The Company's marketing department was established to foster continuing business
with existing  customers and to develop and attract new customers and additional
loadings on all PRC railroads.  The Company's  attention to marketing has earned
recognition  from  industry  publications,  Class I railroads,  and smaller rail
carriers.   The  Company's   marketing   department  along  with  the  Company's
operation's center have become important value-added services offered to present
and potential customers.

Distribution

Virtually all  interchange  traffic is with  unionized  Class I carriers,  and a
prolonged work stoppage on those  carriers would have a material  adverse impact
upon the Company,  however,  there has never been such a prolonged work stoppage
of the American railroad industry, and the Company considers the chances of such
an event to be remote.

Suppliers

The Company does not believe that the loss of any supplier would have a material
adverse effect on its business, as there are alternative suppliers available.

Competition

With respect to the industry in which PRC operates,  the Company, like any other
railroad company,  faces intense  competition from the trucking industry,  barge
lines and other  railroads  for the movement of  commodities.  The Company feels
(pricing and time sensitivity  constant) that it has a competitive advantage due
to its integrated  efforts in providing  value-added  rail services  through its
marketing department and operation's center, with continued emphasis on safe and
efficient train operations.

Regulations

The   Company's   subsidiaries   are  subject  to   regulation  by  the  Surface
Transportation Board (STB) of the U.S. Department of Transportation (USDOT), the
Federal   Railroad   Administration   (FRA),   and   certain   state  and  local
jurisdictions.  Such  regulation  affects  rates,  safety rules,  maintenance of
track, other facilities, and right of way, and may affect the Company's revenues
and  expenses.  To date  there  has been no  material  effect  on the  Company's
operations  because of regulatory  action,  nor does the Company expect any such
effect in the foreseeable future.

Employees

On December  31,  2003,  the Company had 109  employees,  which  consisted of 92
operating personnel, 14 support staff and 3 executive officers.

Environmental Matters

The  Company's  operations  are subject to various  regulations  relating to the
protection of the environment,  which have become increasingly stringent.  These
environmental  laws and  regulations,  which are implemented  principally in the
U.S.  by the  Environmental  Protection  Agency  ("EPA")  and  comparable  state
agencies govern the management of hazardous wastes,  the discharge of pollutants
into the air and surface and underground waters and the manufacture and disposal
of certain substances.

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There  are no  material  environmental  claims  pending  or,  to  the  Company's
knowledge at this time,  threatened  against the Company.  The Company  believes
that its operations are in material  compliance with current  environmental laws
and regulations. The Company estimates that any expenses incurred in maintaining
compliance  with the current  laws and  regulations  will not have any  material
effect on the Company's earnings or capital  expenditures.  However, the Company
can provide no  assurance  that the  current  regulatory  requirements  will not
change, that currently unforeseen environmental incidents will not occur or that
past  non-compliance  with the environmental  laws will not be discovered on the
Company's properties.

Liability Insurance

The  Company  could be liable  for  losses or claims  that may not be covered by
insurance.  The Company  maintains  insurance  that covers  claims  arising from
personal  injury  and  property  damage  in the  event of  derailments  or other
accidents or occurrences; however; losses or other claims may arise that may not
be  covered  under  insurance  policies  currently  carried by the  Company.  In
addition, under catastrophic  circumstances,  the potential liability that could
result in such a  circumstance  could  exceed  the  Company's  existing  insured
limits.  Railroad liability insurance is currently available from a very limited
number of carriers and could  eventually  become  unavailable  or only available
under terms or prices that are  unacceptable to the Company.  Should this occur,
it is  possible  the  Company  would be  adversely  effected  as a  result  of a
significant increase in insurance costs.

Fuel Costs

Fuel costs  constitute  a  significant  portion of our  railroad  transportation
expenses. Fuel prices and supplies are influenced significantly by international
political and economic  circumstances.  If a fuel supply  shortage were to arise
due to OPEC  production  curtailments,  a  disruption  of oil  imports  or other
factors,  higher fuel prices  could occur and any  significant  prolonged  price
increase could materially effect the Company's operating results.

General Economic Conditions

The Company's  operations  may be adversely  affected by changes in the economic
conditions of the  industries  and  geographic  regions that produce and consume
freight that we transport.  The Company's revenues may be affected by prevailing
economic  conditions and, if an economic  slowdown or recession were to occur in
key markets that the Company  serves,  the volume of rail  shipments the Company
carries is likely to be  reduced.  Significant  reductions  in the volume of the
Company's rail shipments  could have a material  adverse effect on the Company's
operating results.

Item 2.  Property

In October 1994, the Company  purchased a 16,000 square foot building located in
Peoria,  Illinois as a corporate  headquarters facility. In conjunction with the
purchase of its corporate office building,  the Company assumed a land lease for
the property on which the building is located.  This  twenty-five  year lease is
renewable for five  successive  periods of five years with annual rents equal to
ten percent of the appraised value of the land, payable in monthly installments,
with appraisal value reviews every five years  following the  origination  date.
The Company is responsible for costs of maintenance, utilities, fire protection,
taxes and insurance. The building is pledged in a financing agreement.

A description  of the Company's  railroad  properties as of December 31, 2003 by
subsidiary follows:

A.)  Fort Smith Railroad Co. (FSR): The FSR leases 18 miles of railroad from the
     Union Pacific  Railroad  Company and began operations in July 1991 pursuant
     to a twenty year operating lease. The line runs from Fort Smith to Barling,
     Arkansas.  The lease agreement  contains  numerous  requirements  including
     maintaining existing traffic patterns,  repair and replacement of the right
     of way  to the  condition  in  which  it was  leased,  and  payment  of any
     applicable  real estate taxes.  The Company is entitled to a fixed rate per
     carload  switched  from the UP as well as ninety  percent of new leases and
     easements  and fifty  percent  of  existing  leases  and  easements  on the
     property.  As long as these  lease  requirements  are met,  the Company may
     continue to operate on the rail  facilities  without rent.  The Company has
     three twenty-year renewal options. The FSR's track is in good condition.

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<PAGE>

B.)  Alabama  Railroad Co.  (ALAB):  The ALAB is 60 miles of operating  railroad
     running from Flomaton to Corduroy, Alabama. The Company considers the track
     to be in fair condition.

C.)  Mississippi  Central Railroad Co. (MSCI): The MSCI is 51 miles of operating
     railroad  running from Oxford,  Mississippi to Grand  Junction,  Tennessee.
     Approximately  45.5  miles of the track are  located  in  Mississippi.  The
     Company considers the track to be in fair condition.

D.)  Alabama & Florida  Railway Co., Inc.  (AF): The AF is 43 miles of operating
     railroad  running  from  Andalusia to Geneva,  Alabama.  The Company has an
     option  from CSX  Transportation  to  negotiate  a  purchase  price for the
     underlying  real estate and  currently  leases the  property  for a monthly
     payment of $1,435. The Company has exclusive rights to the revenues derived
     from the land leases and easements. The Company considers the line to be in
     good condition.

E.)  Decatur  Junction  Railway Co.  (DT):  The DT leases from Cisco Co-op Grain
     Company  (CISCO) a segment of track,  approximately  thirteen (13) miles in
     length,  that  runs  from  Green's  Switch  (Decatur,  Illinois)  to Cisco,
     Illinois.  The DT also  leases a segment  of track  from  Central  Illinois
     Shippers,  Incorporated  (CISI),  approximately  seventeen  (17)  miles  in
     length,  which runs from Elwin to Assumption,  Illinois.  The two lines are
     connected  via trackage  rights on the Canadian  National  Railway  Company
     (approximately eight miles) through Decatur,  Illinois.  Both leases expire
     in  December  2006  and  require  the  Company  to  perform   normal  track
     maintenance  and pay a nominal per car charge on traffic in excess of 1,000
     carloads per year. The DT's track is considered to be in good condition.

F.)  Vandalia  Railroad Company (VRRC):  The VRRC is approximately  3.5 miles of
     operating railroad located in Vandalia, Illinois. The VRRC has a lease with
     the City of Vandalia for the 3.5 miles of railway.  This lease is renewable
     for ten-year  periods  beginning in September 2003, and the lease of $1 was
     paid through September 2003. After September 2003, the lease payments equal
     $10 per loaded rail car handled in interchange.  The Company  considers the
     track to be in good condition.

G.)  West Michigan  Railroad Co.  (WMI):  The WMI is  approximately  15 miles of
     operating railroad running from Hartford to Paw Paw, Michigan. The track is
     considered to be in good condition.

H.)  Keokuk  Junction  Railway Co.  (KJRY):  The KJRY operates a common  carrier
     railroad line within the City of Keokuk, Iowa,  approximately 38 miles from
     Keokuk to  LaHarpe,  Illinois,  a branch  line  from  Hamilton  to  Warsaw,
     Illinois, 12 miles of track from LaHarpe to Lomax Illinois and has trackage
     rights of 15.5 miles over the BNSF from Lomax, IL to Ft.  Madison,  IA. The
     assets and subsidiary  stock are pledged in various  financing  agreements.
     The track is considered to be in good condition.

I.)  Shawnee  Terminal  Railway  Company  (STR):  The STR  operates 2.5 miles of
     operating  railroad in Cairo,  Illinois.  The track is  considered to be in
     good condition.

J.)  Michigan Southern Railroad Company (MSO): The MSO is approximately 15 miles
     long  extending  from White  Pigeon to  Sturgis,  Michigan.  The assets and
     subsidiary stock are pledged in various financing agreements.  The track is
     considered to be in good condition.

K.)  Elkhart & Western  Railroad  Co.  (EWR):  The EWR is  located  in  Elkhart,
     Indiana and is approximately 10 miles in length. The track is considered to
     be in good condition.

L.)  Kendallville   Terminal   Railway  Co.   (KTR):   The  KTR  is  located  in
     Kendallville,  Indiana and is  approximately 1 mile in length.  The line is
     considered to be in good condition.

M.)  Pioneer  Industrial  Railway Co.  (PRY):  The PRY operates a railroad  line
     approximately  8.5  miles  long in Peoria  County,  Illinois.  PRY  assumed
     operations  from the Peoria & Pekin Union  Railway  Co.  (PPU) when the PPU
     assigned  its lease with the owner,  the Peoria,  Peoria  Heights & Western
     Railroad (PPHW),  effective February 18, 1998,  expiring July 2004. PPHW is
     owned by the City of Peoria,  Illinois  and the village of Peoria  Heights,
     Illinois.  PRY has improved the condition of the track  considerably  since
     assuming operation and, overall,  the track is now considered to be in good
     condition.

N.)  The Garden City Western  Railway Co.,  Inc.  (GCW):  The GCW is 40 miles of
     operating  railroad located in southwest Kansas originating in Garden City,
     Kansas  running  north 26 miles to Shallow  Water,  KS and east 14 miles to
     Wolf, KS. The assets and subsidiary stock are pledged in various  financing
     agreements. The Company considers the track to be in good condition.

                                       8
<PAGE>

O.)  Indiana  Southwestern  Railway Co. (ISW):  The ISW is 23 miles of operating
     railroad  located in Evansville,  Indiana.  The assets and subsidiary stock
     are pledged in various  financing  agreements.  The Company  considers  the
     track to be in good condition.

P.)  Gettysburg  & Northern  Railroad Co.  (GET):  The GET is 25 miles in length
     running  from  Gettysburg,  PA to Mount Holly  Springs,  PA. The assets and
     subsidiary stock are pledged in various financing  agreements.  The Company
     considers the track to be in excellent condition.

Company management believes that all of its properties and assets are adequately
covered by insurance.

Item 3.  Legal Proceedings

In the course of business, the Company experiences crossing accidents,  employee
injuries,  delinquent and/or disputed accounts, and other incidents,  which give
rise to claims  that may result in  litigation.  Management  vigorously  pursues
settlement and release of such claims, but at any one time, some such incidents,
which could  result in lawsuits by and against the Company,  remain  unresolved.
Management believes it has valid claims for, or good defenses to, these actions.
Management considers such claims to be a routine part of the Company's business.

The Company was involved in litigation surrounding trackage rights with the BNSF
regarding  fees charged  between  March 1999 and May 2001 by the Company for the
BNSF's  access to and usage of a segment of the  Company's  tracks as a means of
gaining access to certain  trackage  owned by the BNSF.  From March 1999 through
May 2001,  the Company  charged the BNSF  railroad  approximately  $660,000  for
access to the  Company's  track.  The Company had charged  $435,442 from July 1,
2002,  through May 2003,  and by agreement  of the two parties,  those fees were
accounted  for as deferred  revenue on the  December  31, 2002 and interim  2003
balance sheets pending final  resolution of the matter.  A settlement  agreement
was executed  effective  October 15,  2003.  By  agreement,  the Company was not
required  to refund any of the  $660,000  previously  recorded  as  revenue  for
services  performed  through May 2001.  With respect to the deferred  revenue of
$435,442 collected by the Company,  for services preformed subsequent to July 1,
2002,  the  Company  refunded  $289,261  to BNSF and  recognized  the  remaining
$146,181 as revenue.

As of the date of this Form  10-KSB,  management  is not  aware of any  incident
which is likely to  result in a  liability  that  would  materially  affect  the
Company's consolidated financial position or results of operation.

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

There were no  matters  submitted  to  security  holders  for vote in the fourth
quarter 2003.

PART II

Item 5.  Market for Company's Common Equity and Related Stockholder Matters.

The  Company's  common  stock trades on the Nasdaq  SmallCap  Market tier of the
Nasdaq Stock Market under the symbol "PRRR" and the Chicago Stock Exchange under
the  trading  symbol  "PRR".  The  quarterly  high  and low  sales  price of the
Company's  common  stock as reported on the Nasdaq for the periods  below are as
follows:

            1 Qtr   2 Qtr   3 Qtr    4 Qtr    1 Qtr    2 Qtr    3 Qtr   4 Qtr
            2002    2002    2002     2002     2003     2003     2003     2003
            --------------------------------------------------------------------

High        $1.40   $1.97   $1.85    $1.61    $1.50    $1.78    $2.54    $2.24
Low         $1.15   $1.15   $1.39    $1.38    $1.01    $1.30    $1.65    $1.84

As of December 31, 2003,  the Company had 1,680 common  stockholders  of record,
including  brokers who hold stock for others. A cash dividend of $.05 per common
share  was paid to  stockholders  of  record  as of April  30,  2003.  The total
dividend  was  $224,534  and was paid on August 15, 2003. A dividend of $135,907
was paid in 2002.

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

THE  FOLLOWING  DISCUSSION  SHOULD  BE READ IN  CONNECTION  WITH  THE  COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS, RELATED NOTES AND OTHER FINANCIAL INFORMATION
INCLUDED ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-KSB.

                                       9
<PAGE>

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations
are based upon consolidated  financial  statements,  which have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  The  preparation  of these  financial  statements  requires us to make
estimates and judgments that effect our reported assets,  liabilities,  revenues
and expenses,  and our related  disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates,  including those related to bad
debts,  impairment of long-lived assets (including goodwill),  depreciable lives
for property and equipment,  self-insured  medical  benefits,  deferred revenue,
income taxes,  fair value of financial  instruments and  contingencies for legal
matters.  We base our  estimates on historical  experience  and on various other
assumptions  that are believed to be reasonable  under the  circumstances.  This
forms the basis of judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these  estimates  under  different  assumptions or conditions.  Most  accounting
policies are not considered by management to be critical accounting policies. We
believe the following critical accounting policies and the related judgments and
estimates  significantly  affect the preparation of our  consolidated  financial
statements:  We believe that revenue  recognition,  deferred revenue accounting,
accounting for property and equipment and goodwill  accounting are the Company's
critical accounting policies (see Note 1 in the Notes to Consolidated  Financial
Statements for additional information.)

Results of Operations

This management's  discussion and analysis of financial condition and results of
operations  references  the  Company's  two  operating  segments.  The Company's
railroad  operations  consist of wholly-owned  short line railroad  subsidiaries
that offer similar  services while the Company's  equipment  leasing  operations
leases  railcars,  locomotives,  and other railroad  equipment to affiliated and
unaffiliated  entities. All other operations are classified as corporate support
services for purpose of these  discussions.  All  information  provided for each
operating   segment  is  presented   after   elimination  of  all   intersegment
transactions, therefore reflecting its share of consolidated results.

The  Company's  railroad  operating  segment  had  revenue  earned  from a major
customer,  Roquette  America,  Inc.,  of  approximately  $3,929,000  in 2003 and
$2,851,000  in 2002.  A future loss of revenue from this  customer  could have a
materially  adverse effect on the Company's  results of operations and financial
condition.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Overview:

The Company operates in two business segments,  railroad operations and railroad
equipment  leasing.  Railroad  operations  are provided by the Company's  wholly
owned short line railroad  subsidiaries.  PRC's rail system is primarily devoted
to carrying  freight.  The railroad  subsidiaries  generate revenue from several
activities,  with the primary source referred to as switching revenue. Switching
revenue is the amount the Company receives for handling and delivering a load of
freight via railcar to and from its online  customers.  The railroad  operations
also generate revenue through repair of foreign  railcars  (railcars owned by an
unrelated entity) used to carry freight on the Company's railroads. In addition,
the  railroad  operations  earn  revenue  from  demurrage,  a charge  to  online
customers  for  holding  a  foreign  railcar  for an  excessive  number of days.
Generally,  demurrage  revenues  will be  partially  offset by  carhire  expense
(charges to the Company's railroad  operations for using a foreign railcar).  In
addition to revenues generated from online customers, the Company also generates
revenue  from the  storage of  private  railcars  (railcars  that are owned by a
non-railroad  company). In addition, the railroad operations generate revenue by
performing contract services,  primarily track construction and maintenance, for
customers and governmental  agencies.  Finally, the Company,  through its wholly
owned railroad  subsidiary  Gettysburg & Northern Railroad Co. generates revenue
from a tourist passenger train in Gettysburg, Pa.

The Company's revenue from its railroad  operations could be affected by several
events.  In most  instances,  several  railroads  take part in the  delivery  of
freight to and from the Company's customers.  Each railroad will set its revenue
requirement for handling the freight. If the total revenue  requirements for all
railroads involved is not competitive with other  transportation  options, it is
likely the freight will not move by rail.  In addition,  the  Company's  current
customers make changes in the origin of their raw materials and  destination for
their finished products that could positively or negatively effect rail traffic.
In  addition,  a  significant  portion  of the  Company's  freight is carried in
railcars  supplied  by the  nations  largest  railroads,  referred to as Class 1
railroads.  The Class 1 railroads  ability to continue to supply  railcars is an
important  factor  in  generating  revenues.  The  Company's  equipment  leasing
operations  own  a  large  railcar  fleet,   which  helps  to  minimize  adverse
consequences from a limited railcar supply. The Company continually searches for
railcars to purchase that will provide its customers with a reliable car supply.

                                       10
<PAGE>

The equipment leasing operations  generate revenue from carhire revenue (charges
non-affiliated  railroads  pay the Company for using its  railcars)  and revenue
from locomotive leases to unaffiliated  entities.  The Company's railcars have a
limited useful life,  generally 40 to 50 years from the year they were built. In
future  years,  as the  Company's  railcars  reach their useful life limit,  the
Company  will need to replace  the  railcars to  maintain  its  current  carhire
revenue levels. Any significant purchase of railcars will require long term debt
financing.  When the Company's  railcars reach the end of their useful life, the
Company  could still use some of the railcars on its own  railroads  for captive
grain loads or generate  income from the scrap value of the  railcars,  which is
currently  about  $3,000  per  car.  Below  is a  chart  illustrating  the  life
expectancy of the Company's railcar fleet:
<TABLE>
Expiration Year   Box     Cov Hop    Gond       Flat       Hopper        Total      % of Fleet
----------------------------------------------------------------------------------------------
<S>               <C>     <C>        <C>        <C>        <C>           <C>        <C>
     2004          31         18                                           49           3.62%
     2005          42         44        3        12                       101           7.46%
     2006         103         80        5         1                       189          13.96%
     2007           3        156                               2          161          11.89%
     2008          28          5        5                      2           40           2.95%
     2009          40        154        4                                 198          14.62%
     2010           9          4        5                                  18           1.33%
     2011          90         50                               1          141          10.41%
     2012         164         14        4                      4          186          13.74%
     2013           6         32        2                                  40           2.95%
     2014          20          9        3                      1           33           2.44%
     2015          10         11                               1           22           1.62%
     2016          20         10        1                                  31           2.29%
     2017           4          6        2                                  12           0.89%
     2018          13          4        1                                  18           1.33%
     2019          15          2                                           17           1.26%
     2020           3          8                                           11           0.81%
     2021          11          4       46        19            2           82           6.06%
     2023                      3                                            3           0.22%
     2024                      2                                            2           0.15%
                  612        616       81        32           13         1354         100.00%
</TABLE>

Nationally  there is a surplus  of  locomotives  for  lease and sale,  which has
caused a  decrease  in lease  rates and a  decrease  in  opportunities  to lease
locomotives as potential customers may choose to purchase locomotives in lieu of
leasing them. The Company's  lease renewals will be subject to market rates that
are currently  lower than the Company is earning.  Historically,  there has been
upturns  and  downturns  in the  locomotive  leasing  industry,  and the Company
believes it is well  positioned to take advantage of the next up turn due to the
size and quality of its locomotive fleet.

The Company also seeks to encourage  development on or near, and utilization of,
the real estate right of way of its operating railroads by potential shippers as
a source of additional revenue and also generates revenue by granting to various
entities,  such  as  utilities,   pipeline  and  communications   companies  and
non-industrial  tenants, the right to occupy its railroad right of way and other
real estate property.

The  Company's  primary  outflow  of cash  pertains  to  employee  wages,  track
materials, repair expenses to railcars and locomotives,  fuel, car hire expense,
liability insurance, health insurance, and debt repayments. The Company uses the
following categories to group expense in the financial statements:

Maintenance of Way and structure  expense (MOW) includes all expenses related to
track  maintenance;  including  payroll,  track materials,  signal  maintenance,
vegetation control, and bridge maintenance.

Maintenance  of equipment  expense (MOE)  includes  expenses  related to railcar
repair expenses for both foreign and Company owned railcars;  including payroll,
car  repair  parts,  processing  fees  for  Company  owned  railcars,  and  also
maintenance to Company owned vehicles.

Transportation  expense  (TRAN)  includes  expenses  related  to train  movement
operations;  including  payroll,  locomotive fuel and supplies  expense,  repair
expenses to Company owned  locomotives,  car hire expense,  derailment  expense,
lading and damage  claims,  switching  services  purchased,  and joint  facility
expenses with other carriers.

General &  administration  expense  (ADMIN)  includes  general  manager  payroll
expenses,  legal expenses,  bad debt expense  related to interline  settlements,
liability insurance,  utilities,  postage and freight,  real estate taxes, dues,
licenses and fees, vehicle insurance, freight to move company owned railcars and
locomotives,  health and dental insurance  expense,  audit fees,  printing,  and
corporate   headquarters  support  service  payroll  for  executive  management,
accounting, operations, marketing, real estate, legal, and other support staff.

                                       11
<PAGE>

Financial Results discussion:

The  Company's  net income in 2003  increased by $179,000 to  $1,425,000 up from
$1,246,000  in  2002.  Revenue  increased  in  2003  by  $1,024,000  or  7%,  to
$15,994,000 from  $14,970,000 in 2002.  Operating  expense  increased in 2003 by
$807,000  or 7%, to  $12,940,000  from  $12,133,000  in 2002.  Operating  income
increased in 2003 by $217,000 or 8%, to $3,054,000 from $2,837,000 in 2002.

Revenue increased in 2003 by $1,025,000 or 7% to $15,994,000 from $14,970,000 in
the prior year. The railroad  operations  generated total revenue of $12,929,000
in 2003  compared to  $11,979,000  in 2002.  The railroad  operations  increased
revenue $950,000,  primarily from increased switching revenue of $357,000, which
includes $146,000 of previously  deferred revenue  recognized as revenue in 2003
as discussed in Item 3, and increased contract services revenue of $409,000. The
equipment  leasing  operations  generated  total  revenue of  $3,045,000 in 2003
compared to  $2,976,000  in 2002.  In 2003  revenue from the  equipment  leasing
operations  included carhire revenue of $2,387,000 and unaffiliated lease income
of  $632,000.   The  equipment  leasing  operations  increased  revenue  $69,000
primarily  from a  $94,000  increase  in  carhire  revenue  offset  by a $44,000
decrease in revenue  generated from equipment  leases to unaffiliated  entities.
Corporate services did not have significant revenues in either 2003 or 2002.

Operating  expense  increased  in 2003 by  $807,000 or 7%, to  $12,940,000  from
$12,133,000 in 2002. The railroad  operations  generated  operating  expenses of
$7,568,000 in 2003, a $594,000  increase (9%) from $6,974,000 in 2002. There are
no material  trends  that  resulted in the  increased  operating  expense by the
railroad  operations.  The  equipment  leasing  operations  generated  operating
expenses  of  $1,980,000  in  2003,  a  $57,000  increase  (less  then  1%) from
$1,923,000 in 2002.  Corporate support services  generated  operating expense of
$3,392,000  in 2003 a  $156,000  increase  (5%)  from  $3,236,000  in 2002.  The
increase in operating  expenses  from  corporate  support  services is primarily
related to increased  health  insurance  costs related to the  Company's  health
plan.

Operating  income  increased  in 2003 by  $217,000  or 8%,  to  $3,054,000  from
$2,837,000 in 2002.

The railroad  operations  generated  operating  income of  $5,360,000 in 2003, a
$356,000 increase (7%) from $5,004,000 in 2002. The equipment leasing operations
generated  operating income of $1,064,000 in 2003, a $12,000 increase (less then
1%) from $1,052,000 in 2002. Corporate support services reduced operating income
$3,372,000 in 2003. This represents a $151,000 decrease in 2003 operating income
(5%) as compared to a $3,221,000 reduction of operating income in 2002.

2003 Operations by Business Segment

                           Railroad      Equipment     Corporate
                          Operations      Leasing      Services         Total
                          ------------------------------------------------------
Revenue ...............   $12,929,000   $ 3,045,000   $    20,000    $15,994,000

Expenses:
MOW ...................   $ 1,173,000   $         0   $    78,000    $ 1,251,000
MOE ...................   $   761,000   $   486,000   $   272,000    $ 1,519,000
TRAN ..................   $ 3,240,000   $   141,000   $    51,000    $ 3,432,000
ADMIN .................   $ 1,552,000   $    61,000   $ 2,926,000    $ 4,539,000
Dep/Amort .............   $   842,000   $ 1,292,000   $    65,000    $ 2,199,000
                          ------------------------------------------------------
Operating Expense .....   $ 7,568,000   $ 1,980,000   $ 3,392,000    $12,940,000

Operating Income ......   $ 5,361,000   $ 1,065,000   ($3,372,000)   $ 3,054,000


2003-2002 Variances by Business Segments
Increase (decrease)

                              Railroad     Equipment     Corporate
                             Operations     Leasing      Services        Total
                             ---------------------------------------------------
Revenue ..................   $  950,000   $   69,000    $    5,000    $1,024,000

Expenses:
MOW ......................   $  128,000   $        0    ($   6,000)   $  122,000
MOE ......................   $  100,000   ($  29,000)   $   31,000    $  102,000
TRAN .....................   $  145,000   $   65,000    $    1,000    $  211,000
ADMIN ....................   $   99,000   ($  35,000)   $  141,000    $  205,000
Dep/Amort ................   $  122,000   $   56,000    ($  11,000)   $  167,000
                             ---------------------------------------------------
Operating Expense ........   $  594,000   $   57,000    $  156,000    $  807,000

Operating Income .........   $  356,000   $   12,000    ($ 151,000)   $  217,000


                                       12
<PAGE>

Other Income and Expense Income Statement Line Item Discussions:

Interest expense  decreased  $155,000 in 2003 to $929,000 compared to $1,084,000
in 2002. Interest expense related to the financing of railroad  acquisitions and
railroad  improvements  was  $543,000  in 2003,  a $61,000  decrease  (15%) from
$604,000 in 2002. The equipment leasing operations interest expense was $386,000
in 2003, a $94,000 decrease (32%) from $480,000 in 2002.

In 2003,  $309,000  of lease  income was  generated  by the  Company's  railroad
operations  from the  granting of  easements  and leases for the use of railroad
right of way property, compared to $305,000 of lease income in 2002. The Company
continues to place a strong emphasis on identifying and collecting revenues from
third parties occupying Company property.

Net loss on sale of property  and  equipment,  primary  related to railcars  was
$74,000 in 2003  compared to a net gain on sale of  property  and  equipment  of
$17,000 in 2002.

Impact of New Accounting Pronouncements:

Prior to January 1, 2002  goodwill was amortized on a  straight-line  basis over
periods  ranging  from 5-40  years.  Effective  January 1, 2002,  goodwill is no
longer amortized but is subject to impairment tests performed at least annually.
The  Company  has  performed  the  required  impairment  tests of goodwill as of
December  31,  2003,  and,  based on  management  estimates of fair value of the
entity, there was no reduction in the carrying amount of the goodwill previously
recognized.  The Company did not acquire any additional  goodwill during 2003 or
2002.

In August  2001,  the FASB  issued  Statement  No.  143,  "Accounting  for Asset
Retirement  Obligations." FASB No. 143 amends FASB No. 19, "Financial Accounting
and  Reporting  by Oil and Gas  Producing  Companies."  It  addresses  financial
accounting  and  reporting for  obligations  associated  with the  retirement of
tangible,  long-lived  assets and the associated  asset  retirement  costs.  The
provisions  of SFAS No. 143 were adopted  effective  January 1, 2003 and did not
have a material effect on the Company's consolidated financial statements.

In June  2002,  SFAS No.  146,  "Accounting  for Costs  Associated  with Exit or
Disposal  Activities," was issued.  SFAS No. 146 supersedes Emerging Issues Task
Force  ("EITF")  Issue No. 94-3,  "Liability  Recognition  for Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a Restructuring)."  SFAS No. 146 requires that a liability for
a cost  associated  with an exit or  disposal  activity be  recognized  when the
liability is incurred.  Under SFAS No. 146, an entity's commitment to a plan, by
itself,  does not create an obligation that meets the definition of a liability.
SFAS  No.  146  also  establishes  fair  value  as  the  objective  for  initial
measurement  of the  liability.  The  provisions  of SFAS No.  146 were  adopted
effective  January 1, 2003 and did not have a material  effect on the  Company's
consolidated financial statements.

In November  2002,  FASB  Interpretation  No. 45,  "Guarantor's  Accounting  and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness of Others" (FASB Interpretation No. 45), was issued. The disclosure
requirements  are  effective  for  financial  statements  of interim  and annual
periods ending after December 15, 2002. The initial  measurement and recognition
provisions  are  required  to be applied on a  prospective  basis to  guarantees
issued or modified  after  December  31,  2002.  They  require  that a guarantor
recognize,  at the  inception of a guarantee,  a liability for the fair value of
the  obligation  undertaken  in issuing the  guarantee.  Under prior  accounting
principles,  a guarantee  would not have been  recognized as a liability until a
loss  was  probable  and   reasonably   estimable.   The   provisions   of  FASB
Interpretation  No. 45 were adopted effective January 1, 2003 and did not have a
material effect on the Company's consolidated financial statements.

                                       13
<PAGE>

In January 2003, FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities" (FASB Interpretation No. 46), was issued. It clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated  Financial Statements," to
certain  entities  in which  the  equity  investors  do not  have a  controlling
financial interest or do not have sufficient equity at risk. FASB Interpretation
No. 46, as amended in December 2003, is effective for the Company for the period
ending December 31, 2004,  except for entities  considered to be special purpose
entities,  as to which the effective  date is December 31, 2003. The Company has
not completed its full assessment of the effects of FASB  Interpretation  No. 46
on its financial  statements  and so it is uncertain as to the impact,  however,
the Company does not believe it has any special  purpose  entities to which FASB
Interpretation No. 46, as amended, would apply as of December 31, 2003.

In May 2003, FASB issued  Statement No. 150,  "Accounting for Certain  Financial
Instruments with Characteristics of both Liabilities and Equity".  Statement No.
150 requires  that certain  freestanding  financial  instruments  be reported as
liabilities in the balance sheet. Depending on the type of financial instrument,
it will be  accounted  for at either fair value or the  present  value of future
cash flows  determined  at each balance sheet date with the change in that value
reported  as  interest  expense  in  the  statement  of  income.  Prior  to  the
application of Statement No. 150,  either those financial  instruments  were not
required to be recognized, or if recognized,  were reported in the balance sheet
as equity with changes in the value of those instruments normally not recognized
in net income. The Company believes the adoption of FASB No. 150 will not have a
material impact on the Company's financial position or results of operations.

Liquidity and Capital Resources:

The Company  primarily  uses cash  generated  from  operations  to fund  working
capital  needs and relies on long-term  financing  for the purchase of railcars,
new operating  subsidiaries,  and other significant  capital  expenditures.  The
Company has working capital facilities  totaling  $1,100,000 which was available
for use at the end of 2003.

Long-term  equipment  financing has historically  been readily  available to the
Company for its railcar  acquisition  program.  The Company  believes it will be
able to continue to obtain long-term  equipment financing should the need arise.
The Company's  plans for new debt in the  foreseeable  future is contingent upon
new railroad acquisitions and increased needs and/or opportunities for railcars.

On October 10, 2002, the Company negotiated reduced interest rates on several of
its notes  outstanding  with  National  City Bank.  The  ability to  renegotiate
interest rates is limited by the  assessment of prepayment  premiums by National
City Bank in accordance with the terms of the original notes.  Therefore,  it is
not cost effective to renegotiate all notes, and the reduction in interest rates
on renegotiated notes was limited by the prepayment premiums.  The interest rate
on the note related to the acquisition of the Michigan Southern Railroad Co. was
reduced  from 8.375% to 7.55% for 5 years on a note balance of  $1,897,000.  The
interest  rate on the note  related to the  acquisition  of the Keokuk  Junction
Railway  Co. was reduced  from 8.375% to 7.15% for 5 years on a note  balance of
$2,392,000.  The KJRY note includes  $500,000 of additional  principal  that was
previously  funded by the  acquisition  line  relating to the  December 19, 2001
purchase of 12.1 miles of track from  LaHarpe to Lomax,  Illinois.  In addition,
the Company  converted the variable rate note payable related to the acquisition
of The Garden City Western Railway,  Inc. to a fixed rate of 5.7% for the next 5
years on a note balance of $1,216,000.

The following table summarizes the Company's future  commitments and contractual
obligations  (amount in thousands) related to its notes payable,  long-term debt
and noncancellable operating leases as of December 31, 2003:
<TABLE>
Commitments & Contractual                         Years ending December 31
      Obligations              2004     2005      2006       2007      2008   Thereafter    Total
--------------------------------------------------------------------------------------------------
<S>                          <C>       <C>       <C>       <C>       <C>       <C>         <C>
Notes payable ............   $   146   $    --   $    --   $    --   $    --   $    --     $   146
Long-term debt ...........     2,955     2,868     1,898     4,297       402       173      12,593
Noncancellable
  operating leases .......        31        31        31        31        28        43         195
</TABLE>

                                       14
<PAGE>

On July 1, 1995, the Company's  stock split and warrant  issuance became payable
to  shareholders.  The 2 for 1 stock split increased the number of shares issued
and  outstanding  from  2,099,142 to  4,198,284.  At the same time  shareholders
became  entitled  to purchase  an  additional  4,198,284  shares  through  stock
warrants  issued by the  Company as  dividends.  One warrant was issued for each
share of common stock held after the split,  entitling  the holder to purchase 1
share of common  stock for $2.00 per share.  The shares  purchased  through  the
exercise of the warrants  must be held for 1 year from date of  purchase.  As of
December  31,  2003,  a total of  71,764  warrants  originally  issued  had been
exercised  to date,  and the Company  realized  $143,938 on the  issuance of the
warrants.

On June 26,  1996,  the  Company's  shareholders  approved a stock  option  plan
permitting the issuance of 407,000 shares of common stock. Options granted under
the plan are  incentive  based  except for the options  granted to the CEO whose
options are non-qualified. The options became fully vested and exercisable as of
July 1, 2001. The options are exercisable at prices ranging from $2.75 to $3.03,
based  upon the  trading  price on the  date of the  grant,  in whole or in part
within 10 years from the date of grant.  As of  December  31,  2003,  a total of
150,000 options are outstanding under this plan.

In 1999,  Pioneer  Railcorp's  Board of  Directors  authorized  and approved the
repurchase of up to one million  shares  (1,000,0000)  of the  Company's  common
stock.  As of December 31, 2003, a total of 130,615 shares had been  repurchased
at a cost of  $191,612.  The Company  plans to  continue  buying back its common
stock  but  believes  the  repurchase  will  be on a  more  limited  scope  then
previously anticipated due to capital requirements and the trading volume of the
Company's stock.

The Company  generally  anticipates  that the outcomes  involving  current legal
proceedings  will not  materially  affect the Company's  consolidated  financial
position or results of operation

The Company  believes its cashflow from  operations  and its  available  working
capital  credit  lines,  will be more than  sufficient to meet  liquidity  needs
through at least December 31, 2004.

Balance Sheet and Cash Flow Items:

The Company  generated net cash from operating  activities of $3,364,000 in 2003
and $4,371,000 in 2002. Net cash from operating activities for 2003 was provided
by $1,425,000 of net income,  $2,199,000 of depreciation  and  amortization,  an
increase in deferred income taxes of $500,000,  an increase in accounts  payable
of $197,000 and  $437,000  from changes in various  other  operating  assets and
liabilities less cash used by an increase in accounts receivable of $883,000,  a
decrease in deferred  revenue of $240,000 and  $271,000  from changes in various
other operating assets and liabilities.  Net cash from operating  activities for
2002 was provided by $1,246,000 of net income,  $2,032,000 of  depreciation  and
amortization,  an increase in deferred  income taxes of $420,000,  a decrease in
accounts receivable of $265,000,  an increase in deferred revenue of $1,158,000,
and $292,000 from changes in various other operating assets and liabilities less
cash used from a decrease in  accounts  payable of $568,000  and  $472,000  from
changes in various other operating assets and liabilities.

The December 31, 2003 increase in accounts receivable is related to revenue from
railroad operations billed in the 4th quarter, some of which remains outstanding
as a result of year end changes in payment  procedures  by one of the  Company's
customer's.  These balances have been, or are expected to be fully  collected in
the first quarter 2004. As previously  discussed,  several railroads are usually
involved in the process of delivering  freight.  The Company  collects the total
revenue for all  railroads  involved in the delivery of freight in a majority of
its  shipments.  The  Company  records  its share of the revenue and records the
amount due the other  railroads  as a current  payable.  The amounts  payable to
other railroads are settled monthly.  Depending on the mix of freight handled by
the Company,  there could be  significant  variances in accounts  receivable and
accounts payable in comparable periods. Under normal operating conditions, these
changes do not have a material  impact on liquidity or the Company's  ability to
meet its cash requirements.

                                       15
<PAGE>

A total of $146,000 of the decrease in the Company's deferred revenue relates to
the Company's settlement of its dispute with the BNSF as described above in Part
I Item 3 Legal  Proceedings.  In  addition,  $94,000  of  deferred  revenue  was
amortized to income for  reimbursements  received for track  upgrades as further
described in Note1 to Financial Statements.

In 2003, the Company purchased and capitalized approximately $1,110,000 of fixed
assets and capital  improvements,  including the purchase of 13 used locomotives
for $580,000 and $141,000 of track structure  additions and improvements.  Other
capital  expenditures  in 2003  include  approximately  $136,000 for railcar and
locomotive  betterment's,  $39,000 for utility trucks and a backhoe, $83,000 for
bridge upgrades and $131,000 of various or equipment items. The Company obtained
long term 4.81% fixed rate financing totaling $580,000 for locomotive purchases.
In addition,  the Company incurred borrowings of $97,000 from the State of Iowa,
bearing  interest at a fixed rate of 3% to fund track structure  additions.  The
remaining capital expenditures were funded with working capital.

In July 2003, the Company incurred borrowings of $1.1 million for a term of five
years bearing  interest at a fixed rate of 4.81%.  The proceeds were utilized to
refinance  outstanding  debt  bearing  interest at rates of 6.7% and 7.4%.  This
transaction will have a positive affect on the Company's cash flow.

In 2004 the  Company  plans  to make  significant  upgrades  to  existing  track
structure  on  several  of  its  railroad  properties  at an  expected  cost  of
approximately  $1 million.  The anticipated  costs  represent  track  materials,
additional  labor and contractors that will be required to perform the upgrades.
These  costs are  expected  to be incurred  during the late first  quarter  2004
continuing through the third quarter 2004. The Company plans to initially fund a
majority of these  expenditures  with working  capital,  but is also considering
using long term fixed rate  financing,  which it believes  would be available if
requested.

The  Company  has  a  feeder   line   application   on  file  with  the  Surface
Transportation  Board (STB) to acquire the western end of the Toledo  Peoria and
Western Railway (TPW). The Company believes this acquisition would add synergies
to its Keokuk Junction  Railway Co., as the two lines would connect,  giving the
Company's  largest  customer  access to additional  markets via Peoria,  IL. The
Company anticipates a decision by the STB no later than the second quarter 2004.
In the event the Company is successful in its attempt to acquire the west end of
the TPW, the  acquisition  price will be  determined  by the STB. The Company is
uncertain as to what the acquisition price will be, but the Company's determined
fair value is $3.3 million.  The Company's primary lender has offered to provide
long term fixed rate financing for this  acquisition.  The Company believes that
the cash it would  generate  from  operating  the west end of the TPW would more
then offset debt requirements of the acquisition.

The Company anticipates  additional cash requirements  approximating $200,000 in
2004 as a result of the reversal of deferred taxes. In future years, the Company
anticipates  additional cash  requirements  totaling $400,000 as a result of the
reversal of deferred taxes.

In 2002, the Company's  wholly owned  subsidiary,  Mississippi  Central Railroad
Co.,  exercised  its  conversion  rights  on all of its  outstanding  shares  of
preferred  stock.  The conversion  rate was 110% of the par value of $1,000.  In
October  2002 the Company  disbursed a total of $365,200 to satisfy the complete
and full conversion of all outstanding preferred shares to cash.

                                       16
<PAGE>

Item 7.  Financial Statements

McGladrey & Pullen
Certified Public Accountants


Independent Auditor's Report

To the Board of Directors
Pioneer Railcorp
Peoria, Illinois

We have audited the accompanying consolidated balance sheets of Pioneer Railcorp
and subsidiaries as of December 31, 2003 and 2002, and the related  consolidated
statements of income,  stockholders'  equity,  and cash flows for the years then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Pioneer Railcorp and
subsidiaries  as of  December  31,  2003  and  2002,  and the  results  of their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.


/s/ McGladrey & Pullen, LLP
---------------------------

Peoria, Illinois
February 13, 2004





McGladrey & Pullen,  LLP is a member firm of RSM  International - an affiliation
of separate and independent legal entities.

                                       17
<PAGE>

Pioneer Railcorp and Subsidiaries

Consolidated Balance Sheets
December 31, 2003 and 2002
<TABLE>
ASSETS                                                             2003            2002
-------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>
Current Assets
Cash                                                           $  1,199,016    $  1,148,461
Accounts receivable, less allowance for doubtful accounts
  2003 $38,659; 2002 $27,481 ...............................      3,924,194       3,041,573
Inventories ................................................        352,708         287,763
Prepaid expenses ...........................................        274,458         214,606
Income tax refund claims ...................................        201,000         337,419
Deferred income taxes ......................................             --          12,000
                                                               ----------------------------
        Total current assets ...............................      5,951,376       5,041,822

Investments, cash value of life insurance ..................        246,668         214,627

Property and Equipment, net ................................     26,495,649      27,793,573

Other Assets ...............................................         10,777         161,833

Goodwill ...................................................      1,017,430       1,017,430
                                                               ----------------------------
                                                               $ 33,721,900    $ 34,229,285
                                                               ============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Current maturities of long-term debt .....................   $  2,954,637    $  2,716,801
  Notes payable ............................................        146,080          91,816
  Accounts payable .........................................      2,543,568       2,346,751
  Accrued expenses .........................................        836,332         950,968
  Deferred income taxes ....................................         62,000              --
                                                               ----------------------------
        Total current liabilities ..........................      6,542,617       6,106,336
                                                               ----------------------------

Long-Term Debt, net of current maturities ..................      9,638,122      11,911,244
                                                               ----------------------------

Deferred Revenue ...........................................      1,788,017       2,027,811
                                                               ----------------------------

Deferred Income Taxes ......................................      6,063,000       5,637,000
                                                               ----------------------------

Minority Interest in Subsidiaries ..........................        737,000         751,000
                                                               ----------------------------
Commitments and Contingencies (Note 11)

Stockholders' Equity
  Common stock, Class A (voting), par value $.001 per share,
    authorized 20,000,000 shares, issued 2003 4,615,717;
    2002 4,612,517 shares ..................................          4,615           4,612
  In treasury 2003 130,615 shares; 2002 99,005 shares ......           (130)            (99)
                                                               ----------------------------
  Outstanding 2003 4,485,102; 2002 4,513,512 ...............          4,485           4,513
  Common stock, Class B (nonvoting), no par value,
    authorized 20,000,000 shares ...........................             --              --
  Additional paid-in capital ...............................      2,015,838       2,009,441
  Retained earnings ........................................      6,932,821       5,781,940
                                                               ----------------------------
                                                                  8,953,144       7,795,894
                                                               ----------------------------

                                                               $ 33,721,900    $ 34,229,285
                                                               ============================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       18
<PAGE>

Pioneer Railcorp and Subsidiaries

Consolidated Statements of Income
Years Ended December 31, 2003 and 2002
<TABLE>
                                                           2003            2002
                                                       ----------------------------
<S>                                                    <C>             <C>
Railway operating revenue ..........................   $ 15,994,621    $ 14,969,833
                                                       ----------------------------

Operating expenses
  Maintenance of way and structures ................      1,251,112       1,129,442
  Maintenance of equipment .........................      1,519,396       1,416,737
  Transportation ...................................      3,431,951       3,220,839
  General and administrative .......................      4,539,075       4,334,140
  Depreciation .....................................      2,194,907       2,027,869
  Amortization .....................................          4,000           4,000
                                                        ---------------------------
                                                         12,940,441      12,133,027
                                                        ---------------------------

        Operating income ...........................      3,054,180       2,836,806
                                                        ---------------------------
Other income (expenses)
  Interest income ..................................          3,664           7,822
  Interest expense .................................       (929,451)     (1,084,133)
  Lease income .....................................        308,728         305,192
  Gain (loss) on sale of property and equipment ....        (74,285)         17,190
  Other, net .......................................         13,200          12,245
                                                         --------------------------
                                                           (678,144)       (741,684)
                                                         --------------------------
        Income before provision for income taxes
        and minority interest in preferred stock
        dividends of consolidated subsidiaries .....      2,376,036       2,095,122
Provision for income taxes .........................        872,063         733,543
                                                         --------------------------
        Income before minority interest in preferred
        stock dividends of consolidated subsidiaries      1,503,973       1,361,579

Minority interest in preferred stock dividends of
  consolidated subsidiaries ........................         78,705         115,890
                                                       ----------------------------

        Net income .................................   $  1,425,268    $  1,245,689
                                                       ============================

Basic earnings per common share ....................   $       0.32    $       0.28
                                                       ============================

Diluted earnings per common share ..................   $       0.32    $       0.28
                                                       ============================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       19
<PAGE>

Pioneer Railcorp and Subsidiaries

Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2003 and 2002
<TABLE>
                                                 Common Stock
                                            ------------------------
                                                Class A (Voting)        Additional
                                            ------------------------      Paid-In       Retained
                                              Shares       Amount         Capital       Earnings
                                            ------------------------------------------------------
<S>                                         <C>          <C>            <C>            <C>
Balance at December 31, 2001 ..........     4,528,477    $     4,528    $ 2,044,041    $ 4,694,536

  Dividends on common stock,
    $.03 per share ....................            --             --             --       (135,907)

  Redemption premium paid on repurchase
    of preferred stock (Note 10) ......            --             --        (34,600)            --

  Shares acquired in treasury for
    retirement ........................       (14,965)           (15)            --        (22,378)

  Net income ..........................            --             --             --      1,245,689
                                            ------------------------------------------------------

Balance at December 31, 2002 ..........     4,513,512          4,513      2,009,441      5,781,940

  Warrants exercised ..................         3,200              3          6,397             --

  Dividends on common stock,
    $.05 per share ....................            --             --             --       (224,534)

  Shares acquired in treasury for
    retirement ........................       (31,610)           (31)            --        (49,853)

  Net income ..........................            --             --             --      1,425,268
                                            ------------------------------------------------------

Balance at December 31, 2003 ..........     4,485,102    $     4,485    $ 2,015,838    $ 6,932,821
                                            ======================================================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       20
<PAGE>

Pioneer Railcorp and Subsidiaries

Consolidated Statements of Cash Flows
Years Ended December 31, 2003 and 2002
<TABLE>

                                                               2003          2002
-------------------------------------------------------------------------------------
<S>                                                        <C>            <C>
Cash Flows From Operating Activities
  Net income ...........................................   $ 1,425,268    $ 1,245,689
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Minority interest in preferred stock dividends of
      consolidated subsidiaries ........................        78,705        115,890
    Depreciation .......................................     2,194,907      2,027,869
    Amortization .......................................         4,000          4,000
    (Increase) in cash value life insurance ............       (32,041)       (30,537)
    (Gain) loss on sale of property and equipment ......        74,285        (17,190)
    Deferred taxes .....................................       500,000        420,000
    Changes in assets and liabilities:
      (Increase) decrease in assets:
        Accounts receivable ............................      (882,621)       265,168
        Income tax refund claims .......................       136,419       (204,514)
        Inventories ....................................       (64,945)       (65,506)
        Prepaid expenses ...............................       (59,852)       (11,819)
        Other assets ...................................       147,056       (143,742)
      Increase (decrease) in liabilities:
        Accounts payable ...............................       196,817       (567,720)
        Accrued expenses ...............................      (114,636)       175,937
        Deferred revenue ...............................      (239,794)     1,157,745
                                                           --------------------------
        Net cash provided by operating activities ......     3,363,568      4,371,270
                                                           --------------------------
Cash Flows From Investing Activities
  Proceeds from sale of property and equipment .........       109,302         59,673
  Purchase of property and equipment ...................    (1,080,570)    (2,611,449)
                                                           --------------------------
        Net cash (used in) investing activities ........      (971,268)    (2,551,776)
                                                           --------------------------
Cash Flows From Financing Activities
  Proceeds from short-term borrowings ..................       271,340      1,339,637
  Proceeds from long-term borrowings ...................     1,812,082      1,219,769
  Principal payments on short-term borrowings ..........      (217,076)    (1,305,533)
  Principal payments on long-term borrowings ...........    (3,847,368)    (2,240,794)
  Proceeds from common stock issued upon exercise
    of stock warrants and options ......................         6,400             --
  Common stock dividend payments .......................      (224,534)      (135,907)
  Preferred stock dividend payments to minority interest       (78,705)      (115,890)
  Purchase of common stock for the treasury ............       (49,884)       (22,393)
  Repurchase of minority interest ......................       (14,000)      (352,000)
  Redemption premium on repurchase of preferred stock ..            --        (34,600)
                                                           --------------------------

        Net cash (used in) financing activities ........    (2,341,745)    (1,647,711)
                                                           --------------------------
</TABLE>
(Continued)

                                       21
<PAGE>

Pioneer Railcorp and Subsidiaries

Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 2003 and 2002
<TABLE>
                                                               2003          2002
                                                            -----------------------
<S>                                                         <C>          <C>
        Net increase in cash ............................   $   50,555   $  171,783

Cash, beginning of year .................................    1,148,461      976,678
                                                            -----------------------

Cash, end of year .......................................   $1,199,016   $1,148,461
                                                            =======================

Supplemental Disclosures of Cash Flow Information
  Cash payments for:
    Interest ............................................   $  951,264   $1,073,983
                                                            =======================

    Income taxes (net of refunds 2003 $13,709; 2002 none)   $  235,644   $  518,057
                                                            =======================

Supplemental Disclosures of Noncash Investing Information
  Accounts receivable applied to acquire equipment ......   $     --     $  124,267
                                                            =======================
</TABLE>

See Notes to Consolidated Financial Statements.


                                       22
<PAGE>

Pioneer Railcorp and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


Note 1.  Nature of Business and Significant Accounting Policies

Nature of business: Pioneer Railcorp is the parent company of sixteen short-line
common carrier railroad  operations,  an equipment leasing company, a subsidiary
which owns an  airplane,  and two service  companies.  Pioneer  Railcorp and its
subsidiaries (the "Company") operate in the following states: Alabama, Arkansas,
Kansas,  Illinois,  Indiana,  Iowa,  Michigan,  Mississippi,  Pennsylvania,  and
Tennessee.

The Company's subsidiaries include the following:
<TABLE>
<S>                                                                <C>
    West Michigan Railroad Co.                                     Michigan Southern Railroad Company and its
    Vandalia Railroad Company                                          subsidiary, Michigan Southern Railroad
    Decatur Junction Railway Co.                                       Company, Inc.
    Alabama & Florida Railway Co., Inc.                            Kendalville Terminal Railway Co.
    Pioneer Industrial Railway Co.                                 Elkhart & Western Railroad Co.
    Gettysburg & Northern Railroad Company                         The Garden City Western Railway, Inc.
    Mississippi Central Railroad Co.                               Indiana Southwestern Railway Co.
    Alabama Railroad Co.                                           Shawnee Terminal Railway Company
    Fort Smith Railroad Co.                                        Pioneer Resources, Inc.
    Pioneer Railroad Equipment Co., Ltd.                           Pioneer Railroad Services, Inc.
    Keokuk Junction Railway Co. and its subsidiary,                Pioneer Air, Inc.
       Keokuk Union Depot Company
</TABLE>

Pioneer Railroad  Equipment Co., Ltd. holds title to a majority of the Company's
operating  equipment,  and Pioneer Air,  Inc.  owns an airplane  utilized by the
Company  for  business  purposes.   Pioneer  Railroad  Services,  Inc.  provides
management,  administrative,  and agency  services to the  Company's  subsidiary
railroads.  Pioneer Resources,  Inc. holds title to certain real estate adjacent
to one of the Company's railroads.  All other subsidiaries are short-line common
carrier railroad operations.

Significant accounting policies:

Principles of consolidation:  The consolidated  financial statements include the
accounts of Pioneer Railcorp and its wholly-owned subsidiaries.  All significant
intercompany transactions and balances have been eliminated in consolida-tion.

Cash and cash equivalents: For the purposes of reporting cash flows, the Company
considers all highly liquid debt  instruments  purchased  with maturity of three
months  or less to be cash  equivalents.  There  are no cash  equivalents  as of
December 31, 2003 and 2002.  Periodically  throughout  the year, the Company has
amounts  on deposit  with  financial  institutions  that  exceed the  depository
insurance limits.  The Company has not experienced any loss as a result of those
deposits and does not expect any in the future.

Receivables  credit risk: The Company performs ongoing credit evaluations of its
customers and generally  does not require  collateral.  Provisions  are made for
estimated  uncollectible  trade accounts  receivable.  An account  receivable is
considered  to be  past  due  if  any  portion  of  the  receivable  balance  is
outstanding  for more than 90 days.  Management  determines  the  allowance  for
doubtful accounts by regularly  evaluating  individual customer  receivables and
considering  a  customer's  financial  condition,  credit  history,  and current
economic   conditions.   Accounts   receivables  are  written  off  when  deemed
uncollectible.  Recoveries  of  trade  receivables  previously  written  off are
recorded when received. To date, losses on accounts receivable have been minimal
in  relation  to  the  volume  of  sales  and  have  been  within   management's
expectations.

Revenue recognition:  Freight revenue, generally derived on a per car basis from
on-line customers and connecting carriers with whom the Company interchanges, is
considered earned at the time a shipment is either delivered to or received from
the connecting carrier at the point of interchange.

Inventories:   Inventories   consisting  of  various   mechanical  parts,  track
materials,  locomotive supplies, and diesel fuel are stated at the lower of cost
(determined  by the average  cost method) or market.  Inventories  are used on a
daily basis for normal operations and maintenance.

                                       23
<PAGE>

Property and equipment:  Property and equipment is stated at cost.  Depreciation
is generally  computed on a  straight-line  basis over the  following  estimated
useful lives:

                                                                           Years
                                                                           -----

Roadbed ....................................................                  20
Transportation equipment ...................................               10-15
Railcars ...................................................               10-25
Buildings ..................................................               20-40
Machinery and equipment ....................................                5-10
Office equipment ...........................................                5-10

Leasehold improvements are depreciated over the lesser of the lease term or life
of the improvements.

Maintenance and repair expenditures, which keep the rail facilities in operating
condition, are charged to operations as incurred.  Expenditures considered to be
renewals and betterments are capitalized if such expenditures  improve the track
conditions  and benefit  future  operations  with more efficient use of the rail
facilities.

Capital  projects  primarily  represent   transportation  equipment  or  roadbed
modification projects which have either been purchased and the Company is in the
process of modifying and upgrading prior to placing the assets into service,  or
roadbed modification projects which are not yet complete. As the assets have not
yet been placed into service, the Company does not depreciate these assets.

The  Company  reviews  applicable  assets  on a  quarterly  basis  to  determine
potential  impairment by comparing  carrying value of underlying assets with the
anticipated  future cash flows and does not believe that impairment exists as of
December 31, 2003 and 2002.

Goodwill:  Prior to January 1, 2002,  goodwill was amortized on a  straight-line
basis over periods ranging from 5-40 years.  Effective January 1, 2002, goodwill
is no longer  amortized  but is subject to impairment  tests  performed at least
annually (the Company performs its impairment test as of December 31 each year).

Deferred revenue: In 2002, the Company incurred costs of $1,012,055, relating to
an  ongoing  upgrade  of the track and  roadbed  of the  Gettysburg  &  Northern
Railroad  Company.  The upgrade was required in order to service a customer that
has agreed to reimburse the Company for the costs relating to the upgrade. As of
December 31, 2002, the customer had reimbursed  the Company  $1,882,121.  As the
project was ongoing as of December 31,  2002,  the Company  recognized  deferred
revenue of $1,882,121 and  capitalized the same amount for the related track and
roadbed  upgrade in the capital  projects  category of property  and  equipment.
Commensurate  with the  completion  of the  upgrade in January  2003 the Company
began  depreciating the capitalized  assets on a straight-line  basis over their
estimated useful lives, with the deferred revenue being amortized to income over
the same lives.  As of December  31, 2003,  the Company has recorded  additional
deferred revenue totaling  approximately  $70,000 relating to advanced  payments
received from Class I railroads for railroad crossing fees.

Stock  options and  warrants:  The  Company's  accounting  for stock options and
warrants is in  accordance  with APB Opinion No. 25 and related  interpretations
which  generally  requires  that the  amount of  compensation  cost that must be
recognized,  if any, is the quoted market price of the stock at the  measurement
date,  less the amount  the  grantee is  required  to pay to acquire  the stock.
Alternatively,  SFAS 123 employs  fair value  based  measurement  and  generally
results in the recognition of compensation for all awards of stock to employees.
SFAS 123 does not  require an entity to adopt  those  provisions,  but,  rather,
permits  continued  application  of APB 25. While the Company has elected not to
adopt the fair value  recognition and measurement  provisions of SFAS 123, it is
required to make certain disclosures pursuant to SFAS 123.

Had  compensation  cost for the stock-based  compensation  plans been determined
based on the grant date fair  values of awards  (the  method  described  in FASB
Statement No. 123) there would have been no effect on net income or earnings per
share for either the year ended December 31, 2003 or 2002.

                                       24
<PAGE>

Earnings  per common  share:  The  Company  follows the  guidance  of  Financial
Accounting Standards Board (FASB) Statement No. 128, "Earnings per Share," which
requires the presentation of earnings per share by all entities that have common
stock or potential  common stock,  such as options,  warrants,  and  convertible
securities outstanding,  that trade in a public market. Those entities that have
only common stock  outstanding are required to present basic earnings  per-share
amounts.  Basic  per-share  amounts are  computed  by  dividing  net income (the
numerator)  by the  weighted-average  number of common shares  outstanding  (the
denominator).  All other  entities  are  required  to present  basic and diluted
per-share amounts. Diluted per-share amounts assume the conversion, exercise, or
issuance of all  potential  common  stock  instruments,  unless the effect is to
reduce the loss or increase the net income per common share.

Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are  recognized for deductible  temporary  differences  and operating
loss and tax credit  carryforwards  and deferred tax  liabilities are recognized
for taxable  temporary  differences.  Temporary  differences are the differences
between  the  reported  amounts of assets and  liabilities  and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management,  it is more likely than not that some portion or all of the deferred
tax  assets  will not be  realized.  Deferred  tax assets  and  liabilities  are
adjusted  for the  effects  of  changes  in tax  laws  and  rates on the date of
enactment.

Government  grants:  From time to time,  the  Company,  through  its  subsidiary
railroads,  enters into agreements with state agencies in the form of federal or
state aid  projects or grant  agreements  which are  designed to aid the Company
with labor,  material, and other costs relating to the rehabilitation and repair
of track and bridge  structures  belonging  to the  Company.  As of December 31,
2003, all amounts  relative to these agreements have been received and satisfied
in full.

The grant funds are applied as a reduction of the related capital  additions for
rehabilitating  and  repair of the  applicable  track and bridge  structures  in
determining the carrying value of the assets.  The grant is recognized as income
by way of reduced  depreciation  charges over the estimated  useful lives of the
underlying property and equipment.

Self-insurance:  The Company self-insures a portion of the risks associated with
medical expenses incurred by its employees and their dependents. Under the terms
of the  self-insurance  agreement,  the  Company  is  responsible  for the first
$25,000 of qualifying medical expenses per person on an annual basis, limited to
an aggregate  excess amount  computed under the terms of the insurance  contract
using specified  participant  rates. An insurance contract with a life insurance
company  covers  individual  claims in excess of $25,000 on an annual  basis and
total claims  exceeding  the  aggregate  excess,  subject to a maximum  lifetime
reimbursement of $2,000,000 per person.

Use of estimates in the preparation of financial statements:  The preparation of
financial statements in conformity with accounting principles generally accepted
in the United  States of  America  requires  management  to make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

Note 2.  Property and Equipment

Property and equipment consist of the following:

                                                             December 31,
                                                   -----------------------------
                                                       2003               2002
                                                   -----------------------------
Land .......................................       $ 3,179,483       $ 3,197,483
Roadbed ....................................        13,101,000        10,348,541
Transportation equipment ...................         6,236,501         5,511,373
Railcars ...................................        13,450,948        13,666,990
Buildings ..................................         1,978,888         1,835,923
Machinery and equipment ....................         1,669,879         1,617,390
Office equipment ...........................           505,564           498,008
Leasehold improvements .....................           261,444           252,684
Capital projects ...........................           283,320         2,931,277
                                                   -----------------------------
                                                    40,667,027        39,859,669
Less accumulated depreciation ..............        14,171,378        12,066,096
                                                   -----------------------------
                                                   $26,495,649       $27,793,573
                                                   =============================

                                       25
<PAGE>

Note 3.  Pledged Assets, Notes Payable, and Long-Term Debt

The Company has an unsecured  note payable that totaled  $146,080 and $61,816 as
of December  31, 2003 and 2002,  respectively,  for the  financing  of insurance
premiums.  The $146,080  note,  as of December  31, 2003,  is payable in monthly
installments of $24,667, including interest at 4.5%, through June 2004.

The Company had a $30,000  non-interest-bearing  note payable as of December 31,
2002, with Delaware Trans-portation  Equipment Co., L.L.C. This note payable was
payable in monthly  installments  of $5,000 and final  payment  was made in June
2003.

The Company has a $1,100,000  line-of-credit  with National  City Bank,  Peoria,
Illinois,  bearing  interest at prime,  as published in The Wall Street Journal,
plus .5%,  collateralized by inventory and accounts receivable.  The Company had
no  outstanding  balance under this  line-of-credit  as of December 31, 2003 and
2002.

The credit  agreements with National City Bank contain various  restrictive loan
covenants,  including  among others,  minimum  tangible net worth,  debt service
coverage,   and  maximum  funded  debt  to  earnings  before  interest,   taxes,
depreciation, and amortization (EBITDA).

Long-term debt at December 31, 2003 and 2002, consists of the following:
<TABLE>
                                                                                       2003          2002
                                                                                   -------------------------
<S>                                                                                <C>           <C>
Note  payable,  National  City  Bank,  due in  monthly  installments  of $33,012
  including interest at 8.15%, final installment due July 2005, collateralized
  by locomotives ...............................................................   $ 1,218,459   $ 1,502,877
Noninterest-bearing note payable, State of Mississippi, due in
  annual installments of $3,792, final installment due February
  2009, collateralized by track structure ......................................        22,754        26,546
Mortgage  payable,  National City Bank,  due in monthly  installments  of $4,049
  including  interest at 9.75%.  The interest rate is adjustable  every five
  years and is presently based on the Bank's base rate plus 1.5% as of
  October 31, 1999.  Final installment due June 2008, collateralized by Pioneer
  Railcorp's corporate headquarters building ...................................       331,524       346,516
Mortgage  payable,  National City Bank, due in monthly  installments  of
  $26,057 including interest at 8.35%, final installment due July 2006,
  collateralized by railcars ...................................................       723,077       963,576
Note payable,  Bank of America Leasing & Capital, due in monthly installments
  of $30,375 including interest at 5.9%, final installment due December 2004,
  collateralized by railcars ...................................................       353,175       686,102
Note payable,  State of Iowa, due in annual  installments  of $59,707
  including interest at 3%, final installment due December 2011, collateralized
  by track material ............................................................       419,125       402,551
Noninterest-bearing note payable, Main Street Inc., due in monthly
  installments of $100, final installment due December 2004, uncollateralized ..         1,100         2,300
Notes payable, Center Capital Corporation, due in monthly installments of
  $47,008 including interest at 6.85%, final installments due January 2005,
  collateralized by rail cars ..................................................       587,374     1,092,312
Note payable, National City Bank, due in monthly installments of
  $23,195 including interest at 5.75%, final payment due October 2007,
  collateralized by Indiana Southwestern railway Co. and the Gettysburg &
  Northern Railroad Co. stock and assets .......................................     1,917,518     2,078,929
Note payable, National City Bank, due in monthly installments of $15,855
  including interest at 5.70%, final payment due October 2007, collateralized
  by Garden City & Western Railway, Inc. stock and assets ......................     1,071,699     1,196,091
Note payable, National City Bank, due in monthly installments of $36,365
  including interest at 7.15%, final installment due November 2007,
  collateralized by Keokuk Junction Railway Co. stock and assets ...............     2,070,138     2,345,489
Note  payable,  National  City  Bank,  due in  monthly  installments  of $30,731
  including interest at 7.55%, final installment due October 2007,
  collateralized by Michigan Southern Railway Company and Michigan Southern
  Railroad Company, Inc. stock and assets ......................................     1,630,829     1,865,398
Notes payable, Bank of America Leasing & Capital, due in monthly installments
  of $9,039 and $9,473 including  interest at 6.39% and 5.16%, final
  installments due July 2007 and September 2007, collateralized by locomotives
  and railcars .................................................................       733,283       907,835
Note payable,  Bank of America Leasing & Capital, due in monthly installments
  of $10,894 including interest at 4.81%, final installment due September 2008,
  collateralized by railcars ...................................................       554,189            --
Note payable,  Key Equipment  Finance,  due in monthly  installments  of $29,407
  including interest at 4.81%, final installment due December 2006,
  collateralized by railcars ...................................................       958,515            --
Notes payable, TCF Leasing Inc., due in monthly installments of $18,029 and
  $13,064 including interest at 7.4% and 6.7%, final installments due August
  2006 and September 2006, collateralized by railcars (refinanced in 2003) .....            --     1,211,523
                                                                                   -------------------------
                                                                                    12,592,759    14,628,045
Less current portion ...........................................................     2,954,637     2,716,801
                                                                                   -------------------------
                                                                                   $ 9,638,122   $11,911,244
                                                                                   =========================
</TABLE>

                                       26
<PAGE>

Aggregate maturities required on long-term debt as of December 31, 2003, are due
in future years as follows:

Years ending December 31:                                               Amount
--------------------------------------------------------------------------------

2004                                                                 $ 2,954,637
2005                                                                   2,867,990
2006                                                                   1,897,951
2007                                                                   4,297,290
2008                                                                     402,211
Thereafter                                                               172,680
                                                                     -----------
                                                                     $12,592,759
                                                                     ===========


Note 4.  Income Tax Matters

The  Company and all but one of its  subsidiaries  file a  consolidated  federal
income tax return.  This subsidiary  files separate federal and state income tax
returns.

The  provision  for income  taxes  charged  to  operations  for the years  ended
December 31, 2003 and 2002, were as follows:

                                                     2003                 2002
                                                   -----------------------------
Current:
  Federal ............................             $239,063             $209,738
  State ..............................              133,000              103,805
                                                   -----------------------------
                                                    372,063              313,543
                                                   -----------------------------
Deferred:
  Federal ............................              475,000              396,375
  State ..............................               25,000               23,625
                                                   -----------------------------
                                                    500,000              420,000
                                                   -----------------------------
                                                   $872,063             $733,543
                                                   =============================

The income tax  provision  differs from the amount of income tax  determined  by
applying the federal  income tax rate to pretax income from  operations  for the
years ended December 31, 2003 and 2002, due to the following:
<TABLE>
                                                                       2003     2002
                                                                       --------------
<S>                                                                    <C>      <C>
Computed "expected" tax expense ..................................     35.0%    35.0%
Increase (decrease) in income taxes resulting from:
  State income taxes, net of federal tax benefit .................      3.9      4.1
  Reduction in state tax rate for changes in temporary differences       --     (1.9)
  Other ..........................................................     (2.2)    (2.2)
                                                                       --------------
                                                                       36.7%    35.0%
                                                                       ==============
</TABLE>

Deferred tax assets and  liabilities  consist of the following  components as of
December 31, 2003 and 2002:

                                                    2003                2002
                                                --------------------------------
Deferred tax assets:
  AMT credit carryforwards .............        $   192,000         $   614,000
  NOL carryforwards ....................             35,000                  --
  Deferred compensation ................             52,000              50,000
  Other ................................             65,000              17,000
                                                --------------------------------
                                                    344,000             681,000
                                                --------------------------------
Deferred tax liabilities:
  Property and equipment ...............         (6,372,000)         (6,306,000)
  Prepaid expenses .....................            (97,000)                 --
                                                --------------------------------
                                                 (6,469,000)         (6,306,000)
                                                --------------------------------
                                                $(6,125,000)        $(5,625,000)
                                                ================================

                                       27
<PAGE>

The components giving rise to the deferred tax assets and liabilities  described
above have been included in the  consolidated  balance sheets as of December 31,
2003 and 2002, as follows:
                                                       2003              2002
                                                   -----------------------------

Current deferred tax asset (liability) .......     $   (62,000)     $    12,000
Net noncurrent deferred tax liability ........      (6,063,000)      (5,637,000)
                                                   ----------------------------

Net deferred tax liability ...................     $(6,125,000)     $(5,625,000)
                                                   ============================

The Company  and its  subsidiaries  have  Alternative  Minimum Tax (AMT)  credit
carryforwards  of  approximately  $192,000 and $614,000 at December 31, 2003 and
2002,  respectively.  This excess of AMT over regular tax can be carried forward
indefinitely to reduce future federal income tax liabilities.

Note 5.  Retirement Plan

The Company has a defined  contribution  401(k) plan covering  substantially all
employees. Employees are eligible to participate in the plan upon employment and
may elect to  contribute,  on a tax deferred  basis,  the lesser of 15% of their
salary,  or  the  Internal  Revenue  Service  maximum  deferral  limit.  Company
contributions  are  discretionary  and  the  Company  contributed  approximately
$53,000 and none for the years ended  December 31, 2003 and 2002,  respectively.
Administrative  expenses paid by the Company under the plan were $485 and $8,000
for the years ended December 31, 2003 and 2002, respectively.

Note 6.  Deferred Compensation Agreements

The Company has deferred compensation agreements with two former Keokuk Junction
Railway Co.  employees.  The agreements  provide  monthly  benefits for 15 years
beginning with the month immediately  following the employees' normal retirement
date,  as defined in the  agreements.  The present  value of these  benefits was
accrued, using a discount rate of 7%, by a charge to compensation expense in the
year ended  December 31, 1999. One employee  began  receiving  benefits in 2001,
while the other  employee is not scheduled to receive  benefits  until 2008. The
accrual is  increased  each year by charges to interest  expense for the cost of
deferring such benefit for the one employee who will not receive  benefits until
2008. The liability  recorded in accrued expenses on the Company's balance sheet
under these  agreements  totaled  $138,000 and $133,000 at December 31, 2003 and
2002,  respectively.  Interest expense under these agreements totaled $9,500 and
$9,200 for the years ended December 31, 2003 and 2002, respectively.

Note 7.  Stock Options and Warrants

On May 28, 1996, the Board of Directors approved a stock option plan under which
the Company  granted  options to key management,  other  employees,  and outside
directors for the purchase of 407,000  shares of its common stock.  The plan was
approved by the  Company's  stockholders  on June 26, 1996.  The options  became
fully vested and exercisable as of July 1, 2001. Vested options may be exercised
in whole or in part within 10 years from the date of grant.  The exercise  price
for these options is $2.75.  As of December 31, 2003,  150,000 options are still
outstanding under the plan.

Other pertinent information related to the plans is as follows:

                                          2003                    2002
                                   ---------------------------------------------
                                               Weighted-               Weighted-
                                               Average                 Average
                                               Exercise                Exercise
                                   Shares       Price       Shares       Price
                                   ---------------------------------------------
Outstanding at beginning of year   155,000    $   2.75      175,000    $    2.75
Forfeited ......................    (5,000)       2.75      (20,000)        2.75
Exercised ......................        --          --           --           --
                                   ---------------------------------------------
Outstanding at end of year .....   150,000    $   2.75      155,000    $    2.75
                                   =============================================

Exercisable at end of year .....   150,000                  155,000
                                   =======                  =======

                                       28
<PAGE>

A further summary about stock options outstanding as of December 31, 2003, is as
follows:
<TABLE>
                              Options Outstanding            Options Exercisable
                   ----------------------------------------------------------------
                                   Weighted-
                                    Average     Weighted                   Weighted
                                   Remaining     Average                   Average
                      Number      Contractual   Exercise      Number       Exercise
Exercise Price     Outstanding       Life         Price     Exercisable     Price
-----------------------------------------------------------------------------------
<S>                <C>            <C>           <C>         <C>            <C>
$2.75                 150,000      2.4 years     $ 2.75      150,000       $ 2.75
                      =======                                =======
</TABLE>

On June 24, 1995,  the Company  issued  4,198,284  warrants to  stockholders  of
record as a dividend.  Each warrant permits  stockholders a right to purchase an
additional  share of  stock at a  predetermined  price  of $2 per  share.  Stock
acquired by exercise of each warrant must be held for a one-year period of time.
The warrants  expire July 1, 2015.  There are 4,126,520  and 4,129,720  warrants
outstanding as of December 31, 2003 and 2002, respectively.

Note 8.  Lease Commitments and Total Rental Expense

The Company  has  entered  into five lease  agreements  covering  certain of its
railroad  properties.  For railroad properties it leases, the Company ordinarily
assumes,   upon   the   commencement   date,   all   operating   and   financial
responsibilities,   including  maintenance,   payment  of  property  taxes,  and
regulatory compliance.  Lease payments on three railroad properties are based on
a per car basis,  $10 on all cars over 1,000 cars per year on each segment.  The
leases expire between July 2004 and September 2013 and three of these  railroads
have ten to twenty year renewal options.

The  Company  has a land lease for the  corporate  office  building.  This lease
expires in 2008 and is renewable for five successive  periods of five years with
annual rents equal to ten percent of the appraised value of the land, payable in
monthly  installments,  and  with  appraisal  value  reviews  every  five  years
following  the  origination  date.  The  Company  is  responsible  for  costs of
maintenance, utilities, taxes, and insurance.

The total  approximate  minimum  rental  commitment  as of  December  31,  2003,
required under  noncancelable  leases, and excluding executory costs and per car
rentals, is due in future years as follows:

Years Ending December 31:                                                Amount
--------------------------------------------------------------------------------

2004                                                                    $ 31,000
2005                                                                      31,000
2006                                                                      31,000
2007                                                                      31,000
2008                                                                      28,000
Thereafter                                                                43,000
                                                                       ---------
                                                                       $ 195,000
                                                                       =========

The total  rental  expense  under the leases was  approximately  $38,000 for the
years ended December 31, 2003 and 2002.

Note 9.  Major Customer

Revenue earned from a major railroad segment customer  amounted to approximately
$3,929,000  and  $2,851,000  during the years ended  December 31, 2003 and 2002,
respectively.  Accounts  receivable  as of December  31, 2003 and 2002,  include
approximately $717,000 and $443,000, respectively, from this customer.

                                       29
<PAGE>

Note 10. Minority Interest in Subsidiaries

Two of  the  Company's  subsidiaries  have  preferred  stock  outstanding  as of
December 31, 2003 and 2002. This stock is accounted for as minority  interest in
subsidiaries  and dividends on the stock are accounted for as a current expense.
The preferred stock of Mississippi  Central Railroad Company was callable at the
Company's option at 110% of fair value. The Company exercised this option during
2002 and  repurchased  all of the  outstanding  shares  of  Mississippi  Central
Railroad  Company  preferred  stock.  The $34,600  amount  representing  the 10%
premium paid on the  redemption of the preferred  stock was recorded as a charge
to additional paid-in capital in 2002.

Following is a summary of the minority  interest in  subsidiaries as of December
31, 2003 and 2002:
<TABLE>
                                                                      2003       2002
                                                                    -------------------
<S>                                                                 <C>        <C>
Preferred stock of Alabama Railroad Co. .........................
  Par value - $1,000 per share
  Authorized - 700 shares
  Issued and outstanding - 387 and 392 shares  (cumulative 12%
    dividend; callable at Company's option at 150% of face value)
    at December 31, 2003 and 2002, respectively .................   $387,000   $392,000
Preferred  stock of Alabama & Florida  Railway Co.,  Inc. .......
  Par value - $1,000 per share
  Authorized - 500 shares
  Issued  and  outstanding  - 350 and 359 shares (cumulative 9%
    dividend;  callable at Company's  option after June 22, 1995,
    at 150% of face value) at December 31, 2003 and 2002,
    respectively ................................................    350,000    359,000
                                                                    -------------------
                                                                    $737,000   $751,000
                                                                    ===================
</TABLE>

Note 11. Commitments and Contingencies

Commitments: In December 2001, the Company entered into a five-year extension of
an existing  executive  employment  contract with the Company's  president.  The
five-year  extension  provides  for a  base  salary  with  an  annual  inflation
adjustment  based upon the Consumer Price Index.  Should the Company  acquire or
form  additional  railroads,  the base  salary  will  increase  $25,000  for the
acquisition  of railroads of 125 miles or less,  and $50,000 for railroads  over
125  miles.  Should the  president's  employment  be  terminated,  the  contract
requires a lump sum  payment  equal to three years of his then  current  salary.
Should the president retire, he is entitled to accept a consulting position with
the Company  whereby he would be compensated the equivalent of one year's salary
for the  consulting  services  rendered,  or retire  outright with no retirement
benefits from the Company.

Contingencies:  In  the  course  of its  business,  the  Company's  subsidiaries
experience  crossing  accidents,   employee  injuries,  delinquent  or  disputed
accounts  and other  incidents,  which  give rise to claims  that may  result in
litigation.  Management vigorously pursues settlement of such claims, but at any
one time, some such incidents, which could result in lawsuits by and against the
Company and its subsidiary railroads, remain unresolved.  Management believes it
has valid claims for, or good defenses to, these actions.

Management  considers such claims to be a routine part of the Company's business
and, as of the date of this statement,  management believes that no incident has
the  potential  to  result in a  liability  that  would  materially  effect  the
Company's consolidated financial position or results of operations.

The  Company  was awarded  grants  totaling  $722,097 in 1998 for the repair and
rehabilitation of certain railroad track and related structures the Company owns
in Alabama.  The Company's  obligations  under the grants  expire in 2004,  five
years after the  completion  of the repairs.  In the unlikely  event the Company
should  discontinue  using the  underlying  track prior to the expiration of the
aforementioned  commitment period,  the Company is contingently  liable to repay
the full value of awarded funds pursuant to the grants.

                                       30
<PAGE>

Note 12. Earnings Per Share

Following is information  about the  computation of the earnings per share (EPS)
data for the years ended December 31, 2003 and 2002:
<TABLE>
                                                        For the Year Ended December 31, 2003
                                                       --------------------------------------
                                                         Income         Shares      Per Share
                                                       (Numerator)  (Denominator)     Amount
                                                       --------------------------------------
<S>                                                    <C>          <C>             <C>
Basic EPS
Income available to common stockholders ............   $1,425,268     4,494,698      $   0.32
                                                                                     ========
Effect of dilutive securities
Employee stock options .............................           --           --
                                                       -----------------------
Diluted EPS
Income available to common stockholders
  plus assumed conversions .........................   $1,425,268    4,494,698       $   0.32
                                                       ======================================

                                                        For the Year Ended December 31, 2002
                                                       ---------------------------------------

Basic EPS
Income available to common stockholders ............   $1,245,689    4,527,523       $   0.28
                                                                                     ========
Effect of dilutive securities
Employee stock options .............................           --           --
                                                       -----------------------
Diluted EPS
Income available to common stockholders
  plus assumed conversions .........................   $1,245,689    4,527,523       $   0.28
                                                       ======================================
</TABLE>

The Company has authorized the issuance of stock warrants and granted options to
employees  to  purchase  shares  of  common  stock  as  discussed  in Note 7. In
determining  the effect of  dilutive  securities,  certain  stock  warrants  and
options  were not  included in the  computation  of diluted  earnings  per share
because the exercise  price of those  warrants and options  exceeded the average
market price of the common shares during the  applicable  year.  Note 13. Common
Stock Repurchase

In 1999, the Company's Board of Directors  approved a plan to begin repurchasing
shares of the Company's  common stock from  stockholders.  During 2003 and 2002,
the Company  repurchased  31,610 and 14,965 shares of common stock at an average
price of approximately  $1.58 and $1.50 per share,  respectively,  for a cost of
$49,884 in 2003 and $22,393 in 2002.

The common stock repurchased is accounted for as treasury stock in the Company's
2003 and 2002  consolidated  balance  sheets  and  statements  of  stockholders'
equity.  As such,  treasury  shares  held  reduce the number of shares of common
stock  outstanding  as of  December  31,  2003 and  2002,  and the  value of the
treasury stock reduces stockholders' equity. The excess of the purchase price of
the  treasury  stock over the par value of the stock of $49,853  and $22,378 was
charged to retained  earnings as of  December  31, 2003 and 2002,  respectively.
Note 14. Fair Value of Financial Instruments

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

   Cash and cash equivalents:

      The  carrying  amount  approximates  the fair  value  because of the short
      maturity of those instruments.

   Notes payable and long-term debt:

      The fair  value of the  Company's  notes  payable  and  long-term  debt is
      estimated based on the quoted market prices for the same or similar issues
      or on the  current  rates  offered  to the  Company  for  debt of the same
      remaining maturities with similar collateral requirements.

                                       31
<PAGE>

The estimated fair values of the Company's financial  instruments as of December
31, 2003 and 2002, are as follows:
<TABLE>
                                              2003                       2002
                                   -----------------------------------------------------
                                     Carrying       Fair        Carrying        Fair
                                      Amount        Value        Amount         Value
                                   -----------------------------------------------------
<S>                                <C>           <C>           <C>           <C>
Cash and cash equivalents ......   $ 1,199,016   $ 1,199,016   $ 1,148,461   $ 1,148,461

Notes payable and long-term debt   $12,738,839   $12,293,518   $14,719,861   $14,295,707
</TABLE>

Although the fair value of the Company's  notes  payable and  long-term  debt is
less than its carrying amount at December 31, 2003 and 2002,  transaction costs,
including  prepayment  penalties,  have not been  considered in estimating  fair
values. Therefore, as a result of significant prepayment penalties, it would not
be prudent for the Company to settle the debt at a gain.

In addition, other assets and liabilities of the Company that are not defined as
financial  instruments  are  not  included  in the  above  disclosures,  such as
property and equipment.  Also, nonfinancial instruments typically not recognized
in financial statements  nevertheless may have value but are not included in the
above  disclosures.  These include,  among other items,  the trained work force,
customer goodwill, and similar items. Note 15. Segment Information

Description  of  products  and  services  from  reportable   segments:   Pioneer
Railcorp's two reportable  segments consist of railroad operations and equipment
leasing  operations.  All other  operations are classified as corporate  support
services for purposes of this disclosure.

Measurement  of  segment  profit  or loss and  segment  assets:  The  accounting
policies  of the  segments  are the same as those  described  in the  summary of
significant accounting policies. Pioneer Railcorp evaluates segment profit based
on operating income before  intersegment  revenues,  provision for income taxes,
items of other income and  expense,  and  minority  interest in preferred  stock
dividends of consolidated subsidiaries.

Intersegment transactions: Intersegment transactions are recorded at cost.

                                       32
<PAGE>

Factors management used to identify the reportable  segment:  Pioneer Railcorp's
reportable  segments  consist of wholly-owned  short line railroad  subsidiaries
that offer  similar  services and a railroad  equipment  subsidiary  that leases
railcars,   locomotives,   and  other  railroad   equipment  to  affiliated  and
unaffiliated  entities.  The corporate  operations  consist of support  services
provided to the operating segments.
<TABLE>
                                                                 For Year Ended December 31,
                                                                ----------------------------
                                                                     2003          2002
                                                                ----------------------------
<S>                                                             <C>             <C>
Segment Assets
  Railroad operations .......................................   $ 21,270,560    $ 20,917,398
  Equipment leasing operations ..............................     11,559,448      12,258,327
  Corporate support services ................................        891,892       1,053,560
                                                                ----------------------------
        Total consolidated segment assets ...................   $ 33,721,900    $ 34,229,285
                                                                ============================
Expenditures for additions to long-lived assets
  Railroad operations .......................................   $    321,447    $  1,676,017
  Equipment leasing operations ..............................        774,562       1,056,625
  Corporate support services ................................         14,527           3,074
                                                                ----------------------------
        Total expenditures for additions to long-lived assets   $  1,110,536    $  2,735,716
                                                                ============================
Revenues

Revenues from external customers
  Railroad operations .......................................   $ 12,928,600    $ 11,978,261
  Equipment leasing operations ..............................      3,045,271       2,976,332
  Corporate support services ................................         20,750          15,240
                                                                ----------------------------
        Total revenues from external customers ..............   $ 15,994,621    $ 14,969,833
                                                                ============================
Intersegment revenues
  Railroad operations .......................................   $       --      $       --
  Equipment leasing operations ..............................        397,710         398,400
  Corporate support services ................................      6,398,170       6,209,410
                                                                ----------------------------
        Total intersegment revenues .........................   $  6,795,880    $  6,607,810
                                                                ============================

        Total revenue .......................................   $ 22,790,501    $ 21,577,643

Reconciling items
  Intersegment revenues .....................................     (6,795,880)     (6,607,810)
                                                                ----------------------------
        Total consolidated revenues .........................   $ 15,994,621    $ 14,969,833
                                                                ============================
Expenses

Interest expense
  Railroad operations .......................................   $     23,432    $     18,210
  Equipment leasing operations ..............................        386,235         480,019
  Corporate support services ................................        519,784         585,904
                                                                ----------------------------
        Total consolidated interest expense .................   $    929,451    $  1,084,133
                                                                ============================
</TABLE>

                                       33
<PAGE>

                                                     For Year Ended December 31,
                                                     ---------------------------
                                                         2003            2002
                                                     ---------------------------
Depreciation and amortization expense
  Railroad operations ............................   $   841,922    $   719,426
  Equipment leasing operations ...................     1,291,799      1,235,911
  Corporate support services .....................        65,186         76,532
                                                     --------------------------
        Total consolidated depreciation and
        amortization expense .....................   $ 2,198,907    $ 2,031,869
                                                     ==========================

Segment profit
  Railroad operations ............................   $ 5,360,377    $ 5,004,626
  Equipment leasing operations ...................     1,462,640      1,451,171
  Corporate support services .....................     3,027,043      2,988,819
                                                     --------------------------
        Total segment profit .....................     9,850,060      9,444,616

Reconciling items
  Intersegment revenues ..........................    (6,795,880)    (6,607,810)
  Income taxes ...................................      (872,063)      (733,543)
  Minority interest in preferred stock dividends
    of subsidiaries ..............................       (78,705)      (115,890)
  Other income (expense), net ....................      (678,144)      (741,684)
                                                     --------------------------

        Total consolidated net income ............   $ 1,425,268    $ 1,245,689
                                                     ==========================

Note 16. New Accounting Pronouncements

In August  2001,  the FASB  issued  Statement  No.  143,  "Accounting  for Asset
Retirement  Obligations." FASB No. 143 amends FASB No. 19, "Financial Accounting
and  Reporting  by Oil and Gas  Producing  Companies."  It  addresses  financial
accounting  and  reporting for  obligations  associated  with the  retirement of
tangible,  long-lived  assets and the associated  asset  retirement  costs.  The
provisions  of SFAS No. 143 were adopted  effective  January 1, 2003 and did not
have a material impact on the Company's consolidated financial statements.

In June  2002,  SFAS No.  146,  "Accounting  for Costs  Associated  with Exit or
Disposal  Activities," was issued.  SFAS No. 146 supersedes Emerging Issues Task
Force  ("EITF")  Issue No. 94-3,  "Liability  Recognition  for Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a Restructuring)."  SFAS No. 146 requires that a liability for
a cost  associated  with an exit or  disposal  activity be  recognized  when the
liability is incurred.  Under SFAS No. 146, an entity's commitment to a plan, by
itself,  does not create an obligation that meets the definition of a liability.
SFAS  No.  146  also  establishes  fair  value  as  the  objective  for  initial
measurement  of the  liability.  The  provisions  of SFAS No.  146 were  adopted
effective  January 1, 2003 and did not have a material  impact on the  Company's
consolidated financial statements.

In November  2002,  FASB  Interpretation  No. 45,  "Guarantor's  Accounting  and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness of Others" (FASB Interpretation No. 45), was issued. The disclosure
requirements  are  effective  for  financial  statements  of interim  and annual
periods ending after December 15, 2002. The initial  measurement and recognition
provisions  are  required  to be applied on a  prospective  basis to  guarantees
issued or modified  after  December  31,  2002.  They  require  that a guarantor
recognize,  at the  inception of a guarantee,  a liability for the fair value of
the  obligation  undertaken  in issuing the  guarantee.  Under prior  accounting
principles,  a guarantee  would not have been  recognized as a liability until a
loss  was  probable  and   reasonably   estimable.   The   provisions   of  FASB
Interpretation  No. 45 were adopted effective January 1, 2003 and did not have a
material impact on the Company's consolidated financial statements.

                                       34
<PAGE>

In January 2003, FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities" (FASB Interpretation No. 46), was issued. It clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated  Financial Statements," to
certain  entities  in which  the  equity  investors  do not  have a  controlling
financial interest or do not have sufficient equity at risk. FASB Interpretation
No. 46, as amended in December 2003, is effective for the Company for the period
ending December 31, 2004,  except for entities  considered to be special purpose
entities,  as to which the effective  date is December 31, 2003. The Company has
not completed its full assessment of the effects of FASB  Interpretation  No. 46
on its financial  statements  and so it is uncertain as to the impact,  however,
the Company does not believe it has any special  purpose  entities to which FASB
Interpretation No. 46, as amended, would apply as of December 31, 2003.

In May 2003, FASB issued  Statement No. 150,  "Accounting for Certain  Financial
Instruments with Characteristics of both Liabilities and Equity".  Statement No.
150 requires  that certain  freestanding  financial  instruments  be reported as
liabilities in the balance sheet. Depending on the type of financial instrument,
it will be  accounted  for at either fair value or the  present  value of future
cash flows  determined  at each balance sheet date with the change in that value
reported  as  interest  expense  in  the  statement  of  income.  Prior  to  the
application of Statement No. 150,  either those financial  instruments  were not
required to be recognized, or if recognized,  were reported in the balance sheet
as equity with changes in the value of those instruments normally not recognized
in net income. The Company believes the adoption of FASB No. 150 will not have a
material impact on the Company's financial position or results of operations.

Item 8. Changes In and Disagreements With Accountants on Accounting Financial
        Disclosure

None.

Item 8A.  Controls and Procedures

As of the end of the period  covered by this  report,  the Company  conducted an
evaluation,  under the supervision and with the  participation  of the principal
executive officer and principal financial officer,  of the Company's  disclosure
controls and procedures (as defined in Rules  13a-15(e) and 15d-15(e)  under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation,
the principal  executive officer and principal  financial officer concluded that
the Company's  disclosure  controls and  procedures are effective to ensure that
information  required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded,  processed,  summarized and reported
within the time periods  specified in Securities and Exchange  Commission  rules
and forms.  There was no change in the Company's internal control over financial
reporting  during the Company's most recently  completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.

PART III

Item 9.  Directors and Executive Officers of the Registrant

Set  forth  below  are the names  and ages of all the  directors  and  executive
officers of the Registrant and the positions and offices held by such persons as
of December 31, 2003.

Name (Age)                                  Position
--------------------------------------------------------------------------------

Guy L. Brenkman (56)                Director (Chairman) & President
J. Michael Carr (39)                Director & Treasurer
Orvel L. Cox (61)                   Director
Clifton T. Lopez (58)               Director
John S. Fulton (71)                 Director
Scott Isonhart  (37)                Secretary

All of the above  Directors and Officers  were elected at the Annual  Meeting of
the  Stockholders  (and the board  meeting  which  followed) on June 26, 2003 to
serve until the 2004 annual meeting. There is no family relationship between any
officer and director.

                                       35
<PAGE>

Information about Directors and Executive Officers

Mr.  Brenkman,  Chairman  of the Board of  Directors  and  President  of Pioneer
Railcorp and its subsidiaries,  was the incorporator of the Company and has been
a member  of the Board of  Directors  and  President  of the  Company  since its
formation.  Mr. Brenkman's past business  experience  includes real estate sales
and  management,  securities  sales,  and seven  years of  operational  railroad
industry  experience  before  managing  the day to day  railroad  operations  of
Pioneer  in 1988.  Mr.  Brenkman,  acting as agent of the Issuer  conducted  the
public  offering of Pioneer  Railcorp,  which  raised its initial  capital,  and
secondary capital for expansions.

Mr.  Carr,  Treasurer,  also  serves  as  Treasurer  for  each of the  Company's
subsidiaries and Chief Financial Officer for same. Mr. Carr has been employed by
the Company  since March 1993.  Before  joining the Company,  Mr. Carr worked in
public  accounting and banking for seven years,  most recently as Controller for
United Federal Bank. Mr. Carr is a CPA and holds a  BS-Accounting  from Illinois
State University, Normal, Illinois.

Mr. Cox, Director,  also serves as same for each of the Company's  subsidiaries.
Mr. Cox has 43 years of active  railroading  experience  with 31 of those  years
working for Class I railroads.  Mr. Cox retired from employment with the Company
in 2002.  Mr. Cox has been a director and officer of Pioneer  Railcorp since its
inception and has been involved in all phases of the  development  and growth of
the Company. Mr. Cox is a member of the Audit Committee.

Clifton T. Lopez, Director, was appointed to the board in August 2002. Mr. Lopez
works as a consultant,  currently supporting the tax departments at Monsanto and
Pharmacia  Corp. in St. Louis,  MO. Mr. Lopez has over 30 years of experience in
accounting,  finance, and planning. Mr. Lopez has a BA-Accounting and Management
from Virginia  Commonwealth  University,  Richmond,  VA. In addition,  Mr. Lopez
served 5 years in the  military,  and  resigned  commission  as a Captain in the
Transportation Corp.,  associated with the transportation  business in the areas
of  trucking,  rail,  water  and  aircraft.  Mr.  Lopez is a member of the Audit
Committee  and  is  considered  the  Audit  Committee  financial  expert  of the
committee.

Mr. Fulton,  Director, was elected to the Board in 1993. Mr. Fulton has 19 years
experience  in the real estate  business  concentrating  in retail  sales,  real
estate  development and  appraising.  Mr. Fulton's  previous  positions  include
industrial  appraising (6 years) with Cole, Layer Trumble of Dayton, Ohio, and 5
years with  Pepsi-Cola.  Mr.  Fulton holds a BS degree in Public  Administration
from Bradley University in Peoria, Illinois. Mr. Fulton is a member of the Audit
Committee.

Mr. Isonhart, Secretary, also serves as same for the Company's subsidiaries. Mr.
Isonhart has been  employed in the finance  department  of the Company since May
1993 and has a BS-Accounting from Bradley University in Peoria, Illinois.



             The remainder of this page is intentionally left blank

Item 10.  Executive Compensation

Summary Compensation Table
<TABLE>
                             Annual
                          Compensation     Long Term Compensation
                        ----------------   ----------------------
                                           Restricted
                                             Stock                     Other
Name & Position          Year     Salary     Award   Options/SARs   Compensation
--------------------------------------------------------------------------------
<S>                      <C>     <C>       <C>       <C>            <C>
Guy L. Brenkman, CEO     2003    $664,051     ----       ----         $8,200 (a)
                         2002    $648,952     ----       ----         $    0
                         2001    $654,267     ----       ----         $    0
<FN>
(a) - Registrant's contribution to the Company's defined contribution plan.
</FN>
</TABLE>

                                       36
<PAGE>

Option/SAR Grants in Last Fiscal Year

None

Aggregated Option/SAR Exercises in Last Fiscal Year

and FY-End Option/SAR Values

Value of

Unexercised
<TABLE>
                                                Number of Securities    In-the-Money
                                              Underlying Unexercised    Options/SARs
                                              Options/SARs at FY-End     At FY-End
                 Shares Acquired     Value         Exercisable/         Exercisable/
Name               On Exercise      Realized       Unexercisable        Unexercisable
-------------------------------------------------------------------------------------
<S>              <C>                <C>       <C>                      <C>
Guy Brenkman-CEO        0              0            80,000/0              $0/$0
</TABLE>

In December  1993,  the Company  entered into a five-year  executive  employment
contract with the Company's president,  which was extended through December 2006
by the Board of Directors.  The agreement provides for a base salary with annual
inflation adjustments based upon the Consumer Price Index. The current agreement
provides for twelve weeks paid vacation each year. The president at his election
can be paid for any unused vacation during the year.  Should the Company acquire
or form  additional  railroads,  the base salary will  increase  $25,000 for the
acquisition  of railroads of 125 miles or less,  and $50,000 for railroads  over
125 miles. At January 1, 2004, the president's base salary was $532,253.  Should
the  president's  employment  be  terminated,  the contract  requires a lump sum
payment  equal to three years of his then current  salary.  Should the president
retire, he is entitled to accept a consulting  position with the Company whereby
he would be  compensated  the equivalent of one year's salary for the consulting
services rendered.

Although Mr.  Brenkman is  authorized  by his contract to receive an increase in
compensation  immediately  upon the start of a new  railroad,  he has  generally
declined these increases,  until in his opinion, the railroad appears to be self
supporting  and can absorb the cost of such  raise.  In several  instances,  Mr.
Brenkman  has not taken a raise at all. A detailed  list of these  raises  since
1993 is listed as follows:

                                                             Date Raise
Subsidiary                              Date Acquired         Effective
--------------------------------------------------------------------------------

Vandalia Railroad Company                 10/07/94            10/07/94
Minnesota Central Railroad Co.            12/12/94            02/01/95
West Michigan Railroad Co.                07/11/95         No Raise Taken
Columbia & Northern Railway               02/21/96         No Raise Taken
Keokuk Junction Railway Co.               03/12/96            04/16/96
Rochelle Railroad Co                      03/25/96            04/16/96
Shawnee Terminal Railway Co.              11/13/96            01/01/98
Michigan Southern Railroad                12/19/96            01/01/97
Pioneer Industrial Railway Co.            02/18/98         No Raise Taken
The Garden City Western Railway Co.       04/29/99            05/01/99
Indiana Southwestern Railway Co.          04/01/00            01/01/01
Gettysburg & Northern Railroad CO.        02/20/01         No Raise Taken

Directors of the Registrant each were compensated $15,000 in 2003.

                                       37
<PAGE>

Item 11.  Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information, as of March 15, 2004, the beneficial
ownership of all directors and officers of the Company as a group. These figures
include  shares of Common Stock that the  executive  officers  have the right to
acquire  within 60 days of March 15,  2004  pursuant  to the  exercise  of stock
options and warrants.

Title of Class:  Common Stock ($.001 par value)

                                          Beneficial        Percent
Name of Beneficial Owner                  Ownership        of Class
-------------------------------------------------------------------

Guy L. Brenkman (2)                       3,530,500          40.31%
Orvel L. Cox (3)                            183,869           2.11%
John S. Fulton (4)                           26,400           0.30%
J. Michael Carr (5)                          37,414           0.43%
Scott Isonhart (6)                            5,100           0.06%
Clifton T. Lopez                              1,000           0.01%
                                         ---------------------------
Directors and Executive
  Officers as a group:                    3,784,283          43.21%  (1)

FOOTNOTES:

(1)  Based on 8,758,086 shares of common stock and equivalents outstanding as of
     March 15, 2004.

(2)  Of the total  number of shares  shown as owned by Mr.  Brenkman,  1,740,800
     shares represent the number of shares Mr. Brenkman has the right to acquire
     within 60 days through the exercise of warrants and 80,000  represents  the
     number of shares  Mr.  Brenkman  has the  right to  acquire  within 60 days
     through the  exercise of stock  options.  Mr.  Brenkman  owns all shares in
     joint  tenancy  with his wife.  In  addition,  2,340 shares are held by Mr.
     Brenkman's  wife, in which he disclaims  beneficial  ownership.

(3)  Of the total  number of shares  shown as owned by Mr. Cox,  101,770  shares
     represent  the number of shares Mr. Cox has the right to acquire  within 60
     days through the exercise of warrants and 20,000  represents  the number of
     shares Mr. Cox has the right to acquire within 60 days through the exercise
     of stock  options.  Mr.  Cox's  shares are owned in joint  tenancy with his
     wife.

(4)  Of the total number of shares shown as owned by Mr.  Fulton,  10,200 shares
     represent the number of shares Mr.  Fulton has the right to acquire  within
     60 days upon the  exercise of warrants and 5,000  represents  the number of
     shares  Mr.  Fulton  has the right to acquire  within 60 days  through  the
     exercise of stock options.

(5)  Of the total  number of shares  shown as owned by Mr.  Carr,  1,000  shares
     represent the number of shares Mr. Carr has the right to acquire  within 60
     days through the exercise of warrants and 36,364  represents  the number of
     shares  Mr.  Carr has the  right to  acquire  within  60 days  through  the
     exercise of stock options.

(6)  Of the total  number of shares shown as owned by Mr.  Isonhart,  100 shares
     represent the number of shares Mr. Isonhart has the right to acquire within
     60 days through the exercise of warrants and 5,000 represents the number of
     shares Mr.  Isonhart  has the right to acquire  within 60 days  through the
     exercise of stock options.

There are no  shareholders  known by the  Registrant to be beneficial  owners of
more than 5% of its outstanding common stock other than Mr. Brenkman.

Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
directors,  executive officers, and any persons holding more than ten percent of
the Company's  common stock to report their  initial  ownership of the Company's
common stock and any subsequent  changes in that ownership to the Securities and
Exchange Commission and to provide copies of such reports to the Company.  Based
upon the Company's  review of the copies of such reports received by the Company
and  representations  of its  directors  and  executive  officers,  the  Company
believes  that  during the years  ended  December  31, 2003 and 2002 all Section
16(a) filing requirements were satisfied.

                                       38
<PAGE>

Item 13.  Exhibits and Reports on Form 8-K

Exhibit # 3(I) - Articles  of  Incorporation  of the  Company  (incorporated  by
reference to Exhibit 1 of the Company's registration statement of Form S-3 filed
July 7, 1995,  amended  August 30, 1995,  September  20, 1995 and  September 25,
1995).

Exhibit # 3(ii) - Bylaws of the Company (incorporated by reference to Exhibit #2
of the Company's registration statement on Form S-8 filed January 31, 1996).

Exhibit # 10.1 - 1994 Stock Option Plan for Pioneer  Railcorp  (incorporated  by
reference  to Exhibit #3 of the  Company's  registration  statement  on Form S-8
filed January 31, 1996).

Exhibit # 10.2 - Form of incentive stock option under the 1994 Stock Option Plan
for Pioneer  Railcorp  (incorporated by reference to Exhibit #4 of the Company's
registration statement on Form S-8 filed January 31, 1996).

Exhibit # 10.3 - Form of option agreement for  non-employee  Directors under the
1994 Stock  Option Plan for  Pioneer  Railcorp  (incorporated  by  reference  to
Exhibit #5 of the Company's registration statement on Form S-8 filed January 31,
1996).

Exhibit # 10.4 - Executive Contract  (incorporated by reference to the Company's
Form 10-KSB for the year ended December 31, 1994, filed March 31, 1995,  amended
August 31, 1995 and September 20, 1995).

Exhibit # 10.5 - 1996 Stock Option Plan for Pioneer  Railcorp  (incorporated  by
reference  to the  Company's  Form 10-KSB for the year ended  December 31, 1996,
filed March 31, 1997).

Exhibit # 10.6 - Form of incentive stock option under the 1996 Stock Option Plan
for Pioneer Railcorp (incorporated by reference to the Company's Form 10-KSB for
the year ended December 31, 1996, filed March 31, 1997).

Exhibit # 10.7 - Form of option agreement for  non-employee  Directors under the
1996 Stock Option Plan for Pioneer  Railcorp  (incorporated  by reference to the
Company's  Form 10-KSB for the year ended  December  31,  1996,  filed March 31,
1997).

Exhibit # 21.1 - Subsidiaries of the registrant.  Exhibit # 31.1 - Certification
by the Chief  Executive  Officer.  Exhibit # 31.2 -  Certification  by the Chief
Financial Officer.

Exhibit # 32.1 - Certification under 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

No reports were filed on Form 8-K during the fourth quarter 2003.

Item 14. Principal Accountant Fees and Services

Information  required  by  Item  14 of  this  form  and  the  audit  committee's
pre-approval  policies and procedures  regarding the engagement of the principal
accountant  are  incorporated  herein by  reference  from its  definitive  Proxy
Statement to be delivered to the  stockholders of the Company in connection with
the 2004  Annual  Meeting  of  Stockholders  to be held in June  2004  under the
caption "Audit Committee Report - Independent Auditor Fees"

                                       39
<PAGE>

SIGNATURES

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

PIONEER RAILCORP
(Registrant)


By:  /S/ Guy L. Brenkman
    ------------------------------------
    Guy L. Brenkman, President,
    Chief Executive Officer and Director

Dated: March 15, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.

By:  /s/ J. Michael Carr
     -------------------------------------
     J. Michael Carr, Treasurer,
     Chief Financial Officer and Director

Dated: March 15, 2004

By:  /s/ Clifton T. Lopez
     -------------------------------------
     Clifton T. Lopez, Director

Dated: March 15, 2004

By:  /s/ John Fulton
     -------------------------------------
     John Fulton, Director

Dated: March 15, 2004


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